OPHIDIAN PHARMACEUTICALS INC, S-1, 1997-08-08

OPHIDIAN PHARMACEUTICALS INC
S-1, 1997-08-08

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997

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

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

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

OPHIDIAN PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
WISCONSIN 8731 39-1661164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>

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

5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------

DOUGLAS C. STAFFORD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5445 EAST CHERYL PARKWAY
MADISON, WISCONSIN 53711
608/271-0878
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------

Copies to:
<TABLE>
<S> <C>
MICHAEL E. SKINDRUD, ESQ. LAWRENCE B. FISHER, ESQ.
LAFOLLETTE & SINYKIN ORRICK, HERRINGTON & SUTCLIFFE LLP
ONE EAST MAIN STREET 666 FIFTH AVENUE
MADISON, WISCONSIN 53703 NEW YORK, NEW YORK 10103
608/257-3911 212/506-5000

</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED
AMOUNT MAXIMUM
TO BE PRICE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, .0025 par value (2)................................................. 2,875,000 $ 6.00
- -----------------------------------------------------------------------------------------------------------------------
Common Stock Warrants ("Warrants")(3)............................................ 2,875,000 0.10
- -----------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants (4).............................. 2,875,000 7.20
- -----------------------------------------------------------------------------------------------------------------------
Representative's warrants (5)..................................................... 250,000 0.0001
- -----------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Representative's warrants (5).............. 250,000 7.20
- -----------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of Representative's warrants(5)................... 250,000 0.12
- -----------------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants issuable upon exercise of Representative's
warrants (5)..................................................................... 250,000 7.20
- -----------------------------------------------------------------------------------------------------------------------
Totals............................................................................ -- --
=======================================================================================================================

<CAPTION>
=======================================================================================================================
PROPOSED
MAXIMUM
OFFERING AMOUNT OF

TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Common Stock, .0025 par value (2)................................................. $17,250,000 $ 5,227.27

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

Common Stock Warrants ("Warrants")(3)............................................ 287,500 87.12

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

Common Stock issuable upon exercise of Warrants (4).............................. 20,700,000 6,272.72

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

Representative's warrants (5)..................................................... 25 --

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

Common Stock issuable upon exercise of Representative's warrants (5).............. 1,800,000 545.45

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

Warrants issuable upon exercise of Representative's warrants(5)................... 30,000 9.10

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

Common Stock underlying Warrants issuable upon exercise of Representative's
warrants (5)..................................................................... 1,800,000 545.45

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

Totals............................................................................ $41,867,525 $12,687.11

=======================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 of the 1933 Securities Act, as amended (the
"Securities Act").
(2) Includes 375,000 Shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments in connection with the
Registrant's sale of the securities, if any.
(3) Includes 375,000 Warrants that the Underwriters have the option to purchase
to cover over-allotments in connection with the Registrant's sale of the
securities, if any.
(4) Includes 375,000 Shares of Common Stock issuable upon exercise of Warrants
that the Underwriters have the option to purchase to cover over-allotments
in connection with the Registrant's sale of the securities, if any.
(5) In connection with the Registrant's sale of the securities, the Registrant
is granting to the Representative of the several Underwriters (the
"Representative") warrants to purchase 250,000 Shares of Common Stock and
250,000 Warrants (the "Representative's warrants").
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2

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

SUBJECT TO COMPLETION, DATED AUGUST 8, 1997

PROSPECTUS

OPHIDIAN PHARMACEUTICALS, INC.

2,500,000 SHARES OF COMMON STOCK AND
2,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company") hereby offers
(the "Offering") 2,500,000 Shares (the "Shares") of common stock, $.0025 par
value (the "Common Stock") and 2,500,000 redeemable common stock purchase
warrants (the "Warrants"). The Shares and Warrants are sometimes hereinafter
collectively referred to as the "Securities." The Shares and Warrants may only
be purchased together on the basis of one Share and one Warrant, but will trade
separately immediately upon issuance. Each Warrant entitles the registered
holder thereof to purchase one Share of Common Stock at an exercise price of
$ per Share [120% of the initial public offering price per Share of
Common Stock], subject to adjustment, at any time during the period commencing
on , 1998 [twelve months from the date of the Prospectus] until
, 2002 [5 years after the date of this Prospectus]. Commencing
, 1999 [24 months from the date of the Prospectus], the Warrants are
subject to redemption by the Company, in whole but not in part, at $.10 per
Warrant on 30 days' prior written notice provided that the average closing bid
price of the Common Stock as reported on the American Stock Exchange ("AMEX")
equals or exceeds $ per share [240% of the initial public offering price
per Share of Common Stock] for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. See "Description of Securities -- Warrants."

Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that such a market will develop
after completion of the Offering, or if developed, that it will be sustained. It
is currently anticipated that the public offering price will be $6.00 per Share
and $.10 per Warrant. For information regarding the factors considered in
determining the initial public offering price of the Shares and Warrants and the
terms of the Warrants, see "Risk Factors" and "Underwriting." It is anticipated
that the Shares and Warrants will be included for quotation on the AMEX under
the symbols OPD and OPD.WS, respectively.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE
"RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."

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

<TABLE>
<CAPTION>
===========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO THE PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
Per Warrant................................. $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
===========================================================================================================
</TABLE>

(1) Does not include additional compensation to National Securities Corporation,
the representative of the several Underwriters, (the "Representative") in
the form of a non-accountable expense allowance. In addition, see
"Underwriting" for information concerning indemnification and contribution
arrangements with the Underwriters and other compensation payable to the
Representative.
(2) Before deducting estimated expenses of $350,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Representative an option, exercisable within
45 days after the date of this Prospectus, to purchase up to an aggregate of
375,000 additional Shares of Common Stock and/or 375,000 additional Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any (the "Over-Allotment Option"). If such
Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to the Company will be $
$ and $ respectively. See "Underwriting."

The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment therefor
at the offices of National Securities Corporation, Seattle, Washington on or
about , 1997.

NATIONAL SECURITIES CORPORATION

The date of this Prospectus is , 1997
<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS, INCLUDING PURCHASES OF THE COMMON STOCK AND/OR WARRANTS TO STABILIZE
THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE COMMON STOCK AND/OR WARRANTS TO
COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE UNDERWRITERS IN THE
COMMON STOCK AND/OR WARRANTS, RESPECTIVELY, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND
QUARTERLY REPORTS CONTAINING UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR.

2
<PAGE> 4

PROSPECTUS SUMMARY

This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The following
summary is qualified in its entirety by the more detailed information and the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus (i) assumes the
Underwriter's over-allotment option is not exercised, and (ii) assumes the
Warrants and the warrants to purchase 250,000 shares of Common Stock and/or
250,000 Warrants issued to the Representative in connection with this Offering
(the "Representative's warrants") are not exercised.

THE COMPANY

Ophidian Pharmaceuticals, Inc. ("Ophidian" or the "Company"), a development
stage company, is engaged in the research and development of pharmaceuticals
with an emphasis on products for infectious diseases. Under a collaboration with
Eli Lilly and Company ("Lilly"), the Company is developing a product for the
treatment of Clostridium difficile-associated disease ("CDAD"). CDAD is a
bacterial infection that has become a common side effect of antibiotic therapy.
The CDAD product is a result of the Company's strategy to design new drugs for
infectious diseases by targeting molecules involved in the host-pathogen
interaction.

Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June 1996 ("Lilly Agreements"). Under the
Lilly Agreements, Ophidian has received $4.4 million in equity investments and
development milestone payments. Lilly will pay the Company an additional $8.0
million if certain CDAD product development objectives are met and Lilly chooses
to proceed with development. The Lilly Agreements provide for Lilly to fund and
conduct clinical testing, registration and marketing of the CDAD product
worldwide and Ophidian to manufacture bulk drug for clinical and commercial use.
The CDAD product is a passive antibody formulation that neutralizes
disease-causing toxins secreted by C. difficile during infection of the human
intestinal tract. These toxins are responsible for the development of diarrhea,
inflammation and symptoms of colitis caused by the C. difficile organism. CDAD
is a common side effect of treatment with certain broad spectrum antibiotics,
arising in approximately one percent of all hospitalized patients. The Company
anticipates that it will file an Investigational New Drug application ("IND")
with the United States Food and Drug Administration ("FDA") for initial human
clinical testing of the CDAD drug before the end of 1997.

The Company is also developing a drug to prevent disease caused by
enterohemorrhagic Escherichia coli, ("EHEC"), including E. coli O157:H7.
Ophidian has received research funding of $816,000 from the U.S. National
Institutes of Health ("NIH") for this program. The public health problem of EHEC
became widely recognized following outbreaks in the U.S. and Japan that
afflicted thousands of persons as a result of contaminated food products,
including ground beef. The Company has shown in animals that the injection of
its passive antibodies that neutralize EHEC toxins can block progression of
lethal disease symptoms. The Company is conducting pre-clinical development of
its EHEC passive antibodies as a potential human therapeutic.

Ophidian has devised a drug formulation and manufacturing technology for
the production of avian polyclonal antibodies for passive immune therapy. The
Company believes avian antibodies will be generally safe when administered
orally because they are derived from hen eggs that are common in the human diet.
Ophidian intends to manufacture and sell bulk drugs based on its avian antibody
technology to its commercial partners for final formulation and marketing of
drug products.

3
<PAGE> 5

infectious diseases. In addition, broad-spectrum antibiotics can be detrimental
to the patient because beneficial microbes are often killed along with the
disease-causing pathogen. The Company's research strategy is to develop
infectious disease drugs that target molecules involved in specific
host-pathogen interactions. In contrast to typical antibiotics, the Company's
products are designed to leave beneficial microbes undisturbed, support the
action of the host's immune system, and reduce the potential for the development
of microbial resistance. The Company has 57 patents, issued or pending, from its
research and development programs and has acquired rights to several external
patents to supplement its technology.

The Company's business strategy is to create commercial opportunities from
its technologies by manufacturing proprietary antibody pharmaceuticals,
establishing royalty-bearing licenses for the sale of its proprietary products
with marketing partners, licensing technology to pharmaceutical firms, and
forming sponsored research agreements.

Ophidian was incorporated in the State of Wisconsin in November 1989 and
commenced business operations in August 1990. The Company's principal offices
and laboratories are located at 5445 East Cheryl Parkway, Madison, Wisconsin,
53711, and its telephone number is (608) 271-0878.

4
<PAGE> 6

THE OFFERING

Securities offered........... 2,500,000 Shares of Common Stock and 2,500,000
Warrants.

Terms of Warrants............ Each Warrant entitles the registered holder
thereof to purchase, at any time commencing
, 1998 [one year after the date of
this Prospectus], until , 2002
[five years after the date of this Prospectus],
one Share of Common Stock at a price of
$ per Share [120% of the initial
public offering price per Share of Common
Stock]. Commencing , 199 [24 months
after the date of this Prospectus], the
warrants are subject to redemption by the
Company, in whole, but not in part, at $.10 per
Warrant provided that the average closing bid
price of the Common Stock as reported on the
AMEX equals or exceeds $ per share
[240% of the initial public offering price of
the Common Stock] for any 20 trading days
within a period of 30 consecutive trading days
ending on the fifth trading day prior to the
date of the notice of redemption. See
"Description of Securities."

Common Stock Outstanding
Prior to the Offering(1)... 7,285,950 shares

Securities to be Outstanding
After
the Offering(1).......... 9,785,950 shares of Common Stock and 2,500,000
Warrants.

Use of Proceeds.............. For technology development/new product discovery,
product development expenses, capital
expenditures, working capital and general
corporate purposes. See "Use of Proceeds."

Risk Factors and Dilution.... An investment in the securities offered hereby
involves a high degree of risk and immediate
and substantial dilution to the purchasers in
this Offering. See "Risk Factors" and
"Dilution."

Proposed AMEX Symbols(2):
Common Stock............. OPD

Warrants................ OPD.WS
- ---------------

(1) Excludes (i) 496,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of June 30, 1997, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$1.91 per share, (ii) additional stock options that have been granted since
June 30, 1997 to purchase 150,000 shares of Common Stock at an exercise
price of $5.50, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Options Plans, (iii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iv) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, and (v)
2,000 shares that the Company may issue in the ordinary course of business
to advisors and directors for services rendered by them to the Company in
lieu of cash through September 30, 1997.

(2) Application has been made for listing of the Common Stock and the Warrants
on AMEX.
5
<PAGE> 7

SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>

NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
--------- ---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................. $ 59,716 $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 240,121 $ 775,162
Operating expenses:
Research and development............. 285,000 842,000 1,156,428 1,215,366 1,339,048 908,085 1,804,893
General and administrative........... 291,401 404,709 753,549 916,294 1,034,409 670,109 719,691
--------- ---------- ---------- ----------- ----------- ----------- -----------
Total operating expenses............. 576,401 1,246,709 1,909,977 2,131,660 2,373,457 1,578,194 2,524,584
--------- ---------- ---------- ----------- ----------- ----------- -----------
Income (loss) from operations........ (516,685) 499,887 (892,350) (1,744,681) (2,052,013) (1,338,073) (1,749,422)
Interest income....................... 45,110 106,576 191,040 144,750 50,761 19,404 216,209
Interest expense...................... (2,321) -- (4,082) (4,624) (3,320) (2,548) (3,138)
Other................................. -- -- 97 668 -- -- --
--------- ---------- ---------- ----------- ----------- ----------- -----------
Net earnings (loss).................. $(473,896) $ 606,463 $ (705,295) $(1,603,887) $(2,004,572) $(1,321,217) $(1,536,351)
========= ========== ========== =========== =========== =========== ===========
Net earnings (loss) per share(1)..... $ (0.08) $ 0.09 $ (0.10) $ (0.22) $ (0.27) $ (0.18) $ (0.21)
Shares used to compute net earnings
(loss) per share(1)................ 5,906,024 7,062,531 7,318,169 7,321,232 7,323,446 7,322,945 7,324,296

<CAPTION>
INCEPTION
(NOVEMBER 1,
1989) TO
JUNE 30,
1997
------------
(UNAUDITED)
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................. $ 4,376,423
Operating expenses:
Research and development............. 6,812,806
General and administrative........... 4,344,153
-----------
Total operating expenses............. 11,156,959
-----------
Income (loss) from operations........ (6,780,536)
Interest income....................... 754,446
Interest expense...................... (38,324)
Other................................. 765
-----------
Net earnings (loss).................. $(6,063,649)
===========
Net earnings (loss) per share(1).....
Shares used to compute net earnings
(loss) per share(1)................
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 1997
SEPTEMBER 30, -------------------------
---------------------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(2)
---------- ---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 895,015 $5,100,728 $2,507,268 $ 1,319,826 $ 3,328,103 $ 4,881,718 $18,179,718
Total assets..................... 1,104,976 5,856,184 4,917,996 3,408,129 5,247,761 6,888,056 20,186,056
Deficit accumulated during
development stage.............. (820,007) (213,544) (918,839) (2,522,726) (4,527,298) (6,063,649) (6,063,649)
Total shareholders' equity....... 1,058,357 5,500,501 4,680,233 3,156,544 4,743,260 6,340,181 19,638,181
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements "Net Loss Per Share" for a
description of the shares used in calculating net earnings (loss) per share.

(2) Adjusted to give effect to the estimated net proceeds from the sale of
2,500,000 Shares of Common Stock and 2,500,000 Warrants offered by the
Company at an assumed initial public offering price of $6.00 per Share and
$.10 per Warrant. See "Use of Proceeds."
6
<PAGE> 8

RISK FACTORS

An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Securities offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.

DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY; NO PRODUCT REVENUES AND NO
ASSURANCE OF PROFITABILITY

The Company is in the development stage and is subject to all business
risks associated with a new enterprise, including uncertainties regarding
product development, constraints on the Company's financial and personnel
resources, and dependence on and need for third party relationships. At June 30,
1997, the Company had an accumulated deficit of $6,063,649. For the nine months
ended June 30, 1997, the Company had a net loss of $1,536,351. The Company
anticipates that it will continue to incur substantial additional operating
losses for at least the next several years and expects cumulative losses to
increase as the Company's research and development efforts expand. The Company
has a limited history of operations consisting primarily of development of its
products and contract research. While the Company has generated revenues
primarily from contract fees and research grants of $4,376,423 since its
inception through June 30, 1997, it has not generated any revenue to date from
pharmaceutical product sales, and there can be no assurance as to when or
whether it will be able to develop such sources of revenue or that its
operations will become profitable, even if it is able to commercialize any
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

NEED FOR SUBSTANTIAL ADDITIONAL FUNDS

The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The Company will require
substantial funds of its own, or from third parties, to conduct research and
development, pre-clinical and clinical testing and to manufacture (or have
manufactured) and market (or have marketed) its product candidates. The Company
estimates that its current cash resources and the net proceeds of the Offering
will be sufficient to meet its operating and capital requirements for at least
12 months following the closing of the Offering. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of pre-clinical and clinical testing,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the FDA regulatory process and other factors. The net
proceeds of this Offering are not expected to be sufficient to fund the
Company's operations through the commercialization of one or more products
yielding sufficient revenues to support the Company's operations. Therefore, the
Company will need to raise additional funds. The Company may seek to satisfy its
future funding requirements through public or private offerings of securities,
with collaborative or other arrangements with major pharmaceutical companies or
from other sources. Additional financing may not be available when needed or on
terms acceptable to the Company. If adequate financing is not available, the
Company may not be able to continue as a going concern, or may be required to
delay, scale back or eliminate certain of its research and development programs,
to relinquish rights to certain of its technologies or products or technologies
that the Company would otherwise seek to develop itself. To the extent the
Company raises additional capital by issuing equity securities, ownership
dilution to the investors in this Offering will result. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

7
<PAGE> 9

DEPENDENCE ON ELI LILLY AND COMPANY

Currently, the Company has a development agreement with Eli Lilly and
Company to gain access to Lilly's clinical testing, regulatory, marketing and
financial resources in support of the Company's CDAD therapeutic anti-toxin
product. There can be no assurance that the Company will meet every milestone
required under the Lilly agreement or that if the Company meets its milestones
that Lilly will continue its investment in the Company or its CDAD product.
Termination of the Lilly Agreements could delay development of the Company's
CDAD product and diminish its competitiveness. See "Business -- Business
Strategy and Collaborative Agreements."

DEPENDENCE ON AND NEED FOR OTHER THIRD PARTY RELATIONSHIPS

The Company's business strategy is to utilize the expertise and resources
of third parties in a number of areas, including the conduct of pre-clinical and
clinical trials for the Company's development products, and for the regulatory
approvals, marketing and in certain cases the manufacture of such products. This
strategy of reliance on third party relationships creates risks to the Company
by placing critical aspects of the Company's business in the hands of third
parties who the Company may not be able to control as effectively as its own
operations. Moreover, in reliance on these relationships, the Company has not
developed its own resources to the extent these activities have been contracted
to third parties. If these third parties do not perform in a timely and
satisfactory manner, the Company may incur additional costs and lose time in the
conduct of its development and clinical programs as it seeks alternate sources
of such products and services, if available. The effect of such costs and delays
may have a material adverse effect on the Company. See "Business -- Business
Strategy."

The Company may seek additional third party relationships in certain areas,
particularly in situations in which the Company believes that the clinical
testing, marketing, manufacturing and other resources of a pharmaceutical
company collaborator will enable the Company to develop particular products or
geographic markets which are otherwise beyond the Company's resources and/or
capabilities. There is no assurance that the Company will be able to obtain any
such collaboration, or any other research and development, manufacturing, or
clinical trial agreement. The inability of the Company to obtain and maintain
satisfactory relationships with third parties may have a material adverse effect
on the Company.

NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT OR COMMERCIALIZATION

The Company's research and development programs are at various stages of
development. Substantial additional research and development will be necessary
in order for the Company to obtain regulatory approval for its product
candidates, and there can be no assurance that the Company's research and
development will lead to development of products that are shown to be safe and
effective in clinical trials, or that are commercially viable. In addition to
further research and development, the Company's product candidates will require
clinical testing, regulatory approval, and development of marketing and
distribution channels, all of which are expected to require substantial
additional investment prior to commercialization. There can be no assurance that
the Company's products will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs, be eligible for
third party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. Further, the Company's products may prove
to have undesirable or unintended side effects that may prevent or limit their
commercial use. See "Business -- Government Regulation."

NO CURRENT MARKETING, SALES OR MANUFACTURING CAPABILITY

The Company currently has no marketing and sales resources or personnel. In
the event the Company successfully completes the regulatory process for the
introduction of any of its passive antibodies for the treatment of
gastrointestinal infections or other products, the Company will need to
establish distribution, marketing and sales resources in order to commercialize
such products. For CDAD, however, the Lilly Agreements provide that Lilly will
carry out marketing and sales activities. Depending upon the product, the

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Company may seek to develop its own distribution, marketing and sales resources,
or may seek to enter a collaborative agreement with a major pharmaceutical
company or biotechnology company for such purposes. There is no assurance that
the Company will be successful in either situation. The inability of the Company
to successfully distribute, market and sell products will adversely affect the
commercial value of such products and may adversely affect the financial
position of the Company.

The Company does not have a manufacturing facility, and thus currently
lacks the resources or capability to manufacture itself any of its product
candidates on a clinical or commercial scale. At the present time, the Company
believes that there are a number of facilities with FDA approval that have the
capability of manufacturing the Company's products. However, the process for
manufacturing and formulating the Company's products is complex and subject to
uncertainties. The Company is currently, and may continue to be, dependent on
third parties for manufacturing clinical and commercial scale quantities of its
products. There can be no assurance that the Company will be able to maintain
existing agreements for the manufacturing of clinical quantities of products,
that it will be able to enter into additional agreements with other third
parties for commercial scale manufacturing, or that contract manufacturers will
be able to adequately produce the Company's products in commercial quantities in
a cost-effective manner. Interruptions or difficulties in clinical or commercial
production of the Company's products may require the Company to incur
substantial costs to address the situation, which could have a material adverse
effect on the Company. See "Business."

The Company and each contract manufacturer must adhere to current Good
Manufacturing Practice ("GMP") regulations strictly enforced by the FDA on an
ongoing basis through its facilities inspection program. Such manufacturing
facilities must pass a pre-approval plant inspection before the FDA will approve
a Biologic License Application ("BLA") or a Product License Application ("PLA")
and Establishment License Application ("ELA"). Certain material manufacturing
changes that occur after approval are also subject to FDA review and clearance
or approval. There can be no assurance that the FDA or other regulatory agencies
will approve the process or the facilities by which any of the Company's
products may be manufactured. The Company's dependence on third parties for the
manufacture of products may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. See "Risk Factors -- No
Assurance of FDA Approval; Government Regulation" and "Business -- Government
Regulation."

RISK OF RAW MATERIALS

The Company uses live animals, principally laying hens, for the research,
development and production of many of its products. While the health of animals
used for producing raw materials for the Company's products is monitored and
documented by the Company, there can be no assurance that some unforeseen animal
disease or environmental factor will not at some time in the future injure the
animals, jeopardizing the Company's research, development or production
operations.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
United States and selected foreign jurisdictions. The Company currently holds 10
issued patents and has 47 patent applications. No assurance can be given that
the Company's patent applications will be approved or that any issued patents
will provide competitive advantages for the Company's technologies or will not
be challenged or circumvented by competitors. With respect to already issued
patents and any patents which may issue from the Company's applications, there
can be no assurance that claims allowed will be sufficient to protect the
Company's technologies. Patent applications in the United States are maintained
in secrecy until a patent issues, and the Company cannot be certain that others
have not filed patent applications for technology covered by the Company's
pending applications or that the Company was the first to file patent
applications for such technology. Competitors may have filed applications for,
or may have received patents and may obtain additional patents and proprietary
rights relating to, compounds or processes that may block the Company's patent
rights or compete without infringing the patent rights of the Company. In
addition, there

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can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or commercial advantage to the Company.

The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Although
potential collaborative partners and the Company's research partners and
consultants are not given access to proprietary trade secrets and know-how of
the Company until they have executed confidentiality agreements, these
agreements may be breached by the other party or may otherwise be of limited
effectiveness or enforceability.

The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on avoiding the infringement of the
patents of others. Although the Company is not aware of any claim of patent
infringement against it, claims concerning patents and proprietary technologies
determined adversely to the Company could have a material adverse effect on the
Company. In addition, litigation may also be necessary to enforce any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. There can be no assurance that the Company's
issued or licensed patents would be held valid by a court of competent
jurisdiction. Whether or not the outcome of litigation is favorable to the
Company, the cost of such litigation and the diversion of the Company's
resources during such litigation could have a material adverse effect on the
Company.

The Company could incur substantial costs in defending itself in suits that
may be brought against the Company claiming infringement of the patent rights of
others or in asserting the Company's patent rights in a suit against another
party. The Company may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with the patent
applications of the Company or other parties. Adverse determination in
litigation or interference proceedings could require the Company to seek
licenses (which may not be available on commercially reasonable terms) or
subject the Company to significant liabilities to third parties, and could
therefore have material adverse effect on the Company. See "Business -- Patents
and Proprietary Technology."

NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION

The Company's products in development have not been proven in formal
clinical tests, and there can be no assurance that such products are, or will
be, safe or effective in human use. All new drugs and biologics, including the
Company's product candidates, are subject to extensive and rigorous regulation
by the federal government, principally the FDA under the Federal Food, Drug and
Cosmetic Act and other laws including, in the case of biologics, the Public
Health Services Act, and by state and local governments. Such regulations
govern, among other things, the development, testing, manufacture, labeling,
storage, premarket clearance or approval, advertising, promotion, sale and
distribution of such products. If drug products are marketed abroad, they also
are subject to extensive regulation by foreign governments. Failure to comply
with the FDA or other applicable regulatory requirements may subject the Company
to administrative or judicially imposed sanctions such as civil penalties,
criminal prosecution, injunctions, product seizure or detention, product
recalls, total or partial suspension of production, and FDA refusal to approve
pending products and other applications.

The Company has not received regulatory approval in the United States or
any foreign jurisdiction for the commercial sale of any of its products. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and can vary substantially based upon
the type, complexity and novelty of the products involved and the indications
being studied. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's product candidates will
be cleared for marketing by the FDA. There can be no assurance that the Company
will have sufficient resources to complete the required regulatory review
process, or that the Company could overcome the inability to obtain, or delays
in obtaining, such approvals. The failure of the Company to receive FDA approval
for its

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product candidates would preclude the Company from marketing and selling its
products in the United States. Therefore, the failure to receive such FDA
approval would have a material adverse effect on the Company. Even if regulatory
approval of a product is granted, there can be no assurance that the Company
will be able to obtain the labeling claims necessary or desirable for the
promotion of those products. FDA regulations prohibit the marketing or promotion
of a drug for unapproved indications. Furthermore, regulatory marketing approval
may entail ongoing requirements for postmarketing studies.

If regulatory approval is obtained, the Company will be subject to ongoing
FDA obligations and continued regulatory review. In particular, the Company or
its third party manufacturers will be required to adhere to regulations setting
forth GMPs, which require that the Company or third party manufacturers
manufacture products and maintain records in a prescribed manner with respect to
manufacturing, testing and quality control activities. Further, the Company or
its third party manufacturer must pass a preapproval inspection of its
manufacturing facilities by the FDA before obtaining marketing approval. Failure
to comply with applicable regulatory requirements may result in penalties such
as restrictions on a product's marketing or withdrawal of the product from the
market. In addition, identification of certain side effects after a drug is on
the market or the occurrence of manufacturing problems could cause subsequent
withdrawal of approval, reformulation of the drug, additional pre-clinical
testing or clinical trials and changes in labeling of the product.

Prior to the submission to the FDA of a new drug application, drugs
developed by the Company must undergo rigorous pre-clinical and clinical testing
which may take several years and the expenditure of substantial resources.
Before commencing clinical trials in humans, the Company must submit to the FDA
and receive clearance of an Investigational New Drug application ("IND"). There
can be no assurance that submission of an IND for future clinical testing of any
product under development or other future products of the Company would result
in FDA permission to commence clinical trials or that the Company will be able
to obtain the necessary approvals for future clinical testing in any foreign
jurisdiction. Success in pre-clinical studies or early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from pre-
clinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Further, there can be
no assurance that if such testing of products under development is completed,
any such drug compounds will be accepted for formal review by the FDA or any
foreign regulatory body, or approved by the FDA for marketing in the United
States or by any such foreign regulatory bodies for marketing in foreign
jurisdictions. Future federal, state, local or foreign legislation or
administrative acts could also prevent or delay regulatory approval of the
Company's products. See "Business -- Government Regulation."

DEPENDENCE ON QUALIFIED PERSONNEL

Because of the specialized nature of the Company's business, the Company is
highly dependent upon its ability to attract and retain qualified scientific,
technical and managerial personnel and to maintain relationships with leading
research institutions and consultants. The loss of the Company's Chief Executive
Officer, Dr. Douglas C. Stafford, or other senior management, would be highly
detrimental to the Company. The Company has established employment agreements
with Dr. Stafford and Dr. Firca setting forth a term of employment for the next
three years. See "Management." Following the Offering, the Company expects to
maintain key person insurance for $500,000 on the life of each of Dr. Stafford
and Dr. Firca. The proceeds of such insurance may not be sufficient to
compensate the Company for the loss of the services of such individuals and is
not applicable in the case of resignation. There is intense competition for
qualified personnel in the biotechnology field, including competition from
companies with substantially greater resources than the Company. There can be no
assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its business, either as
employees or as consultants. The loss of the services of existing personnel as
well as the failure to recruit additional key scientific and technical personnel
in a timely manner could have a material adverse effect on the Company.

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RELATIONSHIPS OF SCIENTIFIC ADVISORS WITH OTHER ENTITIES

The members of the Company's Scientific Advisory Board are often employed
on a full-time basis by academic or research institutions. Scientific Advisory
Board Members serve as consultants to the Company, and in some cases as
consultants to other companies. Accordingly, Scientific Advisory Board members
are able to devote only a portion of their time to the Company's business and
research activities. In addition, except for work performed specifically for and
at the direction of the Company, the inventions or processes discovered by the
Company's Scientific Advisory Board members and other consultants will not
become the intellectual property of the Company, but will be the intellectual
property of their institutions. If the Company desires access to inventions
which are not its property, it will be necessary for the Company to obtain
licenses to such inventions from the owners. In addition, invention assignment
agreements executed by Scientific Advisory Board members and consultants in
connection with their relationships with the Company may be subject to the
rights of their primary employers or other third parties with whom such
individuals have consulting relationships. See "Business -- Advisory Board."

COMPETITION

There are many companies, including the well-known pharmaceutical companies
such as SmithKline Beecham Corporation, Bristol-Meyers Squibb Company, Abbott
Laboratories and other smaller biotechnology firms, as well as academic and
other research institutions, that are engaged in the discovery, development,
marketing and sale of products for the treatment of infectious diseases. The
Company expects to encounter significant competition for its product candidates
from traditional and new treatment methods.

Most of the Company's competitors and potential competitors have
substantially greater capital, research and development capabilities and human
resources than the Company. Furthermore, many of these competitors have
significantly greater experience than the Company in undertaking pre-clinical
testing and clinical trials of new biotechnology products and obtaining FDA and
other regulatory approvals. If the Company is permitted to commence commercial
sales of any product, it will also be competing with companies that have greater
resources and experience in manufacturing, marketing and sales. The Company's
competitors may succeed in developing products that are more effective, less
costly, or have a better side effect profile than any that may be developed by
the Company, and such competitors may also prove to be more successful than the
Company in manufacturing, marketing and sales. If the Company is able to
successfully commercialize a product, subsequent competitive developments could
render such product noncompetitive or obsolete. See "Business -- Competition."

TECHNOLOGICAL CHANGES AND UNCERTAINTY

The Company's research and development strategy is based upon advances in
recent years in the scientific understanding of infectious diseases. The
Company's strategy focuses on techniques to exploit new infectious disease
targets for new drug development. This area is the subject of extensive research
efforts and rapid scientific progress. New developments are expected to continue
at a rapid pace in industry and academia in both the specific areas of interest
to the Company and in other areas directed at the prevention or treatment of
infectious diseases. There can be no assurance that research and discoveries by
others will not render some or all of the Company's proposed products
noncompetitive or obsolete. In addition, the Company's business strategy is
subject to the risks inherent in the development of new therapeutic products.
There can be no assurance that unforeseen problems will not develop, that the
Company will be able to address successfully technological challenges it
encounters in its research and development programs or that commercially
feasible products will ultimately be developed by the Company. See
"Business -- Competition."

UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT; HEALTH CARE REFORM

The Company's ability to commercialize its product candidates may depend in
part on the extent to which reimbursement for the costs of such product will be
available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of adequate third-party

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insurance reimbursement coverage that enables the Company to establish and
maintain price levels sufficient for realization of an appropriate return on its
investment in developing drug products. Government and other third-party payors
are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products approved
for marketing by the FDA and by refusing, in some cases, to provide any coverage
for uses of approved products for disease indications for which the FDA has not
granted marketing approval. If adequate coverage and reimbursement levels are
not provided by government and third-party payors for uses of the Company's
product candidates, the market acceptance of these products would be adversely
affected.

Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.

RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF PRODUCT LIABILITY
INSURANCE

The Company's business exposes it to potential product liability risks
which are inherent in the manufacturing, clinical testing, marketing and use of
human therapeutic products. The Company currently carries no product liability
insurance. The Company plans to obtain product liability insurance covering the
clinical trials and the commercial sale of its products prior to their clinical
and commercial introduction respectively, however, there can be no assurance
that the Company will be able to obtain or maintain such insurance on acceptable
terms or that any insurance obtained will provide adequate coverage against
potential liabilities. Claims or losses in excess of any liability insurance
coverage obtained by the Company could have a material adverse effect on the
Company.

CONCENTRATION OF OWNERSHIP

Upon consummation of this Offering, the directors and officers of the
Company (and certain members of their families) will beneficially own 4,202,635
shares of the Company's Common Stock or approximately 41.6% of the outstanding
shares of the Company's Common Stock following the completion of this Offering.
Accordingly, the Company's officers and directors and their affiliates may be
able to influence the outcome of shareholder votes, including votes concerning
the election of directors, adoption of amendments to the Company's Articles of
Incorporation and Bylaws and approval of mergers and other significant
transactions. See "Principal Shareholders."

IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION

Purchasers of Securities in this Offering will experience immediate and
substantial dilution in the net tangible book value of the Shares of Common
Stock and Warrants purchased by them in this Offering. The immediate dilution to
purchasers of the Securities offered hereby is $4.10 per Share of Common Stock
(or approximately 68%), assuming an initial public offering price of $6.00 per
Share. Additional dilution to future net tangible book value per Share may occur
upon the exercise of the Warrants, the Representative's warrants, options that
are outstanding or to be issued under the Company's option plans, and options
that are outstanding to a consultant of the Company. The founding shareholders
of the Company acquired their shares of Common Stock for consideration other
than cash or for consideration substantially less than the public offering price
of the Shares of Common Stock offered hereby. See "Capitalization," "Dilution"
and "Certain Transactions."

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POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock (including shares issued upon the exercise of
outstanding options) in the public market after this Offering could materially
and adversely affect the market price of the Securities. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
9,785,950 shares of Common Stock outstanding. Of these securities, 2,500,000
Shares of Common Stock and Warrants to purchase 2,500,000 Shares of Common Stock
sold in this Offering will be freely tradable (unless held by affiliates of the
Company) without restriction. The remaining 7,285,950 shares will be restricted
securities within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). The Company's directors, executive officers and certain
shareholders, who in the aggregate hold more than 90% of the shares of Common
Stock of the Company outstanding immediately prior to the completion of this
Offering, have entered into lock-up agreements under which they have agreed not
to sell, directly or indirectly, any shares owned by them for a period of nine
months after the date of this Prospectus without the prior written consent of
the Representative. The Representative may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements. Upon expiration of the nine month lock-up agreements, 90%
shares of Common Stock (not including approximately 511,809 shares subject to
outstanding vested options) held by existing shareholders will be eligible for
public resale, subject to volume limitations pursuant to Rule 144. In addition,
12 months after the completion of this Offering, 250,000 shares of Common Stock
issuable upon exercise of the Representative's warrants and 250,000 shares of
Common Stock issuable upon exercise of the warrants issued upon exercise of
Representative's warrants will be available for sale. The number of shares sold
in the public market could increase if Lilly's registration rights are exercised
and such sales may have an adverse effect on the market price of the Common
Stock. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."

ANTI-TAKEOVER EFFECT OF WISCONSIN LAW

Wisconsin statutory law contains provisions that could discourage potential
acquisition proposals and might delay or prevent a change in control of the
Company. Such provisions could result in the Company being less attractive to a
potential acquirer and could result in the shareholders receiving less for their
Common Stock than otherwise might be available in the event of a takeover
attempt. See "Description of Securities -- Certain Provisions of Wisconsin Law."

POTENTIAL LIABILITY OF SHAREHOLDERS

Wisconsin Statutes Section 180.0622(2)(b) provides that the shareholders of
a Wisconsin corporation are personally liable "to an amount equal to the par
value of shares owned by them respectively" for debts or other amounts owing to
employees for services performed for the corporation, but not exceeding six
months' service in any one case. A Wisconsin trial court interpreted this
statute to impose personal liability on shareholders extending up to the
consideration paid for their stock (rather than the stock's lower stated par
value). While the trial court's decision was affirmed by the Wisconsin Supreme
Court, such affirmation technically provides no precedential value due to an
equal division of the Court. However, under the principle of the trial court's
decision, investors in this Offering would have potential liability, in the
event of the Company's insolvency or inability to pay its debts, for unpaid
compensation to Company employees (not exceeding six months' service) in an
amount up to the purchase price paid for every Share acquired hereby ($6.00 per
Share).

ABSENCE OF DIVIDENDS

The Company has never declared or paid dividends on its Common Stock and
does not intend to pay any dividends in the foreseeable future. See "Dividend
Policy."

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ARBITRARY DETERMINATION OF OFFERING PRICE; NO PUBLIC MARKET FOR THE SECURITIES

The initial public offering price of the Securities and the exercise prices
and terms of the Warrants have been determined arbitrarily by negotiations
between the Company and the Representative. Factors considered in such
negotiations, in addition to prevailing market conditions, included the history
and prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure
and certain other factors as were deemed relevant. Therefore, the public
offering price of the Securities and the exercise prices and terms of the
Warrants do not necessarily bear any relationship to established valuation
criteria and therefore may not be indicative of prices that may prevail at any
time or from time to time in the public market for the securities of the
Company. Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance that an active trading market will
develop in any of the Securities after the Offering, or, if developed, be
sustained. See "Underwriting."

PRICE VOLATILITY

The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of many
publicly traded pharmaceutical or biotechnology companies have in the past been,
and can in the future be expected to be, especially volatile. Announcements of
technological innovations or new products by the Company or its competitors,
developments or disputes concerning patents or proprietary rights, publicity
regarding actual or potential clinical trial results relating to products under
development by the Company or its competitors, regulatory developments in both
the United States and foreign countries, delays in the Company's testing and
development schedules, public concern as to the safety of drug products and
economic and other external factors, as well as period-to-period fluctuations in
the Company's financial results, may have a significant impact on the market
prices of the Securities. The realization of any of the risks described in these
"Risk Factors" could have a significant and adverse impact on such market
prices.

POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS

At the consummation of the Offering, the Company will sell to the
Representative for nominal consideration the Representative's Warrants to
purchase up to 250,000 Shares of Common Stock and/or 250,000 Warrants. The
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering, at an exercise
price of $ per Share and $ per Warrant [120% of the respective
public offering prices of the Shares and the Warrants]. The Warrants obtained
upon exercise of the Representative's Warrants will be exercisable for a period
of four years commencing one year after the effective date of this Offering, at
an exercise price of $ per Share [120% of the initial public offering
price per Share]. For the term of the Representative's Warrants, the holders
thereof will have, at nominal cost, the opportunity to profit from a rise in the
market price of the Securities without assuming the risk of ownership, with a
resulting dilution in the interest of other security holders. As long as the
Representative's Warrants remain unexercised, the Company's ability to obtain
additional capital might be adversely affected. Moreover, the Representative may
be expected to exercise the Representative's Warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital through a new
offering of its securities on terms more favorable than those provided by the
Representative's Warrants. See "Underwriting."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS

Commencing 24 months after the date of this Prospectus, the Warrants are
subject to redemption at $ per Warrant on 30 days prior written notice
to the Warrant holders if the average closing bid price of the Common Stock as
reported on the AMEX equals or exceeds $ per share [240% of the initial
public offering price per Share of Common Stock] for any 20 trading days within
a period 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. If the Warrants are redeemed, holders of
the Warrants will lose their rights to exercise the Warrants upon expiration of
the 30 day notice of redemption period. Upon receipt of a notice of redemption,
holders would be required to (i) exercise

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<PAGE> 17

the Warrants and pay the exercise price at a time when it may be disadvantageous
for them to do so, (ii) sell the Warrants at the current market price, if any,
when they might otherwise wish to hold the Warrants or (iii) accept the
redemption price which is likely to be substantially less than the market value
of the Warrants at the time of redemption. See "Description of
Securities -- Warrants."

POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL SHARES OF COMMON STOCK RESERVED

The Company has reserved Shares of Common Stock for issuance as follows:
(i) 2,500,000 Shares for issuance upon exercise of the 2,500,000 Warrants; (ii)
250,000 Shares for issuance upon exercise of the Representative's Warrants;
(iii) 250,000 Shares for issuance upon exercise of the Warrants issuable upon
exercise of the Representative's Warrants; (iv) 646,608 shares for issuance upon
exercise of stock options granted under the Company's 1990/1992 Stock Option
Plans; (v) 5,296 shares of Common Stock reserved for future grants of options
under the 1990/1992 Stock Option Plans; (vi) 114,290 shares for issuance upon
exercise by Fitchburg Research Park Associates of its warrants; and (vii)
100,000 shares for issuance upon exercise of the stock option held by a
consultant to the Company. The existence of the Warrants, the Representative's
Warrants and any other options or warrants may adversely affect the Company's
ability to consummate future equity financings. Further, the holders of such
warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company.

REPRESENTATIVE'S INFLUENCE ON THE MARKET

A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such Securities through or with the
Representative. If it participates in the market, the Representative may exert a
dominating influence on the market, if one develops, for the Securities
described in this Prospectus. Such market-making activity may be discontinued at
any time. The price and liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in the market.

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS

The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the Shares of Common Stock issuable
upon exercise of the Warrants and such Shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants reside. Until completion of
this Offering, the Common Stock and the Warrants may only be purchased together
on the basis of one Share of Common Stock and one Warrant, but the Warrants will
be separately tradable immediately after this Offering. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, investors may
purchase the Warrants in the secondary market or move to a jurisdiction in which
the Shares underlying the Warrants are not registered or qualified during the
period that the Warrants are exercisable. As a result, the Company will be
unable to issue Shares to those persons desiring to exercise their Warrants
unless and until the Shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Warrants would have no choice but to attempt
to sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "Description of Securities -- Warrants."

16
<PAGE> 18

MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS

Although the Company intends to apply the net proceeds of this Offering in
the manner described under "Use of Proceeds," it has broad discretion within
such proposed uses as to the precise allocation of the net proceeds, the timing
of expenditures and all other aspects of the use thereof. The Company reserves
the right to reallocate the net proceeds of this Offering among the various
categories set forth under "Use of Proceeds" as it, in its sole discretion,
deems necessary or advisable. See "Use of Proceeds." Approximately $3,298,000 or
25% of the estimated net proceeds of the Offering has been allocated to working
capital and general corporate purposes. Accordingly, the Company's Board of
Directors will have discretion with respect to the allocation of such net
proceeds. See "Use of Proceeds."

LIMITATION OF LIABILITY AND INDEMNIFICATION

Under the Wisconsin Business Corporation Law, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless it is
determined the director or officer breached or failed to perform his or her
duties to the Company and such breach or failure constituted: (i) a willful
failure to deal fairly with the Company or its shareholders in connection with a
matter in which the director or officer had a material conflict of interest;
(ii) a violation of criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (iii) a transaction from which the
director or officer derived an improper personal profit; or (iv) willful
misconduct. The Company's Amended and Restated Bylaws provide that the Company
may purchase and maintain insurance on behalf of an individual who is a director
or officer of the Company against liability asserted against or incurred by such
individual in his or her capacity as a director or officer regardless of whether
the Company is required or authorized to indemnify or allow expenses to the
individual against the same liability under the bylaws.

17
<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 Shares of
Common Stock and 2,500,000 Warrants offered hereby (after deducting underwriting
discounts and other estimated offering expenses) are estimated to be
approximately $13,298,000 (or $15,345,000 if the Over-Allotment Option is
exercised in full), based on an assumed initial public offering price of $6.00
per Share of Common Stock and $.10 per Warrant.

The Company currently intends to use the net proceeds from this Offering
approximately as follows:

<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------ ----------------
<S> <C> <C>
Technology development/new product discovery........... $ 5,000,000 38%
Product development expenses........................... 3,000,000 22%
Capital expenditures................................... 2,000,000 15%
Working capital and general corporate purposes......... 3,298,000 25%
----------- ---
Total........................................ $13,298,000 100%
=========== ===
</TABLE>

Technology Development/New Product Discovery. The Company intends to spend
a portion of the proceeds of this Offering in the development of certain
technologies related to the discovery of new drug targets and new drug products
in the area of infectious diseases and other disease areas where the Company
believes business opportunities exist. Such expenses would likely include the
hiring of additional scientific staff, enlargement of facilities and the
establishment of contractual relationships with academic or commercial entities.

Product Development Expenses. The Company intends to continue investing in
the further development of its passive antibody and other infectious disease
therapeutic products. Where appropriate, resources may be applied to laboratory
studies, manufacturing methods development, formal pre-clinical or clinical
studies to support product licensure. With respect to the Company's CDAD
therapeutic antitoxin product, these funds will supplement funds paid to the
Company pursuant to the Lilly Agreements for the pre-clinical and clinical
studies.

Capital Expenditures. The Company expects to spend a portion of the net
proceeds of this Offering to make capital investments in laboratories and
related facilities, including the establishment of manufacturing facilities and
purchase of equipment for the pilot production of its passive antibody products.
The Company also expects to secure debt financing to partially fund capital
projects.

Working Capital and General Corporate Purposes. The remaining available
funds will be added to the Company's working capital to be used for general
corporate purposes, including the hiring of research, management, regulatory,
manufacturing and business development personnel; rent and other overhead costs
for facilities; equipment and machinery needed for research, manufacturing and
administrative functions; and the costs for patenting, licensing or acquiring
technologies.

The Company intends to proceed with the expenditures to advance the
development of its infectious disease technologies and products. This
development is anticipated to include prototype optimization, pre-clinical
development, clinical prototype manufacturing, and human clinical evaluations.
The Company also anticipates investigating new therapeutic and diagnostic
technologies and exploring additional commercial opportunities.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of clinical studies, the timing
of regulatory approvals, technological advances, and determinations as to
commercial potential and the status of competitive products. The Company may
also, to the extent its product development activities proceed more quickly than
expected, expand its research and development facilities or allocate a portion
of the proceeds to the construction or acquisition and staffing of manufacturing
facilities for the production of any developed products. In addition, if the
Company deems it desirable to acquire assets or technologies to further its
development objectives, the Company may reapportion proceeds of this offering to
such acquisition or development. Expenditures will also be dependent upon the
establishment of collaborative

18
<PAGE> 20

arrangements with other companies, the availability of financing, and other
factors. See "Risk Factors -- Management's Broad Discretion in Use of Proceeds."

Subject to the variables set forth above, the Company anticipates that the
net proceeds of this Offering, together with its available cash, should be
sufficient to finance its operational and working capital requirements for at
least the next 12 months. However, there can be no assurance that the net
proceeds of this Offering will satisfy the Company's requirements for any
particular period of time. The Company anticipates that additional funding will
be required after the use of proceeds of the Offering. No assurance can be given
that such additional financing will be available when needed on terms acceptable
to the Company, if at all. See "Risk Factors -- Need for Substantial Additional
Funds."

Pending application of the net proceeds of the Offering, the Company
intends to invest such net proceeds in interest-bearing, short-term investment
grade financial securities.

DIVIDEND POLICY

The Company has never declared nor paid dividends on its Common Stock and
does not intend to pay any dividends for the foreseeable future.

19
<PAGE> 21

CAPITALIZATION

The following table sets forth the capitalization of the company as of June
30, 1997 (i) on an actual basis, and (ii) as adjusted to give effect to the
estimated net proceeds from the sale of Shares of Common Stock and Warrants
offered hereby at an assumed initial public offering price of $6.00 per Share
and $.10 per Warrant and the initial application of the estimated net proceeds
therefrom. This table should be read in conjunction with the Company's financial
statements and related notes thereto and selected financial data appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
AS
ACTUAL ADJUSTED(2)
----------- -----------
(UNAUDITED)
<S> <C> <C>
Capital lease obligations, less current portion............. $ 38,613 $ 38,613
Shareholders' equity
Common stock, $0.0025 par value per share, 22,400,000
shares authorized,7,285,950 shares issued and
outstanding, actual; 9,785,950 shares issued and
outstanding, as adjusted(1)(2)......................... 18,215 24,465
Additional paid-in capital.................................. 12,387,898 25,679,648
Deficit accumulated during the development stage............ (6,063,649) (6,063,649)
Net unrealized loss on available securities for sale........ (2,283) (2,283)
----------- -----------
Total shareholders' equity........................ 6,340,181 19,638,181
----------- -----------
Total capitalization.............................. $ 6,378,794 $19,676,794
=========== ===========
</TABLE>

- ---------------
(1) Excludes (i) 496,608 shares of Common Stock issuable upon the exercise of
outstanding stock options as of June 30, 1997, under the 1990 Incentive
Stock Option Plan and the 1992 Employee Stock Option Plan (collectively, the
"1990/1992 Stock Option Plans") at a weighted average exercise price of
$1.91 per share, (ii) additional stock options that have been granted since
June 30, 1997 to purchase 150,000 shares of Common Stock at an exercise
price of $5.50, leaving a balance of 5,296 shares of Common Stock reserved
for future grants of options under the 1990/1992 Stock Option Plans, (iii)
Fitchburg Research Park Associates' warrant to purchase up to 114,290 shares
at an exercise price of $.0025 per share, (iv) a consultant's option to
purchase 100,000 shares at an exercise price of $4.50 per share, and (v)
2,000 shares that the Company may issue in the ordinary course of business
to advisors and directors for services rendered by them to the Company in
lieu of cash through September 30, 1997.

(2) As adjusted to reflect the sale of 2,500,000 Shares of Common Stock and
2,500,000 Warrants offered hereby and receipt by the Company of the
estimated net proceeds therefrom based upon an assumed initial public
offering price of $6.00 per Share and $.10 per Warrant.

20
<PAGE> 22

DILUTION

As of June 30, 1997, the net tangible book value of the Company was
$5,295,074 or approximately $.73 per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value (tangible
assets less liabilities) of the Company by 7,285,950 shares of Common Stock
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per Share paid by purchasers of Common Stock
and Warrants of this Offering and the net tangible book value per share of
Common Stock immediately after the completion of this Offering. After giving
effect to the sale of the Common Stock and Warrants offered hereby at an assumed
initial public offering price of $6.00 per Share of Common Stock and $.10 per
Warrant (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) the pro forma net tangible book value
of the Company at June 30, 1997 would have been $18,593,074 or approximately
$1.90 per share of Common Stock. This represents an immediate increase in the
net tangible book value of $1.17 per share of Common Stock to existing
shareholders and an immediate dilution in net tangible book value of $4.10 per
share of Common Stock (or approximately 68%) to new investors purchasing Shares
of Common Stock in this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share............. $6.00
Net tangible book value per share as of June 30, 1997....... 0.73
Increase per share attributable to this Offering............ 1.17
----
Pro forma net tangible book value per share after this
Offering.................................................. 1.90
-----
Dilution per share to new investors......................... $4.10
=====
</TABLE>

The computations in the table set forth above assumes that the
Over-Allotment Option is not exercised. If the Over-Allotment Option is
exercised in full, the pro forma net tangible book value as of June 30, 1997
would have been $20,640,387 or $2.03 per share of Common Stock, resulting in
dilution to new investors of $3.97 per share of Common Stock.

The following table summarizes as of June 30, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by (i) existing shareholders of Common
Stock at June 30, 1997, and (ii) new shareholders in the Offering, assuming the
sale of the Common Stock and Warrants offered hereby at an assumed initial
public offering price of $6.00 per Share and $.10 per Warrant. The calculations
are based upon total consideration given by new investors and existing
shareholders before any deduction of underwriting discounts and Offering
expenses payable by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 7,285,950 74% $12,513,966 45% $1.72
New investors(2)............ 2,500,000 26% 15,000,000 55% $6.00
--------- --- ----------- ---
Total............. 9,785,950 100% $27,513,966 100%
========= === =========== ===
</TABLE>

(2) Attributes no value to the Warrants.

21
<PAGE> 23

SELECTED FINANCIAL DATA

The selected financial data set forth below, as of September 30, 1994, 1995
and 1996 and the three one year periods then ended are derived from the
financial statements of the Company included elsewhere in this prospectus which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data set forth below, as of September 30, 1992 and 1993 and the
periods then ended are derived from financial statements audited by Ernst &
Young LLP, not included in this Prospectus. The selected financial data for June
30, 1997 and for the nine months ended June 30, 1996 and 1997 are derived from
the Company's unaudited financial statements included elsewhere in this
Prospectus and include, in the opinion of the Company, all adjustments
(consisting of normal recurring adjustments) necessary for fair presentation of
the Company's financial position at that date and results of operations for
those periods. Operating results for the nine months ended June 30, 1997 are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
INCEPTION
NINE MONTHS ENDED (NOVEMBER 10,
YEARS ENDED SEPTEMBER 30, JUNE 30, 1989) TO
---------------------------------------------------------------- ------------------------- JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997
---------- ---------- ---------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues............. $ 59,716 $1,746,596 $1,017,627 $ 386,979 $ 321,444 $ 240,121 $ 775,162 $ 4,376,423
Operating Expenses
Research and
development...... 285,000 842,000 1,156,428 1,215,366 1,339,048 908,085 1,804,893 6,812,806
General and
administrative... 291,401 404,709 753,549 916,294 1,034,409 670,109 719,691 4,344,153
---------- ---------- ---------- ----------- ----------- ----------- ----------- -------------
Total operating
expenses......... 576,401 1,246,709 1,909,977 2,131,660 2,373,457 1,578,194 2,524,584 11,156,959
---------- ---------- ---------- ----------- ----------- ----------- ----------- -------------
Income (loss) from
operations....... (516,685) 499,887 (892,350) (1,744,681) (2,052,013) (1,338,073) (1,749,422) (6,780,536)
Interest income...... 45,110 106,576 191,040 144,750 50,761 19,404 216,209 754,446
Interest expense..... (2,321) -- (4,082) (4,624) (3,320) (2,548) (3,138) (38,324)
Other................ -- -- 97 668 -- -- -- 765
---------- ---------- ---------- ----------- ----------- ----------- ----------- -------------
Net earnings
(loss)............... $ (473,896) $ 606,463 $ (705,295) $(1,603,887) $(2,004,572) $(1,321,217) $(1,536,351) $(6,063,649)
========= ========= ========= ========== ========== ========== ========== =============
Net earnings (loss)
per share(1)....... $ (0.08) $ 0.09 $ (0.10) $ (0.22) $ (0.27) $ (0.18) $ (0.21)
Shares used to
compute net
earnings (loss) per
share(1)........... 5,906,024 7,062,531 7,318,169 7,321,232 7,323,446 7,322,945 7,324,296
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30, 1997
---------------------------------------------------------------- ----------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(2)
---------- ---------- ---------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents.......... $ 912,729 $5,443,235 $1,521,295 $ 887,577 $ 3,276,339 $ 4,675,016 $ 17,973,766
Working capital............... 895,015 5,100,728 2,507,268 1,319,826 3,328,103 4,881,718 18,179,718
Total assets.................. 1,104,976 5,856,184 4,917,996 3,408,129 5,247,761 6,888,056 20,186,056
Long-term obligations......... -- -- 68,046 50,856 33,914 38,613 38,613
Deficit accumulated during
development stage........... (820,007) (213,544) (918,839) (2,522,726) (4,527,298) (6,063,649) (6,063,649)
Total shareholders' equity.... 1,058,357 5,500,501 4,680,233 3,156,544 4,743,260 6,340,181 19,638,181
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for a description of the shares
used in calculating net earnings (loss) per share.

(2) Adjusted to give effect to the estimated net proceeds from the sale of
2,500,000 Shares of Common Stock offered by the Company at an assumed
initial public offering price of $6.00 per Share and Warrants to purchase
2,500,000 Shares of Common Stock at $.10 per Warrant. See "Use of Proceeds."

22
<PAGE> 24

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."

OVERVIEW

Ophidian is a development stage corporation focused on the research,
development and commercialization of therapeutic products for human and animal
use. The Company's business has been directed to numerous areas of disease but
has focused principally on products for infectious disease prevention and
treatment. The Company has not received any revenues from the sale of FDA
licensed products to date and does not expect to receive any such revenues
during the next two fiscal years. Except for fiscal year 1993, the Company has
been unprofitable every year since inception. The Company expects to incur
additional losses over the next several years. At June 30, 1997, the Company had
an accumulated deficit of $6,063,649 and for the nine months ended June 30, 1997
incurred a net loss of $1,536,351.

The Company intends to continue investing in the further research and
development of its technologies and products in infectious disease and other
therapeutic areas. Depending on a variety of factors, including collaborative
arrangements, availability of personnel and financial resources, the Company
will engage in the development of its products and establish capabilities to
support regulatory submissions. The Company will need to make additional capital
investments in research and development laboratories and manufacturing
facilities, including the construction of facilities for the large-scale
production of avian antibodies and supporting testing laboratories. Investments
in manufacturing and associated capabilities would be required to be made before
any regulatory agency would grant approval to market products, however, there
can be no assurance that such approval will be granted. It is expected that the
Company will need to hire additional personnel to support increased research and
development, manufacturing, quality systems, and general business requirements.

RESULTS OF OPERATIONS

Nine Months Ended June 30, 1997 compared to Nine Months Ended June 30, 1996

Revenues. Revenues increased $535,041 to $775,162 for the nine months ended
June 30, 1997 as compared to $240,121 for the nine months ended June 30, 1996.
Increased revenues in the nine months ended June 30, 1997 resulted from payments
received from Lilly under the Lilly Agreements of $491,658 and payments of
$272,079 received from the NIH under a Phase II Small Business Innovation
Research ("SBIR") grant for Ophidian's EHEC program. Revenues in the nine months
ended June 30, 1996 included $100,000 in payments from Lilly and $127,795 from
the NIH.

Research and Development Expenses. Research and development expenses
increased $896,808 to $1,804,893 for the nine months ended June 30, 1997
compared with $908,085 for the nine months ended June 30, 1996. The increase in
expenses resulted from process development and manufacture of bulk drug to
support pre-clinical and clinical development of Ophidian's CDAD therapeutic
antitoxin and additional personnel, consultants and related expenses in
connection with the Company's Host Response Program.

General and Administrative Expenses. General and administrative expenses
increased $49,582 to $719,691 for the nine months ended June 30, 1997 compared
with $670,109 for the nine months ended June 30, 1996. The increase resulted
from additional personnel and overhead costs connected with general business
operations, business development, intellectual property development and
regulatory affairs to support increased activities in the Company's Microbial
Virulence Factors Program and Host Response Program.

Interest Income and Expenses. Interest income increased $196,805 to
$216,209 for the nine months ended June 30, 1997 compared with $19,404 for the
nine months ended June 30, 1996. The increase in interest

23
<PAGE> 25

income was due to the deposit of funds received by the Company from its private
placement stock offering which raised net proceeds of $2,629,957 and sales of
stock to Lilly in June and November, 1996, totaling $3,999,997. Interest
expenses for the nine months ended June 30, 1997 were $3,138 compared with
$2,548 for the nine months ended June 30, 1996.

Net Loss. Net losses increased $215,134 to $1,536,351 for the nine months
ended June 30, 1997 compared with $1,321,217 for the nine months ended June 30,
1996. The increased loss during the nine months ended June 30, 1997 resulted
from increased research and development, business development, and general
operating activities.

Fiscal Year Ended September 30, 1996 Compared with Fiscal Year Ended September
30, 1995.

Revenues. Revenues decreased $65,535 to $321,444 in the Fiscal 1996 ended
September 30, 1996 ("Fiscal 1996") compared with $386,979 for the Fiscal 1995
ended September 30, 1995 ("Fiscal 1995"). Revenues in 1996 consisted of $221,424
from a Phase II SBIR grant from the NIH to support the Company's EHEC program
and $100,000 from Lilly under the Lilly Agreements. Revenues in Fiscal 1995
consisted of $186,283 from research grants from the Department of Defense for
the Company's antitoxin and vaccine programs and the NIH for the Company's EHEC
and other passive antibody programs, $200,000 received from Wyeth-Ayerst
Laboratories ("Wyeth") in connection with a collaborative product development
and license agreement related to Ophidian antivenom technology and miscellaneous
biologic reagent sales.

Research and Development Expenses. Research and development expenses
increased by $123,682 to $1,339,048 in Fiscal 1996 compared with $1,215,366 in
Fiscal 1995. Research and development expenses in both fiscal years included
personnel, supplies, and allocated overhead in support of the Company's avian
antibody programs and other infections disease laboratory activities. The
increased costs in Fiscal 1996 were associated primarily with pilot
manufacturing in support of pre-clinical and clinical development of the
Company's CDAD therapeutic antitoxin.

General and Administrative Expenses. General and administrative expenses
increased $118,115 to $1,034,409 in Fiscal 1996 compared with $916,294 in Fiscal
1995, reflecting increased personnel and overhead costs to support expanded
technology development programs, business development activities and technology
licensing.

Interest Income and Expenses. Interest income decreased $93,989 to $50,761
in Fiscal 1996 compared with $144,750 in Fiscal 1995. Interest was earned on
deposits in a cash management account. The decrease in interest income in Fiscal
1996 was due to lower average monthly cash balances during the year as compared
with Fiscal 1995. Interest expenses decreased $1,304 to $3,320 in fiscal 1996
compared with $4,624 in Fiscal 1995, and are related to capital leases of office
equipment.

Net Loss. Net losses increased $400,685 to $2,004,572 in Fiscal 1996
compared with $1,603,887 in Fiscal 1995. The increase in net losses in Fiscal
1996 was due primarily to increased expenses and reduced interest income.

Fiscal Year Ended September 30, 1995 Compared with Fiscal Year Ended September
30, 1994.

Revenue. Revenues decreased $630,648 to $386,979 in fiscal 1995 compared
with $1,017,627 in the fiscal year ended September 30, 1994 ("Fiscal 1994").
Revenues in 1995 consisted of $186,283 from research grants and contracts from
the Department of Defense for the Company's antitoxin and vaccine programs and
the NIH for the Company's EHEC and other passive antibody programs, $200,000
from Wyeth in connection with a collaborative product development and license
agreement, and miscellaneous biologic reagent sales. Revenues in Fiscal 1994
included $657,553 received from Wyeth, $357,024 from the Department of Defense
and the NIH for the Company's antitoxin, vaccine and passive antibody programs,
and $3,050 in miscellaneous revenues.

Research and Development Expenses. Research and development expenses
increased $58,938 to $1,215,366 in Fiscal 1995 compared with $1,156,428 in
Fiscal 1994. Research and development activities in both years included
collaborative research, federal research contracts, and the Company's infectious
disease

24
<PAGE> 26

research and development programs. Increased expenses in Fiscal 1995 reflected
normal annual increases in personnel and overhead costs.

General and Administrative Expenses. General and administrative expenses
increased $162,745 to $916,294 in Fiscal 1995 compared with $753,549 in Fiscal
1994. The increase in Fiscal 1995 resulted primarily from additional personnel
and consulting costs to support development of the Company's passive antibodies
programs.

Interest Income and Expense. Net interest income decreased $46,290 to
$144,750 in Fiscal 1995 compared with $191,040 in Fiscal 1994. Interest income
in Fiscal 1994 was greater due to higher average balances in the Company's cash
management account. Interest expenses increased $542 to $4,624 in Fiscal 1995
compared with $4,082 in Fiscal 1994.

Net Loss. Net losses increased $898,592 to $1,603,887 in Fiscal 1995
compared with $705,295 in Fiscal 1994. The increased loss in Fiscal 1995 was due
primarily to increased operating expenses and reduced revenues resulting from
discontinuation of the agreement with Wyeth.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through
the sale of equity and revenues consisting of payments received under
collaborative agreements and federal research grants. As of June 30, 1997, the
Company had received $12,406,113 in net proceeds from the sale of equity. The
Company's principal sales of equity have occurred through private placement
stock offering activities and sales to Lilly.

In January 1990, the Company sold 800,000 shares of Common Stock to
Fitchburg Research Park Associates ("FRPA") at $.0625 per share, resulting in
net proceeds to the Company of $50,000.

In December 1992, the Company sold 933,120 shares of Common Stock and
warrants in a private placement offering at $2.00 per unit consisting of one
share of Common Stock and a warrant to purchase one-half additional share at an
additional exercise price of $2.25 per share, resulting in net proceeds to the
Company of $1,828,364. In March 1993, warrants to exercise 447,120 shares of
common stock sold pursuant to this offering were exercised at an exercise price
of $2.25 per share, resulting in net proceeds to the Company of $1,006,020.

The Company sold 579,482 shares of Common Stock in a private placement
offering at $4.50 per share, which was completed in June, 1993 resulting in net
proceeds to the Company of $2,579,661.

In September 1993, Fitchburg Research Park Associates exercised its warrant
(issued October, 1990) to purchase 125,000 shares of Common Stock at $2.00 per
share, resulting in net proceeds to the Company of $250,000.

The Company sold 485,805 shares of Common Stock in a private placement
offering at $5.50 per share, which was completed in November 1996 resulting in
net proceeds to the Company of $2,629,957.

In June, 1996, the Company and Lilly entered into the Lilly Agreements,
according to which the Company sold to Lilly 153,846 shares of Common Stock at
$6.50 per share and in November 1996 sold 545,454 shares of Common Stock at
$5.50 per share, resulting in aggregate net proceeds of $3,999,997.

Net cash used in operating activities was $1,600,893 for the nine months
ended June 30, 1997 as compared with net cash used in operating activities of
$999,295 for the nine months ended June 30, 1996. The increase in cash used in
operations is primarily the result of increased research and development funding
activities and general and administrative expenses. Net cash used in investing
activities was $5,616 for the nine months ended June 30, 1997, as compared with
$303,392 for the nine months ended June 30, 1996. The net decrease in cash used
in investing activities was attributable to a net increase of $272,544 in the
proceeds received from available-for-sale securities offset by an increase in
capital expenditures of $95,656 and patent costs of $263,946. Net cash provided
by financing activities was $3,005,186 for the nine months ended June 30, 1997,
as compared with net cash provided by financing activities for the nine months
ended June 30, 1996 of $988,478. The increase in cash provided by financing
activities is primarily attributable to the receipt of proceeds from the sale of
equity to Lilly of $2,999,997 compared with proceeds received in a similar
equity sale to Lilly of $999,999 in the nine months ended June 30, 1996. At June
30, 1997 the Company had cash and cash equivalents of $4,675,016.

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<PAGE> 27

Net cash used in operating activities was $1,581,943 for Fiscal 1996, as
compared with net cash used in operating activities of $1,440,141 for Fiscal
1995. The increase in cash used in operating activities is primarily
attributable to increased research and development funding activities and
increased general and administrative expenses. Net cash provided by investing
activities was $458,610 for Fiscal 1996 as compared to $822,549 for Fiscal 1995.
The decrease is principally attributable to a decrease in net proceeds received
from available for sale investment activities. Net cash provided by financing
activities was $3,512,095 for Fiscal 1996 as compared with cash used in
financing activities of $16,126 for Fiscal 1995. The change is primarily
attributable to the receipt of $999,999 in proceeds from the sale of equity to
Lilly and $2,517,365 of net proceeds in a private placement offering received in
Fiscal 1996 while there were no equity sales in Fiscal 1995.

Through June 30, 1997, the Company had invested approximately $739,824
(including capital lease obligations) in equipment and leasehold improvements.
The present value of obligations under capital leases at June 30, 1997 was
$64,787. Minimum annual principal payments due under capital leases total
$20,627 in fiscal 1997 and decline each year thereafter until expiration in the
year 2003. The Company made principal payments under capital leases obligations
of $15,783 in fiscal 1996 and $16,126 in fiscal 1995. The Company invested
$145,216 in fiscal 1996 and $332,910 in the nine months ended June 30, 1997 for
patents based on the Company's research and development activities.

The Company believes that the anticipated net proceeds from this Offering,
together with its existing capital resources, interest income and future
revenues, if any, due under collaborative agreements, will be sufficient to
satisfy its funding requirements for at least 12 months. These funding
requirements include continued expenditures for research and development
programs, as well as expenditures related to expanded laboratory and general
corporate facilities and the establishment of pilot manufacturing facilities.

NET OPERATING LOSSES

The Company has not generated taxable income to date. At September 30,
1996, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $4,899,000. These carryforwards
expire beginning in 2007 if not utilized. At September 30, 1996, the Company has
research and other federal tax credit carryforwards of approximately $273,000
and Wisconsin carryforwards of approximately $133,000. The Company has recorded
a full valuation allowance against any deferred tax assets established for the
carryforwards.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS No. 123). The Company was required to adopt FAS No. 123 effective October
1, 1996. FAS No. 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. As
permitted under FAS No. 123, the Company has elected to continue accounting for
stock-based compensation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" accompanied by the annual disclosure
of the pro forma effects on net income and earnings per share had the
compensation cost been determined based upon the fair value at the grant date
for such plan awards under the provisions of FAS No. 123. Accordingly, because
the exercise price of the stock options granted equals the estimated fair market
price of the underlying stock on the date of the grant, no compensation expense
has been recognized. The Company will be required to disclose pro forma net
income and pro forma earnings per share in the footnotes to its financial
statements using the fair value based method on the Company's financial
statements for the year ended September 30, 1997.

EARNINGS PER SHARE

In February, 1997, the FASB issued FAS No. 128, "Earnings per Share" which
is required to be adopted on December 31, 1997. Among other provisions, the
dilutive effect of stock options and warrants must be excluded under the new
requirements for calculating basic earnings per share, which will replace
primary earnings per share. Because of the current antidilutive effect of the
options and warrants the change is not expected to materially impact the
reported earnings per share.

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BUSINESS

SUMMARY

Ophidian, a development stage company, is engaged in the research and
development of pharmaceuticals with an emphasis on products for infectious
diseases. Under a collaboration with Lilly, the Company is developing a product
for the treatment of CDAD. CDAD is a bacterial infection that has become a
common side effect of antibiotic therapy. The CDAD product is a result of the
Company's strategy to design new drugs for infectious diseases by targeting
molecules involved in the host-pathogen interaction.

Ophidian signed a collaborative development and license agreement and a
stock purchase agreement with Lilly in June, 1996. Under the Lilly Agreements,
Ophidian has received $4.4 million in equity investments and development
milestone payments. Lilly will pay the Company an additional $8.0 million if
certain CDAD product development objectives are met and Lilly chooses to proceed
with development. The Lilly Agreements provide for Lilly to fund and conduct
clinical testing, registration and marketing of the CDAD product worldwide and
Ophidian to manufacture bulk drug for clinical and commercial use. The CDAD
product is a passive antibody formulation that neutralizes disease-causing
toxins secreted by C. difficile during infection of the human intestinal tract.
These toxins are responsible for the development of diarrhea, inflammation and
symptoms of colitis caused by the C. difficile organism. CDAD is a common side
effect of treatment with certain broad spectrum antibiotics, arising in
approximately one percent of all hospitalized patients. The Company anticipates
that it will file an IND for initial human clinical testing of the CDAD drug
before the end of 1997.

The Company is also developing a drug to prevent disease caused by EHEC,
including E. coli O157:H7. Ophidian has received research funding of $816,000
from the NIH for this program. The public health problem of EHEC became widely
recognized following outbreaks in the U.S. and Japan that afflicted thousands of
persons as a result of contaminated food products, including ground beef. The
Company has shown in animals that the injection of its passive antibodies that
neutralize EHEC toxins can block progression of lethal disease symptoms. The
Company is conducting pre-clinical development of its EHEC passive antibodies as
a potential human therapeutic.

Broad-spectrum antibiotics are the most commonly used drugs to treat
infectious diseases, with worldwide sales of over $20 billion annually. However,
increased microbial resistance to antibiotics and the emergence of new
infectious agents have created a significant need for new approaches for the
treatment of infectious diseases. In addition, broadspectrum antibiotics can be
detrimental to the patient because beneficial microbes are often killed along
with the disease-causing pathogen. The Company's research strategy is to develop
infectious disease drugs that target molecules involved in specific
host-pathogen interactions. In contrast to typical antibiotics, the Company's
products are designed to leave beneficial microbes undisturbed, support the
action of the host's immune system, and reduce the potential for the development
of microbial resistance. The Company has 57 patents, issued or pending, from its
research and development programs and has acquired rights to several external
patents to supplement its technology.

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INFECTIOUS DISEASES

Infectious diseases remain the world's leading cause of premature death.
Between 1980 and 1992, the death rate due to infectious diseases rose 58% in the
United States, making infectious diseases the third leading cause of death in
this country behind heart disease and cancer. In the United States,
approximately 25% of physician visits are attributable to infectious diseases
and in 1995 their indirect costs were estimated at more than $120 billion.
Despite the use of antibiotics and other drugs, infectious disease prevention
and treatment remains a major medical challenge throughout the world. It has
been estimated that 4 billion cases of infectious diarrhea occurred in 1995.
Tuberculosis continues to be epidemic worldwide, with 1995 estimates of over 1.9
billion carriers and 8.9 million new cases per year. Other familiar bacterial
(whooping cough, respiratory infections, meningococcal meningitis) and viral
(hepatitis, measles) diseases continue to be among the ten most common
infections worldwide. In addition, hospital acquired (nosocomial) infections,
such as CDAD, add significant costs to the treatment of patients hospitalized
for many other diseases. The Company estimates that CDAD alone is responsible
for over $1 billion in hospital charges annually in the U.S.

The emergence of infectious agents as health care problems, such as EHEC,
provides new challenges and opportunities for antimicrobial drugs.
Cryptosporidiosis, toxic shock syndrome, Legionnaires' disease, Ebola
hemorrhagic fever, hemolytic uremic syndrome, AIDS, gastric ulcers, and Lyme
disease are among the diseases that have emerged in the past two decades. The
emergence of new pathogens has resulted from: the capacity of microbes to change
and adapt in ways that make them more virulent or resistant to drugs and
vaccines; an increased population of persons, such as children in daycare
centers, the elderly or institutionalized patients, that may be more susceptible
to infection; and increased international travel and trade that allow infections
to spread rapidly and widely. These factors are promoting new or previously
unrecognized infectious agents to emerge as human pathogens and known pathogens
to reemerge in regions where they were once thought to be under control.

In addition to these infectious agents, other microbes are causing disease
based on their ability to resist conventional antibiotic therapy. Among these,
vancomycin-resistant enterococci, penicillin-resistant pneumococci,
multi-resistant S. aureus, and multi-resistant tuberculosis have become
significant clinical problems. While new antibiotics that attack a broad
spectrum of pathogens may help to overcome the present crisis of pathogen
resistance, microbes will likely evolve new mechanisms of resistance. With the
rise in antibiotic resistance, emergence of new pathogens, and harmful side
effects associated with the widespread use of broad spectrum antibiotics, new
medical strategies are needed to control infectious diseases.

Antibiotics are the mainstay of infectious disease medicine. Traditional
antibiotics are chemicals that interfere with essential metabolic processes or
structural components of the microbe, resulting in microbial killing or
inhibition of microbial multiplication. These chemicals are nonspecific in that
both the undesirable pathogen and desirable members of the microbial flora
normally living in the host are destroyed. The beneficial microbes compete with,
and are an important barrier to, infectious pathogens. Loss of this barrier,
especially in patients that are immunocompromised, can lead to further disease
complications and can predispose the patient to infections by other pathogens.
Ophidian is pursuing an alternative medical approach-to develop drugs that are
active against only a single pathogen or limited spectrum of organisms.

In certain clinical scenarios broad-spectrum antibiotics may be incapable
of preventing host injury once infection is diagnosed. In diseases such as CDAD,
hemolytic uremic syndrome caused by EHEC, and sepsis, antibiotics are unable to
prevent the widespread organ damage caused by toxins previously released from
the offending bacterium. In other scenarios, the host's efforts to wall off,
kill or neutralize pathogens, may proceed rapidly, causing fibrosis (scarring)
and other complications. These aspects of infectious disease require drug
strategies (i.e., disease specific) that involve the interaction of the host and
pathogen.

Ophidian focuses on the discovery and development of new antimicrobial
drugs that avoid resistance and damage to the normal flora or that treat
infection-related host injury. This is accomplished by targeting molecules
involved in the interaction of the host and pathogen. Ophidian has selected
certain virulence factors, such as bacterial toxins, as drug targets because
they are specific to a pathogen and likely to remain essential to pathogenesis.
The Company uses this specificity to design drugs that do not disrupt the normal
microbial ecology of the host and are less susceptible to resistance
development. The Company's lead products are also

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designed to prevent host injury from inflammatory or other undesirable defense
reactions brought on by infection.

THE COMPANY'S PRODUCTS

Therapeutic Antitoxin for Clostridium difficile-Associated Disease (CDAD).
Since June 1996, Ophidian and Lilly have collaborated on the development of the
Company's passive antibodies to treat or prevent CDAD. Ophidian and Lilly have
completed pre-clinical studies and expect to file an IND by the end of 1997.

CDAD afflicts, in the Company's estimation, one percent of all hospital
admissions in the U.S. and as many as one million patients annually worldwide.
The management of diarrheal disease characteristic of CDAD is a growing burden
to hospitals and long-term care facilities and is especially problematic on
medical, surgical, and burn wards. Most patients develop a self-limiting
diarrhea, but some progress to pseudomembranous colitis, toxic megacolon,
peritonitis, and/or death.

An epidemic of CDAD is attributed to the widespread use of broad-spectrum
antibiotics that alter the intestinal flora and predispose a patient to C.
difficile infection, either by allowing resident organisms to proliferate or by
exposing the host to nosocomial infection. The costs of CDAD can easily amount
to thousands of dollars per patient due to nursing care, barrier precautions,
diagnostic tests, and medical treatment. In an intensive care unit, the costs
are compounded by the battery of diagnostics and empirical antibiotic therapies
that are ordered when a patient becomes febrile.

Vancomycin has been the drug of choice for treating CDAD, but its use is
being restricted due to selection for vancomycin-resistant enterococci. In 1993,
the Centers for Disease Control and Prevention ("CDC") reported that the
widespread use of vancomycin selects for strains of Enterococcus that are
resistant to virtually all antibiotics, including vancomycin. Vancomycin
resistance can be transferred genetically from enterococci to
methicillin-resistant Staphylococcus aureus, an organism that is currently
susceptible only to vancomycin. Enterococcus and S. aureus are two of the most
prevalent pathogens causing sepsis and other serious nosocomial infections. As a
result, hospitals have restricted vancomycin use as a primary therapy for CDAD
treatment. As an alternative antibiotic, metronidazole is used for CDAD control.
Metronidazole is as effective as vancomycin for mild and moderate CDAD, however,
its efficacy in severe cases of colitis is erratic and toxicity is a concern.
Physicians often switch from metronidazole to vancomycin therapy if symptoms do
not abate within 24 hours to avoid severe complications.

Ophidian is proposing to treat or prevent CDAD by using specific passive
antibodies. The medical advantages of the Company's CDAD product could include
more rapid recovery, fewer relapses, and reduction of resistance development in
intestinal bacteria. Ophidian has shown in animals that its orally delivered
antibodies neutralize C. difficile toxins without disrupting the intestinal
function. C. difficile causes disease by producing two potent toxins, known as
toxins A and B, that are released by the bacteria and cause severe damage to the
gut lining and underlying tissue. By attacking the toxins specifically, the
pathogenic mechanism of the organism is blocked; its ability to thrive in the
gut is diminished; and, the normal microbial ecology is allowed to recover.
Because the toxin neutralizing passive antibodies are polyclonal and react to
multiple toxin epitopes, the Company believes that the emergence of resistant C.
difficile strains is unlikely.

The Company has demonstrated the effectiveness of its passive antibodies in
the hamster model of CDAD. This animal model offers clear end-points, is
reproducible, and has been highly predictive of antibiotic performance in human
disease. Prophylactic or therapeutic administration of Ophidian's antibody
prevents tissue destruction, diarrhea, and death in the animal model.
Importantly, relapse does not occur after termination of Ophidian's antibody
therapy, whereas the animals relapse and die within five to seven days after
metronidazole or vancomycin treatment is ended.

The Company believes efficacy trials for its CDAD passive antibodies can
proceed more rapidly than for many other drugs since CDAD is prevalent and
easily and accurately diagnosed. In addition, the normally acute course of CDAD
allows the effectiveness of drugs to be evaluated in days to weeks. Ophidian's
antibodies are isolated from hen eggs that are a normal dietary component.
Therefore, the Company believes they will be safe when used as an orally
delivered therapeutic. Ophidian has produced avian antibodies

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through the use of various contract manufacturers and intends to apply a portion
of the proceeds for this offering to establish its own manufacturing capability.
The Company can provide no assurance that the FDA will determine that Ophidian's
antibodies are safe or effective or that their manufacture will meet FDA
requirements.

The Company has more than 15 U.S. or Foreign patents, issued or pending,
covering the compositions, methods and uses of its avian antibodies for CDAD.

Antitoxin for Enterohemorrhagic Escherichia coli (EHEC). Ophidian is
developing an EHEC passive antibody formulation funded by an $816,000 grant from
the NIH. The Company is currently conducting pre-clinical studies in animal
disease models.

EHEC, such as serotype O157:H7, have emerged as serious food-borne
pathogens. EHEC gained wide-spread notoriety in the U.S. after a major outbreak
in the Pacific Northwest in which over 700 people fell ill due to undercooked
ground beef. Worldwide, E. coli O157:H7 and other EHEC are becoming increasingly
apparent as a human health problem. Estimates from the CDC indicate that over
20,000 E. coli O157:H7 infections occur annually in the U.S., resulting in
400-500 deaths. Although O157:H7 is the predominant E. coli serotype causing
illness in North America, several other serotypes produce toxins and have been
associated with major outbreaks in Europe, Mexico, China, Argentina, and
Thailand.

EHEC cause a spectrum of illness ranging from mild, uncomplicated diarrhea
to severe bloody diarrhea and about 50% of patients progress to renal disease
known as hemolytic uremic syndrome (HUS). Disease symptoms are caused by toxins
(known as vero- or Shiga-like toxins) released by ingested bacteria that destroy
the intestinal lining, causing bloody diarrhea and allowing the further
dissemination of toxin into the bloodstream. Within two to four days after the
onset of bloody diarrhea, systemic toxin is believed to incite microthrombi
which can progress to kidney (or other organ) failure and death.

The Company believes the injection of its EHEC toxin-neutralizing
antibodies will halt systemic disease when delivered within two to four days
following onset of bloody diarrhea. Typically, patients do not seek medical
attention until the onset of bloody diarrhea, when toxins have likely begun
entering the bloodstream. Conventional antibiotic treatment may increase the
patient risk due to increased toxin release from the bacterium. Ophidian's
passive antibodies are designed to neutralize toxins that enter circulation
following EHEC infection. These polyclonal antibodies are directed to
recombinant verotoxins developed by Ophidian. The antibody formulation
neutralizes both major verotoxin types produced by organisms of the O157:H7
serotype as well as structural variants produced by other serotypes such as
O91:H21.

Ophidian's antibodies are protective against lethality in a rodent model of
EHEC infection when administered within 36-48 hours following EHEC inoculation.
These results demonstrate a window for therapeutic intervention in animal EHEC
disease. Without treatment, animals inoculated orally with viable EHEC bacteria
will develop disease symptoms within 48 hours and will die due to kidney and
other complications after four to five days. Ophidian's antibodies are also
effective in preventing disease symptoms and lethality when given
prophylactically prior to inoculation.

The Company's funding from the NIH will support research and development of
the EHEC project at Ophidian until March 1998. Ophidian will seek to establish a
partnership with a biotechnology firm or regional public health agencies to
participate in the clinical development and, if approved, marketing of the
product. Two patent applications have been filed with claims directed to
compositions of and methods for producing EHEC antibodies and their therapeutic
use.

Vaccines and Antitoxins for Biological Agents. From 1991 to 1996, Ophidian
received over $600,000 in contracts from the U.S. Department of Defense for the
research and development of antitoxins and vaccines to a number of biologic
agents. These programs applied the Company's technology in recombinant microbial
antigens (particular bacterial toxins), capabilities in the cloning and
expression of Clostridium genes, and avian passive antibody formulation. The
Company has shown in various animal models, including primates, that its
vaccines and passive antibodies are safe and effective against specific toxins.
Furthermore, the Company believes that the clinical development requirements for
these products could be abbreviated because appropriate animal models exist as
surrogates to human testing and it is impractical to conduct efficacy trials

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by exposing humans to biological toxins. The Company currently has four patents,
issued or pending, with claims directed to antitoxins and vaccines to biologic
agents.

Diagnostic Products. Ophidian has developed reagents (polyclonal
antibodies, recombinant microbial proteins, and peptides) in the course of its
drug development that have application in clinical diagnostic testing. The
Company's technology facilitates the manufacture of these reagents on a
commercial scale using methods developed in its therapeutic programs, such as
CDAD. The Company believes that these reagents could be sold to clinical
diagnostic firms as components in their instrumented assay systems or test kits.
The Company believes that it could receive bulk reagent supply revenues and/or
royalties from final product sales. In addition, the development of rapid and
accurate infectious disease diagnostics based on Ophidian's reagents could
assist in the clinical development of Ophidian's therapeutic candidates by
providing improved diagnosis and therapy decisions. The Company has claims
directed to diagnostic applications of its CDAD, EHEC and other patents, issued
or pending.

Additional Therapeutic Products for Infectious Disease. Ophidian intends to
pursue the development of additional products resulting from its programs in
target discovery and drug design for passive antibody products. The Company is
applying its technologies for products to treat or prevent acute
gastrointestinal infections or microbial toxin-mediated diseases. In addition,
the Company is developing drug candidates for chronic diseases, such as chronic
inflammatory bowel disorders, where responses to infectious agents are
implicated in the disease process. The Company is also identifying small
molecule compounds that react with microbial virulence factors for diseases
where passive immunization or vaccination is unsuited. The Company has 10
patents, issued or pending, based on its small molecule drug discovery programs.

OPHIDIAN'S DISCOVERY TECHNOLOGIES

The Company's technology focuses on the interaction of the infectious agent
with the host to discover new targets for therapeutic intervention. The Company
identifies and evaluates drug targets by using molecular genetics, protein
biochemistry and animal disease models and designs drug candidates to react with
these targets that interfere with the disease process. Ophidian's study of human
cellular regulation pathways is directed to the discovery of new infectious
disease drugs and is also relevant to non-infectious diseases.

Ophidian uses antibodies to bind and neutralize virulence factors of
pathogenic bacteria, such as C. difficile and E. coli toxins. For targets in the
intestinal tract, Ophidian has shown that avian antibodies can be formulated in
a solid oral dosage form. Oral delivery of pathogen-specific antibodies is
intended to block the infection process while leaving the normal, beneficial
bacterial flora undisturbed.

Microbial Virulence Factors Program. The Company's strategy to target
microbial virulence factors in drug design is exemplified by its CDAD and EHEC
programs where both diseases are caused by toxin-producing bacteria. Ophidian
has established expertise in the laboratory analysis of toxin molecules and
animal models of disease. Microbial toxins provide ready targets for
intervention with vaccines and passive antibodies. For example, existing
vaccines for tetanus and diphtheria stimulate antibodies that neutralize
microbial toxins responsible for virulence. Many other common pathogens,
including Clostridium, E. coli, Staphylococcus, Streptococcus, Shigella and
Vibrio, produce toxins or enzymes that are either the direct cause of disease or
are important in the disease process.

Molecules related to other disease-causing microbes can be identified by
understanding the mechanism of interaction between disease-causing microbes and
the susceptible host. The Company has analyzed therapeutic targets from
organisms including C. difficile, enterohemorrhagic E. coli, enteroadherent E.
coli, C. botulinum, gram negative endotoxin from various gram negative
organisms, and staphylococcal enterotoxins. The Company has over 20 patents,
issued or pending, with claims directed to compositions or therapeutic use of
microbial targets from these organisms.

Ophidian's study of microbial virulence factors includes the following
steps.

1. Selection of Virulence Factor Target. Potential drug targets are
evaluated in laboratory studies whereby antibodies or small molecules are
designed to interfere with virulence factors. Targets are selected if

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the disease process can be impeded and an appropriate drug form can be designed
(i.e., a suitable drug for intestinal use).

2. Production of Target for Drug Development. Certain virulence factors,
such as toxins, can be extracted only in small quantities from laboratory
cultures of the pathogenic organism. Even if available, naturally-occurring
toxins can be hazardous to manipulate and unsuitable for pharmaceutical
research. Ophidian develops recombinant forms of virulence factors that can be
expressed with appropriate chemical conformation, purified and handled safely
using proprietary techniques of molecular cloning and expression.

3. Drug Design. The Company's principal approach to drug design is the
application of immunochemical techniques. Ophidian maps the regions of the
protein that are optimally susceptible to drug targeting using antibodies as
probes. From this analysis, passive antibodies or vaccines can be developed.
Alternatively, the target can be used to screen chemical libraries to identify
small molecule drug candidates.

4. Develop Process Reagents. When the optimal drug form is passive
antibodies or vaccines, the recombinant production system is scaled to yield
larger quantities of the target molecule.

5. Animal Models of Disease. Ophidian tests the effectiveness of antibody
or other drug formulations using animal (usually rodent) models of disease.
Treatment regimens and dosing are evaluated to arrive at a drug composition
yielding the desired therapeutic effect.

Host Response Program. The Company has initiated a program to identify host
functions that are involved in infectious disease pathogenesis. The Company is
targeting the "transforming growth factor beta" (TGF-SS) pathway for new drug
discovery because this pathway is used by several infectious agents to suppress
the immune response of the host. Pathogens, including viruses, bacteria, fungi
and multicellular parasites, can exploit many host cell functions, including
signal transduction pathways, cytoskeletal rearrangements and vacuolar
trafficking. In turn, the host cell environment can induce specific patterns of
gene expression in a pathogen. The TGF-SS cytokine is known to regulate cell
growth, fibrogenesis and the immune response in numerous diseases.

The Company's strategy is to study molecules involved in the TGF-SS signal
transduction pathway to increase the number of targets for drug intervention.
Cells respond through cell surface receptors for TGF-SS that activate signal
transduction proteins inside the cells called SMADS. Upon activation, SMADS
enter the cell nucleus and participate in the regulation of TGF-SS-responsive
genes. The Company believes that targeting molecules involved in TGF-SS signal
transduction, such as SMADS, may provide a means to modulate specific TGF-SS
responses during infectious and other disease processes.

The Company is developing specific assays for high throughput screens for
new small molecule activators and inhibitors of the pathway. The Company has
acquired intellectual property for various uses of SMADS and established an
academic collaboration to evaluate the biological actions of such novel
compounds affecting SMADS. The Company intends to test such leads in animal
models of infectious disease-induced immunosuppression and fibrosis as well as
for other indications. As other targets and pathways are validated through
genetic manipulation in animal models of disease, the Company and its
collaborators intend to develop appropriate biological assays for future small
molecule drug discovery efforts.

Drugs and drug targets discovered in this program may have other medical
applications. The range of disease applications that could result from the study
of TGF-SS targets expands well beyond Ophidian's interest in infectious
diseases. The Company expects to outlicense those applications that are outside
its business interest or establish sponsored research agreements with firms
wanting access to Ophidian's signal transduction targets for drug discovery or
diagnosis. Possible disease applications of Ophidian's technology are summarized
below.

Cancer. Drugs that affect SMADS may compensate for disease-causing
mutations in SMAD genes or in the genes of receptors and other proteins that
exert their effects through SMADS. Mutations in the TGF-SS receptor and SMAD
genes on the TGF-SS pathway have been detected in colon and other cancers.
Mutations in the type II TGF-SS receptor are detected in approximately 20% of
sporadic colorectal cancers. Mutations in the TGF-SS pathway SMAD4 protein are
found in human pancreatic cancer and 90% of human pancreatic

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cancers exhibit chromosome loss for the chromosomal region that includes SMAD4.
In addition, defects detected in prostate cancer include loss of TGF-SS
receptors.

Fibrotic diseases. Fibrotic diseases occur when the body's response to
tissue injury results in an overproduction of extracellular matrix deposition.
New drugs that target TGF-SS could be used to temper the body's response to
tissue injury so that tissue regeneration can occur in a more orderly fashion,
without the potentially life threatening complications engendered by extensive
fibrosis. Overproduction of TGF-SS is a major cause of fibrotic diseases
affecting the kidney, lung, liver, bone marrow, and heart. Fibrosis of the
kidney contributes to end stage renal disease, which in 1993 affected over
250,000 people and led to over $11 billion in healthcare expenses in 1994.
Interference with TGF-SS by binding proteins has had positive therapeutic
effects in animal models for glomerulonephritis. Chronic liver disease, which is
often caused by viral infections, is also associated with fibrosis that
progresses to cirrhosis. Interfering with TGF-SS allows wounds to heal without
scarring.

Other diseases. The pathogenicity of over-exuberant repair reactions may
also pertain to the reported actions of TGF-SS in osteoarthritis in which low
level expression can heal cartilage damage but high level expression mimics the
changes found in the diseased joints. In addition, there are implications
involving the TGF-SS pathway which the Company may explore in conditions ranging
from immunosuppression, myelodysplastic syndromes, bone loss, neural
degeneration, and Alzheimer's disease.

OPHIDIAN'S MANUFACTURING TECHNOLOGY

Ophidian has developed a manufacturing technology which harvests polyclonal
antibodies from the egg yolks of hyperimmunized laying hens. In contrast to
large mammals, laying hens provide a practical animal production source for the
development and optimization of new antibody products. Similar experimentation
in large mammals is burdened by expense, time, material, and potential animal
losses. The production capacity of hens and the efficiency of extracting
antibodies from eggs provides an efficient source of antibodies that the Company
considers advantageous for large-scale production.

Ophidian believes the use of avian antibodies as a drug form is attractive
because of the following features:

- Hens generate large quantities of antibody relative to their body mass.

- Hens can typically be immunized safely with higher doses of immunogen on
a body weight basis than large mammals, resulting in high specific
antibody output.

- The costs of purchasing, housing, and maintaining production hens can be
less than for horses or other large mammals.

- Egg yolks containing IgY can be separated using high-throughput food
industry automation.

- Antibodies can be recovered using bulk fractionation without the use of
volatile solvents.

- Antibody preparations can be filter-sterilized, lyophilized, tableted and
reconstituted without appreciable loss of structural integrity and can be
enterically coated for oral delivery.

The Company has developed process protocols to facilitate work flow,
maximize egg production, and maximize IgY output. The Company has developed
process and logistical controls that it believes will meet Good Manufacturing
Practices requirements of the FDA. Ophidian has carried out various stages of
the IgY manufacturing process under contracts with manufacturing firms. Ophidian
is developing its own manufacturing capability to produce pharmaceutical grade
IgY in larger scale and intends to apply a portion of the proceeds of this
Offering to acquire a manufacturing facility and pay expenses associated with
its validation and operation.

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<PAGE> 35

OPHIDIAN'S BUSINESS STRATEGY

The Company's strategy is to commercialize technologies and products from
its research and development programs. The Company intends to manufacture and
sell its bulk pharmaceuticals, receive royalties from the sale of its product
through marketing partners, receive license fees from the use of its
technologies and establish sponsored research agreements encompassing Ophidian
technologies. The Company intends to achieve its objectives as follows.

- Develop portfolio of infectious disease drugs. The Company has applied
its resources to a portfolio of products to diversify the risks inherent
in pharmaceutical product development. The establishment of a product
portfolio is also intended to leverage the Company's proprietary
discovery and manufacturing technologies and know-how in the field of
infectious disease.

- Develop new technologies for drug discovery and formulation. Ophidian's
research strategy is to discover new drug targets through examination of
and research involving molecules involved in the host-pathogen
interaction. The Company's initial programs on bacterial toxins as drug
targets has expanded to the study of host factors involved in the
infectious disease process.

- Develop business and enhance research through collaborations. The
Company's business strategy is to leverage the resources gained from each
collaboration to expand its technology and operations base. The Company
also intends to rely on commercial partners for the marketing, sales and
distribution of its products. In addition, collaborations with academic
centers can supplement the scientific resources available within Ophidian
and broaden access to rapidly emerging drug discovery technologies.

- Establish manufacturing capability to facilitate new product development
and retain a greater portion of product value. The Company intends to
establish a manufacturing business to maximize the commercial opportunity
of its core technologies. The Company intends to develop multiple
products based on its avian antibody manufacturing technology to leverage
its know-how and facilities investment. The Company also believes that
controlling its own manufacturing facility will accelerate the
development and licensure of future products.

COLLABORATIVE AGREEMENTS

In June, 1996, the Company and Lilly entered into a collaborative agreement
for the research, development, manufacture and sale of Ophidian's product for
the treatment of CDAD ("Development Agreement"). In connection with the
Development Agreement the parties also entered into a Stock Purchase Agreement
that set forth terms for the purchase of Ophidian common stock by Lilly. To
date, the Company has received $400,000 in development payments, $1.0 million
from the sale of stock to Lilly at signing of the Lilly Agreements, and $3.0
million from the sale of stock to Lilly upon achievement of the first
development milestone under the Lilly Agreements. Lilly has agreed to provide
the Company an additional $8.0 million through a cash payment and stock purchase
upon the completion of certain project milestones and Lilly's decision to
proceed with clinical development. Under the Development Agreement, Lilly also
agreed to fully fund pre-clinical and clinical development, formulation
development, and the submission of regulatory documents required for marketing
approval. Ophidian agreed to manufacture bulk drug substance for pre-clinical
and clinical development. The Company granted Lilly an exclusive worldwide right
to market, sell and distribute the CDAD product and exclusive worldwide license
to Ophidian's intellectual property as it applies to the CDAD product. Under the
Development Agreement, the Company is responsible for the production of bulk
drug substance and Lilly for drug product. The parties have agreed to a revenue
sharing plan as compensation for their respective manufacturing and marketing
activities. The Company is required to establish a manufacturing capability
sufficient to produce clinical and commercial quantities of bulk drug substance
for the CDAD product. Should Ophidian fail to meet its manufacturing
obligations, Lilly may assume bulk drug substance manufacturing rights subject
to certain payments to Ophidian. Under the terms of the Development Agreement,
Lilly may, at any time, terminate the agreement. Upon such termination, all
licenses to Ophidian technology would expire and Ophidian would retain ownership
of all information generated during the collaboration.

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<PAGE> 36

In June, 1997, the Company entered into an agreement with Dr. Allen
Laughon, and other researchers, (the "Laughon Agreement") wherein the Company
was granted an exclusive license to compositions and methods for the binding of
certain molecules (i.e., SMADs) involved in the regulation of the TGF-b pathway
as set forth in a U.S. patent application. The Laughon Agreement also grants to
the Company an exclusive license to any products or other subject matter whose
discovery emanates from the licensed invention. The Company may maintain the
license upon the yearly payment of $10,000. The Laughon Agreement also requires
the Company to make cash payments upon the achievement of certain development
milestones for product candidates. In connection with the Laughon Agreement, the
Company has other agreements with Dr. Laughon and the University of
Wisconsin-Madison whereby the Company is funding ongoing SMAD research by Dr.
Laughon in his University laboratory. The Company will have certain patent
rights to inventions resulting from such research.

In September, 1991, the Company entered an agreement with Promega
Corporation ("Promega"), Madison, Wisconsin, ("Promega Agreement") to provide
marketing of the Company's technologies outside its core markets ("Core Markets"
are defined as therapeutic and diagnostic products and their accessory or
component parts, for human or animal use). Under the Promega Agreement, the
Company granted Promega an exclusive and confidential first right, for a period
of 10 years, to review any technology developed by the Company incidental to its
Core Markets. The Promega Agreement will terminate upon its tenth anniversary or
on the date when Promega owns less than one percent of the Company's common
stock. In connection with the Promega Agreement, Promega acquired shares of the
Company for an aggregate purchase price of $546,920. To date, no licenses have
been negotiated under the Promega Agreement.

The Company has formed collaborations with various academic or commercial
institutions for the evaluation of technology of either party. These agreements
may provide that ownership of the Company's inventions is retained by the
Company and ownership of the outside party's technology is retained by the
outside party. Should inventions arise during the course of a collaboration
which are invented by both the Company and the outside party, the parties agree
to negotiate in good faith the commercial use by the Company of such joint
inventions.

The Company has entered into license agreements with academic and
government agencies for the use of technologies involved in recombinant DNA
research. Maintenance of these licenses generally require annual payments and
certain royalties are payable upon the commercialization of products that employ
the technology. In aggregate, the Company pays approximately $22,000 annually to
these licensors.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies and to preserve its trade
secrets. It is the policy of the Company to file patent applications in the
United States and/or foreign jurisdictions. The Company currently holds 10
issued United States or foreign patents and has 47 United States and foreign
patent applications pending. No assurance can be given that the Company's patent
applications will be approved or that any issued patents will provide
competitive advantages for the Company's technologies or development of products
or will not be challenged or circumvented by competitors. With respect to
already issued patents and any patents which may be issued from the Company's
applications, there can be no assurance that claims allowed will be sufficient
to protect the Company's technologies. Patent applications in the United States
are maintained in secrecy until a patent issues, and the Company cannot be
certain that others have not filed patent applications for technology covered by
the Company's pending applications for, or may have received patents and may
obtain additional patents and proprietary rights relating to, compounds or
processes that may block the Company's patent rights or compete without
infringing the patent rights of the Company. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.

35
<PAGE> 37

for any such breach or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors. Although potential
collaborative partners and the Company's research partners and consultants are
not given access to proprietary trade secrets and know-how of the Company until
they have executed confidentiality agreements, these agreements may be breached
by the other party thereto or may otherwise be of limited effectiveness or
enforceability.

The ability to develop the Company's technologies and to commercialize
products using such technologies will depend on not infringing the patents of
others. Although the Company is not aware of any claim of patent infringement
against it, claims concerning patents and proprietary technologies determined
adversely to the Company could have a material adverse effect on the Company. In
addition, litigation may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third-party
proprietary rights. There can be no assurance that the Company's issued or
licensed patents would be held valid by a court of competent jurisdiction.
Whether or not the outcome of litigation is favorable to the Company, the cost
of such litigation and the diversion of the Company's resources during such
litigation could have a material adverse effect on the Company.

Under the Lilly Agreements, Ophidian granted to Lilly an exclusive
worldwide license with certain rights to sublicense under Ophidian's patents for
the manufacture, sale, and use of drug product employing avian antibodies useful
in the treatment of CDAD. Under the Agreements, Lilly has granted to Ophidian a
non-exclusive license to certain process technology. Should Lilly terminate the
Agreement out of a desire to end the collaboration, all licenses granted to
Lilly would be canceled and the non-exclusive license granted to Ophidian would
remain in force.

All pending patent applications referred to herein are derived from work of
the Company's employees, collaborators and consultants. The Company holds
exclusive worldwide rights to all inventions and patent applications made by its
employees pursuant to written employment agreements.

In addition to the patent applications described herein, the Company
intends to aggressively pursue patent protection for any new technologies that
it may develop or consider essential for its future business development and
intends to safeguard its remaining proprietary technology as trade secrets
through non-disclosure agreements with its employees and third parties.

The pharmaceutical industry has experienced extensive litigation regarding
patent and other intellectual property rights. Accordingly, the Company could
incur substantial costs in defending itself in suits that may be brought against
the Company claiming infringement of the patent rights of others or in asserting
the Company's patent rights in a suit against another party. The Company may
also be required to participate in interference proceedings declared by the
United States Patent and Trademark Office for the purpose of determining the
priority of inventions in connection with the patent applications of the Company
or other parties. Adverse determinations in litigation or interference
proceedings could require the Company to seek licenses (which may not be
available on commercially reasonable terms) or subject the Company to
significant liabilities to third parties, and could therefore have a material
adverse effect on the Company.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Several other
companies have developed or are developing novel technologies for the prevention
and treatment of infectious diseases, and those competing technologies may prove
superior, either generally or in particular market segments, in terms of factors
such as cost, consumer satisfaction or drug safety or efficacy profiles. The
Company's principal competitors in the area of infectious disease drug research
and development include companies, such as SmithKline Beecham Corporation,
Bristol-Myers Squibb Company, Abbott Laboratories as well as numerous
biotechnology firms, all of which have substantially greater financial,
technological, marketing, personnel, and research and development resources than
the Company. In addition, the Company may face competition from pharmaceutical
and biotechnology companies that may develop or acquire infectious disease
technologies. Companies that complete clinical trials, obtain regulatory
approvals and commence commercial sales before their competitors may achieve a
significant competitive advantage. A number of companies are developing new
products for the treatment of

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<PAGE> 38

the same disease being targeted by the Company. In some instances, the Company's
competitors already have products in clinical trials. In addition, certain
pharmaceutical companies are currently marketing drugs for the treatment of the
same diseases targeted by the Company.

The Company believes that its competitive success will be based partly on
its ability to attract and retain scientific personnel, establish specialized
research and development capabilities, gain access to manufacturing, marketing
and distribution resources, secure licenses to external technologies, and obtain
sufficient development capital. The Company intends to obtain many of these
capabilities from pharmaceutical or biotechnology companies through
collaborative or license arrangements. However, there is intense competition
among early stage biotechnology firms to establish such arrangements. The
Company's development products may not be of suitable potential market size or
provide a compelling return on investment to attract other firms to commit
resources to a collaboration. Even if collaborations can be established, there
can be no assurance that the Company will secure financial terms that meet the
Company's commercial objectives.

MANUFACTURING

To be successful, the Company's products must be manufactured in commercial
quantities under appropriate controls as required by the FDA, and at an
acceptable cost. The Company has not yet manufactured any of its passive
antibodies for treatment of gastrointestinal infections in commercial quantities
and currently does not have the facilities to manufacture these products at
commercial scale. To proceed with product development, the Company will rely on
contract manufacturers to perform certain manufacturing processes. There can be
no assurance that the Company will be able to enter into any such manufacturing
arrangements on acceptable terms, if at all. If the Company is not able to enter
into commercial manufacturing agreements, it could encounter delays in
introducing its products.

Manufacturers of products utilizing Ophidian's avian technology will be
subject to applicable GMP requirements prescribed by the FDA or other rules and
regulations prescribed by foreign regulatory authorities. There can be no
assurance that the Company will be able to enter into manufacturing agreements
either domestically or abroad with companies whose facilities and procedures
comply with GMP or applicable foreign standards. Should such agreements be
entered into, the Company will be dependent on such manufacturers for continued
compliance with GMP and applicable foreign standards. Failure by a manufacturer
to maintain GMP or applicable foreign standards could result in significant time
delays or the inability of the Company to commercialize products and could have
a material adverse effect on the Company. There also can be no assurance that
any products utilizing the avian antibodies can be manufactured at a cost or in
quantities required to make them commercially viable. The Company's inability to
contract on acceptable terms and with qualified suppliers for the manufacture of
any products or delays or difficulties in its relationships with manufacturers,
would have a material adverse effect on the Company.

Contract manufacturers must adhere to GMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must pass a pre-approval plan inspection before FDA
approval of any product. Certain material manufacturing changes that occur after
other regulatory agencies will approve the process or facilities by which any of
the Company's products may be manufactured. The Company's dependence on third
parties for the manufacture of products utilizing may adversely affect the
Company's ability to develop and deliver such products on a timely and
competitive basis.

The Company anticipates that it will construct pilot and commercial
facilities for the processing of bulk avian antibodies in the near future.
Facility construction will require the commitment of substantial funds, the
hiring and retention of significant additional personnel and compliance with
extensive regulations applicable to such a facility. While current Company
management has experience in the design, construction and operation of
bioprocessing facilities, there can be no assurance that the Company will be
able to manufacture products in commercial quantities and meet regulatory
requirements.

GOVERNMENT REGULATION

The Company is subject to regulation under various federal laws regarding
pharmaceutical products and also various federal and state laws regarding, among
other things, occupational safety, environmental

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<PAGE> 39

protection, hazardous substance control and product advertising and promotion.
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. The Company
believes that it has complied with these laws and regulations in all material
respects and it has not been required to take any action to correct any material
noncompliance.

FDA Approval Process. In the United States, pharmaceutical products are
subject to rigorous regulation by the FDA. If a company fails to comply with
applicable requirements, it may be subject to administrative or judicially
imposed sanctions such as civil penalties, criminal prosecution of the company
or its officers and employees, injunctions, product seizure or detention,
product recalls, total or partial suspension of production and FDA refusal to
approve pending new drug applications, premarket approval applications, or
supplements to approved applications.

Prior to commencement of clinical studies involving human beings,
pre-clinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety of
the product. The results of these studies are submitted to the FDA as a part of
an IND application, which must become effective before clinical testing in
humans can begin. Typically, clinical evaluation involves a time consuming and
costly three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine the early safety profile, the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical testing and may, at its
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.

The results of the pre-clinical and clinical testing on a nonbiologic drug
and certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval prior to commencement of commercial sales. In responding to an NDA, the
FDA may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will be
granted on a timely basis, if at all. Failure to receive approval for any of its
products could have a material adverse effect on the Company.

Other Regulations. Even if required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must also be
obtained prior to marketing the product internationally. Foreign approval
procedures vary from country to country and the time required for approval may
delay or prevent marketing. In certain instances the Company or its
collaborative partners may seek approval to market and sell certain of its
products outside of the U.S. before submitting an application for U.S. approval
to the FDA. The regulatory procedures for approval of new pharmaceutical
products vary significantly among foreign countries. The clinical testing
requirements and the time required to obtain foreign regulatory approvals may
differ from that required for FDA approval. Although there is now a centralized
European Union ("EU") approval mechanism in place, each EU country may
nonetheless impose its own procedures and requirements, many of which are time
consuming and expensive, and some EU countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed, and approval in any single country may not be a
meaningful indication that the product will thereafter be approved in another
country.

To date, no product candidate being developed by the Company has been
submitted for approval or has been approved by the FDA or any other regulatory
authority for marketing, and there can be no assurance that any such product
will ever be approved for marketing, or that the Company will be able to obtain
the labeling claims desired for its products. The Company is and will continue
to be dependent on collaborators, third party laboratories, contract
manufacturers and medical institutions for the conduct of pre-clinical and
clinical

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<PAGE> 40

testing of its products. If any of these parties should fail to meet their
obligations or comply with applicable regulations, the development progress of
the Company's products could be delayed.

Finally, the Company is also subject to regulation by the Environmental
Protection Agency, the Occupational Safety and Health Administration, the
Wisconsin Department of Natural Resources, and the Wisconsin Department of
Health and Social Services, regarding, among other things, employee safety,
toxic substances, and hazardous waste handling and disposal. The Company may
also be subject to regulation by other state and federal agencies.

PRODUCT LIABILITY

The Company's business involves exposure to potential product liability
risks that are inherent in the production and manufacture of pharmaceutical
products. Any such claims could have a material adverse effect on the Company.
The Company does not currently have any product liability insurance. Although
the Company intends to acquire product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that the Company will be able to secure increased coverage as
the commercialization of products proceeds or that any insurance will provide
adequate protection against potential liabilities.

ADVISORY BOARD

The Company has assembled an Advisory Board composed of leaders in various
disciplines relating to Ophidian's scientific or business interests. These
individuals are appointed by the Board of Directors and provide critical review
and advice pertaining to the Company's research, development, and business
development activities and strategies at the request of management or the Board
of Directors. The Company intends to increase the number of members on the
Advisory Board in recognition of the increasing need for expert consultation as
Ophidian's business is developing. Members of the Advisory Board are compensated
on a case-by-case basis based on their commitment of time and other factors.
Compensation through stock options or stock purchases may be provided.

The current members of the Advisory Board are:

Dr. Sean B. Carroll. Dr. Carroll is an Investigator with the Howard Hughes
Medical Institute (HHMI) and a Professor of Molecular Biology and Genetics at
the University of Wisconsin-Madison. Dr. Carroll holds a B.S. in Biology from
Washington University and a Ph.D. in Immunology from Tufts University. HHMI
limits the activities an Investigator may pursue in a company of which that
Investigator holds a significant ownership interest. Pursuant to this
limitation, Dr. Carroll will serve as a member of the Advisory Board and a
Director of the Company until January, 1998.

Dr. Dennis G. Maki. Dr. Maki is a Professor of Medicine and head of the
section of infectious diseases at the University of Wisconsin-Madison Medical
School. He has also served as Director of, and is currently an Attending
Physician for, the Center for Trauma and Life Support at the University of
Wisconsin Hospitals and Clinics. Dr. Maki earned his M.D. from the University of
Wisconsin Medical School. Following his Internship and Assistant Residency with
Harvard Medical Unit, Boston City Hospital, he served as Epidemic Intelligence
Service Officer, Hospital Infectious Section, U.S. Center for Disease Control in
Atlanta, Georgia. He holds Professional Certifications with the American Board
of Medical Examiners, the American Board of Internal Medicine (Infectious
Diseases and Critical Care Medicine), and the Advanced Trauma Life
Support-American College of Surgeons. Dr. Maki is recognized worldwide as a
leading authority on the prevention and control of hospital-acquired infections.

Dr. Robin D.G. Cooper. Dr. Cooper worked for over 30 years at Eli Lilly and
Company engaged in the development of infectious disease drugs. His
responsibilities included participation in numerous management groups focused on
new drug development and strategic planning. His laboratory research has lead to
over 40 patents and numerous scientific publications. Dr. Cooper received a
B.Sc. degree from the Imperial College, a Ph.D. from the Imperial College and
Queen Mary College, and a D.Sc. from London University.

Dr. Joan Massague. Dr. Massague is an Investigator with the HHMI. He is
also Chairman of the Cell Biology Program at Memorial Sloan-Kettering Cancer
Center, and Professor of Cell Biology at Cornell University Graduate School of
Medical Sciences. Before assuming his present positions, he was Professor of

39
<PAGE> 41

Biochemistry at the University of Massachusetts Medical School. Dr. Massague has
served on numerous advisory boards for the National Institutes of Health,
National Institute of Diabetes, Digestive and Kidney Diseases, Damon
Runyon-Walter Winchell Cancer Fund and the National Cancer Institute. Dr.
Massague has published numerous scientific articles on the signal transduction
mechanisms of TGF-b.

EMPLOYEES

The Company has 29 full-time employees. Of these, nine hold Ph.D. degrees
with substantial post-graduate experience in biological science disciplines. In
addition, the Company's officers, directors and consultants possess substantial
expertise in biologic product development, manufacturing, and marketing. The
Company expects to add significantly to its present personnel. These additional
employees will be involved in research and development, administration, and
product manufacturing.

FACILITIES

On January 1, 1993, the Company entered into a lease with Promega
Corporation for a facility located at 5445 East Cheryl Parkway, Madison,
Wisconsin. Mr. Linton is Ophidian's Chairman of the Board of Directors and a
shareholder as well as the Chairman, President, and a shareholder of Promega
Corporation. This facility provides the Company with approximately 10,000 square
feet of laboratory and office space, and has the potential to house additional
staff and research operations. Currently, a majority of the Company's activities
are carried out at this facility, which has been leased through December 31,
1998, with an option to extend the lease through December 31, 2003. For the
twelve month period beginning January 1, 1997, the lease provides for monthly
rental payments of $19,612, which are adjusted annually by a preset amount to
reflect inflationary trends.

The Company has made significant leasehold improvements and capital
purchases, to date costing approximately $739,824. This facility contains a
fully-functioning immunochemistry and infectious research laboratory, four
bio-containment suites, a networked computer system, and furnished office space.
These improvements, however, do not allow for finished pharmaceutical
manufacturing under GMP guidelines pursuant to applicable federal regulations.
The Company will continue to utilize qualified pharmaceutical contract
manufacturers until such time as it becomes prudent to invest in the necessary
plant and equipment for in-house manufacturing.

The current facility is capable of supporting continued product research,
development, and prototype product testing, along with all aspects of
administrative support. To accommodate expected expansion of the Company's
manufacturing operations, it is anticipated that additional facilities will be
secured, either purchased or subject to appropriate lease arrangements or debt
financing.

The Company also leases approximately 20,000 square feet of animal care
facilities located in Waterloo, Wisconsin. This facility is currently capable of
housing laying hens used for avian antibody research and production. Ophidian
pays a fixed monthly fee for the care and housing of these animals, and Ophidian
may terminate the animal care agreement at any time without financial penalty.
Ophidian also maintains research animals at the University of Wisconsin-Madison
under a fee-for-services arrangement.

RAW MATERIALS

The Company's raw materials (such as laying hens and laboratory chemicals)
and other supply items to be used in its research and manufacturing processes
are available from many different suppliers and are generally immediately
available in sufficient quantities. The Company does not anticipate any
significant problems in the availability of, or significant price increases for,
required raw materials or other production items in the foreseeable future.

LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Company or any
of its property is currently subject.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
July 30, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Douglas C. Stafford(1)...................... 41 President, Chief Executive Officer,
Director, Treasurer
Mr. William A. Linton(1)(2)..................... 50 Chairman of the Board, Director
Dr. Joseph R. Firca............................. 52 Vice President, Research and
Development
Dr. F. Michael Hoffmann......................... 46 Vice President, Genetic Technology
Programs
Dr. Margaret B. van Boldrik (1)(2).............. 41 Director, Vice President, Secretary
Dr. Sean B. Carroll(1)(2)....................... 36 Director
Mr. Rex J. Bates(3)............................. 73 Director
Dr. W. Leigh Thompson(3)........................ 59 Director
Dr. Peter Model(3).............................. 63 Director
</TABLE>

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

(1) Member of Executive Search and Review Committee

(2) Member of Stock Option Committee

(3) Member of Audit Committee

Dr. Douglas C. Stafford, has served as President and Chief Executive
Officer of the Company since January, 1995. Dr. Stafford served as the Company's
President and Chief Operating Officer from August, 1990 to January, 1995. In
May, 1997, Dr. Stafford joined the Company's Board of Directors. Prior to
joining the Company, Dr. Stafford was employed by Baxter Healthcare Corporation,
a publicly held healthcare products company, from 1985 to 1990. He held various
senior management positions, including Director of Immunodiagnostics Development
and Manufacturing at the Pandex Division of Baxter Healthcare Corporation, a
company developing products for the diagnosis of infectious diseases. His
experience also includes senior management positions in biologic product
development, quality assurance, project management, process development, and
manufacturing operations at Pandex and in other assignments within the Baxter
organization where he was involved in corporate and divisional technology and
manufacturing, strategic planning and business development. Prior to Baxter, Dr.
Stafford was employed at Sensor Diagnostics, Inc., a privately held medical
diagnostics company, from 1984 to 1985 and held a faculty position at the
University of Detroit from 1983 to 1984. Dr. Stafford holds B.S. and M.S.
degrees in Biology from the University of Detroit, a Ph.D. in Immunology from
Tufts University, and a M.S. in Management from Lesley College.

Mr. William Linton, has served as Chairman of the Board of Directors and a
member of the Board of Directors of the Company since its inception in November,
1989. Mr. Linton founded Promega Corporation, a privately held developer and
manufacturer of biomedical research products, in 1978, continuously serving as
President and Chief Executive Officer and Chairman of the Board of Directors. He
is also a Director of Promega's two joint ventures in the People's Republic of
China: Sino-American Biotechnology Company and Shanghai-Promega Biochemicals
Company LTD. Mr. Linton has extensive experience in biotechnology product
development and in structuring both U.S. and international marketing and
strategic business partnerships. Since 1996, Mr. Linton has served as the
President of the Fitchburg Center Corporation, a privately held real estate
development company, and on the Board of Directors of Wisconsin Manufacturers
and Commerce, a trade association since January, 1996. Mr. Linton holds a B.S.
degree in Biology from the University of California-Berkeley and conducted
graduate studies at the University of Wisconsin-Madison.

Dr. Joseph Firca, has served as the Company's Vice President, Research and
Development since July, 1992. Prior to joining the Company, Dr. Firca was Vice
President, Advanced Technologies, at the Pandex Division of Baxter Healthcare
Corporation, a publicly held healthcare products company, responsible for
infectious disease, blood screening systems technology, immunoassay product
development, and advanced

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<PAGE> 43

technology development from May, 1985 to January, 1992. Previously he held
several scientific management positions at Abbott Laboratories from 1976 to
1985. Dr. Firca received a B.S. degree in biology from Xavier University, a M.S.
from Duquesne University, and a Ph.D. in Microbiology from the University of
Cincinnati. In addition, Dr. Firca conducted post-doctoral research at the
Argonne National Laboratory and was a Visiting Associate at the California
Institute of Technology.

Dr. F. Michael Hoffmann, has served the Company as Vice President of
Genetic Technology Programs since July, 1997. He was employed by the Company
from November, 1996 to July, 1997 as Principal Scientist in Business
Development. From July, 1994 to July, 1997, Dr. Hoffmann was Professor of
Oncology and Medical Genetics at the McArdle Laboratory for Cancer Research at
the University of Wisconsin-Madison. He held the positions of Associate and
Assistant Professor at the University of Wisconsin-Madison from July, 1984 to
July, 1994. He conducted post-doctoral research at Harvard University from
March, 1981 to July, 1984 and the Massachusetts Institute of Technology from
January, 1979 to February, 1981. He holds a Ph.D. degree in biochemistry from
Cornell University and a B.S. degree in chemistry from Rensselar Polytechnic
Institute.

Dr. Margaret B. van Boldrik, has served as a Director of the Company since
its inception in November, 1989. Dr. van Boldrik has also served as Vice
President of the Company since January, 1990 and as Secretary of the Company
since November, 1989. Prior to joining the Company, Dr. van Boldrik was Director
of the University of Wisconsin Biotechnology Center's Technology Transfer Office
where she managed broad-based programs for the commercial development of
University-affiliated technologies from 1987 to 1990. Dr. van Boldrik holds a
B.S. in Biochemistry from the University of California at Davis, and a Ph.D. in
Biochemistry from Tufts University.

Dr. Sean Carroll, has served as a Director of the Company since its
inception in November, 1989. Dr. Carroll also serves as a Scientific Advisor to
the Company, a position he has held since 1990. Dr. Carroll was named Assistant
Investigator with the HHMI in 1990 and was promoted to Investigator status in
1997. He is also a Professor of Molecular Biology and Genetics at the University
of Wisconsin-Madison where he has worked since 1987. Dr. Carroll holds a B.S. in
Biology from Washington University and a Ph.D. in Immunology from Tufts
University. HHMI has general policies that limit activities of Investigators in
a company in which that Investigator holds a significant ownership interest.
Pursuant to such limitations, Dr. Carroll is permitted to serve as a member of
the Advisory Board and a Director of the Company until January, 1998.

Mr. Rex J. Bates, has served as a Director of the Company since March,
1992. He has also served as a Director of Ventana Medical Systems, Inc., a
publicly held medical diagnostic instrument company, since April, 1996. From
August, 1991 to May, 1995, Mr. Bates served on the Board of Directors of
Twentieth Century Industries, a publicly held insurance holding company, and was
a member of its compensation committee. Mr. Bates worked at State Farm Mutual
Automobile Insurance Company from May, 1972 to March, 1991 serving as
Vice-Chairman of the Board of Directors and as Chief Investment Officer. In
March of 1991, Mr. Bates retired from State Farm. Mr. Bates was a partner in the
investment firm of Stein, Roe & Farnham in Chicago from August, 1949 to May,
1972. Mr. Bates received an S.B. and an M.B.A. from the University of Chicago.

Dr. W. Leigh Thompson, has served as a Director of the Company since
December, 1995. Dr. Thompson founded Profound Quality Resources, Inc., a private
healthcare consulting firm, in 1995 to provide consulting services to health
institutions and manufacturers worldwide. Dr. Thompson served as an Assistant
Professor of Medicine and of Pharmacology and Experimental Therapeutics at Johns
Hopkins University from 1970 to 1974 where he founded and led the Medical
Critical Care Unit, and as a Professor of Medicine at Case Western Reserve from
1974 to 1982, where he founded programs in clinical pharmacology and critical
care medicine. He worked at Eli Lilly and Company, holding several executive
positions including Executive Vice President of Lilly Research Laboratories and
Chief Scientific Officer from 1982 to 1985. He holds a Ph.D. from the Medical
University of South Carolina and an M.D. from Johns Hopkins University.

Dr. Peter Model, has served as a Director of the Company since December,
1996. Dr. Model is a senior faculty member conducting research in the areas of
biochemistry and genetics at the Rockefeller University,

42
<PAGE> 44

where he has been employed since 1967. He serves on the editorial boards of the
Journal of Virology and Virology and is a member of various scientific advisory
committees. Dr. Model received his B.S. from Stanford University and his Ph.D.
in Biochemistry from Columbia University.

BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION

The Company's directors are elected annually and hold office until the next
annual meeting of shareholders of the Company and until their respective
successors have been qualified and elected. Officers are elected by, and serve
at the discretion of, the Board of Directors. Except for the fact that Dr.
Carroll and Dr. van Boldrik are married, there are no family relationships among
the individuals serving as directors or officers.

In July, 1997, the Board of Directors appointed an Audit Committee that
reviews the scope and results of the Company's financial statements conducted by
the Company's independent accountants, the scope of other services provided by
the Company's independent accountants, proposed changes in the Company's
financial and accounting standards and principles, and the Company's policies
and procedures with respect to its internal accounting, auditing and financial
controls, and makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors.

A subcommittee of the Board of Directors administers the Company's
1990/1992 Stock Option Plans. The Board of Directors has also established an
Executive Search and Review Committee charged with identifying executive staff
requirements, recruiting, and evaluating performance and compensation of the
Company's executive officers. Although no other committees currently exist,
management expects the Board will in the future set up such finance,
compensation, and other standing and ad hoc committees, made up of Board
members, officers, consultants and others, as it deems necessary and appropriate
for the efficient operation of the Company.

DIRECTOR COMPENSATION

Non-employee Directors of the Company are paid $1,000 per meeting of the
Board of Directors which is payable in cash or in shares of the Company. Drs.
Carroll, van Boldrik and Thompson do not receive compensation as Directors of
the Company but receive compensation as consultants. See "Management --
Consultant Compensation."

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into agreements with all its employees, including
Drs. Stafford, Firca and Hoffman, who are corporate officers concerning
ownership of intellectual property. These agreements prohibit competition with
the Company during, and for a term of one year after termination of, employment
with the Company. They obligate each employee to keep confidential the trade
secrets and other proprietary information of the Company, and employees are
required to disclose and assign to the Company all of their discoveries and
inventions and any and all patent rights therein.

Prior to the effective date of this Prospectus, the Company will have
entered into an employment agreement with Dr. Douglas Stafford, President and
Chief Executive Officer of the Company, for a three-year term. Pursuant to such
agreement, Dr. Stafford will receive an annual base salary of $180,000 subject
to annual review and increase by mutual agreement.

Prior to the effective date of this Prospectus, the Company will have
entered into an employment agreement with Dr. Joseph Firca, Vice President,
Research and Development of the Company, for a three-year term. Pursuant to such
agreement, Dr. Firca will receive an annual base salary of $140,000 subject to
annual review and increase by mutual agreement.

Prior to the effective date of this Prospectus, the Company will have
entered into an employment agreement with Dr. F. Michael Hoffmann, Vice
President, Genetic Technology Programs of the Company, for

43
<PAGE> 45

a three-year term. Pursuant to such agreement, Dr. Hoffman will receive an
annual base salary of $125,000 subject to annual review and increase by mutual
agreement.

Scientists and consultants retained by the Company will generally be
contractually obligated to disclose and assign to the Company certain ideas and
inventions developed in the performance of duties for the Company and will be
prohibited from disclosing any confidential Company information to anyone
outside the Company at any time. The terms of their agreements may depend upon
the outcome of negotiations and the level of protection provided by other
circumstances.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the fiscal
year 1996 by the Company's President and Chief Executive Officer and all other
corporate officers earning in excess of $100,000 annually.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- -------- -------
<S> <C> <C>
Dr. Douglas C. Stafford..................................... $146,028 $30,000
President, CEO
Dr. Joseph R. Firca(1)...................................... $125,668 $15,000
Vice President, Research and Development
</TABLE>

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

(1) Does not include certain relocation expenses to be paid by the Company in
the future to Dr. Firca.

None of the named Executive Officers exercised options to purchase Common
Stock during the fiscal year ended September 30, 1996. The following table sets
forth certain information regarding the value of exercised and unexercised stock
options held by each of the named Executive Officers as of September 30, 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SEPTEMBER 30, 1996 AT SEPTEMBER 30, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas C. Stafford.......................... 187,200 0 $1,014,625 0
Joseph Firca................................. 80,000 20,000 $ 320,000 $80,000
</TABLE>

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

(1) The value the options is based upon the difference between the exercise
price and the assumed value of $6.00 per share, the estimated initial public
offering price set forth on the cover of this Prospectus.

CONSULTANT COMPENSATION

In June, 1996, the Company granted a consultant the option to purchase
100,000 shares of the Company at a price of $4.50 per share exercisable until
May, 2004.

Drs. Carroll and van Boldrik receive consulting fees for services which do
not include their services as Directors. The Company pays Dr. Carroll a monthly
consulting fee of $3,333, subject to annual review. For fiscal 1996, Dr. Carroll
received $40,000. Dr. van Boldrik receives a consulting fee of $5,000 per
quarter, subject to annual review. For fiscal 1996, Dr. van Boldrik received
$20,000. Dr. Thompson receives $2,400 per day for his services as a consultant
and Director payable in cash or shares, in any event not to exceed 10,000 shares
in aggregate. For fiscal 1996, Dr. Thompson received $7,200.

44
<PAGE> 46

STOCK OPTION PLANS

The Company currently has a 1990 Incentive Stock Option Plan and a 1992
Employee Stock Option Plan ("1990/1992 Stock Option Plans") in force for its
employees, advisors and directors. The 1990/1992 Stock Option Plans provide for
the grant of options to purchase shares, in the case of the 1990 Incentive Stock
Option Plan, at not less than fair market value as of the date options are
granted, and in the case of the 1992 Employee Stock Option Plan at a value
determined by the Stock Option Committee. The 1990/1992 Stock Option Plans are
administered by a committee ("Stock Option Committee") made up of at least three
members of the Company's Board of Directors, and is currently made up of Dr.
Carroll, Dr. van Boldrik and Mr. Linton. To facilitate the operation of the
1990/1992 Stock Option Plans, the Company initially reserved 457,160 authorized
but unissued shares for the 1990/1992 Stock Option Plans. On December 1, 1992,
by a vote of shareholders, the number of shares available for employee stock
options was increased by 200,000 shares, for a total of 657,160.

The Company's Board of Directors has approved and will seek shareholder
approval for a new incentive stock option plan (the "1997 Incentive Stock Option
Plan") which will provide for the issuance of options to purchase 975,000 shares
of the Company reduced by the number of shares subject to options granted under
the 1990/1992 Stock Option Plans which may be granted to eligible employees,
advisors and Directors.

As of the date of this Prospectus, the Company has entered into stock
option agreements granting Dr. Stafford options to purchase up to 137,200 shares
at an exercise price of $.0625 per share which options vested in stages ending
August 1, 1994, and may only be exercised prior to July 31, 2000, and to
purchase 50,000 shares at an exercise price of $2.00 per share, which options
vested in stages ending October 25, 1995, and may only be exercised prior to
October 24, 2001, and to purchase 30,000 shares at an exercise price of $5.50
per share, which options vest in stages ending July 30, 2002 and may only be
exercised prior to July 30, 2007. The Company has entered into an agreement
granting Dr. Firca the option to purchase 100,000 shares at an exercise price of
$2.00 per share, which option vested in stages ending July 13, 1997, and may
only be exercised prior to July 13, 2002, and to purchase 20,000 shares at an
exercise price of $5.50 per share, which options vest in stages ending July 30,
2002 and may only be exercised prior to July 30, 2007. The Company has entered
into an agreement granting Dr. Hoffmann the option to purchase 100,000 shares at
an exercise price of $5.50 per share, which options vest in stages ending
November 1, 2001 and may only be exercised prior to November 1, 2006. The
Company has entered into an agreement granting Rex J. Bates the option to
purchase 25,000 shares at an exercise price of $2.00 per share, which options
were immediately vested, and may only be exercised prior to July 31, 2006. He
was also granted the option to purchase 5,000 shares at an exercise price of
$4.50 per share which options were immediately vested, and may only be exercised
prior to January 12, 2006 in recognition of his past services to the Company. A
third Stock Option Agreement was entered into between the Company and Rex J.
Bates according to which he was granted the option to purchase 5,000 shares at
an exercise price of $5.50 which option vests upon one year of service following
January 10, 1997, and may only be exercised prior to January 10, 2007. The
Company has entered into an agreement granting Peter Model the option to
purchase 5,350 shares at an exercise price of $5.50 per share which option vests
upon one year of service following June 10, 1997 and may be exercised only prior
to January 10, 2007. The Company has entered into an agreement granting W. Leigh
Thompson the option to purchase 5,323 shares at an exercise price of $4.50 per
share which option vests upon one year of service following January 12, 1996 and
may be exercised by January 12, 2006, and a second agreement with Mr. Thompson
granting him the option to purchase 5,000 shares at an exercise price of $5.50
per share which vests upon one year of service from January 10, 1997 and may be
exercised by January 10, 2007. The Company has entered into similar agreements
with 23 Company employees who are not executive officers pursuant to the
1990/1992 Stock Option Plans granting options to purchase an aggregate of
112,975 shares of common stock at a weighted average exercise price of $3.65 per
share. The options granted pursuant to the 1990/1992 Stock Option Plans are
nontransferable, but may be exercised by the personal representative of a holder
thereof in the event of death.

45
<PAGE> 47

401(K) RETIREMENT PLAN

Effective October 1, 1993, the Company established a profit sharing plan
and trust to provide retirement benefits for eligible employees. The Ophidian
Pharmaceuticals, Inc. 401(k) Plan (the "401(k) Plan") is intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. Participants may direct a portion of their compensation, the lesser of
15% or $9,500 (the maximum limit set by law for 1997), to be contributed to
their accounts under the 401(k) Plan. The Company has arranged for the firm of
Robert W. Baird and Company to provide investment services to employees for
their funds contributed to the 401(k) Plan. The Company may, but is not required
to, match a participant's pre-tax contributions to the 401(k) Plan. In addition,
the Company may make discretionary contributions to the 401(k) Plan on an annual
basis. To date, the Company has not made any contributions under the 401(k) Plan
in addition to participants' own contributions. Participants are always vested
fully in their pre-tax contributions to the 401(k) Plan.

Generally, amounts contributed to the 401(k) Plan (and any earnings or
interest) may not be distributed until the participant's death, disability,
retirement or termination of employment. There may be certain tax penalties
levied for lump-sum withdrawals made prior to age 59 1/2, unless the sum is
rolled over into another qualified plan or individual retirement account. In
addition, funds may be made available in the form of a loan or hardship
distribution to a participant in the event of an immediate and heavy financial
necessity.

46
<PAGE> 48

PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of the Company's
Common Stock as of July 31, 1997 by (a) each person known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock, (b) the
directors of the Company, (c) the executive officers of the Company, and (d) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE PERCENTAGE
BENEFICIALLY OWNED BEFORE OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED THE OFFERING THE OFFERING
- ---------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Dr. Margaret B. van Boldrik(1)(8)......................... 1,570,000 21.5% 16.0%
Dr. Sean B. Carroll(1)(8)................................. 1,530,000 21.0 15.6
Mr. William A. Linton(2)(8)............................... 725,020 10.0 7.4
Eli Lilly and Company..................................... 699,300 9.6 7.1
Lilly Corporate Center, Indianapolis, IN 46285
Dr. Douglas C. Stafford(3)(8)............................. 187,200 2.5 1.9
Dr. Peter Model(4)(8)..................................... 185,000 2.5 1.9
Dr. Joseph R. Firca(5)(8)................................. 100,000 1.4 1.0
Mr. Rex J. Bates(6)(8).................................... 79,546 1.1 *
Dr. W. Leigh Thompson(7)(8)............................... 5,869 * *
Dr. F. Michael Hoffmann(8)................................ 0 0 0
All Directors and Officers as a Group(9).................. 4,202,635 55.2 41.6
</TABLE>

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

* Less than 1%.

(1) Includes 180,000 shares controlled by Dr. van Boldrik and Dr. Carroll as
Trustees of the Trusts for the benefit of their children.

(2) Includes 212,000 shares held by the William A. Linton Irrevocable Charitable
Remainder Trust, of which Mr. Linton has voting control. Also includes
262,520 shares owned by Promega Corporation of which Mr. Linton is Chairman,
President and Chief Executive Officer and may be deemed to have voting and
investment power over the shares.

(3) Includes options to purchase 137,200 shares currently vested in the 1990
Stock Option Plan at an exercise price of $0.0625 which expire in July, 2000
and options to purchase 50,000 shares currently vested the 1990 Stock Option
Plan at an exercise price of $2.00 which expire in October, 2001.

(4) Includes 185,000 shares in trusts controlled by Dr. Model as a trustee.

(5) Includes options to purchase 100,000 shares currently vested in the 1990
Stock Option Plan at an exercise price of $2.00 which expire in July, 2002.

(6) Includes options to purchase 25,000 shares currently vested in the 1992
Stock Option Plan at an exercise price of $2.00 which expire in July, 2006
and options to purchase 5,000 shares currently vested in the 1992 Stock
Option Plan at an exercise price of $4.50 which expire in January, 2006.

(7) Includes options to purchase 5,323 shares currently vested in the 1992 Stock
Option Plan at an exercise price of $4.50 per share which expire in January,
2006.

(8) Address is 5445 East Cheryl Parkway, Madison, Wisconsin 53711.

(9) Includes 322,523 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of July 31, 1997.

47
<PAGE> 49

CERTAIN TRANSACTIONS

Dr. Sean B. Carroll, a Director and founder of the Company currently owns
or controls 1,530,000 shares. In exchange for those shares, Dr. Carroll
contributed in 1990 all of his rights to his invention entitled "Antivenoms and
Methods for Making Antivenoms" which is the basis for the Company's avian
technology, as well as a subsequent assignment in the same year of his rights to
any patent applications filed in connection with the Company's passive antibody
technology. The Company determined that the transfer of Dr. Carroll's technology
rights was adequate consideration for the issuance of these shares of Company
Stock.

Dr. van Boldrik, Vice President, Secretary, a Director and Founder of the
Company, currently owns or controls 1,570,000 shares. In exchange for those
shares, Dr. van Boldrik contributed in 1990 all of her rights in the invention
entitled "Antivenoms and Methods for Making Antivenoms," as well as a subsequent
assignment in the same year of her rights to any patent application filed in
connection with the Company's passive antibody technology. The Company
determined that the transfer of Dr. van Boldrik's technology rights was adequate
consideration for the issuance of these shares of Company Stock.

Fitchburg Research Park Associates Limited Partnership ("FRPA"), a
Wisconsin limited partnership of which William A. Linton, Chairman of the Board
and a Director, is the sole general partner and holds a 50% ownership interest,
received 800,000 shares when the Company first issued shares January 17, 1990.
In exchange for those shares, FRPA contributed $50,000 for an effective price of
$0.0625 per share. FRPA has distributed its shares from the partnership.

Under the terms of a Stock Warrant granted to FRPA (the "FRPA Warrant") by
the Company on January 17, 1990, designed to protect FRPA against dilution of
its holdings in the Company due to the issuance of shares to employees of the
Company pursuant to the Company's Stock Option Plans, FRPA is entitled to
purchase one share for every four shares issued to employees pursuant to the
Plans. FRPA may purchase a maximum of 114,290 shares under the FRPA Warrant; the
exercise price thereunder is $.0025 per share.

On October 1, 1990, the Company obtained a line of credit from FRPA in the
original principal amount of $250,000 (the "FRPA Line of Credit"). The FRPA Line
of Credit was repaid in full on October 21, 1991, and the line of credit is no
longer in effect. As additional consideration for the line of credit, the
Company granted to FRPA an option to purchase 125,000 shares at a price of $2.00
per share. The option was exercised fully on October 1, 1993 through the payment
of $250,000 for 125,000 shares.

In September, 1991, Promega agreed to purchase shares of the Company
conditioned upon its receipt of an exclusive and confidential first right, for a
period of 10 years, to review any technology developed by the Company that is
incidental to the human and animal therapeutic and diagnostic markets. Promega
has 60 days after disclosure of a technology to review the technology and notify
the Company in writing of its interest in developing the technology. The parties
will then negotiate in good faith for up to 60 days thereafter regarding terms
on which Promega might obtain the right to use the technology. If Promega and
the Company fail to enter into an agreement within 60 days after notice of
Promega's interest in the technology, the Company may attempt to license or
assign the rights to the product to a third party, subject to Promega's right to
first refuse the price and terms offered by a third party, exercisable within 15
days after notice thereof to Promega. The agreement with Promega will terminate
at any time that Promega's ownership of the Company falls below one percent of
the outstanding shares. Promega currently owns 262,520 shares of Ophidian.

Promega and FRPA are affiliated by virtue of common control and partial
common ownership. As sole general partner of FRPA; a shareholder, President, and
Chairman of the Board of Promega; and a Director and Chairman of the Board of
the Company, William A. Linton may be subject to various conflicts of interest
in determining whether Promega will pursue, for use in incidental markets, the
development of any technology initially developed by the Company, and would be
subject to a significant conflict of interest in connection with any dispute
that might arise under the disclosure agreement between the Company and Promega
described above.

On January 1, 1993, the Company entered into a Lease with Promega for a
10,000 square foot office/research laboratory and production facility at 5445
East Cheryl Parkway, Madison, Wisconsin.

48
<PAGE> 50

Mr. Linton is a shareholder, the President and Chairman of the Board of Promega.
The lease provides for a five year lease term with an option to renew the lease
for an additional five year term.

The facility lease described above gives Promega the right to terminate in
case of a broad range of events of default by the Company, in which event the
Company would lose the value of improvements and may be liable for the remaining
rent even if its rights to use the premises are terminated. As Chairman of the
Board and a director of the Company, Mr. Linton would be subject to a
significant conflict of interest in connection with taking any adverse action on
the lease on behalf of Promega. See "Business -- Facilities"

Dr. Peter Carroll, who is Dr. Sean Carroll's brother, is an attorney with
Medlen & Carroll, LLP, San Francisco, California, and serves as patent counsel
to the Company. Dr. Peter Carroll and his wife, Maureen Collins-Carroll, were
given 40,000 shares as a gift from Dr. Sean Carroll in April, 1990. As Dr. Sean
Carroll's brother, Dr. Peter Carroll would have a conflict of interest in any
dispute between Dr. Sean Carroll and the Company, especially with respect to
ownership of intellectual property.

Pursuant to the Lilly Agreements, Lilly can require, subject to certain
qualifications, that the Company register the shares Lilly purchased either in a
separate public offering or in conjunction with a public offering sponsored by
the Company. Lilly has waived its rights to require the Company to register its
shares in conjunction with this Offering, but in every other respect, retains
those rights. See "Description of Securities -- Registration Rights" and "Shares
Eligible for Future Sale."

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the Company's Amended and Restated Bylaws and the Wisconsin Business
Corporation Law, directors and officers of the Company are entitled to mandatory
indemnification from the Company against certain liabilities and expenses (a) to
the extent such officers or directors are successful in the defense of a
proceeding and (b) in proceedings in which the director or officer is not
successful in the defense thereof, unless it is determined the director or
officer breached or failed to perform his or her duties to the Company and such
breach or failure constituted: (i) a willful failure to deal fairly with the
Company or its shareholders in connection with a matter in which the director or
officer had a material conflict of interest, (ii) a violation of criminal law,
unless the director or officer had reasonable cause to believe his or her
conduct was lawful or had no reasonable cause to believe his or her conduct was
unlawful, (iii) a transaction from which the director or officer derived an
improper personal profit, or (iv) willful misconduct. The Company's Amended and
Restated Bylaws provide that the Company may purchase and maintain insurance on
behalf of an individual who is a director or officer of the Company against
liability asserted against or incurred by such individual in his or her capacity
as a director or officer regardless of whether the Company is required or
authorized to indemnify or allow expenses to the individual against the same
liability under the Amended and Restated Bylaws.

Under Section 180.0828 of the Wisconsin Business Corporation Law, directors
of a corporation are not subject to personal liability to the corporation, its
shareholders, or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as a
director, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful, (iii) a transaction
from which the director derived an improper personal profit, or (iv) willful
misconduct. These provisions pertain only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers. As a result
of such provisions, shareholders may be unable to recover monetary damages
against directors for actions taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not to be available to shareholders in
any particular case, shareholders may not have any effective remedy against the
challenged conduct.

49
<PAGE> 51

DESCRIPTION OF SECURITIES

The following description of the securities of the Company and certain
provisions of the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws is qualified in its entirety by the provisions of
the Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this prospectus is a part.

Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 22,400,000 shares of Common Stock, $.0025 par value.

COMMON STOCK

Upon completion of this Offering, there will be 9,785,950 shares of Common
Stock issued and outstanding. Holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the shareholders of the Company.
The holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. The holders of Common Stock have no
preemptive, redemption, conversion, sinking fund or other subscription rights.
The outstanding shares of Common Stock are, and the shares offered by the
Company in the Offering will be, when issued and paid for, fully paid and
nonassessable.

WARRANTS

The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, and
Continental Stock Transfer & Trust Company, New York, New York (the "Warrant
Agent"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time commencing , 1998 [12 months after
the date of this Prospectus], until , 2002 [five years after the
date of this Prospectus], one Share of Common Stock at a price of $ per
Share [120% of the initial public offering price per Share of Common Stock],
subject to adjustment in accordance with the anti-dilution provisions referred
to below. The holder of any Warrant may exercise such Warrant by surrendering
the certificate representing the Warrant to the Warrant Agent, with the
subscription form thereon properly completed and executed, together with payment
of the exercise price. The Warrants may be exercised at any time in whole or in
part at the applicable exercise price until the expiration of the Warrants. No
fractional shares will be issued upon the exercise of Warrants. The exercise
price of the Warrants bears no relationship to any objective criteria and should
in no event be regarded as an indication of any future market price of the
securities offered hereby.

Adjustments. The exercise price and the number of Shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock or the sale by the Company
of shares of its Common Stock or other securities convertible into Common Stock
at a price below the initial public offering price, excluding shares of Common
Stock issued in connection with incentive or benefit plans of the Company and
strategic alliances. Additionally, an adjustment will be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable warrant
holders to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might have been purchased upon the exercise of the Warrant.

Redemption Provisions. Commencing 24 months after the date of this
Prospectus, the Warrants are subject to redemption at $.10 per Warrant on 30
days prior written notice provided that the average closing bid

50
<PAGE> 52

price of the Common Stock as reported on the AMEX equals or exceeds $
per share [240% of the initial public offering price of the Common Stock]
(subject to adjustment for stock dividends, stock splits, combinations or
reclassifications of the Common Stock), for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. In the event the Company exercises the right to
redeem the Warrants, such Warrants will be exercisable until the close of
business on the business day immediately preceding the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the holder will be entitled only to
the redemption price.

Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop, or if it develops, that it will continue.

Warrantholders Not a Shareholder. The Warrants do not confer upon holders
any voting, dividend or other rights as shareholders of the Company.

Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than 30 days on not less than 30 days prior written notice to the
warrantholders and the Representative. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrantholders.

The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.

The Warrants are separately transferable immediately upon issuance.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the Shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.

REGISTRATION RIGHTS

Lilly, the holder of 699,300 shares of Common Stock and its permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights will also
extend to any additional shares purchased by Lilly under the Lilly Agreements.
Under the terms of the Lilly Agreements, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or the
account of controlling shareholders of the Company participating in a secondary
distribution, the Holders are entitled to notice of such registration and are
entitled to include their registrable securities therein; provided, among other
conditions, that the underwriters have the right to limit the number of such
shares included in any such registration. Lilly, the sole Holder on the date of
this Offering, has waived this right in connection with the registration of the
shares hereby offered. Lilly also has the right, after December 31, 1998, to
request on three occasions that the Company file a registration statement under
the Securities Act at the Company's expense with respect to its shares of Common
Stock and with respect to the shares of other Holders who request to be included
in such registration. See "Risk Factors -- Potential Adverse Effect of Shares
Eligible for Future Sale."

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<PAGE> 53

CERTAIN PROVISIONS OF WISCONSIN LAW

The provisions of the Wisconsin Business Corporation Law ("WBCL") described
in this section may delay or make more difficult acquisitions or changes of
control of the Company not approved by the Company's Board of Directors. Such
provisions enable the Company, particularly (but not exclusively) in the initial
years of its existence as a publicly-traded company, to develop its business in
a manner which will foster its long-term growth without disruption caused by the
threat of a takeover deemed by its Board of Directors not to be in the best
interests of the Company and its shareholders. Such provisions could have the
effect of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals, if
made, might be considered desirable by a majority of the Company's shareholders.

Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL
(the "Wisconsin Stakeholder Provision"), in discharging his or her duties to the
Company and in determining what he or she believes to be in the best interests
of the Company, a director or officer may, in addition to considering the
effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the Company operates
and any other factors that the director or officer considers pertinent.

Restrictions on Business Combinations. Section 180.1141 of the WBCL
provides that a "resident domestic corporation," such as the Company, may not
engage in a "business combination" with an "interested stockholder" (a person
beneficially owning at least 10% of the voting power of the outstanding voting
stock), for three years after the date (the "stock acquisition date") the
interested stockholder acquired its 10% or greater interest, unless the business
combination (or acquisition of 10% or greater interest) was approved before the
stock acquisition date by the corporation's board of directors. After the
three-year period, a business combination that was not so approved can be
consummated only if it is approved by the majority of the outstanding voting
shares not held by the interested stockholder, or is made at a specified formula
price intended to provide a fair price for the shares held by noninterested
stockholders.

Wisconsin Fair Price Statute. Sections 180.1130 to 180.1133 of the WBCL
provides that certain business combinations involving a "significant
shareholder" and an "issuing public corporation" (each as defined below) are
subject to a supermajority vote of shareholders in addition to any approval
otherwise required. The required supermajority vote is 80% of the votes entitled
to be cast by all the outstanding voting shares of the issuing public
corporation and two-thirds of the votes entitled to be cast by holders of the
voting shares of the issuing public corporation other than the voting shares
held by the significant shareholder who is a party to that business combination.
A "significant shareholder," with respect to an issuing public corporation, is
defined as a person who beneficially owns, directly or indirectly, 10% or more
of the voting stock of the corporation, or an affiliate of the corporation which
beneficially owned, directly or indirectly, 10% or more of the voting stock of
the corporation within the last two years. An "issuing public corporation" is
defined as a Wisconsin corporation that has (i) total assets exceeding $1
million and a class of equity securities held of record by 500 or more persons
and (ii) at least 100 shareholders of record who have unlimited voting rights
and who are residents of Wisconsin. The supermajority vote is not required if
the aggregate amount of cash and market value of noncash consideration to be
received per share by each shareholder of the issuing public corporation in the
business combination meets certain tests of fairness.

Wisconsin Control Share Statute. Section 180.1150 of the WBCL provides that
the voting power of shares, including shares issuable upon the exercise of
options, of an issuing public corporation held by any person or persons acting
as a group, in excess of 20% of the voting power in the election of directors,
is limited in voting on any matter to 10% of the full voting power of those
excess shares. This restriction does not apply to shares acquired directly from
the issuing public corporation, in certain specified transactions, or in a
transaction with respect to which the corporation's shareholders have voted to
approve restoration of the full voting power of otherwise restricted shares.

Wisconsin Defensive Action Restrictions. Section 180.1134 of the WBCL
provides that, in addition to the vote otherwise required by the law or the
articles of incorporation of an issuing public corporation, the approval of the
holders of a majority of the shares entitled to vote is required before such
corporation can take certain

52
<PAGE> 54

action while a takeover offer is being made or after a takeover offer has been
publicly announced and before it is concluded. Under the Wisconsin Defensive
Action Restrictions, shareholder approval is required for the corporation to (i)
acquire more than five percent of the outstanding voting shares at a price above
the market price from any individual who or organization which owns more than
three percent of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting shares, or
(ii) sell or option assets of the corporation which amount to at least 10% of
the market value of the corporation, unless the corporation has at least three
independent directors (directors who are not officers or employees) and a
majority of the independent directors vote not to have this provision apply to
the corporation. The restrictions described in clause (i) above may have the
effect of deterring a shareholder from acquiring shares of the Company's Common
Stock with the goal of seeking to have the Company repurchase such shares at a
premium over the market price.

Impact of Statutory Provisions. The explicit grant in the Wisconsin
Stakeholder Provisions of discretion to directors to consider nonshareholder
constituencies could, in the context of an active "auction" of the Company, have
antitakeover effects in situations where the interests of stakeholders of the
Company, including employees, suppliers, customers and communities in which the
Company does business, conflict with the short term maximation of shareholder
value.

The Restrictions on Business Combinations in the WBCL encourage negotiation
by an acquiring shareholder with the Company board of directors prior to its
purchase of the Company's shares in order to have flexibility later to enter
into business combinations with the Company. The Wisconsin Control Share Statute
may deter any shareholder from acquiring in excess of 20% of the outstanding
voting stock of the Company and the Wisconsin Fair Price Statute may discourage
any attempt by a shareholder to squeeze out other shareholders without offering
an appropriate premium purchase price. In addition, the Wisconsin Defensive
Actions Restrictions may have the effect of deterring a shareholder from
acquiring the Company's Common Stock with the goal of seeking to have the
Company repurchase the Common Stock at a premium. The WBCL statutory provisions
referenced above are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arms-length negotiations
with the Company's board of directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. Such
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase shares of Common
Stock at a premium over the market value. To the extent that such measures make
it more difficult for, or discourage, a proxy contest or the assumption of
control by a holder of a substantial block of the Company's Common Stock, they
may have the effect of discouraging a tender offer or other attempt to obtain
control of the Company, even though such attempt might be beneficial to the
Company and its shareholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock and the
Warrant Agent for the Warrants is Continental Stock Transfer & Trust Company,
New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 9,785,950 shares of
Common Stock outstanding, of which the 2,500,000 Shares offered hereby (and the
2,500,000 Warrants) will be transferable without restriction under the
Securities Act. The other outstanding shares of Common Stock are "restricted
securities" (as that term is defined in Rule 144 promulgated under the
Securities Act) which may be publicly sold only if registered under the
Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under the revised holding period
requirements of Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted securities for at least one year, is entitled to
sell (together with any person with whom such individual is required to
aggregate sales) within any three-month period, a number of shares that does not
exceed the greater of one percent of the total number of outstanding shares of
the same class, or, if

53
<PAGE> 55

the Common Stock is quoted on AMEX or another national securities exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements, and the availability of current public information
regarding the Company. A person who has not been an affiliate of the Company for
at least three months, and who has beneficially owned restricted securities for
at least two years, is entitled to sell such restricted shares under Rule 144(k)
without regard to any of the limitations described above.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus pursuant
to written compensatory benefit plans such as the Stock Plan and written
contracts such as option agreements. Rule 701 is also available for sales of
shares acquired by persons pursuant to the exercise of options granted prior to
the effective date of this Prospectus, regardless of whether the option exercise
occurs before or after the effective date of this Prospectus. Securities issued
in reliance on Rule 701 are "restricted securities" within the meaning of Rule
144 and, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates of the Company subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirement.

As of July 31, 1997, options granted under the 1990/1992 Stock Option Plans
and the agreement with a consultant to purchase a total of 746,608 shares of
Common Stock are outstanding and 5,296 options to purchase additional shares of
Common Stock are reserved for future issuance under the 1990/1992 Stock Option
Plans. Of the options granted under the 1990/1992 Stock Option Plans, and the
agreement with a consultant, 531,809 of such options were currently exercisable
as of July 31, 1997, with the remaining outstanding options to become
exercisable at the rate of 8,116 options after July 31, 1997 to December 31,
1997 and 60,284 in calendar 1998, 39,289 in calendar 1999 and 107,110 options in
calendar 2000 and thereafter. Shares of Common Stock issued upon the exercise of
outstanding options or the above-described Warrant will be "restricted
securities" and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Potential
exemptions include those available under Rule 144 and Rule 701.

No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. Pursuant to the Lock-Up Agreements, the Company, all officers and
directors of the Company and certain shareholders who hold more than 90% of the
Common Stock of the Company have agreed not to, directly or indirectly, issue,
agree or offer to sell, transfer, assign, distribute, grant an option for
purchase or sale of, pledge, hypothecate or otherwise encumber or dispose of any
beneficial interest in such securities for a period of nine months following the
date of this Prospectus without the prior written consent of the Representative.
Assuming that the Representative does not release the shareholders from the
Lock-Up Agreements, after the Lock-Up Period all of the shares will be eligible
for sale in the public market. Of such shares, 4,399,735 shares of Common Stock
will be eligible for sale under Rule 144 (subject to volume limitations imposed
by such rule), 2,886,215 shares of Common Stock will be eligible for sale under
Rule 144(k), and 596,608 shares will be eligible for sale under Rule 701. The
sale or issuance, or the potential for sale or issuance, of Common Stock after
such nine-month period could have an adverse impact on the market prices of the
Common Stock and/or the Warrants. Sales of substantial amounts of Common Stock
or the perception that such sales could occur could adversely affect prevailing
market prices for the Common Stock and/or the Warrants. See "Underwriting."

54
<PAGE> 56

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares of Common Stock and Warrants
set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITERS SHARES WARRANTS
------------ --------- ---------
<S> <C> <C>
National Securities Corporation.............................

Total............................................. 2,500,000 2,500,000
========= =========
</TABLE>

The Underwriters are committed to purchase all the shares of Common Stock
and Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.

The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share of
Common Stock and $ per Warrant. Such dealers may reallow a concession
not in excess of $ per Share of Common Stock and $ per Warrant
to certain other dealers. After the commencement of the Offering, the public
offering price, concession and reallowance may be changed by the Representative.

The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that Underwriters may be required to make. The Company has also agreed
to pay to the Representative a non-accountable expense allowance equal to 2 1/2%
of the gross proceeds derived from the sale of the Securities underwritten, of
which $50,000 has been paid to date.

The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 375,000 Shares and/or an
additional 375,000 Warrants at the initial public offering prices per Share and
per Warrant, respectively, offered hereby, less underwriting discounts. Such
option may be exercised only for the purpose of covering over-allotments, if
any, incurred in the sale of the Securities offered hereby. To the extent such
option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional Securities proportionate to its initial commitment.

In connection with this Offering, the Company has agreed to sell to the
Representative, for $.0001 per Warrant, Warrants to purchase from the Company up
to 250,000 Shares of Common Stock and/or up to 250,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per Share [120% of the initial public
offering price per Share of Common Stock] and $ per Warrant [120% of
the initial public offering price per Warrant] for a period of four years,
commencing one year after the date of this Prospectus and are restricted from
sale, transfer, assignment or hypothecation for a period of 12 months from the
date of this Prospectus, except to officers of the Representative. The
Representative's Warrants provide for adjustment in the number of securities
issuable

55
<PAGE> 57

upon the exercise thereof as a result of certain subdivisions and combinations
of the Common Stock. The Representative's Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise
thereof.

The Company's directors, executive officers and certain shareholders, in
the aggregate 90% of the holders of Common Stock, options, warrants or other
securities convertible, exercisable or exchangeable for Common Stock have agreed
not to offer, sell, or otherwise dispose of any shares of Common Stock for a
period of nine months following the date of this Prospectus without the prior
written consent of the Representative. An appropriate legend shall be placed on
the certificates representing such securities.

Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. ("NASD") and the Rules and Regulations of the
Commission, the Company has agreed to pay the Representative a commission which
shall not exceed five percent (5%) of the aggregate exercise price of such
Warrants in connection with bona fide services provided by the Representative
relating to any warrant solicitation undertaken by the Representative. In
addition, the individual must designate the firm entitled to payment of such
warrant solicitation fee. A warrant solicitation fee will only be paid to the
Representative or another NASD member when such NASD member is specifically
designated in writing as the soliciting broker. However, no compensation will be
paid to the Representative in connection with the exercise of the Warrants if
(i) the market price of the Common Stock is lower than the exercise price, (ii)
the Warrants were held in a discretionary account, or (iii) the exercise of
Warrants is not solicited by the Representative. Unless granted an exemption by
the Commission from its Rule 101 under Regulation M promulgated under the
Securities Act, the Representative will be prohibited from engaging in any
market activities with regard to the Company's securities for the period from
five business days (or such applicable periods as Rule 101 under Regulation M
may provide) prior to any solicitation of the exercise of the Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right the Representative may have to receive a fee.
As a result, the Representative may be unable to continue to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable. If the Representative has engaged in any of the activities
prohibited by Rule 101 under Regulation M during the period described above, the
Representative undertakes to waive unconditionally its rights to receive a
commission on the exercise of such Warrants.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Common Stock and/or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more Securities in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Securities in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position, up to 375,000 Shares of
Common Stock and/or 375,000 Warrants, by exercising the Over-Allotment option
referred to above. In addition, the Representative may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or dealer participating in the Offering) for the account of
other Underwriters, the selling concession with respect to the Securities that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the prices of the Securities at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.

Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Common Stock and Warrants, and the exercise price of the Warrants has been
determined by negotiation between the Company and the Representative and does
not necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of

56
<PAGE> 58

and prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure,
the market for initial public offerings and certain other factors as were deemed
relevant.

The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. For a more complete description thereof, see
"Additional Information."

LEGAL MATTERS

The legality of the Securities offered hereby will be passed upon for the
Company by LaFollette & Sinykin, Madison, Wisconsin. Medlen & Carroll, LLP, San
Francisco, California has acted as counsel to the Company in connection with
certain intellectual property and regulatory matters. Dr. Peter Carroll, a
partner in the firm of Medlen & Carroll, LLP owns 40,000 shares of the Company
and is a brother of Dr. Sean Carroll, a Director of the Company. Orrick,
Herrington & Sutcliffe LLP, New York, New York has acted as counsel to the
Underwriters in connection with the Offering. See "Certain Relationships and
Related Transactions."

EXPERTS

The financial statements of Ophidian Pharmaceuticals, Inc. at September 30,
1995 and 1996 and for each of the three years in the period ended September 30,
1996 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act
(the "Registration Statement") with respect to the Securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contracts or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
of the Registration Statement may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon payment
of certain fees prescribed by the Commission. The Commission maintains an
Internet World Wide Web site that contains reports, proxy and information
reports and other materials that are filed through the Commission's Electronic
Data Gathering, Analysis and Retrieval System. The site can be accessed at
http://www.sec.gov.

57
<PAGE> 59

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheet............................................... F-3
Statements of Operations.................................... F-4
Statement of Shareholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 60

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Ophidian Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of Ophidian
Pharmaceuticals, Inc. (the Company), a development stage corporation, as of
September 30, 1995 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of three years in the period ended
September 30, 1996 and the cumulative period from inception to September 30,
1996 (not separately presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at September 30,
1995 and 1996 and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1996 and the cumulative period
from inception to September 30, 1996 (not separately presented herein), in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Milwaukee, Wisconsin
October 9, 1996, except for
Note 10, as to which the date
is February 17, 1997.

F-2
<PAGE> 61

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 887,577 $ 3,276,339 $ 4,675,016
Short-term investments (Note 2)...................... 603,503 481,463 478,950
Accounts receivable.................................. 14,451 28,554 205,878
Prepaid expenses and other........................... 15,024 12,334 31,136
----------- ----------- -----------
Total current assets......................... 1,520,555 3,798,690 5,390,980
Long-term investments (Note 2)......................... 1,037,093 456,806 --
Other assets........................................... -- -- 89,333
Equipment and leasehold improvements (Note 4):
Furniture and fixtures............................... 96,692 96,692 116,751
Manufacturing equipment.............................. 44,234 82,381 120,630
Laboratory equipment................................. 281,888 325,914 413,125
Office equipment..................................... 53,760 53,760 65,226
Leasehold improvements............................... 3,320 11,758 24,092
----------- ----------- -----------
479,894 570,505 739,824
Accumulated depreciation............................. 204,701 290,438 377,188
----------- ----------- -----------
Net equipment and leasehold improvements............... 275,193 280,067 362,636
Patent costs, net of accumulated amortization of
$5,991, 11,097 and 7,478 for 1995, 1996 and June 30,
1997, respectively................................... 575,288 712,198 1,045,107
----------- ----------- -----------
Total assets................................. $ 3,408,129 $ 5,247,761 $6,888,056
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 134,513 $ 92,244 $ 421,042
Accrued expenses and other liabilities............... 49,180 60,148 62,046
Deferred revenue (Note 7)............................ -- 300,000 --
Current portion of capital lease obligations (Note
4).............................................. 17,036 18,195 26,174
----------- ----------- -----------
Total current liabilities.................... 200,729 470,587 509,262
Capital lease obligations, less current portion (Note
4)................................................... 50,856 33,914 38,613
Commitments and contingencies
Shareholders' equity (Notes 5 and 6):
Common stock, $.0025 par value, 22,400,000 shares
authorized, 6,090,191, 6,716,645 and 7,285,950
shares issued and outstanding at September 30,
1995 and 1996, and June 30, 1997, respectively.... 15,225 16,791 18,215
Additional paid-in capital........................... 5,723,419 9,261,730 12,387,898
Deficit accumulated during the development stage..... (2,522,726) (4,527,298) (6,063,649)
Net unrealized loss on available-for-sale
securities........................................ (59,374) (7,963) (2,283)
----------- ----------- -----------
Total shareholders' equity............................. 3,156,544 4,743,260 6,340,181
----------- ----------- -----------
Total liabilities and shareholders' equity............. $ 3,408,129 $ 5,247,761 $ 6,888,056
=========== =========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE> 62

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30, (NOVEMBER 11,
-------------------------------------- --------------------------- 1989) TO
1994 1995 1996 1996 1997 JUNE 30, 1997
---------- ----------- ----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $1,017,627 $ 386,979 $ 321,444 $ 240,121 $ 775,162 $ 4,376,423
Operating expenses:
Research & development....... 1,156,428 1,215,366 1,339,048 908,085 1,804,893 6,812,806
General & administrative..... 753,549 916,294 1,034,409 670,109 719,691 4,344,153
---------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 1,909,977 2,131,660 2,373,457 1,578,194 2,524,584 11,156,959
---------- ----------- ----------- ----------- ----------- -----------
Operating loss................. (892,350) (1,744,681) (2,052,013) (1,338,073) (1,749,422) (6,780,536)
Other income (expense):
Investment income, net......... 191,040 144,750 50,761 19,404 216,209 754,446
Interest expense............... (4,082) (4,624) (3,320) (2,548) (3,138) (38,324)
Other.......................... 97 668 -- -- -- 765
---------- ----------- ----------- ----------- ----------- -----------
187,055 140,794 47,441 16,856 213,071 716,887
---------- ----------- ----------- ----------- ----------- -----------
Net loss.............. $ (705,295) $(1,603,887) $(2,004,572) $(1,321,217) $(1,536,351) $(6,063,649)
========== =========== =========== =========== =========== ===========
Net loss per share............. $ (0.10) $ (0.22) $ (0.27) $ (0.18) $ (0.21)
Shares used in computing net
loss per share............... 7,318,169 7,321,232 7,232,446 7,322,945 7,324,298
</TABLE>

See accompanying notes.

F-4
<PAGE> 63

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NET DEFICIT
UNREALIZED ACCUMULATED
COMMON STOCK LOSS ON DURING THE
--------------------- AVAILABLE-FOR- ADDITIONAL DEVELOPMENT
SHARES PAR VALUE SALE SECURITIES PAID-IN STAGE TOTAL
--------- --------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for:
Cash................................. 800,000 $ 2,000 $ -- $ 48,000 $ -- $ 50,000
Assignment of intellectual
property........................... 3,200,000 8,000 (8,000) -- --
Net loss for 1990.................... -- -- -- -- (47,248) (47,248)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1990.......... 4,000,000 10,000 -- 40,000 (47,248) 2,752
Net loss for 1991.................... -- -- -- -- (298,863) (298,863)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1991.......... 4,000,000 10,000 -- 40,000 (346,111) (296,111)
Common stock issued for cash......... 933,120 2,333 -- 1,826,031 -- 1,828,364
Net loss for 1992.................... -- -- -- -- (473,896) (473,896)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1992.......... 4,933,120 12,333 -- 1,866,031 (820,007) 1,058,357
Common stock issued for cash......... 1,151,602 2,879 -- 3,832,802 -- 3,835,681
Net income for 1993.................. -- -- -- -- 606,463 606,463
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1993.......... 6,084,722 15,212 -- 5,698,833 (213,544) 5,500,501
Common stock issued for consulting
services........................... 2,801 7 -- 12,597 -- 12,604
Net unrealized loss on available
for-sale securities................ -- -- (127,577) -- -- (127,577)
Net loss for 1994.................... -- -- -- -- (705,295) (705,295)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1994.......... 6,087,523 15,219 (127,577) 5,711,430 (918,839) 4,680,233
Common stock issued for consulting
services........................... 2,668 6 -- 11,989 -- 11,995
Net unrealized gain on available
for-sale securities................ -- -- 68,203 -- -- 68,203
Net loss for 1995.................... -- -- -- -- (1,603,887) (1,603,887)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1995.......... 6,090,191 15,225 (59,374) 5,723,419 (2,522,726) 3,156,544
Common stock issued for consulting
services........................... 2,547 6 -- 11,993 -- 11,999
Common stock issued for cash......... 618,651 1,547 -- 3,515,819 -- 3,517,366
Exercise of stock options............ 5,256 13 -- 10,499 -- 10,512
Net unrealized gain on available
for-sale securities................ -- -- 51,411 -- -- 51,411
Net loss for 1996.................... -- -- -- -- (2,004,572) (2,004,572)
--------- ------- --------- ----------- ------------ ----------
Balance at September 30, 1996.......... 6,716,645 16,791 (7,963) 9,261,730 (4,527,298) 4,743,260
Common stock issued for consulting
services (unaudited)............... 2,851 7 -- 14,996 -- 15,003
Common stock issued for cash
(unaudited)........................ 566,454 1,417 -- 3,111,172 -- 3,112,589
Net unrealized gain on available
for-sale securities (unaudited).... -- -- 5,680 -- -- 5,680
Net loss for June 30, 1997
(unaudited)........................ -- -- -- -- (1,536,351) (1,536,351)
--------- ------- --------- ----------- ------------ ----------
Balance at June 30, 1997 (unaudited)... 7,285,950 $18,215 $ (2,283) $12,387,898 $(6,063,649) $6,340,181
========= ======= ========= =========== ============ ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 64

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
NINE MONTHS ENDED (NOVEMBER 11,
YEAR ENDED SEPTEMBER 30, JUNE 30, 1989) TO
-------------------------------------- ------------------------- JUNE 30,
1994 1995 1996 1996 1997 1997
---------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $ (705,295) $(1,603,887) (2,004,572) $(1,321,217) (1,536,351) $(6,063,649)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 77,367 90,530 108,854 61,403 85,885 431,327
Loss on sale of investments......... -- 36,720 44,464 45,909 -- 81,184
Common stock issued for consulting
services.......................... 12,604 11,995 11,999 9,000 15,003 51,601
Changes in operating assets and
liabilities:
Accounts receivable............... (5,249) (3,804) (14,103) (25,038) (177,324) (205,878)
Prepaid expenses and other........ (5,603) (1,643) 2,690 (253) (18,802) (31,136)
Accounts payable.................. 23,108 41,200 (42,269) (52,899) 328,798 421,042
Accrued expenses and other
liabilities..................... 25,047 (3,162) 10,994 (16,200) 1,898 62,046
Deferred revenue.................. (250,093) (8,090) 300,000 300,000 (300,000) --
---------- ----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities.......................... (828,114) (1,440,141) (1,581,943) (999,295) (1,600,893) (5,253,463)
INVESTING ACTIVITIES
Purchase of available-for-sale
securities.......................... (1,200,640) (235,672) -- (192,417) -- (4,517,181)
Proceeds from sale of
available-for-sale securities....... 1,436,383 1,338,030 701,821 -- 464,961 3,941,221
Purchases of equipment and leasehold
improvements, net................... (81,344) (71,073) (97,995) (42,012) (137,668) (630,762)
Increase in patents and other
assets.............................. (154,682) (208,736) (145,216) (68,963) (332,909) (1,067,325)
---------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities................ (283) 822,549 458,610 (303,392) (5,616) (2,274,047)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock............................... -- -- 3,566,939 999,999 3,115,497 12,462,365
Private placement financing costs..... -- -- (39,061) -- (2,908) (107,853)
Principal payments of capital lease
obligation.......................... (12,674) (16,126) (15,783) (11,521) (18,070) (62,653)
Advances from shareholder............. -- -- -- -- -- 330,000
Payments to shareholder............... -- -- -- -- -- (330,000)
Offering costs........................ -- -- -- -- (89,333) (89,333)
---------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (12,674) (16,126) 3,512,095 988,478 3,005,186 12,202,526
---------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................... (841,071) (633,718) 2,388,762 (314,209) 1,398,677 4,675,016
---------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at beginning
of period........................... 2,362,366 1,521,295 887,577 887,577 3,276,339 --
========== =========== =========== =========== =========== ===========
Cash and cash equivalents at end of
period.............................. $1,521,295 $ 887,577 $ 3,276,339 $ 573,368 $ 4,675,016 $ 4,675,016
========== =========== =========== =========== =========== ===========
Supplemental disclosure of cash flows
information --
Cash paid for interest.............. $ 4,001 $ 4,655 $ 3,320 $ 2,594 $ 3,138
Supplemental disclosure of non-cash
transactions --
Capital lease obligations incurred
to acquire office equipment,
furniture and fixtures and
computer equipment................ $ 96,692 -- -- -- $ 30,748
Common stock issued for consulting
services.......................... $ 12,597 $ 11,995 $ 11,999 $ 9,000 $ 15,003
</TABLE>

See accompanying notes.

F-6
<PAGE> 65

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Ophidian Pharmaceuticals, Inc. (the Company) was incorporated on November
10, 1989, and began operations on January 17, 1990. Ophidian is a development
stage corporation dedicated to the research, development and commercialization
of therapeutic and diagnostic products for human and animal use. The Company's
business has been directed to numerous areas of disease but has focused
principally on products for infectious disease prevention and treatment. The
Company has not received any revenues from the sale of FDA licensed products to
date and it does not expect to receive any such revenues during the next two
years.

INTERIM FINANCIAL INFORMATION

The financial information at June 30, 1997, and for the nine month periods
ended June 30, 1996 and 1997 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Results for the nine months
ended June 30, 1997 are not necessarily indicative of the results for the entire
year.

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.

NET LOSS PER SHARE

Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 83, common and common equivalent shares issued during the 12-month
period prior to the initial filing of the proposed offering at prices below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method for
stock options and warrants at the estimated public offering price).

See accompanying notes.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of
three months or less at the date of acquisition to be cash equivalents.

INVESTMENTS

The Company's investments are considered available-for-sale securities and,
as such, are carried at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation and
amortization of assets under capital leases are provided over the estimated
useful lives of the assets, generally five years, and lease terms, respectively,
by the straight-line method.

F-7
<PAGE> 66

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

OTHER ASSETS

Patent costs, principally legal fees, are capitalized and, upon issuance,
are amortized on a straight-line basis over the estimated useful life of the
patents. Accumulated amortization was $5,991 and $11,097 at September 30, 1995
and 1996, respectively.

REVENUE RECOGNITION

Contract revenues and milestone payments for collaborative product
development are recorded as earned based on the performance requirements of the
contract. Payments received which are related to future performance are deferred
and taken into revenue as earned.

RESEARCH AND DEVELOPMENT

All costs for research and development activities are expensed in the year
incurred.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities (see Note 9). No current or
deferred income taxes have been provided because of the net operating losses
incurred by the Company.

2. INVESTMENTS

The following is a summary of available-for-sale investments at September
30:

<TABLE>
<CAPTION>
1995
--------------------------------------
NET ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Government and agency obligations.......... $1,600,048 $58,045 $1,542,003
Corporate obligation............................ 99,922 1,329 98,593
---------- ------- ----------
$1,699,970 $59,374 $1,640,596
========== ======= ==========
</TABLE>

<TABLE>
<CAPTION>
1996
--------------------------------------
NET ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Government and agency obligations.......... $ 846,275 $ 7,849 $ 838,426
Corporate obligation............................ 99,957 114 99,843
---------- ------- ----------
$ 946,232 $ 7,963 $ 938,269
========== ======= ==========
</TABLE>

F-8
<PAGE> 67

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

Available-for-sale investments have been classified based upon their
contractual maturity dates. The amortized cost and estimated fair value of
investments at September 30, by contractual maturity, are as follows:

<TABLE>
<CAPTION>
1995 1996
------------------------ ----------------------
ESTIMATED ESTIMATED
FAIR FAIR
COST VALUE COST VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Due in one year or less.............. $ 626,776 $ 603,503 $484,029 $481,463
Due after one year through three
years.............................. 1,073,194 1,037,093 462,203 456,806
---------- ---------- -------- --------
$1,699,970 $1,640,596 $946,232 $938,269
========== ========== ======== ========
</TABLE>

3. LINE OF CREDIT

The Company has available a $500,000 bank line of credit which expires
February 1, 1998. Any borrowings bear interest at prime plus 1% and are
collateralized by the Company's investments. There were no borrowings on the
line during fiscal 1995, 1996, or the nine month period ended June 30, 1997.

4. CAPITAL LEASE OBLIGATIONS

The Company has incurred obligations under capital leases for equipment and
furniture and fixtures, including the following amounts for leases that have
been capitalized at September 30:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Furniture and fixtures...................................... $84,934 $84,934
Office equipment............................................ 11,758 11,758
------- -------
96,692 96,692
Less accumulated depreciation............................... 33,842 53,181
------- -------
$62,850 $43,511
======= =======
</TABLE>

Future minimum payments under capital lease obligations consist of the
following at September 30, 1996:

<TABLE>
<CAPTION>
RELATED CAPITAL
PARTY OTHER LEASES
------- ------ -------
(NOTE
7)
-------
<S> <C> <C> <C>
1997................................................... $16,800 $3,827 $20,627
1998................................................... 16,800 956 17,756
1999................................................... 6,513 -- 6,513
2000................................................... 3,084 -- 3,084
2001................................................... 3,084 -- 3,084
Thereafter............................................. 6,939 -- 6,939
------- ------ -------
Total minimum lease payments........................... $53,220 4,783 58,003
======= ======
Amount representing interest........................... 5,894
-------
Present value of net minimum lease payments (including
current portion of $18,195).......................... $52,109
=======
</TABLE>

F-9
<PAGE> 68

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

5. STOCK OPTION PLANS AND WARRANTS

The Company has an incentive stock option plan and an employee stock option
plan (collectively, the "Plans") under which options for a maximum of 657,160
shares of common stock may be granted. The option price per share will be no
less than fair market value at the date the options are granted. The options
expire within ten years from such date. Options for 389,094 shares are
exercisable at September 30, 1996. Options for 5,256 shares have been exercised
at September 30, 1996.

Option activity under the plans is as follows:

<TABLE>
<CAPTION>
NUMBER
OF SHARES OPTION PRICE
--------- -------------
<S> <C> <C>
Outstanding at September 30, 1993........................... 413,912 $ .06 - $4.50
Granted................................................... 31,193 $4.50
Exercised................................................. -- --
Canceled.................................................. -- --
------- -------------
Outstanding at September 30, 1994........................... 445,105 $ .06 - $4.50
Granted................................................... 2,667 $4.50
Exercised................................................. -- --
Canceled.................................................. 14,871 $2.00 - $4.50
------- -------------
Outstanding at September 30, 1995........................... 432,901 $ .06 - $4.50
Granted................................................... 41,142 $2.00 - $5.50
Exercised................................................. 5,256 $2.00
Canceled.................................................. 6,059 $4.50
------- -------------
Outstanding at September 30, 1996........................... 462,728 $.06 - $5.50
------- -------------
</TABLE>

At September 30, 1995, and 1996, options to purchase 318,710 and 389,094
common shares were exercisable, respectively.

In fiscal 1990, the Company granted a warrant to a shareholder to purchase
up to 114,290 shares of common stock at a price of $.0025 per share. The warrant
becomes exercisable in a defined manner upon the issuance of shares of common
stock under the Company's incentive stock option plan. The warrant terminates
thirty days after exercise of the total number of options covered by the Plans
discussed above. At September 30, 1996, 1,314 shares are exercisable under the
Warrant.

The Company has reserved 866,194 shares of common stock at September 30,
1996 to provide for the exercise of outstanding stock options and warrants.

In May, 1996, the Company granted a consultant an option to purchase
100,000 shares of the Company's Common Stock at a price of $4.50 per share
exercisable until May, 2004.

Statement of Financial Accounting Statements No. 123, "Accounting for
Stock-Based Compensation," ("FAS 123") became effective for the Company
beginning October 1, 1996. As allowed by FAS 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," (APB 25) in accounting for its stock option plan.
Under APB 25, the Company does not recognize compensation expense on the
issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.

F-10
<PAGE> 69

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

6. RELATED-PARTY TRANSACTIONS

The Company leases its facilities under a five-year operating lease,
expiring in 1999, from a corporation whose principal shareholder is a director
of the Company. Rent expense of $185,146, $221,226 and $208,586 was recorded for
the years ended September 30, 1994, 1995 and 1996, respectively. The lease
includes an option to extend the lease for an additional five years. At
September 30, 1996, future minimum rental commitments are as follows:

<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
1997.............................................................. $233,688
1998.............................................................. 240,456
1999.............................................................. 60,540
--------
Total................................................... $534,684
========
</TABLE>

In addition, the Company leases certain furniture and fixtures, from this
same related-party corporation, under a capital lease arrangement as described
in Note 4.

The Company has consulting agreements with shareholders that expire at
various dates. Consulting expenses were $40,000, $64,000, and $84,000 for the
years ended September 30, 1994, 1995 and 1996, respectively.

7. ELI LILLY & COMPANY COLLABORATIVE AGREEMENT (THE AGREEMENT)

On June 3, 1996, Eli Lilly & Company (Lilly) and the Company entered into a
20-year collaborative agreement (Agreement) and stock purchase agreement with
respect to the further research, development, manufacture and sale of products
for the treatment of Clostridium difficile-associated diseases.

In accordance with the Agreement, Lilly may provide the Company with up to
$12.4 million over the term of the Agreement. As of September 30, 1996, Lilly
made equity investments totalling $1.0 million and cash payments of $400,000.
Upon achievement of specific milestone events by the Company, as defined in the
Agreement, Lilly will make future equity investments or fee payments. Lilly has
agreed to pay the fair market value for equity investments, determined by mutual
agreement of Lilly and the Company.

At September 30, 1996, the Company deferred $300,000 of a cash payment by
Lilly. This amount was subject to refund to Lilly if certain contractual
requirements were not met. Subsequent to September 30, 1996, the Company met the
contractual requirements and recognized the $300,000 as revenue in fiscal 1997.
Pursuant to other provisions in the Agreement, Ophidian must provide
manufacturing facilities and meet certain bulk product delivery requirements and
timetables. The Agreement also defines a pricing structure for future delivery
of product.

In November, 1996, upon the achievement of the first milestone, Lilly
purchased 545,454 shares of the Company's stock at $5.50 per share, for an
investment of $2,999,997.

8. 401(K) PLAN

The Ophidian Pharmaceuticals, Inc. 401(k) Plan (the Plan) covers all
employees. Employees become eligible to participate in the Plan on the first day
of their employment and may contribute up to 15% of their compensation. The
Company may make matching contributions at a discretionary percentage. No
matching contributions were made for the years ended September 30, 1994, 1995
and 1996.

F-11
<PAGE> 70

OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)

9. INCOME TAXES

At September 30, 1996, the Company has net operating loss carryforwards for
federal and Wisconsin tax purposes remaining of approximately $4,899,000 and
$5,024,000, respectively. These carryforwards expire beginning in 2007. The
Company has research and other tax credit carryforwards of approximately
$273,000 and $133,000 for federal and Wisconsin tax purposes, respectively.

The types of temporary differences between tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax asset (liability) and their approximate tax effects are as follows at
September 30:

<TABLE>
<CAPTION>
1995 1996
-------------------------- -------------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Depreciation, patents, prepaid
insurance and other.......... $ (562,000) $ (218,000) $ (660,000) $ (257,000)
Net operating loss
carryforwards................ 2,827,000 1,108,000 4,899,000 1,911,000
Research and AMT credit
carryforwards................ - 258,000 - 273,000
----------- -----------
Deferred tax assets, net....... 1,148,000 1,927,000
Valuation allowance............ (1,148,000) (1,927,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>

10. SUBSEQUENT EVENTS

In February, 1997, the Board of Directors authorized management of the
Company to enter a letter of intent with an underwriter to file a registration
statement with the Securities Exchange Commission allowing the Company to sell
up to 2,875,000 shares of its Common Stock and issue Warrants to purchase
2,875,000 shares of its Common Stock.

F-12
<PAGE> 71

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 18
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 27
Management............................ 41
Principal Shareholders................ 47
Certain Transactions.................. 48
Liability and Indemnification of
Directors and Officers.............. 49
Description of Securities............. 50
Shares Eligible for Future Sale....... 53
Underwriting.......................... 55
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Index to Financial Statements......... F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================

======================================================
OPHIDIAN
PHARMACEUTICALS, INC.
2,500,000 SHARES OF COMMON STOCK AND

2,500,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
------------------------

PROSPECTUS
------------------------
NATIONAL SECURITIES

CORPORATION
, 1997
======================================================
<PAGE> 72

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered. All amounts are estimated
except the Commission Registration Fee, the NASD Filing Fee and the American
Stock Exchange Application Fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 12,687
NASD Filing Fee............................................. 4,687
American Stock Exchange Application Fee..................... 37,500
Blue Sky Qualification Fees and Expenses.................... 20,000
Accounting Fees and Expenses................................ 75,000
Legal Fees and Expenses..................................... 125,000
Transfer Agent and Registrar Fees........................... 5,000
Printing and Engraving...................................... 70,000
Miscellaneous............................................... 126
Total............................................. $350,000
========
</TABLE>

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

*To be completed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under the Wisconsin Business Corporation Law, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in defense thereof, unless it is
determined the director or officer breached or failed to perform his duties to
the Company and such breach or failure constituted: (i) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest, (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful, (iii) a transaction from which the director or
officer derived an improper personal profit, or (iv) willful misconduct. The
Company's Bylaws provide that the Company may purchase and maintain insurance on
behalf of an individual who is a director or officer of the Company against
liability asserted against or incurred by such individual in his or her capacity
as a director or officer regardless of whether the Company is required or
authorized to indemnify or allow expenses to the individual against the same
liability under the Bylaws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, the registrant has issued the securities set
forth below which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").

In November 1996, the Company completed a private placement offering under
which it sold 485,805 shares of Common Stock at $5.50 per share and raised net
proceeds of $2,629,959 to certain accredited and unaccredited investors. The
shares were issued under Rule 506 of the Securities Act and Section 4(2) of the
Securities Act.

In June 1996, the Company and Eli Lilly and Company ("Lilly") entered into
collaborative agreements, according to which the Company sold to Lilly 153,846
shares of Common Stock at $6.50 per share and in November, 1996 sold 545,454
shares of Common Stock at $5.50 per share.

During the past three fiscal years, the Company has issued an aggregate of
8,016 shares of its Common Stock to consultants for services rendered in the
ordinary course of business and 8,137 to certain Directors for

II-1
<PAGE> 73

payment in lieu of cash. The shares of Common Stock were issued at their fair
market value at the time of issuance. The shares were issued under Section 4(2)
of the Securities Act. See "Management -- Consultant Compensation and Director
Compensation."

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Specimen Common Stock Certificate*
4.2 Specimen Warrant Certificate*
4.3 Form of Representative's Warrant Agreement including form of
Representative's Warrant*
4.4 Form of Warrant Agreement*
5.1 Opinion of LaFollette & Sinykin
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation
10.2 1997 Incentive Stock Option Plan
10.3 1990 Incentive Stock Option Plan
10.4 1992 Employee Stock Option Plan
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company
10.6 Employment Agreement dated July 30, 1997 between the Company
and Douglas C. Stafford
10.7 Employment Agreement dated July 30, 1997 between the Company
and Joseph Firca
10.8 Employment Agreement dated July 30, 1997 between the Company
and F. Michael Hoffman*
11.1 Statement re: computation of net loss per share
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-3 and II-4)
27.1 Financial Data Schedule
</TABLE>

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

+ Confidential treatment requested.

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

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

The Company hereby undertakes that:

(1) For purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.

II-2
<PAGE> 74

(1A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar volume of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in value and
price represent no more than a 20% change in the aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.

(1B) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(1C) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions set forth in Item 14 above, or otherwise,
the Company has been advised in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred, or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 will be governed by the final
adjudication of such issue.

II-3
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized on August 6, 1997 in the City of Madison, Wisconsin.

OPHIDIAN PHARMACEUTICALS, INC.

By: /s/ DOUGLAS C. STAFFORD
------------------------------------
Douglas C. Stafford, Ph.D.
President, Chief Executive Officer
and Director

By: /s/ MARGARET B. VAN BOLDRIK
------------------------------------
Margaret B. van Boldrik, Ph.D.
Vice President, Secretary and
Director

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Douglas
C. Stafford and Margaret B. van Boldrik, and each of them as his or her true and
lawful attorney-in-fact and agent with full power of substitution to sign on his
or her behalf, individually and in the capacity stated below and to perform any
acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement of
the amendments thereto. Each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or his or her substitute, does or
causes to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ WILLIAM A. LINTON Chairman of the Board of August 6, 1997
- ------------------------------------------------ Directors
William A. Linton

/s/ DOUGLAS C. STAFFORD President, Chief Executive August 6, 1997
- ------------------------------------------------ Officer and Director (Principal
Douglas C. Stafford, Ph.D. Executive Officer and Principal
Financial Officer)

/s/ MARGARET B. VAN BOLDRIK Vice President, Secretary and August 6, 1997
- ------------------------------------------------ Director
Margaret B. van Boldrik, Ph.D.

/s/ SEAN B. CARROLL Director August 6, 1997
- ------------------------------------------------
Sean B. Carroll, Ph.D.

/s/ REX J. BATES Director August 6, 1997
- ------------------------------------------------
Rex J. Bates

/s/ PETER MODEL Director August 6, 1997
- ------------------------------------------------
Peter Model

/s/ W. LEIGH THOMPSON Director August 6, 1997
- ------------------------------------------------
W. Leigh Thompson, Ph.D, M.D.
</TABLE>

II-4
<PAGE> 76

INDEX TO EXHIBITS

<TABLE>
<S> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Specimen Common Stock Certificate*
4.2 Specimen Warrant Certificate*
4.3 Form of Representative's Warrant Agreement including form of
Representative's Warrant*
4.4 Form of Warrant Agreement*
5.1 Opinion of LaFollette & Sinykin
10.1 Lease dated February 12, 1994 between the Company and
Promega Corporation
10.2 1997 Incentive Stock Option Plan
10.3 1990 Incentive Stock Option Plan
10.4 1992 Employee Stock Option Plan
+10.5 Agreement dated June 3, 1996 between the Company and Eli
Lilly and Company
10.6 Employment Agreement dated July 30, 1997 between the Company
and Douglas C. Stafford
10.7 Employment Agreement dated July 30, 1997 between the Company
and Joseph Firca
10.8 Employment Agreement dated July 30, 1997 between the Company
and F. Michael Hoffman*
11.1 Statement re: computation of net loss per share
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of LaFollette & Sinykin (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-3 and II-4)
27.1 Financial Data Schedule
</TABLE>

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

+ Confidential treatment requested.

* To be filed by amendment.

II-5

<PAGE> 1

OHS DRAFT
8/5/97

EXHIBIT 1.1

[Form of Underwriting Agreement - Subject to Additional Review]

2,500,000 SHARES OF COMMON STOCK
AND 2,500,000 REDEEMABLE WARRANTS

OPHIDIAN PHARMACEUTICALS, INC.

UNDERWRITING AGREEMENT

New York, New York
, 1997

NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154

Ladies and Gentlemen:

Ophidian Pharmaceuticals, Inc., a Wisconsin corporation (the "Company"),
confirms its agreement with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.0025
par value per share ("Common Stock"), and redeemable common stock purchase
warrants (the "Redeemable Warrants"), each to purchase one share of Common
Stock, set forth in Schedule A hereto. The aggregate 2,500,000 Shares and
2,500,000 Redeemable Warrants will be separately tradeable upon issuance and
are hereinafter referred to as the "Firm Securities." Each Redeemable Warrant
is exercisable

<PAGE> 2

commencing on __________, 1998 [12 months from the date of this Agreement]
until ___________, 2002 [60 months from the date of this Agreement], unless
previously redeemed by the Company, at an initial exercise price of $ _________
[120% of the initial public offering price] per share of Common Stock. The
Redeemable Warrants may be redeemed by the Company at a redemption price of
$.10 per Redeemable Warrant at any time after __________, 1999 [24 months from
the date of this Agreement] on thirty (30) days' prior written notice, provided
that the closing bid price of the Common Stock equals or exceeds $ ___________
[240% of the initial public offering price of the Common Stock] per share, for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption, all in accordance with the terms and conditions of the Warrant
Agreement (herein defined).

Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 375,000 shares of Common Stock and/or 375,000
Redeemable Warrants for the purpose of covering over-allotments, if any. Such
375,000 shares of Common Stock and 375,000 Redeemable Warrants are hereinafter
collectively referred to as the "Option Securities." The Company also proposes
to issue and sell to you warrants (the "Representative's Warrants") pursuant to
the Representative's Warrant Agreement (the "Representative's Warrant
Agreement") for the purchase of an additional 250,000 shares of Common Stock
and/or 250,000 Redeemable Warrants. The shares of Common Stock and Redeemable
Warrants issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Securities." The Firm
Securities, the Option Securities, the Representative's Warrants and the
Representative's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.

1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each
Option Closing Date (as hereinafter defined), if any, as follows:

(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-_________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to those documents or information incorporated by reference therein)
and all information deemed

<PAGE> 3

to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A)
of the Regulations), is hereinafter called the "Registration Statement", and
the form of prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.

(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any thereof
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of
the Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.

(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus
will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and will conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.

(d) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the state of its
incorporation. Except as set forth in the Prospectus, the Company does not own
an interest in any corporation, partnership, trust, joint venture or other
business entity. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations requires such
qualification or licensing. The Company has all requisite power and authority
(corporate and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of

<PAGE> 4

and from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as described
in the Prospectus; the Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all applicable federal, state, local and foreign
laws, rules and regulations; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures
in the Registration Statement concerning the effects of federal, state, local,
and foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading in light of the
circumstances under which they were made.

(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon
the assumptions set forth therein, and the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Warrant Agreement, the Representative's Warrant Agreement and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of
the Securities to be sold by the Company hereunder, the Underwriters or the
Representative, as the case may be, will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind
whatsoever.

(f) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders' equity and the
results of operations of the Company at the respective dates and for

<PAGE> 5

the respective periods to which they apply and such financial statements have
been prepared in conformity with generally accepted accounting principles and
the Rules and Regulations, consistently applied throughout the periods involved
and such financial statements as are audited have been examined by Ernst &
Young LLP, who are independent certified public accountants within the meaning
of the Act and the Rules and Regulations, as indicated in their reports filed
therewith. There has been no adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company,
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Information," "Selected
Financial Data," "Capitalization," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," fairly present, on the basis
stated in the Prospectus, the information set forth therein, and have been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus; and, in the case of pro forma
financial information, if any, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. The amounts shown
as accrued for current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid federal,
state, local and foreign income taxes, interest, penalties, assessments or
deficiencies applicable to the Company, whether disputed or not, for the
applicable period then ended and periods prior thereto; adequate allowance for
doubtful accounts has been provided for unindemnified losses due to the
operations of the Company; and the statements of income do not contain any
items of special or nonrecurring income not earned in the ordinary course of
business, except as specified in the notes thereto.

(g) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.

(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection
with the distribution contemplated hereby.

(i) The Company maintains insurance policies, including, but not
limited to, general liability, malpractice and property insurance, which
insures each of the Company and its

<PAGE> 6

employees, against such losses and risks generally insured against by
comparable businesses. The Company (A) has not failed to give notice or
present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) does not have any
disputes or claims against any underwriter of such insurance policies or surety
bonds or has failed to pay any premiums due and payable thereunder, or (C) has
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.

(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or
of any action taken or to be taken by the Company pursuant to or in connection
with this Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all material respects), or (iii) might
materially and adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company.

(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for in this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement; and this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, and none of the
Company's issue and sale of the Securities, execution or delivery of this
Agreement, the Warrant Agreement or the Representative's Warrant Agreement, its
performance hereunder and thereunder, its consummation of the transactions
contemplated herein and therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
amended and restated articles of incorporation or amended and restated by-laws
of the Company, (ii) any license, contract, collective bargaining agreement,
indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Company is a party or by which the Company is or may be bound or
to which its or assets (tangible or intangible) is or may be subject, or any

<PAGE> 7

indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.

(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement and
the transactions contemplated hereby and thereby, including without limitation,
any waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representative's Warrants to be sold by the Company hereunder.

(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by which it or
they may be bound or to which its or their respective assets, properties or
business may be subject have been duly and validly authorized, executed and
delivered by the Company and constitute the legal, valid and binding agreements
of the Company, as the case may be, enforceable against it in accordance with
its terms. The descriptions in the Registration Statement of agreements,
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by Form S-1, and there are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.

(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in the debt
(long or short term) or liabilities or material adverse change in or affecting
the general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.

(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement

<PAGE> 8

or instrument to which the Company is a party or by which the Company may be
bound or to which the property or assets (tangible or intangible) of the
Company is subject or affected.

(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any lockout, strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company, or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists, or, is imminent.

(q) The Company does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan," or a "multiemployer plan" as such terms are defined in
Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does
not maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."

(r) Neither the Company, nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.

(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. The Company (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents,

<PAGE> 9

trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business
as now conducted or proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.

(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects, or
other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable.

(u) Ernst & Young LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.

(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and holders of one percent (1%) or more of the Common Stock of the
Company or securities exchangeable or exercisable for or convertible into
shares of Common Stock, has agreed not to, directly or indirectly, issue,
offer, offer to sell, sell, grant any option for the sale or purchase of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any
shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than nine (9) months following the effective date of the
Registration Statement without the prior written consent of the Representative
and the Company. During the nine (9) month period commencing on the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of the Representative, sell, contract or offer to sell, issue,
transfer, assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants with
respect to any shares of Common Stock. The Company will cause the Transfer
Agent (as hereinafter defined) to mark an appropriate legend on the face of
stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.

(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company, or any of its officers, directors,
stockholders, partners, employees or affiliates, that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").

<PAGE> 10

(x) The Common Stock has been approved for quotation on the
American Stock Exchange ("Amex").

(y) None of the Company, nor any of its officers, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) which (a)
might subject the Company, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a material adverse
effect on the assets, business or operations of the Company, or (c) if not
continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of the Company. The Company's internal accounting
controls are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.

(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficiary
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, or 5% or greater securityholder of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities.

(aa) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.

(ab) The minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and actions of
the directors (including committees thereof) and stockholders of the Company,
since the time of its incorporation, and reflect all transactions referred to
in such minutes accurately in all material respects.

(ac) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company

<PAGE> 11

to file a registration statement under the Act and no person or entity holds
any anti-dilution rights with respect to any securities of the Company.

(ad) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Douglas C.
Stafford, Ph.D and Joseph R. Firca in the form filed as Exhibit ______ and
Exhibit __, respectively, to the Registration Statement and (ii) purchased term
key person insurance on the life of Dr. Douglas C. Stafford in the amount of
one (1) million dollars which policies name the Company as the sole beneficiary
thereof.

(ae) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").

(af) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(ag) The Company has entered into a warrant agreement
substantially in the form filed as Exhibit ____ to the Registration Statement
(the "Warrant Agreement") with Continental Stock Transfer and Trust Company, as
Warrant Agent, in form and substance satisfactory to the Representative, with
respect to the Redeemable Warrants and providing for the payment of the
commission contemplated by Section 4(v).

2. Purchase, Sale and Delivery of the Securities.

(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [92% of the public offering price] per Share and $_______ [92% of the
public offering price] per Redeemable Warrant, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof.

(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all

<PAGE> 12

or any part of an additional 375,000 shares of Common Stock at a price of $
____ [92% of the public offering price] per share of Common Stock and/or an
additional 375,000 Redeemable Warrants at a price of $______ [92% of the public
offering price] per Redeemable Warrant. The option granted hereby will expire
forty-five (45) days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment
and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representative,
but shall not be later than three (3) full business days after the exercise of
said option, nor in any event prior to the Closing Date, as hereinafter
defined, unless otherwise agreed upon by the Representative and the Company.
Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.

(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Representative at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or
at such other place as shall be agreed upon by the Representative and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New York City
time) on ________________, 1997 or at such other time and date as shall be
agreed upon by the Representative and the Company, but not less than three (3)
nor more than five (5) full business days after the effective date of the
Registration Statement (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above-mentioned office of the Representative or at such other place
as shall be agreed upon by the Representative and the Company on each Option
Closing Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to the Underwriters against payment by the Underwriters,
severally and not jointly, of the purchase price for the Firm Securities and
the Option Securities, if any, to the order of the Company for the Firm
Securities and the Option Securities, if any, by New York Clearing House funds.
In the event such option is exercised, each of the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number
of Option Securities then being purchased which the number of Firm Securities
set forth in Schedule A hereto opposite the name of such Underwriter bears to
the total number of Firm Securities, subject in each case to such adjustments
as the Representative in its discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option Securities, if any, shall be in definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and registered
in such names as the Underwriters may request in writing at least two (2)
business days prior to the Closing Date or the relevant Option Closing Date, as
the case may be. The certificates for the Firm Securities and the Option
Securities, if any, shall be made available to the Representative at such
office or such other place

<PAGE> 13

as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.

(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 250,000 shares of Common Stock and/or 250,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representative's Warrants shall be
made on the Closing Date.

3. Public Offering of the Shares and Redeemable Warrants. As soon
after the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
respective public offering price after distribution of the Shares and
Redeemable Warrants has been completed to such extent as the Representative, in
its sole discretion deems advisable. The Underwriters may enter into one or
more agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.

4. Covenants and Agreements of the Company. The Company covenants
and agrees with each of the Underwriters as follows:

(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and Redeemable Warrants by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.

(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceeding suspending the effectiveness of the
Registration Statement or any order

<PAGE> 14

preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of
proceedings for that purpose; (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose;
(iv) of the receipt of any comments from the Commission; and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.

(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.

(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.

(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.

(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as

<PAGE> 15

from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and the Prospectus, or any amendments or supplements thereto. If at any time
when a prospectus relating to the Securities is required to be delivered under
the Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or Underwriters' Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.

(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.

(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:

i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;

ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;

iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;

iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;

<PAGE> 16

v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and

vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.

During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiary(ies) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.

(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.

(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the Representative may
request.

(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (9) months from the effective date of the Registration
Statement, each of the Company's officers, directors and holders of one percent
(1%) or more of the Common Stock of the Company or securities exchangeable or
exercisable for or convertible into shares of Common Stock agrees that it or he
or she will not, directly or indirectly, issue, offer to sell, sell, grant an
option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without the prior consent of the Representative (collectively,
the "Lock-up Agreements"). During the 9 month period commencing on the
effective date of the Registration Statement, the Company shall not, without
the prior written consent of the Representative, sell, contract or offer to
sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock; provided, however, that
the Company and any subsidiaries may sell or offer for sale any of their
respective securities without the consent of the Representative (i) pursuant to
the exercise of option and warrants issued and outstanding on the date hereof
and disclosed in the Prospectus; (ii) pursuant to incentive stock or options to
officers, directors, employees or consultants at not less than eighty-five
percent (85%) of the then current market price of such security, provided that
such incentive stock or options are issued prior to the Effective Date of the
Registration

<PAGE> 17

Statement (for a period of twelve (12) months thereafter, such incentive stock
or options may only be issued at the higher of (a) market price or (b) the
initial public offering price except for up to an aggregate of 100,000 stock or
options issued to new employees of the Company and/or to non-officer or
director employees on a merit basis); (iii) in connection with any bona fide
merger, acquisition, joint venture or similar corporate partnering transaction,
equipment leasing transaction or facilities construction transaction with any
nonaffiliate of the Company, and with Eli Lilly & Company, or (iv) in
connection with a follow-on offering of the Company's securities to the public.
On or before the Closing Date, the Company shall deliver instructions to the
Transfer Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers. The Company further
covenants that it will not file a registration statement with the Commission
during the twelve (12) month period commencing on the effective date of the
Registration Statement.

(l) None of the Company, nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.

(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.

(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.

(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(l) and 6(m) hereof.

(p) The Company shall cause the Common Stock and Redeemable
Warrants to be listed on AMEX and, for a period of seven (7) years from the
date hereof, use its best efforts to maintain the AMEX listing of the Common
Stock and the Redeemable Warrants to the extent outstanding.

(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Representative's reasonable
request and the Company's sole expense,

<PAGE> 18

(i) daily consolidated transfer sheets relating to the Common Stock and
Redeemable Warrants (ii) the list of holders of all of the Company's securities
and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.

(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.

(s) The Company hereby agrees that, except as set forth above in
Section 4(k) and the [ ] shares reserved for future issuance under the
Company's 1990 Incentive Stock Option Plan and 1992 Employee Stock Option Plan
as amended (collectively, "Stock Option Plans"), it will not, for a period of
twelve (12) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement, permitting
(i) the grant, issue, sale or entry into any agreement to grant, issue or sell
any option, warrant or other contract right (x) at an exercise price that is
less than the greater of the public offering price of the Shares set forth
herein and the fair market value on the date of grant or sale or (y) to any of
its executive officers or directors or to any holder of 5% or more of the
Common Stock; (ii) the maximum number of shares of Common Stock or other
securities of the Company purchasable at any time pursuant to options or
warrants issued by the Company to exceed such [ ] shares reserved for
future issuance under the Company's Stock Option Plans; (iii) the payment for
such securities with any form of consideration other than cash; or (iv) the
existence of stock appreciation rights, phantom options or similar
arrangements. Furthermore, the Company agrees that for a period of twelve (12)
months from the effective date of the Registration Statement, the Company will
not amend any material employment agreement or option agreement or other
agreement providing compensation to any officer, director or other principal
stockholder, without the prior written consent of the Representative.

(t) Until the completion of the distribution of the Securities,
the Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.

(u) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent
or disqualify the Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments
to the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of
the Redeemable Warrants remain outstanding.

<PAGE> 19

(v) Commencing one year and one day from the date hereof, if the
Company engages the Representative as a warrant solicitation agent under the
terms of the Warrant Agreement, the Company shall pay the Representative a
commission equal to five percent (5%) of the exercise price of the Redeemable
Warrants, payable on the date of the exercise thereof on the terms provided in
the Warrant Agreement; provided, however, the Representative shall be entitled
to receive the commission contemplated by this Section 4(v) only if: (i) the
Representative has provided actual services in connection with the solicitation
of the exercise of a Redeemable Warrant by a Warrantholder and (ii) the
Warrantholder exercising a Redeemable Warrant affirmatively designates in
writing on the exercise form on the reverse side of the Redeemable Warrant
Certificate that the exercise of such Warrantholder's Redeemable Warrant was
solicited by the Representative.

(w) For a period of three (3) years after the effective date of
the Registration Statement, the Company agrees that the Representative shall
have the right to designate one (1) person to attend all meetings of the Board
of Directors of the Company (the "Board"). The Company shall send to such
person all notices and other correspondence and communications sent by the
Company to members of the Board. Such designee(s) of the Representative shall
be reimbursed for all out-of-pocket expenses incurred in connection with their
attendance of meetings of the Board.

5. Payment of Expenses.

(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing (including mailing
and handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreements, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters and such dealers as the Underwriters may request,
in quantities as hereinabove stated, (iii) the printing, engraving, issuance
and delivery of the Securities including, but not limited to, (x) the purchase
by the Underwriters of the Firm Securities and the Option Securities and the
purchase by the Representative of the Representative's Warrants from the
Company, (y) the consummation by the Company of any of its obligations under
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, and (z) resale of the Firm Securities and the Option Securities by
the Underwriters in connection with the distribution contemplated hereby, (iv)
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal

<PAGE> 20

Investments Survey," if any, and disbursements and fees of counsel in
connection therewith (such counsel fees not to exceed $10,000 if the Securities
are listed on the AMEX or the Nasdaq National Market ("Nasdaq")), (v)
advertising costs and expenses, including but not limited to costs and expenses
in connection with the "road show", information meetings and presentations,
bound volumes and prospectus memorabilia and "tombstone" advertisement
expenses, (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any, (viii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, and (x) the
fees and expenses incurred in connection with the quotation of the Securities
on the AMEX or Nasdaq and any other exchange.

(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 (except Sections 6(c), 6(k) and
6(o)) or Section 12, the Company shall reimburse and indemnify the Underwriters
for all of their actual out-of-pocket expenses, including the reasonable fees
and disbursements of counsel for the Underwriters and all Blue Sky counsel fees
(excluding filing fees) and disbursements (less amounts previously paid
pursuant to Section 5(c) hereof).

(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to 2
1/2% of the gross proceeds received by the Company from the sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the overallotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representative on each
Option Closing Date, by certified or bank cashier's check, or at the
Representative's election, by deduction from the proceeds of the Option
Securities purchased on such Option Closing Date, a non-accountable expense
allowance equal to 2 1/2% of the gross proceeds received by the Company from
the sale of such Option Securities.

6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had
been made on and as of the Closing Date or each Option Closing Date, as the
case may be; the accuracy on and as of the Closing Date or Option Closing Date,
if any, of the statements of the officers of the Company made pursuant to the
provisions hereof; and the performance by the Company on and as of the Closing
Date and each Option Closing Date, if any, of its covenants and obligations
hereunder and to the following further conditions:

(a) The Registration Statement shall have become effective not
later than 9:30 a.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional

<PAGE> 21

information shall have been complied with to the reasonable satisfaction of
Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Shares and Redeemable Warrants and
any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted
to the Commission for filing pursuant to Rule 424(b) of the Rules and
Regulations within the prescribed time period and, prior to the Closing Date,
the Company shall have provided evidence satisfactory to the Representative of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.

(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state
a fact which, in the Representative's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material,
or omits to state a fact which, in the Representative's opinion, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representative shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.

(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of LaFollette & Sinykin, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:

i. the Company (A) has been duly organized and is validly existing
as a corporation in good standing under the laws of its jurisdiction,
(B) is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power
and authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its
business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal,
state and local laws, rules and regulations; and, the Company has not
received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the

<PAGE> 22

business, operations, condition, financial or otherwise, or the
earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company. The
disclosures in the Registration Statement concerning the effects of
federal, state and local laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a fact required to be stated
therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made;

ii. except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture,
trust or other business entity;

iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except for
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of
any holders of any security of the Company or any similar rights granted
by the Company. The Securities to be sold by the Company hereunder and
under the Warrant Agreement and the Representative's Warrant Agreement
are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form.
The Representative's Warrants and the Redeemable Warrants constitute
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of securities
of the Company called for thereby. Upon the issuance and delivery
pursuant to this Agreement of the Firm Securities and the Option
Securities and the Representative's Warrants to be sold by the Company,
the Underwriters and the Representative, respectively, will acquire good
and marketable title to the Firm Securities and the Option Securities
and the Representative's Warrants free and clear of any pledge, lien,
charge, claim, encumbrance, pledge, security interest, or other
restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the
Company, and the purchase by the Representative of the Representative's
Warrants from the Company (C) the consummation by the Company of any of
its obligations under

<PAGE> 23

this Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.

iv. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;

v. each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data
included therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations.

vi. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act
if upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents
of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
is a party or by which it is bound, including any document to which the
Company is a party or by which it is bound, incorporated by reference
into the Prospectus and any supplement or amendment thereto, are
accurate and fairly represent the information required to be shown by
Form S-1; (C) there is not pending or threatened against the Company any
action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the
properties or business of the Company which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of
the capital stock of the Company or this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement, or of any action
taken or to be taken by the Company pursuant to or in connection with
any of the foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the Prospectus is
not described as required; and (E) there is no action, suit or
proceeding pending, or threatened, against or affecting the Company
before any court or arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is a
reasonable possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or the
earnings, position,

<PAGE> 24

prospects, stockholders' equity, value, operation, properties, business
or results of operations of the Company, which could adversely affect
the present or prospective ability of the Company to perform its
obligations under this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement;

vii. the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms of,
(A) the certificate of incorporation or by-laws of the Company, (B) any
license, contract, collective bargaining agreement, indenture, mortgage,
deed of trust, lease, voting trust agreement, stockholders agreement,
note, loan or credit agreement or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to
which any of its properties or assets (tangible or intangible) is or may
be subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities or
properties.

viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the
Firm Securities and the Option Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Representative's
Warrants,

<PAGE> 25

the performance of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;

ix. the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus to be owned
or leased by it, in each case free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable;

x. the Company is not in breach of, or in default under, any term
or provision of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may
be bound or to which the properties or assets (tangible or intangible)
of the Company is subject or affected; and the Company is not in
violation of any term or provision of its Amended and Restated Articles
of Incorporation or Amended and Restated By-Laws or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation;

xi. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;

xii. the Securities have been accepted for quotation on the AMEX;

xiii. the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;

xiv. none of the Company nor any of its officers, stockholders,
employees or agents, nor any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee
or agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (A) might subject the Company to
any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (B) if not given in the past, might have

<PAGE> 26

had an adverse effect on the assets, business or operations of the
Company, as reflected in any of the financial statements contained in
the Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company;

xv. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement, require the Company to file
any registration statement or, if filed, to include any security in such
registration statement;

xvi. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;

xvii. assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);

xviii. except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan";

xix. the minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company since the time
of its incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;

xx. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined
in Rule 405 promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly or
indirectly, (A) an interest in any person or entity which (x) furnishes
or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (y) purchases from
or sells or furnishes to the Company any goods or services, or (B) a
beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in
the Prospectus under "CERTAIN TRANSACTIONS," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or

<PAGE> 27

transactions, between or among the Company, and any officer, director,
or 5% or greater securityholder of the Company, or any affiliate or
associate of any such person or entity;

xxi. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation
or governmental proceeding, domestic or foreign, pending or threatened
(or circumstances that may give rise to the same) involving the
Company's production, use, testing, manufacturing or marketing of any
products or services, which (i) questions the authority of the Company
to produce, use, test, manufacture or market any products or services as
described in the Prospectus, (ii) questions the completeness or accuracy
of data generated by any trials, tests or studies being conducted by or
on behalf of the Company, (iii) is required to be disclosed in the
Prospectus which is not so disclosed, or (iv) might materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, value, operations or business of the Company.

xxii. none of the Company nor any of its affiliates shall
be subject to the requirements of or shall be deemed an "Investment
Company," pursuant to and as defined under, respectively, the Investment
Company Act.

Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which
lead them to believe that either the Registration Statement or any amendment
thereto, at the time such Registration Statement or amendment became effective
or the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data included in
the Preliminary Prospectus, the Registration Statement or the Prospectus).
Such counsel shall further state that its opinions may be relied upon by
Underwriters' Counsel in rendering its opinion to the Underwriters.

In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such

<PAGE> 28

statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Representative, Underwriters' Counsel and they are each justified in
relying thereon. Any opinion of counsel for the Company shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.

(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of Medlin & Carroll, patent counsel to the Company, dated the
Closing Date, addressed to the Underwriters in substantially the form attached
hereto as Schedule B.

(f) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of each of LaFollette & Sinykin, counsel
to the Company, and Medlin & Carroll, patent counsel to the Company dated such
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by each of LaFollette & Sinykin and Medlin & Carroll in
their respective opinions delivered on the Closing Date.

(g) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.

(h) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the Company
shall not be in material default under any provision of any instrument relating
to any outstanding indebtedness; (iv) the Company shall not have issued any
securities (other than the Securities) or declared or paid any dividend or made
any distribution in respect of its capital stock of any class and there has not
been any change in the capital stock or any material change in the debt (long
or short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its respective properties or businesses before or
by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations,

<PAGE> 29

earnings, position, value, properties, results of operations, prospects or
financial condition or income of the Company; and (vii) no stop order shall
have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.

(i) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:

i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;

ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of
each of such person's knowledge, are contemplated or threatened under
the Act;

iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and

iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) the Company
has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of
its business, any material liabilities or obligations, direct or
contingent; (b) the Company has not paid or declared any dividends or
other distributions on its capital stock; (c) the Company has not
entered into any material transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other than
any increase in the short-term borrowings in the ordinary course of
business) of the Company; (e) the Company has not sustained any material
loss or damage to its properties or assets, whether or not insured; (f)
there is no litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliated party which
is required to be set forth in an amended or supplemented Prospectus
which has not been set forth; and (g) there has occurred no event
required to be set forth in an amended or supplemented Prospectus which
has not been set forth.

<PAGE> 30

References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.

(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable
to the Underwriters, as described in the Registration Statement.

(k) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young LLP:

i. confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;

ii. stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations
thereunder and that the Representative may rely upon the opinion of
Ernst & Young LLP with respect to the financial statements and
supporting schedules included in the Registration Statement;

iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the
board of directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital
stock or long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of the Company
as compared with amounts shown in the June 30, 1997 balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or decrease, and
(C) during the period from June 30, 1997 to a specified date not more
than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or
increase in net earnings per common share of any of the Company or the
Subsidiaries, in each case as compared with the corresponding period
beginning June 30, 1996, other than as set forth in or contemplated

<PAGE> 31

by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;

iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);

v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement;

vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.

(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (k) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (v) of subsection (k) of
this Section with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).

(m) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.

(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or shall be contemplated.

(o) On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.

<PAGE> 32

(p) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on AMEX, subject to
official notice of issuance.

(q) On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.

(r) On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant
Agreement substantially in the form filed as Exhibit [___] to the Registration
Statement, in final form and substance satisfactory to the Representative.

If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.

7. Indemnification.

(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, suits and litigation in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any
untrue statement or alleged untrue statement of a material fact contained (i)
in any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or
agency, AMEX or any other securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made), or
(C) any breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any certificate by or on behalf of the Company
or any of its officers delivered pursuant hereto, unless, in the case of clause
(A) or (B) above,

<PAGE> 33

such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, or in any application, as the case may be. The
indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.

The foregoing indemnity with respect to any untrue statement
contained in or omission from a Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) from
whom the person asserting any such loss, liability, claim, damage or expense
purchased any of the Securities which are the subject thereof if (1) the
Company shall sustain the burden of proving that such asserting person did not
receive a copy of the Prospectus (or the Prospectus as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities to such
person and the untrue statement contained in or omitted from such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented); and (2) the Company shall have complied with its covenant
pursuant to Section 4(f) of this Agreement.

(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering.
The Company acknowledges that the statements with respect to the public
offering of the Firm Securities and the Option Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.

(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled

<PAGE> 34

to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of thereof at the expense
of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense thereof within a reasonable time after notice of
commencement thereof, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense thereof on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim,
action, suit, investigation, inquiry, proceeding or litigation effected without
its written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action,
suit, investigation, inquiry, proceeding or litigation), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such claim, action, suit,
investigation, inquiry, proceeding or litigation and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.

(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above

<PAGE> 35

but also the relative fault of each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. In any
case where the Company is the contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Firm Securities and the Option Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company or the Underwriter within the meaning of the Act, each
officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
subsection (d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against
such party in respect to which a claim for contribution may be made against
another party or parties under this subsection (d), notify such party or
parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.

8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.

<PAGE> 36

9. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the
Securities for sale to the public; provided, however, that the provisions of
Sections 5, 7 and 10 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representative of telegrams to securities dealers releasing such securities for
offering or the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.

10. Termination.

(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the NASD, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
shall have been delisted, on any exchange or in any over-the-counter market;
(v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the
United States; or (vi) if a banking moratorium has been declared by a state or
federal authority; or (vii) if a moratorium in foreign exchange trading has
been declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities or (x) if either Dr. Douglas C. Stafford or Dr. Joseph R. Firca
shall no longer serve the Company in his present capacity.

(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses in an amount not to exceed $100,000, including the fees and
disbursements of counsel for the Underwriters and all Blue Sky counsel fees
(excluding filing fees) and disbursements (less amounts previously paid
pursuant to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out within
the time specified herein, or any extension thereof granted to the
Representative, by reason of any failure on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement by it to be
performed or satisfied (including, without limitation, pursuant to Section 6
(except if this Agreement is terminated

<PAGE> 37

pursuant to Sections 6(c), 6(k) or 6(o)) or Section 12) then, the Company shall
promptly reimburse and indemnify the Representative for all of its actual
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to Section
5(c) above). In addition, the Company shall remain liable for all Blue Sky
counsel fees and disbursements, expenses and filing fees (such counsel fees not
to exceed $10,000 if the Securities are listed on the AMEX or Nasdaq).
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and
Section 7 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.

11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:

(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).

No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.

In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.

12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default

<PAGE> 38

shall occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at the Representative's option, by notice
from the Representative to the Company, terminate the Underwriters' obligation
to purchase Option Securities from the Company on such date) without any
liability on the part of any non-defaulting party other than pursuant to
Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this
Section 12 shall relieve the Company from liability, if any, in respect of such
default.

13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with
a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall
be directed to the Company at 5445 East Cheryl Parkway, Madison, Wisconsin
53711, Attention: Dr. Douglas C. Stafford, President and Chief Executive
Officer, with a copy to: LaFollette & Sinykin, One East Main Street, Post
Office Box 2719, Madison, Wisconsin, 53701-2719, Attention: Michael E.
Skindrud, Esq.

14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.

15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the choice of law or conflict of laws principles.

16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.

17. Entire Agreement; Amendments. This Agreement, the Warrant
Agreement and the Representative's Warrant Agreement constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative and the Company.

<PAGE> 39

If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.

Very truly yours,

OPHIDIAN PHARMACEUTICALS, INC.

By:__________________________
Douglas C. Stafford, Ph.D.
President and Chief Executive Officer

Confirmed and accepted as of
the date first above written.

NATIONAL SECURITIES CORPORATION

For itself and as Representative
of the several Underwriters named
in Schedule A hereto.

By:______________________________
Name:
Title:

<PAGE> 40

SCHEDULE A
----------

<TABLE>
<CAPTION>
Number of Number of
Shares of Redeemable
Common Stock Warrants
Name of Underwriters to be Purchased to be Purchased
-------------------- --------------- ---------------
<S> <C> <C>
National Securities Corporation . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,500,000
========= =========
</TABLE>

<PAGE> 41

SCHEDULE B

[FORM OF INTELLECTUAL PROPERTY OPINION]

___________________, 1997

NATIONAL SECURITIES CORPORATION
As Representative of the several
Underwriters named in Schedule A
to the Underwriting Agreement
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154

Re: Initial Public Offering of 2,500,000 Shares of Common Stock and
2,500,000 Redeemable Common Stock Purchase Warrants
of Ophidian Pharmaceuticals, Inc.

Gentlemen:

We have acted as special counsel to Ophidian Pharmaceuticals,
Inc., a Wisconsin corporation (the "Company"), in connection with the entering
into by the Company of that certain Underwriting Agreement by and between
National Securities Corporation (as representative of the several underwriters
named therein) (the "Representative") and the Company, dated _______________,
1997 (the "Underwriting Agreement"). This opinion is provided to you pursuant
to Section 6(e) of the Underwriting Agreement.

For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):

(i) the Underwriting Agreement;

(ii) that certain Form S-1 as filed by the Company with the
Securities and Exchange Commission on ______, 1997, together
with any and all exhibits and schedules and all heretofore
filed amendments thereto (collectively, the "Registration
Statement");

(iii) the Company's prospectus dated _______________, 1997
(the "Prospectus");

(iv) a search of the United States Patent and Trademark
Office records relevant to ownership of any and all:

<PAGE> 42

-2- _________________, 1997

patents and patent applications (including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and hereby incorporated
by reference herein (collectively, the "Patents")),
and trademarks, trademark applications, service marks
and service mark applications (collectively, the
"Marks") (including, without limitation, the Marks
listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),

owned, purportedly owned or licensed by either the Company or
the Subsidiary (including, those patents, patent applications
and Marks licensed, without limitation, pursuant to the
licenses listed on Schedule C annexed hereto and hereby
incorporated by reference herein (collectively, the
"Licenses")), conducted by ______________________________ and
certified as true and correct as of _______________________,
1997 (no earlier than 5 days prior to the effective date of
the Registration Statement);

(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material
(including, without limitation, the copyright in, or license
permitting the Company's actual use of, the material licensed
or otherwise distributed by either the Company and listed on
Schedule D annexed hereto and hereby incorporated by reference
herein (collectively, the "Copyrighted Material")), owned,
purportedly owned or licensed by the Company conducted by
_____________________ and certified as true and correct as of
__________________, 1997 (no earlier than 5 days prior to the
effective date of the Registration Statement);

(vi) an intellectual property litigation search with
respect to all Patents, Trademarks, Licenses and Copyrighted
Material, listed on Schedules A, B, C and D, respectively;

(vii) a search of the Uniform Commercial Code ("UCC")
recordation office, in the following jurisdiction: --
Wisconsin, with respect to the following two categories of
general intangibles:

(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications, inventions,
know how, trademarks, service marks, copyrights,
service and trade names, intellectual property
licenses and other rights, and

(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),

<PAGE> 43

-3- _________________, 1997

said search certified to us as complete and accurate by
________________ and current through ________________________,
1997 (no earlier than 5 days prior to the effective date of
the Registration Statement) and said jurisdictions being the
only jurisdictions in which filing of UCC financing statements
or other documents may be filed to effectively evidence a
security or other interest in said general intangibles; and

(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to
the Company.

We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.

To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.

Based upon and subject to the foregoing, we are of the opinion
that:

1. To the best of our knowledge, after due inquiry,
except as described in the Prospectus, the Company owns or has
the right to use, free and clear of all liens, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever,

(i) all patents and patent applications (including,
without limitation, the Patents),

(ii) all trademarks and service marks (including,
without limitation, the Trademarks),

(iii) all copyrights (including, without limitation,
the Copyrighted Material),

(iv) all service and trade names, and

(v) all intellectual property licenses (including,
without limitation, the Licenses),

used in, or required for, the conduct of the Company's
respective business.

<PAGE> 44

-4- _________________, 1997

2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its respective business (including, the Licenses and without
limitation, any such licenses or rights described in the
Prospectus as being owned, possessed or licensed by the
Company) and such licenses and rights are in full force and
effect.

3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business.

4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.

5. To the best of our knowledge, after due inquiry,
except as described in the Prospectus, the Company is not
under any obligation to pay royalties or fees to any third
party with respect to any material, technology or intellectual
properties developed, employed, licensed or used by the
Company.

6. To the best of our knowledge, after due inquiry,
the statements in the Prospectus under the headings, "Risk
Factors - Uncertainty Regarding Patents and Proprietary
Rights," and "Business - Patents and Proprietary Technology",
are accurate in all material respects, fairly represent the
information disclosed therein and do not omit to state any
fact necessary to make the statements made therein complete
and accurate.

7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement and Prospectus do
not contain any untrue statement of a material fact with
respect to the intellectual property position of the Company,
or omit to state any material fact relating to the
intellectual property position of the Company which is
required to be stated in the Registration Statement and the
Prospectus or is necessary to make the statements therein not
misleading.

We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.

<PAGE> 45

-5- _________________, 1997

The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.

Very truly yours,

<PAGE> 1
Exhibit 3.1

AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OPHIDIAN PHARMACEUTICALS, INC.

The following are the articles of incorporation of Ophidian
Pharmaceuticals, Inc., a Wisconsin corporation, as amended to date. They
supersede and take the place of the corporations existing articles of
incorporation and any amendments to the same.

ARTICLE I

The name of the corporation is OPHIDIAN PHARMACEUTICALS, INC.

ARTICLE II

The period of existence of the corporation is perpetual. The
corporation's registered office is located at 5445 E. Cheryl Parkway, Madison,
Wisconsin 53711, and the name of its registered agent at that office is
Douglas C. Stafford.

ARTICLE III

The purposes for which the corporation is organized are to engage in
any lawful activity within the purposes for which a corporation may be
organized under the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes.

ARTICLE IV

The aggregate number of shares which the corporation shall have
authority to issue is Twenty-Two Million Four Hundred Thousand (22,400,000)
consisting of one class only of common shares with a par value of $0.0025 per
share.

ARTICLE V

The corporation shall have the right to purchase, take, receive or
otherwise dispose of its own shares subject to the provisions of Section
180.385 of the Wisconsin Statutes (1987-88).

ARTICLE VI

The corporation shall have the right, from time to time, to distribute
to its shareholders cash or property in partial liquidation, out of stated
capital or net capital surplus of the corporation, subject to the provision of
Section 180.39 of the Wisconsin Statutes (1987-88).

-1-
<PAGE> 2

ARTICLE VII

The number of directors constituting the board of directors of the
corporation shall be fixed by or in the manner provided in the bylaws.

ARTICLE VIII

The shareholders of the corporation may have preemptive rights, but
only if provided in, and then to the extent and on the terms and conditions set
forth in, the bylaws of the corporation.

ARTICLE IX

The shareholders may adopt, amend or delete a bylaw of this corporation
that fixes a greater or lower quorum requirement or a greater voting
requirement for shareholders or voting groups of shareholders on particular
matters than is provided under applicable sections of the Wisconsin business
corporation law.

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

The undersigned, the duly elected and acting President and Chief
Executive Officer of Ophidian Pharmaceuticals, Inc. a Wisconsin corporation, in
accordance with Section 180.1007 of the Wisconsin Business Corporation Law,
does hereby certify by signing below that the foregoing articles constitute the
amended and restated articles of incorporation of Ophidian Pharmaceuticals,
Inc., that the foregoing contains amendments to the articles of incorporation
that do not require shareholder approval, and that the board of directors of
Ophidian Pharmaceuticals, Inc. adopted the foregoing amended and restated
articles of incorporation on July 30, 1997.

/s/ Douglas C. Stafford
-------------------------------------
Douglas C. Stafford, Ph.D.
President and Chief Executive Officer
Ophidian Pharmaceuticals, Inc.

This instrument was drafted
by and is returnable to:

Michael E. Skindrud
LaFollette & Sinykin
One East Main Street
P.O. Box 2719
Madison, WI 53701-2719

-2-

<PAGE> 1

EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS OF

OPHIDIAN PHARMACEUTICALS, INC.

ARTICLE I

SHAREHOLDERS

1.01. Place of Meeting. All meetings of the shareholders of this
corporation shall be held at the principal office or place of business of the
corporation or at such other place within or without the state of incorporation
as may be designated by the Board of Directors.

1.02. Annual Meeting. The annual meeting of the shareholders of
this corporation shall be held each year on a date and at a time designated by
the Board of Directors. At the meeting, directors will be elected and any
other proper business may be transacted.

1.03. Special Meetings. Special meetings of the shareholders may be
called at any time by the president, the secretary or the Board of Directors.
It shall be the duty of the president to call a special meeting of the
shareholders whenever requested in writing to do so by shareholders holding at
least one-tenth of all the votes entitled to be cast on any issue proposed to
be considered at the proposed special meeting. If the president upon such
request neglects for twenty-four hours to call a special meeting, then the
shareholders making the request may call a special meeting.

1.04. Notice. Written notice stating the place, day and hour of the
meeting and in the case of a special meeting, the purpose or purposes for which
the meeting is being called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting by first class mail to each
shareholder of record entitled to vote at such meeting. Such notice shall be
deemed to be delivered when deposited in the United States mail addressed to
the shareholder at his address as it appears on the share record books of this
corporation, with sufficient postage thereon.

1.05. Waiver of Notice. Any notice required to be given to a
shareholder under the Articles of Incorporation, Bylaws or any provision of law
may be waived in a writing, signed at any time by the shareholder entitled to
such notice. A waiver with respect to any matter of which notice is required
by the law of the state of incorporation shall contain the same information as
would be required to be included in such notice, except the time and place of
meeting.

1.06. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a date

1
<PAGE> 2

as the record date for any such determination of shareholders, such date may
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and may not be more than sixty days and, in
case of a meeting of shareholders, not less than ten days prior to the date on
which the particular action, requiring such determination of shareholders, is
to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the close of business on the date
immediately preceding the date on which notice of the meeting is mailed or on
the close of business on the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any
adjournment thereof except where the determination has been made through the
closing of the stock transfer books and the stated period of closing has
expired.

1.07. Voting Records. The officer or agent having charge of the
share transfer books for shares of the corporation shall, before each meeting
of shareholders, make a complete record of the shareholders entitled to vote at
such meeting, or any adjournment thereof, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes of the
meeting. The original share transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such record or transfer books or
to vote at any meeting of shareholders. Failure to comply with the
requirements of this section shall not affect the validity of any action at
such meeting.

1.08. Conduct of Meetings. All meetings of the shareholders shall
be presided over by the chairman of the board, or in the chairman s absence, by
the president, and the presiding officer, if a shareholder, may vote. In the
absence of the president, one of the vice-presidents, but in the absence of any
vice-president, any shareholder chosen by the shareholders present by majority
vote, shall act as presiding officer and have all the powers herein conferred
upon the president when acting as presiding officer of a meeting. The
secretary of the corporation shall act as secretary of all meetings of the
shareholders, but, in the absence of the secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.

1.09. Quorum for Transaction of Business. A majority of the shares
entitled to vote represented in person or by proxy, shall constitute a quorum
at meetings of the shareholders. If a quorum is present, the affirmative vote
of the majority of shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by law, the Articles of
Incorporation or the Bylaws. In the absence of a quorum, those shareholders
present may adjourn the meeting from time to time without further notice other
than by announcement at the meeting until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.

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1.10. Voting in Person or by Proxy. At all meetings of
shareholders, a shareholder entitled to vote may vote in person or by proxy
appointed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. Unless otherwise provided in
the proxy, a proxy may be revoked at any time before it is voted, either by
written notice filed with the secretary or the acting secretary of the meeting
or by oral notice given by the shareholder to the presiding officer during the
meeting. The presence of a shareholder who has filed his proxy shall not of
itself constitute a revocation. No proxy shall be valid after eleven months
from the date of its execution, unless otherwise provided in the proxy. The
Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.

1.11. Voting of Shares. Each outstanding share shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders,
except to the extent that the voting rights of the shares of any class or
classes are enlarged, limited or denied by the Articles of Incorporation.

1.12. Voting of Shares by Certain Holders.

(a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officer of such other corporation or assistant thereto shall
be conclusive evidence of the signer's authority to act, in the absence of
express notice to this corporation of the designation of some other person by
the Board of Directors or the Bylaws of such other corporation.

(b) Legal Representatives and Fiduciaries. Shares held by a
personal representative, an administrator, executor, guardian, conservator,
trustee in bankruptcy, receiver, or assignee for creditors may be voted by him,
either in person or by proxy, without a transfer of such shares into his name,
provided that there is filed with the secretary before or at the time of
meeting proper evidence of his incumbency and the number of shares held.
Failure to so file with the secretary shall not affect the validity of any
action taken unless such failure is raised at the meeting. Shares standing in
the name of a fiduciary may be voted by him, either in person or by proxy. A
proxy executed by a fiduciary, shall be conclusive evidence of the signer's
authority to act, in the absence of express notice to this corporation, given
in writing to the secretary of this corporation, that such manner of voting is
expressly prohibited or otherwise directed by the document creating the
fiduciary relationship.

(c) Pledges. A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred.

(d) Treasury Stock and Subsidiaries. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue

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held by this corporation in a fiduciary capacity, may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote.

(e) Minors. Shares held by a minor may be voted by such minor in
person or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the secretary of the corporation has
received written notice or has actual knowledge that such shareholder is a
minor.

(f) Incompetents and Spendthrifts. Shares held by an incompetent
or spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the secretary of the corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.

(g) Joint Tenants. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote filed
with the secretary of the corporation a contrary written voting authorization
or direction or written denial of authority of the individual present or
signing the proxy proposed to be voted or (ii) all such other individuals are
deceased and the secretary of the corporation has no actual knowledge that the
survivor has been adjudicated not to be the successor to the interests of those
deceased.

ARTICLE II

BOARD OF DIRECTORS

2.01. General Powers. The property, affairs and business of the
corporation shall be under the care of and be managed by the Board of Directors
and the Board of Directors shall have all other powers conferred by law.

2.02. Number and Qualifications. The Board of Directors shall
consist of not less than four (4) directors nor more than nine (9) directors as
the Board of Directors may from time to time determine. A director need not be
a resident of the state of incorporation or a shareholder of the corporation.
This section 2.02 of the bylaws may be amended or repealed exclusively by the
shareholders.

2.03. Term of Office and Election. The directors shall be chosen
annually by the shareholders at the annual meeting of the shareholders. Each
director shall hold office for one year and until his respective successor is
elected, or until his prior death, resignation or removal. The Board of
Directors may provide that the election of directors by the shareholders shall
be conducted by two inspectors, neither of whom shall be a candidate for the
office of director, appointed by the presiding officer of the meeting. Before
entering upon the discharge of their duties, the inspectors may be sworn as
provided by law.

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2.04. Resignation. Any director may resign his office at any time,
such resignation to be made in writing, and it shall take effect from the time
of its delivery to the secretary unless some other time be stated in the
resignation.

2.05. Removal. Any director or the entire Board of Directors may be
removed from office with or without cause, by the affirmative vote of a
majority of the outstanding shares entitled to vote for the election of such
director or board of directors, taken at a meeting of the shareholders called
for that purpose, and any vacancy so created may be filled by the shareholders.

2.06. Vacancies. Any vacancy occurring in the Board of Directors
may be filled until the next succeeding annual election by the affirmative vote
of a majority of the directors then in office, although less than a quorum,
except that a vacancy created by a removal by the shareholders may be filled by
the shareholders. In case the entire Board of Directors should die or resign,
then any shareholder may call a special meeting in the same manner that the
president may call a special meeting, and new directors may be elected at such
special meeting in the same manner provided for in the election of directors at
the annual meeting.

2.07. Conduct of Meetings. Unless the Board of Directors provides
otherwise, the president, and in his absence, a vice-president in the order
provided under section 3.06, and in their absence, any director chosen by the
directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The secretary of the corporation shall
act as secretary of all meetings of the Board of Directors, but in the absence
of the secretary, the presiding officer may appoint any assistant secretary or
any director or other person present to act as secretary of the meeting.

2.08. Quorum and Manner of Acting. A quorum at any meeting of the
Board of Directors shall consist of a majority of the entire membership of the
Board. A majority of such quorum shall decide any questions that may come
before the meeting. In the absence of a quorum those directors present may
adjourn the meeting from time to time without notice other than by announcement
at the meeting until a quorum shall attend.

2.09. Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately after the annual meeting of the shareholders and each
adjourned session thereof. The place of meeting shall be at the same place as
the meeting of shareholders, or at any other suitable place as may be announced
at the meeting of shareholders. Additional regular meetings shall be held at
such other times and places, either within or without the state of
incorporation, as the Board of Directors may by resolution determine. No
notice of regular meetings shall be necessary.

2.10. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the secretary upon the direction of the
chairman of the Board of Directors, if that office has been filled, or the
president, or upon the written request of any two directors; and it shall be
the duty of the secretary to give notice of such meeting. Notice of special
meetings, stating the time and place thereof, shall be mailed to each director
at his residence or business address at least 96 hours before the meeting, or
delivered to him personally or

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telegraphed to him at his residence or business address at least 48 hours
before the meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail addressed as herein designated, with
sufficient postage. If telegraphed, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. A special
meeting shall be held at such time and place as the notice thereof shall
specify.

2.11. Waiver of Notice. Any notice required to be given to a
director under the Articles of Incorporation, Bylaws, or any provision of law
may be waived in a writing, signed at any time by the director entitled to
notice. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting and objects
to the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of, any
special meeting of the Board of Directors need be specified in the notice or
the waiver of notice of such meeting.

2.12. Meetings by Consent. Meetings of the Board of Directors may
be held at any time or place where all of the directors are present and consent
to the holding of such meeting.

2.13. Committees. The Board of Directors by resolution adopted by a
majority of the number of directors fixed by section 2.02 may designate one or
more committees, each committee to consist of three or more directors elected
by the Board of Directors, which to the extent provided in said resolution as
initially adopted, and as thereafter supplemented or amended by further
resolution adopted by a like vote, shall have and may exercise, when the Board
of Directors is not in session, the powers of the Board of Directors in the
management of the business and affairs of the corporation, except action in
respect to dividends to shareholders, election of the principal officers or the
filling of vacancies in the Board of Directors or committees created pursuant
to this section. The Board of Directors may elect one or more of its members
as alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the
president or upon request by the chairman of such meeting. Each such committee
shall fix its own rules governing the conduct of its activities and shall make
such reports to the Board of Directors of its activities as the Board of
Directors may request.

2.14. Compensation. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or
death benefits, and other benefits or payments, to directors, officers and
employees and to their estates, families, dependents or beneficiaries on
account of prior services rendered by such directors, officers and employees to
the corporation.

2.15. Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or Bylaws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.

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ARTICLE III

OFFICERS

3.01. Number. The principal officers of the corporation shall be a
president, one or more vice- presidents as the Board of Directors shall
provide, a secretary, and a treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors. Any
two or more offices may be held by the same person, except the offices of
president and secretary and the offices of president and vice-president.

3.02. Election and Term of Office. The officers of the corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor shall have been
duly elected or until his prior death, resignation or removal.

3.03. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.

3.04. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled by
the Board of Directors.

3.05. The Chairman of the Board. The chairman of the board shall
preside at all meetings of the Shareholders and of the Board of Directors of
the Corporation and shall perform such other duties and exercise such other
powers as required by the Board of Directors.

3.06. The President. The president shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. Unless the Board of Directors provides otherwise,
in the absence of the chairman of the board, he shall preside at all meetings
of the shareholders and of the Board of Directors. He shall have authority,
subject to such rules as may be prescribed by the Board of Directors, to
appoint such agents and employees of the corporation as he shall deem
necessary, to prescribe their powers, duties and compensation, and to delegate
authority to them. Such agents and employees shall hold office at the
discretion of the president. He shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by resolution of the Board of Directors;
and, except as otherwise provided by law or the Board of Directors, he

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may authorize any vice-president or other officer or agent of the corporation
to sign, execute and acknowledge such documents or instruments in his place and
stead. In general he shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Board of Directors
from time to time.

3.07. The Vice-Presidents. In the absence of the President or in
the event of his death, inability or refusal to act, or in the event for any
reason it shall be impracticable for the president to act personally, the
vice-president (or in the event there be more than one vice-president, the
vice- presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the president. Any vice-president
may sign, with the secretary or assistant secretary, certificates for shares of
the corporation; and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to him by the president or by
the Board of Directors.

3.08. The Secretary. The secretary shall: (a) keep the minutes of
the meetings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation, if any,
and see that the seal of the corporation, if any, is affixed to all documents
the execution of which on behalf of the corporation under its seal is duly
authorized; (d) sign with the president, or a vice-president, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (e) have general charge of the stock
transfer books of the corporation; and (f) in general perform all duties
incident to the office of secretary and have such other duties and exercise
such authority as from time to time may be delegated or assigned to him by the
President or by the Board of Directors.

3.09. The Treasurer. The treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and payable to the corporation
from any source whatsoever; and (c) in general perform all of the duties
incident to the office of treasurer and have such other duties and exercise
such other authority as from time to time may be delegated or assigned to him
by the president or by the Board of Directors. If required by the Board of
Directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.

3.10. Assistant Secretaries and Assistant Treasurers. There shall
be such number of assistant secretaries and assistant treasurers as the Board
of Directors may from time to time authorize. The assistant secretaries may
sign with the president or a vice-president certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The assistant treasurers shall respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors
shall determine. The assistant secretaries and assistant treasurers, in
general, shall perform such duties and have such authority as shall from time
to

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time be delegated or assigned to them by the secretary or the treasurer,
respectively, or by the president or the Board of Directors.

3.11. Other Assistants and Acting Officers. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the corporation in his stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be assistant, or as to which he is so
appointed to act, except as such power may be otherwise defined or restricted
by the Board of Directors.

3.12. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the corporation.

ARTICLE IV

CONTRACTS; LOANS; VOTING OF
SECURITIES OWNED BY THIS CORPORATION

4.01. Contracts. In the absence of other designation, all deeds,
mortgages and instruments of assignment or pledge made by the corporation shall
be executed in the name of the corporation by the president or one of the
vice-presidents and by the secretary, an assistant secretary, the treasurer or
an assistant treasurer; the secretary or an assistant secretary, when necessary
or required, shall affix the corporate seal, if any, thereto.

4.02. Loans. No indebtedness for borrowed money shall be contracted
on behalf of the corporation and no evidence of such indebtedness shall be
issued in its name unless authorized by or under the authority of a resolution
of the Board of Directors. Such authorization may be general or confined to
specific instances.

4.03. Voting of Securities Owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by
this corporation may be voted at any meeting of security holders of such other
corporation by the president of this corporation if he be present, or in his
absence by any vice-president of this corporation who may be present, and (b)
whenever, in the judgment of the president, or in his absence, of any
vice-president, it is desirable for this corporation to execute a proxy or
written consent in respect to any shares or other securities

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issued by any other corporation and owned by this corporation, such proxy or
consent shall be executed in the name of this corporation by the president or
one of the vice-presidents of this corporation, without necessity of any
authorization by the Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or proxies of this
corporation shall have full right, power and authority to vote the shares or
other securities issued by such other corporation and owned by this corporation
the same as such shares or other securities might be voted by this corporation.

ARTICLE V

CERTIFICATES FOR SHARES AND THEIR TRANSFER

5.01. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form, consistent with law, as shall be
determined by the Board of Directors. Such certificates shall be signed by the
president or a vice-president and by the secretary or an assistant secretary.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as provided in section
5.06.

5.02. Facsimile Signatures and Seal. The seal of the corporation on
any certificates for shares may be a facsimile. The signatures of the
president or vice-president and the secretary or assistant secretary upon a
certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent, or a registrar, other than the corporation itself or an
employee of the corporation.

5.03. Signature by Former Officers. In case any officer, who has
signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer at the date of its issue.

5.04. Transfer of Shares. Prior to due presentment of a certificate
for shares for registration of transfer, the corporation may treat the
registered owner of such shares as the person exclusively entitled to vote, to
receive notification and otherwise to have and exercise all the rights and
powers of an owner. Where a certificate for shares is presented to the
corporation with a request to register for transfer, the corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The corporation may require
reasonable assurance that said endorsements are genuine and effective and
comply with such other regulations as may be prescribed by or under the
authority of the Board of Directors.

5.05. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.

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5.06. Lost, Destroyed or Stolen Certificates. Where the owner
claims that his certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) files with the corporation a sufficient
indemnity bond, and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.

5.07. Consideration for Shares. The shares of the corporation may
be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The consideration
to be paid for shares may be paid in whole or in part, in money, in other
property, tangible or intangible, or in labor or services performed for the
corporation. When payment of the consideration for which shares are to be
issued shall have been received by the corporation, such shares shall be deemed
to be fully paid and nonassessable by the corporation. No certificate shall be
issued for any share until such share is fully paid.

5.08. Share Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the state of incorporation as it may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the corporation.

ARTICLE VI

SEAL

6.01. The Board of Directors shall have the authority to authorize a
seal for this corporation, which shall be circular in form and shall have
inscribed thereon the name of the corporation and the state of incorporation
and the words "Corporate Seal". Until so authorized, this corporation shall
have no seal.

ARTICLE VII

AMENDMENTS

7.01. By Shareholders. These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the shareholders by affirmative vote
of not less than a majority of the shares present or represented at any annual
or special meeting of the shareholders at which a quorum is in attendance.

7.02. By Directors. These Bylaws may also be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no Bylaw adopted by the shareholders shall be
amended or repealed by the Board of Directors if such Bylaw provides for
amendment or repeal exclusively by the shareholders.

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7.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares of the number of directors required to amend the
Bylaws so that the Bylaws would be consistent with such action, shall be given
the same effect as though the Bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.

ARTICLE VIII

FISCAL YEAR

8.01. The fiscal year of the corporation shall end September 30.

ARTICLE IX

ARTICLES OF INCORPORATION

9.01. Priority of Articles of Incorporation. The Articles of
Incorporation shall supersede any provisions contained in these Bylaws and
anything in these Bylaws contrary thereto shall be of no effect.

9.02. Definition. The phrase "Articles of Incorporation" as used
herein shall mean the instrument pursuant to which this corporation was
organized, however identified under the laws of the state of incorporation.

ARTICLE X

INDEMNIFICATION

10.01 The corporation shall, to the fullest extent permitted or
required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business
Corporation Law ( Statute ), including any amendments thereto (but in the case
of any such amendment, only to the extent such amendment permits or requires
the corporation to provide broader indemnification rights than prior to such
amendment), indemnify its Directors and Officers against any and all
Liabilities, and advance any and all reasonable Expenses, incurred thereby in
any Proceeding to which any such Director or Officer is a Party because he or
she is or was a Director or Officer of the corporation. The rights to
indemnification granted hereunder shall not be deemed inclusive of any other
rights to indemnification against Liabilities or the advancement of Expenses
which a Director or Officer may be entitled under any written agreement, board
resolution, vote of shareholders, the Statute or otherwise. The corporation
may, but shall not be required to, supplement the foregoing rights to
indemnification against Liabilities and

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advancement of Expenses under this Article X by the purchase of insurance on
behalf of any one or more of such Directors or Officers, whether or not the
corporation would be obligated to indemnify or advance Expenses to such
Director or Officer under this Article X. All capitalized terms used in the
Article X and not otherwise defined herein shall have the meaning set forth in
Section 180.0850 of the Statute.

<PAGE> 1
Exhibit 5.1

August 7, 1997

Ophidian Pharmaceuticals, Inc.
5445 East Cheryl Parkway
Madison, WI 53711

Registration Statement on Form S-1

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 which is being filed
with the Securities and Exchange Commission (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 2,875,000 shares of your Common Stock and 2,875,000 shares of your Common
Stock issuable upon conversion of the warrants described in the Registration
Statement (collectively, "the Shares"). All of the Shares are authorized but
heretofore unissued. The Shares are to be sold to the underwriters for resale
to the public as described in the Registration Statement and pursuant to the
Underwriting Agreement being filed as an exhibit thereto. As your counsel, we
have examined the proceedings proposed to be taken in connection with said sale
and issuance of the Shares.

It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares, when issued and sold in the
manner referred to in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.

Sincerely yours,

LA FOLLETTE & SINYKIN

<PAGE> 1
EXHIBIT 10.1
LEASE

THIS LEASE (the "Lease") is entered into as of the 12th day of
February, 1994, by and between PROMEGA CORPORATION ("Landlord"), whose address
is 2800 Woods Hollow Road, Madison, WI 53711 and OPHIDIAN PHARMACEUTICALS, INC.
("Tenant"), whose address is 2800 South Fish Hatchery Road, Madison, WI 53711.

ARTICLE I

GRANT AND TERM

SECTION 1.01. PREMISES. Landlord leases to Tenant, and Tenant leases
from Landlord, that part of the BioPharmaceutical Technology Center (the "BTC")
located at 5445 East Cheryl Parkway, now or hereafter to be constructed which
consists of an office outlined in red on the site plan attached as Exhibit A
(the "Premises"), containing approximately ten thousand (10,000) square feet.
The Premises leased to Tenant do not include the land under the BTC or the roof
or outer walls of the building or buildings comprising the BTC. Landlord
reserves the right to place, maintain, repair and replace utility lines, pipes,
tunneling and the like in, under, over, upon or through the Premises as may be
reasonably necessary or advisable for the servicing of the Premises or other
existing or future portions of the BTC provided that, in the exercise of such
rights, Landlord shall use its diligent efforts to minimize any disruption to
Tenant's use and enjoyment of the Premises. Included as part of the Premises
are the use of the following facilities:

(a) Steelcase office furniture itemized on Exhibit B
attached hereto and made a part hereof; and

(b) Cold rooms 1114, 1122 and 1123 located within the BTC
(the "Cold Rooms").

Landlord is acquiring the Steelcase office furniture and the Cold Rooms
pursuant to installment sale contracts. At any time during the term of this
Lease, Tenant can acquire title to the Steelcase office furniture by prepaying
the unpaid balance of the purchase prices for such items. Upon such
prepayment, title shall pass to Tenant and such item shall be subject to
Section 4.04 and rent attributable to such item under Section 3.02(b) shall
cease. Furthermore, if Tenant extends the term of this Lease under Section
1.02(b), then, upon the last payment of Minimum Rent for the Option Term, title
to the Steelcase office furniture shall pass to Tenant and such items shall be
subject to Section 4.04. Furthermore, Landlord grants to Tenant, during the
term of this Lease, the right to use, and to have access to, an autoclave
located in the manufacturing area of the BTC.

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SECTION 1.02. LEASE TERM.

(a) Original Term. The term of this Lease shall be for
five (5) Lease Years, unless terminated sooner pursuant to any of the
provisions of this Lease. The term of this Lease and Tenant's
obligation to pay rent and other charges due hereunder and to perform
all other obligations set forth herein shall begin on January 1, 1994
(the "Commencement Date"). The term of this Lease shall end on the
last day of the last full Lease Year (as defined in Section 1.03)
unless terminated sooner pursuant to any of the provisions hereof.

(b) Option to Extend. Provided that Tenant shall not
then be in default under this Lease, Tenant shall have an option (the
"Option") to extend this Lease for an additional period of five (5)
Lease Years beyond the lease term set forth in Section 1.02(a) (the
"Option Term"). The Option shall be exercised by delivery of written
notice by Tenant to Landlord not later than July 1, 1998. If written
notice is not given by Tenant to Landlord by the deadline set forth
herein, then this Lease shall terminate at the end of the lease term
set forth in Section 1.02(a). If this Lease is extended pursuant to
this Section 1.02(b), all terms, covenants and conditions of this
Lease shall remain in full force and effect, except, however, that:

(i) the term of this Lease shall be
extended for the period of the Option Term;

(ii) Minimum Rent for the Option
Term shall be computed in accordance with Section 3.03, below;
and

(iii) the Termination Date shall,
notwithstanding Section 1.02(a), be deemed to be December 31,
2003.

SECTION 1.03. LEASE YEAR. The term "Lease Year" means each calendar
year during the term hereof. The first Lease Year shall begin on January 1,
1994.

SECTION 1.04. SURRENDER. On the last day of the term of this Lease,
or any extension or renewal thereof, or on any sooner termination, Tenant shall
surrender the Premises in the same condition as the Premises existed on the
Commencement Date, broom clean, reasonable wear and tear excepted, and shall
surrender all keys to Landlord.

SECTION 1.05. RIGHT OF ENTRY. Landlord and its authorized
representatives shall have the right to enter the Premises at all reasonable
times, upon reasonable prior oral or written notice to Tenant, (or without
notice at any time during or after an emergency) to inspect the Premises or to
show the Premises to prospective purchasers or tenants or to abate nuisances,
to cure dangerous conditions, repair waste and to make repairs, alterations,
improvements or additions to the Premises or to

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the building of which the Premises are a part, as Landlord may reasonably deem
necessary, including those to be performed by Tenant, without the same
constituting an eviction of Tenant in whole or in part, and rent shall not
abate as a result of such entry. Landlord shall use its reasonable efforts in
making any repairs, alterations, improvements or additions to the Premises or
the building of which the Premises are a part to keep the disruption of
Tenant's business to a minimum. Nothing herein shall impose any duty upon
Landlord to do any work or perform any other act which Tenant may be required
to perform under this Lease, and the performance thereof by Landlord shall not
constitute a waiver of Tenant's default in failing to perform it. During the
six (6) months prior to the expiration of the term of this Lease, Landlord may
place upon the Premises notice "To Let" or "For Rent." If Tenant is not
present to permit entry into the Premises, Landlord may, in case of emergency,
enter by master key, or may forcibly enter, without rendering Landlord liable
therefor.

SECTION 1.06. SHIPPING AND RECEIVING. Landlord will facilitate
Tenant's shipping and receiving functions in a mutually agreeable manner.

ARTICLE II

SECURITY DEPOSIT

[INTENTIONALLY DELETED]

[THIS SPACE WAS INTENTIONALLY LEFT BLANK]

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ARTICLE III

RENT

SECTION 3.01. GENERAL. Tenant shall, for the entire term of this
Lease, pay to Landlord, at such place as Landlord may from time to time in
writing designate, an annual minimum rent (the "Minimum Rent") in equal monthly
installments, payable in advance on the first day of each calendar month,
without any setoff, counterclaim or deduction whatsoever or any prior demand.

SECTION 3.02. ORIGINAL LEASE TERM. Minimum Rent per month during the
first five (5) Lease Years shall be equal to the sum of the following amounts:

(a) Seventeen Thousand Three Hundred Forty-Nine Dollars
($17,349), representing rent for the Premises exclusive of the
Steelcase office furniture and Cold Rooms. This amount shall increase
by three percent (3%) per annum compounded annually, on the first day
of the second, third, fourth and fifth Lease Years.

(b) One Thousand Four Hundred Dollars ($1,400),
representing rent for the Steelcase office furniture.

SECTION 3.03. OPTION TERM. Minimum Rent per month during the Option
Term shall be equal to the sum of the following amounts:

(a) Twenty Thousand One Hundred Twelve Dollars ($20,112),
representing rent for the Premises exclusive of the Steelcase office
furniture and Cold Rooms. This amount shall increase by three percent
(3%) per annum, compounded annually, on the first day of the seventh,
eighth, ninth and tenth Lease Years.

[THIS SPACE WAS INTENTIONALLY LEFT BLANK]

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(b) As rent for the Steelcase office furniture, the
amount that results when Thirteen Thousand Forty-Two Dollars ($13,042)
is amortized over sixty (60) months at a rate equal to the prime rate
most recently announced as of the first day of the Option Term by
Firstar Bank Madison, N.A. (or, if such bank is not then announcing
its prime rate, by any other state or national bank chosen by Landlord
and having an office in Madison, Wisconsin).

(c) As rent for the Cold Rooms, the amount that results
when Three Thousand Five Hundred Thirty-Two Dollars ($3,532) is
amortized over sixty (60) months at a rate equal to the prime rate
most recently announced as of the first day of the Option Term by
Firstar Bank Madison, N.A. (or, if such bank is not then announcing
its prime rate, by any other state or national bank chosen by Landlord
and having an office in Madison, Wisconsin).

SECTION 3.04. SCHEDULE OF RENTS. A complete schedule of Minimum Rent
payable during the original term and the Option Term of this Lease is attached
hereto as Exhibit C.

SECTION 3.05. PARTIAL MONTHS. Minimum Rent for any period during the
term of this Lease which is less than one (1) month shall be a pro rata portion
of the monthly installment.

ARTICLE IV

ALTERATIONS AND ADDITIONS

SECTION 4.01. ALTERATIONS. Tenant shall not, without Landlord's
prior written consent, make any alterations, improvements, additions or utility
installations upon the Premises, except for minor nonstructural alterations.
The term "utility installations," as used herein, shall include without
limitation power panels, space heaters, fluorescent fixtures, conduits and
wiring.

SECTION 4.02. ACCEPTANCE OF PREMISES. By moving into the Premises,
Tenant shall be deemed to have accepted the physical condition of the same "as
is," subject, however, to Landlord's obligations under Article V.

SECTION 4.03. CONSTRUCTION LIENS. Tenant shall pay when due, and
indemnify, defend and hold Landlord harmless from, all claims for labor or
materials furnished or alleged to have been furnished to Tenant for use in the
Premises, which claims are or may be secured by any construction lien against
the Premises or any interest therein. Tenant shall not permit any liens under
the construction lien law to be filed against the Premises or any interest
therein and shall immediately obtain a release from any lien so filed. Nothing
in the Lease shall be construed in any way as constituting the consent or
request of Landlord to any contractor, subcontractor, laborer, or materialman
for the performance of any labor or the furnishing of any

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materials for any alteration, addition, improvement or repair to the Premises
or any other part of the BTC nor as giving Tenant any right, power or authority
to contract for or permit the rendering of services or the furnishing of
materials that would give rise to the filing of a construction lien against the
Premises or the BTC.

SECTION 4.04. REMOVAL OF IMPROVEMENTS. All items of improvements to
the Premises that exist upon the Commencement Date, all heating and air-
conditioning equipment and all alterations and other improvements by Tenant
shall become the property of Landlord and shall not be removed from the
Premises, unless request is made by Landlord to Tenant to remove the same. All
trade fixtures, furniture, furnishings and signs installed in the Premises by
Tenant and paid for by Tenant shall remain the property of Tenant and may be
removed upon the expiration or termination of this Lease; provided that any of
such items as are affixed to the Premises and require severance may be removed
only if Tenant repairs any damage caused by such removal and that Tenant shall
have fully performed all of the terms, conditions and covenants to be performed
by Tenant under this Lease. If Tenant fails to remove such items from the
Premises by the expiration or earlier termination of this Lease, all such trade
fixtures, furniture, furnishings and signs shall become the property of
Landlord, unless Landlord elects to require their removal, in which case Tenant
shall, at its sole cost and expense, promptly remove the same and restore the
Premises to their prior condition. The covenants contained in this Section
shall survive the expiration or termination of this Lease.

ARTICLE V

REPAIRS AND MAINTENANCE

Landlord shall keep the exterior of the BTC and the interior of the
Premises (except interior walls erected by Tenant) in good condition and
repair, except for repairs required thereto by reason of the acts or omissions
of Tenant, Tenant's employees, agents, invitees, licensees or contractors.
Landlord shall also be responsible for the maintenance and repair of the Common
Areas (as defined in Section VI). If Landlord is required to make exterior or
structural repairs by reason of Tenant's acts or omissions, Landlord shall have
the right, but shall not be obligated, to make such repairs or replacements on
behalf of and for the account of Tenant. In such event, such work shall be
paid for in full by Tenant upon billing therefor. The provisions of this
Section shall not apply in the case of damage or destruction by fire or other
casualty or by condemnation, in which events the obligations of Landlord shall
be controlled by Articles IX and X, respectively.

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ARTICLE VI

COMMON AREAS

SECTION 6.01. USE OF COMMON AREAS. Use by Tenant of the Premises
shall include the non-exclusive use, in common with others, of the Common
Areas, as defined herein, and subject to the provisions of Section 6.02.

SECTION 6.02. CONTROL OF COMMON AREAS. Tenant shall have the
reasonable non-exclusive right to use, under a revocable license and not as a
part of the Premises (and in common with Landlord and other tenants of the BTC
and all others to whom Landlord has or may hereafter grant rights to use the
same) such parking areas, sidewalks, roadways, public and common washrooms,
elevators, stairways, corridors and other common areas and facilities as may
from time to time exist and be generally available to all occupants of the BTC
(the "Common Areas"). Landlord shall at all times have full control,
management and direction of the Common Areas and reserves the right at any time
and from time to time to reduce, increase, enclose or otherwise change the
size, number, location, layout and nature of the Common Areas so as to
construct additional rentable areas through use and/or enclosure of the common
areas, and to place signs on the BTC; provided, however, that Landlord shall
not impair access to the Premises or make the Premises significantly less
desirable or attractive. Shipping and receiving areas are not Common Areas.

ARTICLE VII

COVENANTS OF TENANT

SECTION 7.01. USE OF PREMISES. Tenant covenants and agrees that it
shall continuously and without interruption use and occupy the entire Premises
(and not less than one hundred percent (100%) of the Premises) solely as
office, laboratory, manufacturing and related uses, and for no other purpose.
Tenant's business in the Premises shall be conducted under the following trade
name: Ophidian Pharmaceuticals, Inc.

SECTION 7.02. OPERATION OF BUSINESS. Tenant, acknowledging that the
BTC is being developed and maintained by Landlord as a first-class office and
laboratory building and as a further inducement to Landlord to enter into this
Lease, covenants and agrees:

(a) Appearance. To keep the Premises clean and
attractive in appearance at all times and to keep any refuse in proper
containers in the interior of the Premises out of sight until the same
is removed;

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(b) Insurance. To neither do nor suffer anything to be
done or kept in or about the Premises which contravenes Landlord's
insurance policies or increases the premiums therefor;

(c) Sound. To permit no reproduction of sound which is
audible outside the Premises nor permit odors to be unreasonably
dispelled from the Premises;

(d) Loading. To load, unload and permit the loading or
unloading of merchandise, equipment or other property only via the
BTC's shipping and receiving areas, or the Pilot Plant access areas;

(e) Heating and Cooling. To adequately heat and cool the
Premises;

(f) Compliance with Laws. To comply with all applicable
ordinances, rules, regulations, orders and requirements of all
federal, state and municipal governments which relate to the Premises
or the business Tenant conducts on or from the Premises and with any
direction, pursuant to law, of any public officer which shall impose
upon Tenant any duty with respect to the Premises or the use and
occupation thereof.

SECTION 7.03. SIGNS. Tenant covenants and agrees that it shall not,
without the prior written consent of Landlord, paint, erect or install any
signs, lettering or placards or make any additions, alterations or changes to
the exterior of the Premises, or place or permit to be placed any sign,
advertising material or lettering upon the interior surface of any door or show
window or any point inside the Premises from which the same may be visible from
outside the Premises.

SECTION 7.04. UTILITIES. Landlord shall supply to the Premises, at
Landlord's cost, heat, sewer, water, gas and electric service. Tenant agrees,
in the use of such utilities, to use appropriate energy conservation methods
and not to use excessive amounts of, or waste, any such utility service.
Landlord shall be liable for an interruption or failure in the supply of any
utilities only to the extent that such interruption or failure results from the
negligent, reckless or willful misconduct of Landlord.

SECTION 7.05. MUNICIPAL, COUNTY, STATE OR FEDERAL TAXES. Tenant
covenants and agrees that it shall pay, before delinquency, all municipal,
county and state or federal taxes assessed against any leasehold interest of
Tenant or any fixtures, furnishings, equipment, merchandise, improvements,
alterations, stock-in-trade or other personal property of any kind owned,
installed or upon the Premises. Landlord covenants and agrees that it shall
pay, before delinquency, all real estate taxes and assessments levied or
assessed against the BTC and the lands upon which the BTC is located.

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SECTION 7.06. DIRECTORY AND SIGNS. Tenant shall be entitled to have
its name shown upon the directory board of the BTC; but the design and style of
such identification, and the location of such directory board and allocation of
the space thereon among the tenants and occupants of the BTC, shall be
determined at Landlord's sole discretion.

SECTION 7.07. ENVIRONMENTAL.

(a) Definitions.

(i) As used herein, "Environmental Laws" shall
mean any federal, state and local laws including statutes,
regulations, rulings, orders, administrative interpretations,
guidance documents or memoranda and other governmental
restrictions and requirements relating to the creation or
discharge of solid waste, hazardous substances, hazardous
waste, air pollutants, water pollutants or process wastewater
or otherwise relating to the environment or Hazardous
Substances (as defined herein) including, but not limited to,
Chapters 144, 160 and 162 of the Wisconsin Statutes, the
Federal Toxic Substances Control Act, the Federal Solid Waste
Disposal Act, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource and Conservation and Recovery
Act of 1976, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the
Superfund Amendment and Reauthorization Act of 1986,
regulations of the Federal Environmental Protection Agency or
state environmental protection agency or Department of Natural
Resources or Environmental Quality now or at any time
hereafter in effect.

(ii) As used herein, "Hazardous Substances" shall
mean any hazardous waste or substance or material, asbestos or
asbestos-containing material pollutant, solid, liquid,
gaseous, or thermal irritant or contaminant (such as smoke,
vapor, soot, fumes, acids, alkalis, chemicals, oils, solvents
or waste, including materials to be recycled in the future,
reconditioned or reclaimed), polychlorinated biphenyl (in the
form of electrical transformers, fluorescent light fixtures
with ballasts, cooling oils or any other device or form) or
urea-formaldehyde foamed-in-place insulation, all as defined
or included under Environmental Laws.

(b) Environmental Covenants. During the term of this
Lease, Tenant shall:

(i) timely comply with all applicable
Environmental Laws;

(ii) provide Landlord, immediately upon receipt
thereof, with copies of any correspondence, notice, pleading,
citation, notice of

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noncompliance, notice of violation, indictment, complaint,
order, decree or other document from any source asserting or
alleging violation upon the Premises by Tenant of any
Environmental Laws, or asserting or alleging a circumstance or
condition upon the Premises which may require a financial
contribution by Tenant or a cleanup, remedial action or other
response, including investigation, by or on the part of Tenant
under any Environmental Laws;

(iii) permit Landlord, in the event Landlord has
reasonable cause to believe that there exists a condition or
circumstance created by Tenant, its employees or invitees
during the term of this Lease warranting an environmental
inspection or audit, at Tenant's expense to retain an
architect, environmental consultant or professional engineer
selected by Landlord to perform an environmental inspection
and/or audit of the Premises to evaluate Tenant's compliance
with Environmental Laws, and to test for Hazardous Substances
on the Premises, and for risks associated with exposure to
Hazardous Substances. Tenant shall permit Landlord and its
employees and agents access to the Premises and the books and
records of Tenant as necessary for the performance of the
environmental inspection and/or audit;

(iv) at its expense, remove or contain any
Hazardous Substances on the Premises that were brought onto
the Premises by Tenant, its employees or invitees during the
term of this Lease, or perform other investigation or
remediation or corrective action as required by Landlord in
its sole discretion, if at any time it is determined that such
Hazardous Substances present a health hazard on the Premises
or are required to be investigated, removed, contained or
remediated or other corrective action is required by any
Environmental Laws or regulatory authority.

SECTION 7.08. CONFIDENTIALITY.

(a) As used herein, "Confidential Information" means
information possessed by or developed for either party hereto, which
relates to such party's existing or potential business, which is
generally not known to the public, which such party seeks to protect
from disclosure to its existing or potential competitors or others.
The term shall include, without limitation: financial or business
plans and projections, visitor lists and directories, marketing plans,
negotiation strategies, customer lists, customer names, or other
customer information, author lists, names or other information,
pricing lists, pricing information, works in progress, works under
consideration, previously published works, patents, patented material,
copyrights, copyrighted material, trademarks, tradenames, computer
programs, and the like. Confidential Information also includes
information received by either party hereto from others which such
party has an obligation to treat as confidential.

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(b) Each party hereto covenants and agrees that neither
it nor its sublessees, agents, customers, invitees, contractors,
occupants or employees shall directly or indirectly use or disclose
any Confidential Information of the other, whether during the term of
this Lease or after this Lease terminates or expires. This
prohibition does not apply to Confidential Information after it
becomes generally known in the industry in which the party possessing
the same conducts its business. Each party hereto shall take all
reasonable measures to prevent its sublessees, agents, customers,
invitees, contractors, occupants and employees from acquiring, using
or disclosing any Confidential Information.

ARTICLE VIII

INSURANCE AND INDEMNITIES

SECTION 8.01 INSURANCE BY TENANT. Tenant shall obtain, at Tenant's
expense, beginning on the Commencement Date, and shall maintain through the
expiration or termination of this Lease, the following insurance coverages:

(a) Public Liability. A policy of comprehensive public
liability insurance naming Landlord, Tenant and any other party
designated by Landlord as the insured, to insure against injury to
property, person or loss of life arising out of the ownership, use,
occupancy or maintenance of the Premises with limits of public
liability not less than $1,000,000 per accident and/or occurrence, and
$2,000,000 general aggregate. The policy shall contain a supplemental
endorsement covering contractual liability voluntarily assumed by the
insured under this Lease.

(b) Other. All other insurance, if any, customarily
maintained by businesses of like type, or required by any ordinance,
law, or governmental regulation to be carried or maintained by Tenant,
as may be reasonably required by Landlord or by any ordinance, law or
governmental regulation.

SECTION 8.02. INSURANCE BY LANDLORD. Landlord shall obtain before
the Commencement Date, and shall maintain through the expiration or termination
of this Lease, the following insurance coverages:

(a) Public Liability. A policy of comprehensive public
liability insurance on the Common Areas with limits of public
liability not less than $1,000,000 per person for death and/or bodily
injury, including personal injury, $1,000,000 per accident and/or
occurrence, and limits of property damage liability not less than
$1,000,000 per accident or occurrence.

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(b) Comprehensive. A comprehensive policy of coverage
containing fire, extended coverage, vandalism, malicious mischief and
other endorsements deemed advisable by Landlord insuring the leasehold
improvements of the BTC, including the Premises and all appurtenances
thereto (excluding Tenant's merchandise, trade fixtures, furnishings,
equipment and personal property) for the full insurable replacement
value thereof, with such deductibles as Landlord deems advisable.
Tenant shall be solely responsible for carrying personal property
insurance sufficient to cover the loss or damage to Tenant's personal
property.

SECTION 8.03. INSURANCE POLICIES. Insurance required of Tenant under
Section 8.01 shall be written by companies duly qualified to do business in the
State of Wisconsin, with a general policyholder's rating of at least "A" and a
financial rating of at least Class XI, as rated in the latest edition of Best's
Insurance Guide, and shall be satisfactory in all respects to Landlord and the
holder of any mortgage against the BTC. Tenant shall provide Landlord with
copies of all such policies for Landlord's review prior to the Commencement
Date. Tenant shall deliver to Landlord copies of such policies or certificates
evidencing the existence and amounts of such insurance with loss payable
clauses satisfactory to Landlord. No such policy shall be cancelable or
subject to reduction of coverage or modification except after thirty (30) days'
prior written notice to Landlord. At least thirty (30) days prior to the
expiration of Tenant's policies, Tenant shall furnish Landlord with renewals or
"binders" thereof, or Landlord may order such insurance and charge the cost to
Tenant as additional rent. Tenant shall not do or permit anything to be done
which will invalidate the insurance policies furnished by Tenant or Landlord
pursuant to Sections 8.01 and 8.02. If Tenant does or permits anything to be
done which shall increase the cost of the insurance policies furnished by
Landlord, Tenant shall pay to Landlord, as additional rent, the amount of any
such additional premiums. Landlord may from time to time require that the
policy limits of any or all such insurance be increased to reflect the effects
of inflation and changes in normal commercial insurance practices. If Tenant
fails to comply with the requirements of this Section or Section 8.01, Landlord
may obtain such insurance and maintain it in effect, and Tenant shall pay
Landlord the premium cost and any other costs or expenses incurred by Landlord
as additional rent.

SECTION 8.04. EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby
agrees that Landlord shall not be liable for injury to Tenant's business or any
loss of income or other consequential damages or for damage to the inventory,
fixtures, furnishings, improvements or other property of Tenant, Tenant's
employees, invitees, customers, sublessees, agents, occupants, contractors, or
any other person in or about the Premises, nor shall Landlord be liable for
injury to the person of Tenant, Tenant's employees, agents, contractors,
occupants, invitees, customers, sublessees, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinkler, wires, appliances, plumbing,
air-conditioning or lighting fixtures, or from any other cause whatsoever,
whether said

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damage or injury results from conditions arising upon the Premises, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Tenant; except,
however, to the extent such injury, loss or damages result from Landlord's
reckless, negligent or wilful misconduct. Landlord shall not be liable for any
damages arising from any act or neglect of any other tenant of the BTC.

SECTION 8.05 INDEMNIFICATION. Tenant shall indemnify, defend and
hold harmless Landlord from and against any and all claims arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and shall further indemnify, defend and hold harmless
Landlord from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence of the Tenant, or any of
Tenant's sublessees, agents, customers, invitees, contractors, occupants, or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; except, however, to the extent such claim arises
from Landlord's reckless, negligent or willful misconduct; and in case any
action or proceeding be brought against Landlord by reason of any such claim,
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause;
except to the extent caused by Landlord's reckless, negligent or willful
misconduct, and Tenant hereby waives all claims in respect thereof against
Landlord.

SECTION 8.06. MUTUAL WAIVER OF SUBROGATION. Nothing in this Lease
shall be construed so as to authorize or permit any insurer of Landlord or
Tenant to be subrogated to any right of Landlord or Tenant against the other
party arising under this Lease. Landlord and Tenant each hereby release the
other to the extent of any perils to be insured against by either of the
parties under the terms of this Lease, whether or not such insurance has
actually been secured, and to the extent of their respective insurance coverage
for any loss or damage caused by any such casualty, even if such incidents
shall be brought about by the fault or negligence of either party or persons
for whose acts or negligence the other party is responsible. All insurance
policies to be provided under this Article VIII by either Landlord or Tenant
shall contain a provision that they are not invalidated by the foregoing
waiver. Such waiver shall, however, cease to be effective if the existence
thereof precludes either Landlord or Tenant from obtaining any such policy.

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ARTICLE IX

DAMAGE OR DESTRUCTION

In the event (i) the Premises are damaged by fire, explosion or other
casualty insured under Landlord's fire and extended coverage insurance policy
(an "Insured Casualty") to the extent of twenty-five percent (25%) or more of
the insurable value thereof immediately preceding the casualty, (ii) the BTC is
damaged by an Insured Casualty to the extent of fifty percent (50%) or more of
the insurable value thereof immediately preceding the casualty, (iii) the
Premises or the BTC are damaged by a casualty or occurrence other than Insured
Casualty, or (iv) the Premises or the BTC are damaged by a casualty or
occurrence and Landlord's mortgagee does not authorize the disbursement of
insurance proceeds to repair or replace the same, Landlord may terminate this
Lease by giving Tenant written notice of termination within sixty (60) days
after the happening of the event causing the damage. In the event the damage
is not extensive enough to give rise to Landlord's option to terminate this
Lease or Landlord does not elect to terminate this Lease, Landlord shall
promptly repair and replace the roof, exterior walls, foundation and any other
improvements furnished or existing on the Commencement Date, to the condition
existing immediately preceding such fire, explosion or other casualty. During
any period of reconstruction or repair of the Premises, Tenant shall operate
its business in the Premises to the extent practicable. Rent or other sums
payable under this Lease shall be reduced or abated during the period of such
repair and restoration (to the extent of any rent insurance proceeds actually
received by Landlord therefor).

ARTICLE X

CONDEMNATION

SECTION 10.01. TAKING OF WHOLE. In the event (i) the whole of the
Premises shall be taken or condemned for a public or quasipublic use or purpose
by a competent authority, or (ii) such a portion of the Premises shall be taken
so that the balance cannot be used for the same purpose and with substantially
the same utility to Tenant as immediately prior to such taking, this Lease
shall terminate upon delivery of possession to the condemning authority, and
any award, compensation or damages payable as compensation for the fee estate
in the Premises (the "Award") shall be paid to and be the sole property of
Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title
and interest in and to any and all of the Award. Tenant shall have no claim
against Landlord by reason of such taking or termination and shall not have any
claim or right to any portion of the Award to be paid to Landlord. Tenant
shall continue to pay rent and other charges hereunder until the Lease is
terminated.

SECTION 10.02. PARTIAL TAKING. In the event only a part of the
Premises or BTC is taken or condemned but the Premises or the part remaining
can still be used for the same purpose and with substantially the same utility
to Tenant as immediately prior

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to such taking, this Lease shall not terminate and Landlord shall repair and
restore the Premises provided the cost and expense of such repair and
restoration does not exceed the amount of the Award. If the cost of such
repair and restoration exceeds the amount of the Award, Landlord may terminate
this Lease by giving Tenant written notice of termination to Tenant within
sixty (60) days of the delivery of possession to the condemning authority. If
Landlord is obligated to repair and restore the Premises as herein provided,
there shall be no abatement or reduction in any rental because of such taking
or condemnation.

ARTICLE XI

DEFAULTS; REMEDIES

SECTION 11.01. DEFAULTS. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:

(a) Abandonment. The abandonment of the Premises or the
cessation of business by Tenant.

(b) Failure to Pay. The failure of Tenant to make any
payment of rent or any other payment required to be made by Tenant
under this Lease, when due, and such failure shall continue for a
period of five (5) days.

(c) Failure to Observe Other Covenants. The failure by
Tenant to repair any waste or to observe or perform any of the terms,
covenants or conditions of this Lease to be observed or performed by
Tenant where such failure shall continue for a period of twenty (20)
days after written notice thereof from Landlord to Tenant (or without
notice where, as a result of Tenant's failure to observe any term,
covenant or condition of this Lease, Landlord has delivered three (3)
or more notices of default under this subsection (c) within a single
twelve (12)-month period). Except as otherwise provided herein, in
the event of a breach of a term, covenant or condition of this Lease
which requires more than the payment of money to cure and which cannot
because of the nature of such default be cured within said twenty (20)
days, then Tenant is deemed to be complying with said notice if,
promptly upon receipt of such notice, Tenant immediately takes steps
to cure the default as soon as reasonably possible and proceeds
thereafter continuously with due diligence to cure the default within
a period of time which, under all prevailing circumstances, shall be
reasonable. Failure to send a notice shall not be construed as a
waiver of such breach or as to any subsequent breach.

(d) Insolvency. (i) The making by Tenant of any general
assignment, or general arrangement for the benefit of creditors; (ii)
the filing by or against Tenant of a petition to have Tenant adjudged
a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60)

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days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is
not restored to Tenant within sixty (60) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged within sixty (60) days.

SECTION 11.02. LANDLORD'S REMEDIES. If any default by Tenant shall
continue uncured following notice of default, if any, as required by this
Lease, for a period applicable to the default under the applicable provision of
this Lease, Landlord has the following remedies, in addition to all other
rights and remedies provided by law or equity, to which Landlord may resort
cumulatively or in the alternative.

(a) Termination of Lease. Landlord may at Landlord's
election terminate this Lease by giving Tenant notice of termination.
On the giving of the notice, all further obligations of Landlord under
this Lease shall terminate, Tenant shall surrender and vacate the
Premises in a broom clean condition, and Landlord may reenter and take
possession of the Premises and eject all parties in possession or
eject some and not others or eject none. Termination under this
paragraph shall not relieve Tenant from the payment of any sum then
due to Landlord or from any claim for damages previously accrued or
then accruing against Tenant. Should Tenant abandon the Premises and
Landlord elect to reenter as herein provided, or if Tenant's right to
possession is terminated by Landlord because of a breach of the Lease
by Tenant, this Lease shall, at Landlord's written election, terminate
and Landlord shall be entitled to recover from the Tenant (i) unpaid
rent which has been earned at the time of termination, and (ii) as
liquidated damages and not as a penalty a sum of money equal to the
rent and rental loss to be paid by Tenant to Landlord for the
remainder of the term of this Lease.

(b) Termination of Possession. Landlord may at
Landlord's election terminate Tenant's right to possession only,
without terminating the Lease, following a breach of the Lease by
Tenant. Upon termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate
the Premises immediately and possession thereof to Landlord, and
Tenant hereby grants to Landlord the immediate right to enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and
take and hold possession thereof with or without process of law, and
to repossess the Premises as Landlord's former estate and to expel or
remove Tenant and any others who may be occupying or within the
Premises, without being deemed in any manner guilty of trespass,
eviction, or forcible entry or detainer, without incurring any
liability for any damage resulting therefrom, without such entry and
possession terminating the Lease or releasing Tenant from Tenant's
obligation to pay the rent and to fulfill all other of Tenant's
obligations under this lease for the full term of this Lease.
Landlord shall be entitled to recover from Tenant (i)

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unpaid rent which has been earned at the time of termination, and (ii)
as liquidated damages and not as a penalty a sum of money equal to the
rent and rental loss to be paid by Tenant to Landlord for the
remainder of the term of this Lease. Notwithstanding any remedial
action taken hereunder by Landlord short of termination, including
reletting the Premises to a substitute Tenant, Landlord may at any
time thereafter elect to terminate this Lease for any previous
default.

(c) Storage. Landlord may at Landlord's election store
Tenant's personal property and trade fixtures for the account and at
the cost of Tenant.

(d) Reletting of Premises. If Landlord terminates Tenant's
right to possession but does not terminate this Lease as the result of
Tenant's default hereunder, Landlord shall use reasonable efforts to
relet the Premises and shall have the right to relet the Premises as a
part of a larger area, the right to change the character or use of the
Premises and the right to restrict prospective tenants to those whose
merchandise and business is compatible with the nature and character
of the BTC. For the purpose of such reletting, Landlord may decorate
or may make any repairs, changes, alterations or additions in or to
the Premises that may be necessary or convenient. If the Premises are
relet and a sufficient sum shall not be realized from such reletting
after paying all of the expenses of such decorations, repairs,
changes, alterations and additions, the expenses of such reletting and
the collection of the rent accruing therefrom (including, but not
limited to, attorneys' fees and brokers' commissions), to satisfy the
rent and other charges herein provided to be paid for the remainder of
the term of this Lease, Tenant shall pay to Landlord promptly any
deficiency, and Tenant agrees that Landlord may file suit to recover
any sum falling due under the terms of this paragraph from time to
time.

SECTION 11.03. LANDLORD MAY PERFORM. Landlord shall have the right
at any time, after ten (10) days notice to Tenant (or without notice in case of
emergency or a hazardous condition or in case any fine, penalty, interest or
cost may otherwise be imposed or incurred), to make any payment or perform any
act required of Tenant under any provision in this Lease, and in exercising
such right, to incur necessary and incidental costs and expenses, including
reasonable attorneys' fees. Nothing herein shall obligate Landlord to make any
payment or perform any act required of the Tenant, and this exercise of the
right to so do shall not constitute a release of any obligation or a waiver of
any default. All payments made and all costs and expenses incurred in
connection with any exercise of such right shall be reimbursed to Landlord by
Tenant as additional rent.

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ARTICLE XII

ASSIGNMENT AND SUBLETTING

SECTION 12.01. ASSIGNMENT BY TENANT. Tenant shall not voluntarily or
by operation of law assign, transfer, mortgage, lease, sublet, grant license or
rights to a concessionaire or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises, or permit the use or
occupancy of the Premises or any part thereof by anyone other than Tenant,
without Landlord's prior written consent, which shall not be unreasonably
withheld or delayed. It shall be reasonable for Landlord to withhold its
consent if the proposed assignee or subtenant is not creditworthy or if such
assignee's or subtenant's character or proposed use of the Premises is
incompatible with the character and tenant mix of the BTC. Any attempted
assignment, transfer, mortgage, use, lease, occupancy, encumbrance or
subletting without such consent shall be void and shall constitute a default
under this Lease.

SECTION 12.02. NO RELEASE OF TENANT. Notwithstanding anything to the
contrary contained in this Lease, and regardless of Landlord's consent, no such
assignment, encumbrance, subletting, transfer, lease or other permission for
the use or occupancy of all or any part of the Premises shall release Tenant of
Tenant's obligation to pay the rent and to perform all other obligations to be
performed by Tenant under this Lease, and Tenant and each respective assignor
hereby waives notice of default in the payment and performance by the tenant in
possession of the rents, covenants and conditions of this Lease. Tenant and
each such assignor further agree that Landlord may deal with the tenant in
possession without notice to, and without the consent of, Tenant or any such
assignor, and any and all extensions of time, modifications, or waivers shall
be deemed to be made with the consent of Tenant and any such assignor. The
acceptance of rent by Landlord from any other person shall not be deemed to be
a waiver by Landlord of any provision hereof. Consent to one assignment shall
not be deemed consent to any subsequent assignment.

ARTICLE XIII

GENERAL PROVISIONS

SECTION 13.01. ESTOPPEL CERTIFICATE.

(a) Tenant shall at any time, upon not less than ten (10)
days after the giving of written notice by Landlord, execute,
acknowledge and deliver to Landlord or to such person designated by
Landlord, a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the date to which the rent
and other charges are paid in advance, if any, (ii) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part
of Landlord hereunder,

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nor any offsets, counterclaims or defenses to the Lease on the part of
Tenant, or specifying such defaults if any are claimed, and (iii)
certifying as to any other matters as may be reasonably requested by
Landlord. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.

(b) If Landlord desires to sell or finance or refinance
the Premises, or any part thereof, Tenant shall deliver to any
purchaser and/or lender designated by Landlord such financial
information concerning Tenant as may be reasonably required by such
purchaser and/or lender. Such statements shall include, but shall not
be limited to, the past three (3) years' financial statements of
Tenant. All such financial information shall be received by Landlord
in confidence and shall be used only for the purposes herein set
forth.

SECTION 13.02. LANDLORD'S LIABILITY. The term "Landlord" as used in
this Lease, shall mean only the owner or owners at the time in question of the
fee title or a tenant's interest in a ground lease of the Premises, it being
expressly acknowledged by the parties hereto that none of the terms or
conditions to be performed or observed by Landlord under this Lease are
personal to the party originally named "Landlord" hereunder. In the event of
any transfer of such title or interest, Landlord shall be released from all
liability as respects Landlord's obligations thereafter to be performed,
provided that any funds held by Landlord at the time of such transfer, in which
Tenant has an interest, shall be delivered to the grantee.

SECTION 13.03. SEVERABILITY. The invalidity of any provision of this
Lease, or of its application to any person or circumstance as determined by a
court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof and each term, covenant, condition and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.

SECTION 13.04. TIME OF ESSENCE. Time is of the essence.

SECTION 13.05. CAPTIONS. Article, section and paragraph captions are
not a part of this Lease.

SECTION 13.06. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the
attached exhibits set forth all the agreements, terms, covenants and conditions
between Landlord and Tenant concerning the Premises and there are no
agreements, terms covenants or conditions, oral or written, between them other
than those herein contained. No amendment, change or addition to this Lease
shall be binding upon Landlord or Tenant unless it is in writing and signed by
each party.

SECTION 13.07. TENANT'S REMEDIES. If Landlord shall fail to perform
any covenant, term or condition of this Lease required to be performed by
Landlord, if any, and if as a consequence of such default, Tenant shall recover
a money judgment

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against Landlord, such judgment shall be satisfied only out of the proceeds of
sale received upon execution of such judgment and levied thereon against the
right, title and interest of Landlord in the Premises and out of rents or other
income from such property receivable by Landlord, or out of the consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title and interest in the Premises, and Landlord shall not be
personally liable for any deficiency.

SECTION 13.08. ATTORNMENT OF TENANT. Tenant shall in the event of
the sale, assignment, or other transfer of Landlord's interest in the Premises
or in this Lease, or in the event of any proceedings brought for the
foreclosure of, or in the event of exercise of the power of sale under any
mortgage made by Landlord covering the Premises, attorn to the transferee and
recognize such transferee as Landlord under this Lease.

SECTION 13.09. RENT COVENANT. The covenant to pay rent, whether
Minimum or Additional, is hereby declared to be an independent covenant on the
part of Tenant to be kept and performed, and no offset shall be permitted or
allowed. Tenant's covenant to pay such rent shall survive the expiration or
earlier termination of this Lease.

SECTION 13.10. DELINQUENT RENT TO BEAR INTEREST. Any rent, whether
Minimum or Additional, or such other sums, if any, required to be paid by
Tenant pursuant to the terms of this Lease which are not paid when due shall
bear interest at the rate of eighteen percent (18%) per annum, or the maximum
rate permitted by law, whichever is less, from the date due until paid. The
payment of such interest shall not excuse or cure any default by Tenant under
this Lease.

SECTION 13.11. NOTICES. All notices and demands hereunder shall be
in writing, and shall be given by registered or certified mail, return receipt
requested, and shall be deemed given if (a) hand delivered; (b) sent by Express
Mail or a national commercial courier service (e.g., Purolator Delivery Service
or Federal Express) for next day delivery, to be confirmed in writing by said
courier or service; or (c) when deposited in the United States Mail with
sufficient postage prepaid thereon to carry it to its addressed destination;
and when addressed as follows:

LANDLORD: Promega Corporation
2800 Woods Hollow Road
Madison, WI 53711
Attention: William A. Linton, President

COPY TO: Tod B. Linstroth
Michael, Best & Friedrich
One South Pinckney Street
P.O. Box 1806
Madison, WI 53701-1806

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TENANT: Ophidian Pharmaceuticals, Inc.
5445 East Cheryl Parkway
Madison, WI 53711

COPY TO: Michael E. Skindrud
LaFollette & Sinykin
One East Main Street
P.O. Box 2719
Madison, WI 53701-2719

The above names and addresses may be changed at any time or from time to time
by notice as above provided.

SECTION 13.12. WAIVERS. No waiver by Landlord of any provision of
this Lease shall be deemed a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
The acceptance of rent hereunder by Landlord shall not constitute a waiver of
any breach by Tenant even if Landlord knows of such breach at the time of
acceptance of such rent. No payment by Tenant or receipt by Landlord of a
lesser amount than the rent then due shall be deemed to be other than on
account of the earliest rent due, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord shall accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in this Lease provided.

SECTION 13.13. RECORDING. Tenant shall not record this Lease without
Landlord's prior written consent and such recordation shall, at the option of
Landlord, constitute a non-curable default of Tenant hereunder. Either party
shall, upon request of the other, execute, acknowledge and deliver to the other
a "short form" memorandum of this Lease for recording purposes.

SECTION 13.14. HOLDING OVER. Tenant shall surrender the Premises
upon the expiration or termination of the Lease as provided for in Section
1.04. Any holdover not consented to by Landlord shall not result in a new
tenancy or interest and, in such case, Landlord may treat Tenant as a
trespasser.

SECTION 13.15. CUMULATIVE REMEDIES. No remedy or election hereunder
shall be deemed exclusive but shall, wherever possible, be cumulative with all
other remedies at law or in equity.

SECTION 13.16. COVENANTS AND CONDITIONS. Each provision of this
Lease performable by Tenant shall be deemed both a covenant and a condition.

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SECTION 13.17. BINDING EFFECT; CHOICE OF LAW. This Lease shall bind
the parties, their heirs, personal representatives, successors and assigns.
This Lease shall be governed by and be construed and interpreted in accordance
with the laws of the State of Wisconsin.

SECTION 13.18. SUBORDINATION. This Lease shall be subject and
subordinate to all mortgages which may now or hereafter affect Landlord's
interest in the Premises, whether such mortgages cover only the Premises or by
blanket mortgage cover other premises in addition to the Premises, and to any
renewals, modifications, consolidations, replacements and extensions thereof,
to the full extent of all amounts secured by the mortgages, provided such
mortgagees agree to respect Tenant's rights to possession of the Premises under
this Lease so long as Tenant is not in default hereunder. Tenant shall, within
ten (10) days after the giving of written notice by Landlord, execute,
acknowledge and deliver to Landlord any certificate that Landlord may request
to confirm such subordination. Tenant shall attorn to and recognize any
purchaser at a foreclosure sale under any mortgage, or any transferee who
acquires Landlord's interest in the Premises by deed in lieu of foreclosure,
and the successors and assigns of such purchasers and transferees, as its
landlord for the unexpired balance (and any extensions, if exercised) of the
term of the Lease upon the same terms and conditions set forth in this Lease.

SECTION 13.19. ATTORNEY'S FEES. If either party brings an action to
enforce the terms of or declare rights under this Lease, the prevailing party
in any such action shall be entitled to recover reasonable costs, attorneys'
fees and expenses.

SECTION 13.20. CORPORATE AUTHORITY. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he or she is duly authorized to execute and deliver this Lease on
behalf of said corporation, in accordance with a duly adopted resolution of the
Board of Directors of said corporation, and that this Lease is binding upon
said corporation in accordance with its terms. If Tenant is a corporation,
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.

SECTION 13.21. MORTGAGE FINANCING. In the event Landlord desires to
obtain mortgage financing and Landlord's mortgagee or mortgagees request
certain mortgage modifications or amendments to this Lease, then Tenant, on
demand, agrees to execute such modifications or amendments as required.
Notwithstanding the foregoing, Tenant shall not be required to execute any
modifications or amendments to this Lease which shall modify the provisions of
this Lease relating to the amount of rent or other charges to be paid by
Tenant, the size of the Premises, the duration of the term of this Lease, or
otherwise subject Tenant to additional cost or expense. Tenant agrees to
cooperate with Landlord's efforts in obtaining said mortgage financing.

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SECTION 13.22. EXPANSION OF BTC. Tenant acknowledges and agrees that
the BTC may, from time to time, be expanded to include additional land,
buildings and improvements. The term "BTC," as used in this Lease, refers to
the BioPharmaceutical Technology Center and any such expansion or enlargement
thereof.

IN WITNESS WHEREOF, Tenant and Landlord have executed this instrument
as of the date set forth above.

PROMEGA CORPORATION ("LANDLORD")

By:
/s/ WILLIAM A. LINTON
------------------------------------------
William A. Linton, President

OPHIDIAN PHARMACEUTICALS, INC. ("TENANT")

By:
/s/ DOUGLAS C. STAFFORD
------------------------------------------
Name: Douglas C. Stafford
-------------------------------------
Title: President
------------------------------------

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EXHIBIT A

Floor Plan of Premises

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EXHIBIT B

Itemization of Steelcase Furniture

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EXHIBIT C

Schedule of Rents for Original Term and Option Term

-26-

<PAGE> 1
EXHIBIT 10.2

OPHIDIAN PHARMACEUTICALS, INC.
1997 INCENTIVE STOCK OPTION PLAN

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

1. Purpose. The purpose of the Ophidian Pharmaceuticals, Inc.
1997 Incentive Stock Option Plan (the "Plan") is to encourage certain key
employees of Ophidian Pharmaceuticals, Inc. (the "Company") to acquire or
increase their stock ownership in the Company, to provide an incentive to such
employees to promote the financial success of the Company, and to enable the
Company to attract and retain key personnel necessary for continued growth and
profitability.

2. Effective Date and Term of Plan. The Plan shall become
effective on the date adopted by the Board of Directors of the Company ("Board
of Directors") and shall continue for a period of ten years thereafter unless
sooner terminated as provided in Paragraph 17.

3. Approval of Shareholders. The Plan is subject to the approval
of holders of a majority of all of the outstanding voting shares of the
Company. If it is not so approved on or before one year after the date of
adoption of the Plan by the Board of Directors, the Plan shall not come into
effect and any options granted pursuant to the Plan shall be deemed cancelled.
No option may be exercised prior to approval of the Plan by the shareholders.

4. Stock Subject to Plan. Only common stock of the Company
("Common Stock") may be issued pursuant to options granted under this Plan.
The maximum number of shares of Common Stock that may be issued pursuant to the
exercise of options granted under the Plan ("Options") is Nine Hundred Seventy-
Five Thousand (975,000) shares, reduced by the number of shares from time to
time reserved by the Company for issuance upon exercise of then outstanding
options granted under the Company's 1990 Incentive Stock Option Plan and the
Company's 1992 Employee Stock Option Plan as amended and further reduced by
shares issued upon the exercise of options granted under such plans, and
subject to any adjustments provided in Paragraph 16. If any Options expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for further grants under the
Plan.

5. Administration. The Plan shall be administered by the
committee described in Paragraph 6 (the "Committee"). Subject to the express
provisions of the Plan, the Committee shall have complete authority in its
discretion, to determine those employees ("Participants") to whom Options shall
be granted, the option price, the option periods and the number of shares to be
subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have the authority in its discretion to prescribe the time
or times at which Options may be exercised, the limitations upon the exercise
of Options (including limitations effective upon the death, disability or
termination of employment of any Participant) and the restrictions, if any, to
be imposed upon the transferability of shares acquired upon exercise of
Options. In making such determinations, the Committee may take into account
the nature of the services rendered by the respective Participants, their
present and potential contributions to the success of the Company and such
other factors as the Committee in its discretion shall deem relevant. Subject
to the express provisions of the

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<PAGE> 2
Plan, the Committee shall also have complete authority to interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements (which
need not be identical), to determine whether the shares delivered upon exercise
of Options will be treasury shares or will be authorized but previously
unissued shares and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee's determinations on the matters
referred to in this paragraph shall be conclusive.

6. Committee. The Committee shall consist of not less than three
members of the Board of Directors who are not eligible, and have not at any
time within one year prior to appointment to the Committee been eligible, to
receive options under the Plan or any other plan of the Company entitling
participants therein to acquire stock or stock options of the Company. The
Committee shall be appointed from time to time by the Board of Directors, which
may from time to time appoint members of the Committee in substitution for
members previously appointed and may fill vacancies, however caused, in the
Committee. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members.
Any decision or determination reduced to writing and signed by all of the
members shall be fully as effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may hold meetings by use of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other.

7. Eligibility. An Option may be granted under the Plan only to
an officer or other key employee of the Company, and of its present and future
subsidiaries, as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended ("Subsidiaries"). The foregoing notwithstanding, members of
the Committee shall not, while serving as members of the Committee, be eligible
to receive Options.

8. Option Price. The option price per share will be determined
by the Committee at the time each Option is granted, but shall not be less than
100% of the fair market value, as determined by the Committee, of a share of
Common Stock on the date of grant. If such Option is granted to a person who
owns, directly or indirectly, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company on the date of the
grant, the option price per share shall not be less than 110% of its fair
market value.

9. Option Periods. The term of each Option will be for such
period not exceeding ten years from the date of grant, as the Committee shall
determine; provided, however, that if such Option is granted to a person who
owns, directly or indirectly, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company on the date of the
grant, the term of such Option shall not exceed five years from the date of
grant. An Option shall be considered granted on the date the Committee acts to
grant the Option or such later date as the Committee shall specify. Each
Option shall be subject to earlier termination as described under Paragraphs 13
and 17.

10. Exercise of Options. Each Option may be exercised at any time
during the option period for such Option (subject to the restrictions in this
paragraph, in Paragraph 13 and in the agreements referred to in Paragraph 14)
by written notice delivered to an officer of the Company, stating the number of
shares with respect to which the Option is being exercised.

A-2
<PAGE> 3
11. Payment for Option. Within five (5) business days following
the date of exercise, the Participant shall make full payment of the option
price (i) in cash; (ii) with the consent of the Committee, by tendering
previously acquired shares of Common Stock (valued at their fair market value,
as determined by the Committee, as of the date of exercise); or (iii) any
combination of (i) and (ii). Shares of Common Stock tendered shall be duly
endorsed in blank or accompanied by stock powers duly endorsed in blank. Upon
receipt of the payment of the entire option price for the shares so purchased,
certificates for such shares shall be delivered to the Participant.

12. Maximum Per Participant. The aggregate fair market value, as
determined by the Committee, of the stock for which options held by a
Participant are exercisable for the first time under the Plan or other options
granted to the Participant under any plan of the Company or any Subsidiary
during any calendar year shall not exceed $100,000. For purposes of this
paragraph, the fair market value of stock subject to an Option or other
Incentive Stock Option shall be determined as of the date the Option or other
Incentive Stock Option, as the case may be, is granted.

13. Termination of Employment. Except as hereinafter provided, no
Option may be exercised later than three months after a Participant terminates
his employment with the Company or its Subsidiaries, as the case may be. If
termination of employment results from the deliberate, willful or gross
misconduct of a Participant, then the Option may not be exercised and all of
the Participant's rights in the Option shall be forfeited upon termination. If
termination of employment results from the disability of a Participant within
the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, any Option may be exercised at any time within twelve months after
such termination of employment, but in no event beyond the option period. If
termination of employment results from the death of a Participant, the personal
representative of the Participant's estate, or a person who by bequest,
inheritance, or otherwise by reason of the Participant's death, acquired the
right to exercise the Option, may exercise any Option at any time after the
death of such Participant, but in no event beyond the option period. The
Committee may impose additional restrictions upon the exercise of Options after
termination of employment, including prohibition of such exercise.

14. Agreements. Options granted pursuant to the Plan shall be
evidenced by stock option agreements in such form as the Committee shall from
time to time adopt.

15. Nontransferability of Options. Options under the Plan are not
transferable by a Participant other than by will or the laws of descent or
distribution, and may be exercised during the lifetime of a Participant only by
such Participant.

16. Adjustment of Number of Shares. In the event of any change in
the outstanding Common Stock of the Company by reason of stock dividends,
recapitalizations, reorganizations, mergers, consolidations, split-ups,
combinations or exchanges of shares and the like, the Committee shall,
consistent with such change, appropriately adjust the number and kind of shares
which thereafter may be optioned and sold under the Plan, the number and kind
of shares under option in outstanding stock option agreements and the purchase
price per share thereof. The determination of the Committee as to any such
adjustment shall be final and conclusive. No adjustment or substitution
provided for in this paragraph shall require the Company in any stock option
agreement to sell a fractional

A-3
<PAGE> 4
share and the total substitution or adjustment with respect to each stock
option agreement shall be limited accordingly.

17. Amendment, Suspension or Termination. The Board of Directors,
without further approval of the shareholders, may from time to time amend,
suspend or terminate the Plan in such respects as the Board may deem advisable,
provided, however, that no amendment shall become effective without prior
approval of the shareholders which would (i) increase the aggregate number of
shares which may be issued pursuant to Options granted under the Plan, except
as permitted under Paragraph 16; (ii) permit the granting of options to anyone
other than an officer or key employee of the Company or a Subsidiary or to a
member of the Committee; (iii) decrease the minimum option prices; (iv)
increase the maximum option periods; (v) increase the maximum per Participant
set in Paragraph 12; or (vi) extend the term of the Plan. No amendment shall,
without the Participant's consent, alter or impair any of the rights or
obligations under any Option granted to the Participant prior to the effective
date of such amendment.

Dated as of the 30th day of July, 1997.

OPHIDIAN PHARMACEUTICALS, INC.

By: /s/ DOUGLAS C. STAFFORD
--------------------------------------------
Douglas C. Stafford, Ph.D., President

Attest: /s/ MARGARET VAN BOLDRIK
--------------------------------------------
Margaret van Boldrik, Ph.D., Vice President

A-4

<PAGE> 1
EXHIBIT 10.3

OPHIDIAN PHARMACEUTICALS, INC.
1990 INCENTIVE STOCK OPTION PLAN

1. Purpose. The purpose of the Ophidian Pharmaceuticals, Inc. Incentive
Stock Option Plan (the "Plan") is to encourage certain key employees of
Ophidian Pharmaceuticals, Inc. (the "Company") to increase their stock
ownership in the Company, to provide an incentive to such employees to promote
the financial success of the Company and to enable the Company to attract and
retain key personnel necessary for continued growth and profitability.

2. Effective Date and Term of Plan. The Plan shall become effective on
the date adopted by the Board of Directors of the Company ("Board of
Directors") and shall continue for a period of ten (10) years unless sooner
terminated as provided in paragraph 17.

3. Approval of Shareholders. The Plan is subject to the approval of
holders of a majority of all of the outstanding voting shares of the Company.
If it is not so approved on or before one year after the date of adoption of
the Plan by the Board of Directors, the Plan shall not come into effect and any
options granted pursuant to the Plan shall be deemed cancelled. No option may
be exercised prior to approval of the Plan by the shareholders.

4. Stock Subject to Plan. Only Common Stock of the Company may be issued
pursuant to options granted under this Plan. The maximum number of Common
Shares that may be issued pursuant to the exercise of options granted under the
Plan ("Options") is eleven thousand four hundred twenty-nine (11,429) shares,
subject to any adjustments provided in paragraph 16. If any Options shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for further grants
under the Plan.

5. Administration. The Plan shall be administered by the committee
described in paragraph 6 (the "Committee"). Subject to the express provisions
of the Plan, the Committee shall have complete authority in its discretion, to
determine those employees ("Participants") to whom Options shall be granted,
the option price, the option periods and the number of shares to be subject to
each Option. Subject to the express provisions of the Plan, the Committee
shall also have the authority in its discretion to prescribe the time or times
at which Options may be exercised, the limitations upon the exercise of Options
(including limitations effective upon the death, disability or termination of
employment of any Participant) and the restrictions, if any, to be imposed upon
the transferability of shares acquired upon exercise of Options. In making
such determinations, the Committee may take into account the nature of the

<PAGE> 2

services rendered by the respective Participants, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant. Subject to the express
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the respective
option agreements (which need not be identical), to determine whether the
shares delivered upon exercise of Options will be treasury shares or will be
authorized but previously unissued shares and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this paragraph shall be
conclusive.

6. Committee. The Committee shall consist of not less than three members
of the Board of Directors who are not eligible and have not at any time within
one year prior to appointment to the Committee been eligible to receive options
under the Plan or any other plan of the Company entitling participants therein
to acquire stock or stock options of the Company. The Committee shall be
appointed from time to time by the Board of Directors, which may from time to
time appoint members of the Committee in substitution for members previously
appointed and may fill vacancies, however caused, in the Committee. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by all of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly called and held.
The Committee may hold meetings by use of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other.

7. Eligibility. An Option may be granted under the Plan only to an
officer or other key employee of the Company and of its present and future
subsidiaries, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended ("Subsidiaries"). Members of the Committee shall not, while
serving as members of the Committee, be eligible to receive Options.

8. Option Prices. The option price per share will be determined by the
Committee at the time each Option is granted, but shall not be less than 100%
of the fair market value, as determined by the Committee, of a share of Common
Stock on the date of grant. If such Option is granted to a person who owns,
directly or indirectly, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company on the date of the grant,
the option prices per share shall not be less than 110% of its fair market
value.

<PAGE> 3

classes of stock of the Company on the date of the grant, the term of such
Option shall not exceed five years from the date of grant. An Option shall be
considered granted on the date the Committee acts to grant the Option or such
later date as the Committee shall specify. Each Option shall be subject to
earlier termination as described under paragraph 13 and 17.

10. Exercise of Options. Each Option may be exercised at any time during
the option period for such Option (subject to the restrictions in this
paragraph, in paragraph 13 and in the agreements referred to in paragraph 14)
by written notice delivered to an officer of the Company, stating the number of
shares with respect to which the Option is being exercised.

11. Payment for Option. Within five (5) business days following the date
of exercise, the Participant shall make full payment of the option price (i) in
cash; (ii) with the consent of the Committee, by tendering previously acquired
shares of Common Stock (valued at their fair market value, as determined by the
Committee, as of the date of exercise); or (iii) any combination of (i) or
(ii). Shares of Common Stock tendered shall be duly endorsed in blank or
accompanied by stock powers duly endorsed in blank. Upon receipt of the
payment of the entire option price for the shares so purchased, certificates
for such shares shall be delivered to the Participant.

12. Maximum Per Participant. The aggregate fair market value, as
determined by the Committee, of the stock for which a Participant may exercise
Options and/or other Incentive Stock Options under any plan of the Company or
any Subsidiary during any calendar year shall not exceed $100,000. For
purposes of this paragraph, the fair market value of stock subject to an Option
or other Incentive Stock Option shall be determined as of the date the Option
or other Incentive Stock Option, as the case may be, is granted.

13. Termination of Employment. Except as hereinafter provided, no Option
may be exercised later than three months after a Participant terminates his
employment with the Company or its Subsidiaries, as the case may be. If
termination of employment results from the deliberate, willful or gross
misconduct of a Participant, then the Option may not be exercised and all of
the Participant's rights in the Option shall be forfeited upon termination. If
termination of employment results from the disability of a Participant within
the meaning of Section 105(d)(4) of the Internal Revenue Code of 1986, as
amended, any Option may be exercised at any time within twelve months after
such termination of employment, but in no event beyond the option period. If
termination of employment results from the death of a Participant, the personal
representative, executor, legatee, heir or other legal representative of the
Participant may exercise any Option at any time after the death of such
Participant, but in no event beyond the option period. The Committee may
impose additional restrictions upon the exercise of Options after termination
of employment, including prohibition of such exercise.

<PAGE> 4

14. Agreements. Options granted pursuant to the Plan shall be evidenced
by stock option agreements in such form as the Committee shall from time to
time adopt.

16. Adjustment of Number of Shares. In the event of any change in the
outstanding Common Stock of the Company by reason of stock dividends,
recapitalizations, reorganizations, mergers, consolidations, split-ups,
combinations or exchanges of shares and the like, the Committee shall,
consistent with such change, appropriately adjust the number and kind of shares
which thereafter may be optioned and sold under the Plan, the number and kind
of shares under option in outstanding stock option agreements and the purchase
price per share thereof. The determination of the Committee as to any such
adjustment shall be final and conclusive. No adjustment or substitution
provided for in this paragraph shall require the Company in any stock option
agreement to sell a fractional share and the total substitution or adjustment
with respect to each stock option agreement shall be limited accordingly.

17. Amendment, Suspension or Termination. The Board of Directors,
without further approval of the shareholders, may from time to time amend,
suspend or terminate the Plan in such respects as the Board may deem advisable,
provided, however, that no amendment shall become effective without prior
approval of the shareholders which would (i) increase the aggregate number of
shares which may be issued pursuant to Options granted under the Plan, except
as permitted under paragraph 16; (ii) permit the granting of options to anyone
other than an officer or key employee of the Company or a Subsidiary or to a
member of the Committee; (iii) decrease the minimum option prices; (iv)
increase the maximum option periods; (v) increase the maximum per Participant
set in paragraph 12; or (vi) extend the term of the Plan. No amendment shall,
without the Participant's consent, alter or impair any of the rights or
obligations under any Option theretofore granted to him.

<PAGE> 1
EXHIBIT 10.4

OPHIDIAN PHARMACEUTICALS, INC.
1992 EMPLOYEE STOCK OPTION PLAN
AS AMENDED AND RESTATED JULY 30, 1996

1. PURPOSE. The purpose of the Ophidian Pharmaceuticals, Inc. Employee
Stock Option Plan (the "Plan") is to encourage Employees and certain members of
and Advisors to the Board of Directors of Ophidian Pharmaceuticals, Inc. (the
"Company"), to acquire stock ownership in the Company, to provide an incentive
to such Employees, Directors, and Advisors to promote the financial success of
the Company, and to enable the Company to attract and retain the personnel,
Directors, and Advisors necessary for continued growth and profitability.

2. EFFECTIVE DATE OF PLAN. The amended Plan shall become effective as of
July 30, 1996, and shall continue in effect for an indefinite period thereafter
subject to termination as provided in Paragraph 17.

3. ADMINISTRATION. The Plan shall be administered by the Committee
described in Paragraph 4 (the "Committee"). Subject to the express provisions
of the Plan, the Committee shall have complete authority in its discretion, to
determine those employees to whom Options shall be granted under the Plan
("Options"), Option Price, the Option Periods and the number of shares to be
subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have the authority in its discretion to prescribe the time
or times at which Options may be exercised, the limitations upon the exercise
of Options (including limitations effective upon the death, disability or
termination of employment of any Participant) and the restrictions, if any, to
be imposed upon the transferability of shares acquired upon exercise of
Options. In making such determinations, the Committee may take into account
the nature of the services rendered by the respective Participants, their
present and potential contributions to the success of the Company and such
other factors as the Committee in its discretion shall deem relevant. Subject
to the express provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relation to the Plan, to determine the terms and provisions of the
respective Option Agreements described in Paragraph 14 (which need not be
identical), to determine whether the shares delivered upon exercise of Options
will be treasury shares or will be authorized but previously unissued shares,
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations on the matters
referred to in this Paragraph shall be conclusive.

4. COMMITTEE. The Committee shall consist of not less than three members
of the Board of Directors who are not eligible and have not at any time within
one year prior to the appointment to the Committee been eligible to receive
options under the Plan or any other plan of the Company entitling participants
therein to acquire stock or stock options of the Company. The Committee shall
be appointed from time to time by the Board of Directors,
which may from time to time appoint members of the Committee in substitution
for members previously appointed, and may fill vacancies, however caused, in
the Committee. A majority of its members shall constitute

<PAGE> 2

a quorum. All determinations of the Committee shall be made by a majority of
its members. Any decision or determination reduced to writing and signed by all
of the members shall be fully as effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may hold meetings by use
of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other.

5. ELIGIBILITY. Options shall be granted to those individuals designated
as eligible Employees, Directors, or Advisors ("Participants") by the
Committee. The Committee shall inform each Employee, Director or Advisor so
designated of his or her eligibility to participate in the Plan. Participation
in the Plan shall be entirely voluntary. Directors who were members of the
original Board of Directors of the Company shall not be eligible to receive
Options. In addition, members of the Committee shall not, while serving as
members of the Committee, be eligible to receive Options.

6. STOCK SUBJECT TO PLAN. Only Common Stock of the Company may be issued
pursuant to Options granted under this Plan. The maximum number of Common
Shares that may be issued pursuant to the exercise of Options granted under the
Plan shall be six hundred fifty seven thousand one hundred sixty (657,160)
shares, reduced by the number of Shares for which Options are granted pursuant
to the Ophidian Pharmaceuticals, Inc. Incentive Stock Option Plan dated August
1, 1990, as amended from time to time. If any Options expire or terminate for
any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for further grants under the Plan.

7. STOCK OPTIONS. The number of shares subject to any Option granted
under this Plan shall be established by the Committee. The Committee shall
notify each Participant of the number of shares subject to his or her Stock
Option.

8. OPTION PRICE. The Option Price per share shall be determined by the
Committee at the time each Option is granted.

9. OPTION PERIOD. The term of each Option shall be for a period
determined by the Committee. Any Option shall be considered granted on the
date the Committee acts to grant the Option, or such other date as the
Committee shall specify. The Committee shall inform each Participant of the
Option Period applicable to his or her Stock Option. Each Option shall be
subject to earlier termination as described under Paragraphs 13, 13A and 17.

10. EXERCISE OF OPTIONS. Each Option shall be exercised during the Option
Period for such Option (subject to the restrictions in Paragraph 12 and in the
Option Agreements referred to in Paragraph 14) by written notice delivered to
an officer of the Company, stating the number of shares with respect to which
the Option is being exercised. In no event shall the Company be required to
transfer fractional shares to the Participant.

11. PAYMENT FOR OPTION. Within five (5) business days following the date
of exercise, the Participant shall make full payment of the Option Price (i) in
cash; (ii) with the consent of the Committee, by tendering previously acquired
shares of Common Stock (valued at their fair market

<PAGE> 3

value, as determined by the Committee, as of the date of exercise); or
(iii) any combination of (i) or (ii). Shares of Common Stock tendered shall be
duly endorsed in blank or accompanied by stock powers duly endorsed in blank.
Upon receipt of the payment of the entire Option Price for the shares so
purchased, certificates for such shares shall be delivered to the Participant.
Such certificates shall bear a legend on the reverse side reflecting the
transfer restrictions described in Paragraph 12.

12. TRANSFER RESTRICTIONS. Shares of Common Stock purchased under the
Plan are governed by, and may not be sold or otherwise disposed of except in
compliance with (i) the Company's Bylaws and (ii) the registration requirements
of the Securities Act of 1933 and any applicable state securities laws (unless
such transaction is, in the opinion of counsel for the Company, exempt from
registration under such Act and laws).

13. TERMINATION OF EMPLOYMENT. Except as hereinafter provided or as
provided in the Option Agreement with the Participant, no Option may be
exercised later than three months after a Participant terminates employment
with the Company. If termination of employment results from the deliberate,
willful or gross misconduct of a Participant, then the Options may not be
exercised and all of the Participants, rights in the Options shall be forfeited
upon termination. If termination of employment results from the disability of
a Participant within the meaning of Section 105(d)(4) of the Internal Revenue
Code of 1986, as amended, any Options may be exercised at any time within
twelve months after such termination of employment, but in no event beyond the
Option Period. If termination of employment results from the death of a
Participant, the personal representative of the Participant's estate may
exercise any Options at any time within twelve months after the death of such
Participant, but in no even beyond the Option Period. The Committee may impose
additional restrictions upon the exercise of Options after termination of
employment, including prohibition of such exercise.

13.A. TERMINATION AS DIRECTOR OR ADVISOR. Except as hereinafter
provided in the Option Agreement with the Participant, no Option may be
exercised later than three months after a Participant who is a Director or
Advisor of the Company terminates service as a Director or Advisor of the
Company. If termination as a Director or Advisor results from the deliberate,
willful or gross misconduct of a Participant, then the Options may not be
exercised and all of the Participant's rights in the Option shall be forfeited
upon termination. If termination as a Director or Advisor results from the
disability of a Participant within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended, any Options may be exercised at any
time within twelve months after such termination as a Director or Advisor, but
in no event beyond the Option Period. If termination as a Director or Advisor
results from the death of a Participant, the personal representative of the
Participant's estate may exercise any options at any time within twelve months
after such termination as a Director or Advisor, but in no event beyond the
Option Period. The Committee may impose additional restrictions upon the
exercise of Options after termination as a Director or Advisor, including
prohibition of such exercise.

14. OPTION AGREEMENTS. Options granted pursuant to this Plan shall be
evidenced by stock option agreement ("Option Agreements") between the Company
and the Participant in such form as the Committee shall from time to time
adopt.

<PAGE> 4

15. NONTRANSFERABILITY OF OPTIONS. Options under the Plan are not
transferable by a Participant other than by will of the laws of descent or
distribution, and may be exercised during the lifetime of a Participant only by
such Participant.

16. ADJUSTMENT OF NUMBER OF SHARES. In the event of any change in the
outstanding Common Stock of the Company by reason of stock dividends,
recapitalizations, reorganizations, mergers, consolidations, split-ups,
combinations or exchanges of shares and the like, the Committee shall,
consistent with such change, appropriately adjust the number and kind of shares
which thereafter may be optioned and sold under the Plan, the number and kind
of shares under Option in outstanding Option Agreements, and the purchase price
per share thereof. The determination of the Committee as to any such
adjustment shall be final and conclusive. No adjustment or substitution
provide for in this Paragraph shall require the Company to sell a fractional
share and the total substitution or adjustment with respect to each Option
Agreement shall be limited accordingly.

17. AMENDMENT, SUSPENSION OR TERMINATION. The Board of Directors may from
time to time amend, suspend or terminate the Plan in such respects as the Board
deems advisable. No amendment shall, without the Participant's consent, alter
or impair any of the rights or obligations under any Option therefore granted
to a Participant.

18. APPLICABLE LAW. The Plan shall, to the extent not inconsistent with
applicable federal law, be construed under the laws of the State of Wisconsin.

<PAGE> 1

EXHIBIT 10.5 TO S-1

AGREEMENT

BETWEEN

OPHIDIAN PHARMACEUTICALS, INC.

AND

ELI LILLY AND COMPANY

JUNE 3, 1996
**** Indicates where confidential material has been omitted and filed
separately with the Commission
<PAGE> 2
TABLE OF CONTENTS

**** Indicates where confidential material has been omitted and filed
separately with the Commission

AGREEMENT

<TABLE>
<S> <C> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Bulk Drug Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Bulk Drug Substance Process . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Bulk Manufacturing Program . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Bulk Process Development Program . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 CDAD Diagnostic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Clinical Development Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Clinical Development Program . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Drug Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Drug Product Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Enabling Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 FDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 GLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 GMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Lilly Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 Lilly Program Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20 Lilly Program Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 Lilly Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 Major Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.23 Manufacturing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.24 Manufacturing Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.25 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.26 Ophidian Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.27 Ophidian Program Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.28 Ophidian Program Technology . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.29 Ophidian Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.30 Process Development Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.31 Product Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.32 Product Idea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.33 Product Launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.34 Product Manufacturing Program . . . . . . . . . . . . . . . . . . . . . . . . 5
1.35 Product Process Development Program . . . . . . . . . . . . . . . . . . . . . 5
1.36 Program Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.37 Program Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.38 Project Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.39 Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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1.40 Steering Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.41 Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.42 Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.43 Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.44 Valid Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE 2 COLLABORATION SCOPE AND GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Steering Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Project Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Responsibilities of Project Team . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Disagreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Governance Following Product Launch . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE 3 CLINICAL DEVELOPMENT PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Commencement; Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Clinical Development Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Clinical Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE 4 BULK DRUG SUBSTANCE AND PRODUCT PROCESS
DEVELOPMENT PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Commencement; Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Process Development Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Bulk Process Development Program . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Product Process Development Program . . . . . . . . . . . . . . . . . . . . . 10
4.5 Process Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE 5 BULK MANUFACTURING AND PRODUCT
MANUFACTURING PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Commencement; Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Manufacturing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Manufacturing Bulk Drug Substance . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Processing Bulk Drug Substance into Drug Product . . . . . . . . . . . . . . . 12
5.5 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE 6 CDAD DIAGNOSTIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>

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ARTICLE 7 COMMERCIALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Commercialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Marketing Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Commercial Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Commercialization Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE 8 EQUITY INVESTMENTS AND MILESTONE FEES . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Initial Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Milestone Equity Investments or Fees . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Lilly Manufacturing and Other Rights Following Trigger
Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.3 Trigger Event Involving Force Majeure . . . . . . . . . . . . . . . . . . . . 19
9.4 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE 10 TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.1 Selection; License; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.2 Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE 11 SUBSEQUENT PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE 12 INFORMATION AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Information Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.3 Adverse Drug Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.4 Use of information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.5 Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.6 Regulatory Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE 13 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.1 Ownership of Inventions and Know-How . . . . . . . . . . . . . . . . . . . . . 22
13.2 Infringement Claims by Third Parties . . . . . . . . . . . . . . . . . . . . . 23
13.3 Infringement Claims Against Third Parties . . . . . . . . . . . . . . . . . . 24
13.4 Notice of Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.5 Patent Term Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE 14 CONFIDENTIALITY AND NONDISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 26
14.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.2 Authorized Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.3 Nondisclosure of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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14.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.5 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE 15 TERM AND TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 27
15.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.2 Termination for Material Breach . . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Termination Based on Results of Immunology Tests . . . . . . . . . . . . . . . 27
15.4 Termination by Lilly for Failure to Meet Goals . . . . . . . . . . . . . . . . 27
15.5 Termination Upon Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.6 Accrued Rights, Surviving Obligations . . . . . . . . . . . . . . . . . . . . 28
15.7 Rights Upon Termination for Breach . . . . . . . . . . . . . . . . . . . . . . 28
15.8 Assistance following Termination . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE 16 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE 17 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.1 Right, Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.2 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.3 No Approvals or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.4 Patents; Prior Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.5 Prior Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17.6 No Debarrment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE 18 GOVERNING LAW; DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . 31
18.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
18.2 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE 19 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
19.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
19.2 Foreign Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
19.3 Non Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
19.4 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
19.5 Entirety of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.6 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.7 Disclaimer of Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.11 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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19.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

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AGREEMENT

THIS AGREEMENT ("AGREEMENT") is entered into as of the 3rd day of
June, 1996 ("EFFECTIVE DATE"), by and among OPHIDIAN PHARMACEUTICALS, INC., a
Wisconsin corporation ("OPHIDIAN"), and ELI LILLY AND COMPANY, an Indiana
corporation ("Lilly").

RECITALS

A. Ophidian has developed avian antibody-based technology for the
treatment of Clostridium difficile associated diseases ("CDAD").

B. Lilly is engaged in the research, development, marketing,
manufacture and distribution of therapeutic pharmaceutical and animal health
products and health care solutions.

C. Ophidian and Lilly desire to enter into a collaborative
agreement with respect to the further research, development, manufacture and
sale of products for the treatment of CDAD.

AGREEMENT

In consideration of the foregoing, and the covenants and premises
contained in this Agreement, Ophidian and Lilly agree as follows:

ARTICLE 1

DEFINITIONS

As used herein, the following terms shall have the following meanings:

1.1 "AFFILIATE" shall mean any company or entity controlled by,
controlling, or under common control with a party hereto and shall include
without limitation any company forty percent (40%) or more of whose voting
stock (or other comparable ownership interest for an entity other than a
corporation) is owned or

<PAGE> 8
controlled, directly or indirectly, by a party, and any company which owns or
controls, directly or indirectly, forty percent (40%) or more of the voting
stock (or other comparable ownership interest for an entity other than a
corporation) of a party.

1.2 "BULK DRUG SUBSTANCE" shall mean a preparation comprising a
polyclonal avian antibody, effective in treating CDAD, in bulk form.

1.3 "BULK DRUG SUBSTANCE PROCESS" shall mean the process or
processes used to manufacture the Bulk Drug Substance and to confirm
specifications and stability of Bulk Drug Substance.

1.4 "BULK MANUFACTURING PROGRAM" shall mean the effort necessary
to develop adequate manufacturing capabilities for clinical and commercial
supply of the Bulk Drug Substance.

1.5 "BULK PROCESS DEVELOPMENT PROGRAM" shall mean the process
development effort necessary to complete development of a process to
manufacture the Bulk Drug Substance.

1.6 "CDAD DIAGNOSTIC" shall have the meaning set forth in Article
6.

1.7 "CLINICAL DEVELOPMENT PLAN" shall have the meaning assigned
thereto in Section 3.2.

1.8 "CLINICAL DEVELOPMENT PROGRAM" shall mean the pre-clinical
studies, clinical trials and regulatory filings and related steps directed
toward Regulatory Approval of the Drug Product.

1.9 "CONFIDENTIAL INFORMATION" shall mean each party's
confidential information, inventions, know-how or data, and shall include,
without limitation, manufacturing, marketing, financial, regulatory, personnel
and other business information and plans, whether in oral, written, graphic or
electronic form and whether in existence as of the Effective Date or developed
or acquired in the future, except where such information (i) is public
knowledge at the time of disclosure by the disclosing party, (ii) becomes
public knowledge through no fault of the receiving party or (iii) was in the
possession of the receiving party at the time of disclosure by the disclosing
party as evidenced by proper business records.

1.10 "DRUG PRODUCT" shall mean a finished product form prepared
from the Bulk Drug Substance and ready for administration to the ultimate
consumer as a pharmaceutical.

2
<PAGE> 9
1.11 "DRUG PRODUCT PROCESS" shall mean the process or processes
used to convert the Bulk Drug Substance to the Drug Product, including but not
limited to formulating and fill/finishing.

1.12 "EFFECTIVE DATE" shall mean the date indicated at the
beginning of this Agreement.

1.13 "ENABLING TECHNOLOGY" shall mean, collectively, Program
Patents and Program Technology.

1.14 "FDA" shall mean the United States Food and Drug
Administration.

1.15 "GAAP" shall mean U.S. generally accepted accounting
principles, consistently applied.

1.16 "GLP" shall mean the current Good Laboratory Practice
Standards promulgated or endorsed by the FDA (or in the case of foreign
jurisdictions, comparable regulatory standards), including those procedures
expressed or implied in the regulatory filings made with respect to the Drug
Product with the FDA or foreign regulatory agents.

1.17 "GMP" shall mean the current Good Manufacturing Practices
Standards promulgated or endorsed by the FDA (or in the case of foreign
jurisdictions, comparable regulatory standards), and all additional procedures
expressed or implied in the regulatory filings made with respect to the Drug
Product with the FDA or foreign regulatory authorities.

1.18 "LILLY PATENTS" shall mean all patents, both foreign and
domestic, with claims which cover the manufacture, use or sale of Bulk Drug
Substance and/or Drug Product and which have not been held invalid or
unenforceable in a decision by a court of competent jurisdiction from which no
appeal has been or can be taken, including without limitation all
substitutions, extensions, reissues, renewals, supplementary protection
certificates, and inventors' certificates, issued as of, or which subsequently
issue from applications (including provisional applications, divisionals,
continuations and continuations-in-part) pending as of the Effective Date which
Lilly or any majority owned Affiliate of Lilly, owns, controls or has a license
to (with right to sublicense), including, without limitation, those Patents
being listed on Schedule 1.20 attached hereto.

1.19 "LILLY PROGRAM PATENTS" shall mean all patents, both foreign
and domestic, including without limitation, all substitutions, extensions,
reissues, renewals, supplementary protection certificates, and inventors'
certificates thereof, and all patent applications including provisional
applications, divisions, continuations and continuations-in-part with claims
which cover the manufacture,

3
<PAGE> 10
use or sale of Bulk Drug Substance and/or Drug Product that are filed or
acquired by Lilly (with the right to sublicense) after the Effective Date.

1.20 "LILLY PROGRAM TECHNOLOGY" shall mean all tangible or
intangible know-how, trade secrets, inventions (whether or not patentable),
data, clinical and preclinical results, information, and any physical, chemical
or biological material, any replication or any part of such material, which is
developed or acquired (with the right to disclose and/or sublicense) by Lilly
after the Effective Date and which relate to the manufacture, use or sale of
Bulk Drug Substance and/or Drug Product.

1.21 "LILLY TECHNOLOGY" shall mean all tangible or intangible
know-how, trade secrets, inventions (whether or not patentable), data, clinical
and preclinical results, information, and any physical, chemical or biological
material, any replication or any part of such material, necessary for the
development and manufacture of Drug Product, that Lilly or any Affiliate of
Lilly, owns or controls as of the Effective Date.

1.22 "MAJOR MARKET" shall mean *******************.

1.23 "MANUFACTURING PLAN" shall have the meaning assigned thereto
in Section 5.2.

1.24 "MANUFACTURING PROGRAM" shall mean the effort to scale-up for
and manufacture the Bulk Drug Substance and Drug Product for clinical and
commercial supply.

1.25 "NET SALES" shall mean ***************************************
********************************************************************************
********************************.

1.26 "OPHIDIAN PATENTS" shall mean all patents, both foreign and
domestic, with claims that cover the manufacture, use or sale of Bulk Drug
Substance and/or Drug Product and which have not been held invalid or
unenforceable in a decision by a court of competent jurisdiction from which no
appeal has been or can be taken, including without limitation all
substitutions, extensions, reissues, renewals, supplementary protection
certificates, and inventors' certificates, issued as of, or which subsequently
issue from applications (including provisional applications, divisionals,
continuations and continuations-in-part) pending as of the Effective Date which
Ophidian owns, controls or has a license to (with the right to sublicense),
including but not limited to those patents and patent applications listed on
Schedule 1.26 attached hereto.

1.27 "OPHIDIAN PROGRAM PATENTS" shall mean all patents, both
foreign and domestic, including without limitation, all substitutions,
extensions, reissues, renewals, supplementary protection certificates, and
inventors' certificates thereof,

4
<PAGE> 11
and all patent applications including provisional applications, divisions,
continuations and continuations-in-part, covering inventions made by, or
acquired by (with the right to sublicense) with claims that cover the
manufacture, use or sale of Bulk Drug Substance or Drug Product that are filed
or acquired by Ophidian after the Effective Date.

1.28 "OPHIDIAN PROGRAM TECHNOLOGY" shall mean all tangible or
intangible know-how, trade secrets, inventions (whether or not patentable),
data, clinical and preclinical results, information, and any physical, chemical
or biological material, any replication or any part of such material, which is
developed or acquired (with the right to disclose and/or sublicense) by
Ophidian after the Effective Date and which relate to the manufacture, use or
sale of Bulk Drug Substance and/or Drug Product.

1.29 "OPHIDIAN TECHNOLOGY" shall mean all tangible or intangible
know-how, trade secrets, inventions (whether or not patentable), data, clinical
and preclinical results, information, and any physical, chemical or biological
material, any replication or any part such material, necessary for the
development and manufacture of Drug Product, that Ophidian owns or controls as
of the Effective Date.

1.30 "PROCESS DEVELOPMENT PLAN" shall have the meaning assigned
thereto in Section 4.2.

1.31 "PRODUCT DECISION" shall mean a decision *****************
********************************************************************************
**************************************** **********************************.

1.32 "PRODUCT IDEA" shall have the meaning assigned thereto in
Article 11.

1.33 "PRODUCT LAUNCH" shall have the meaning set forth in Exhibit
A.

1.34 "PRODUCT MANUFACTURING PROGRAM" shall mean the effort to
develop adequate fill/finish and related manufacturing capabilities for
clinical and commercial supply of the Drug Product utilizing Bulk Drug
Substance.

1.35 "PRODUCT PROCESS DEVELOPMENT PROGRAM" shall mean the process
development effort necessary to develop the Drug Product Process.

1.36 "PROGRAM PATENTS" shall mean Lilly Program Patents and
Ophidian Program Patents, collectively, whether or not developed solely or
jointly by Ophidian or Lilly.

5
<PAGE> 12
1.37 "PROGRAM TECHNOLOGY" shall mean Lilly Program Technology and
Ophidian Program Technology, collectively, whether or not developed solely or
jointly by Ophidian or Lilly.

1.38 "PROJECT TEAM" shall have the meaning assigned in Section 2.3.

1.39 "REGULATORY APPROVAL" shall mean all authorization by the
appropriate governmental entity or entities necessary for commercial sale of
Drug Product (including exports) in each jurisdiction in which Lilly elects to
market the Drug Product including, without limitation, approval of labeling,
price, reimbursement and manufacturing.

1.40 "STEERING COMMITTEE" shall mean that committee to be formed
pursuant to Section 2.2.

1.41 "THIRD PARTY" shall mean any entity which is not a party or
Affiliate of any party to this Agreement.

1.42 "TRADEMARK" shall have the meaning assigned thereto in Section
10.1.

1.43 "TRIGGER EVENT" shall have the meaning set forth in Section
9.2.

1.44 "VALID CLAIM" shall mean any claim(s) pending in a patent
application or in an unexpired patent which has not been held unenforceable,
unpatentable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealed or unappealable within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through reissue or disclaimer.

ARTICLE 2

COLLABORATION SCOPE AND GOVERNANCE

2.1 PURPOSE AND SCOPE. The parties wish to collaborate in the
development and manufacture of the Drug Product. As more fully described
below, Ophidian will have principal responsibility for the Bulk Drug Substance
Process Development Program, the Bulk Manufacturing Program and the manufacture
(either itself or through a third party acceptable to Lilly) of Bulk Drug
Substance for clinical and commercial supply. Lilly will have principal
responsibility for the Drug Product Process Development Program, manufacture of
Drug Product from Bulk Drug Substance for clinical and commercial supply, the
conduct of the Clinical Development Program, and filing and maintenance of
regulatory documents necessary for Regulatory Approvals. Lilly will have sole
responsibility for distribution and marketing of the Drug Product. All pricing
for Drug Product shall be determined solely by Lilly. It is expected that Drug
Product will be marketed by

6
<PAGE> 13
Lilly or its Affiliates (or in selected territories, by Third Parties) selected
by Lilly in each jurisdiction in which it is determined by Lilly to be feasible
and commercially attractive.

2.2 STEERING COMMITTEE. The collaborative effort conducted
hereunder shall be conducted under the overall direction of a Steering
Committee comprised of four (4) members (the "Steering Committee"). Two (2)
members shall be appointed by each of Lilly and Ophidian not later than thirty
(30) days after the Effective Date. All decisions of the Steering Committee
shall be unanimous by a quorum of all four (4) members. Either party may
change its representation on the Steering Committee at any time by written
notice to the other. Minutes shall be kept of all Steering Committee meetings
and circulated to the parties for approval. Minutes shall be deemed approved
unless any member of the Steering Committee objects to the accuracy of such
minutes within five (5) days of receipt.

2.3 PROJECT TEAM.

(a) The Steering Committee shall appoint a Project Team,
consisting of such number of Lilly personnel, not exceeding ten (10), as Lilly
deems appropriate from time to time and such number of representatives of
Ophidian, not exceeding four (4), as Ophidian deems appropriate from time to
time (the "Project Team"). The Project Team shall provide the day-to-day
management for the collaboration and shall be responsible for directing and
overseeing specific activities hereunder, including but not limited to the
Clinical Development Program, the Process Development Program and the
Manufacturing Program. Although one or the other of the parties has been
allocated principal responsibility for each of such programs, all significant
decisions with respect to such programs (other than those relating to
commercialization of the Drug Product, which shall be the sole responsibility
of Lilly) shall be made by the Project Team. The Project Team shall be
subordinate to the Steering Committee, which shall have the right upon timely
appeal as provided below to review, accept, reject or modify all actions of the
Project Team. Either party may change its representatives on the Project Team
at any time by written notice to the other.

(b) Decisions of the Project Team shall be made by unanimous
consensus when possible, and otherwise by majority vote, subject to the right
of either party to appeal any decision of the Project Team to the Steering
Committee. No vote of the Project Team may be taken unless a majority of the
members of the Project Team are present, including at least one (1)
representative of each party. The Project Team shall keep minutes of any
meeting at which a decision is to be reached and shall circulate such minutes
to all members of the Project Team and the Steering Committee. Minutes shall
be deemed approved unless any member of the Project Team or the Steering
Committee objects to the accuracy of such minutes within five (5) days of
receipt. Any party desiring to appeal a decision of the Project Team to the
Steering Committee shall make its appeal in writing to the Steering Committee

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<PAGE> 14
within five (5) days of receipt of the minutes for the meeting at which the
decision was made. Action pursuant to any decision appealed to the Steering
Committee shall be suspended pending a determination by the Steering Committee
to accept, reject or modify the decision of the Project Team. Any party may at
any time request reconsideration of any issue if such party in good faith
believes that substantial changes in circumstances have occurred that
necessitate such reconsideration.

(c) The Project Team may appoint one or more other committees
("Advisory Committees") to perform such functions as the Project Team may
determine. Unless a party elects not to participate on a particular Advisory
Committee, all Advisory Committees shall have at least one representative of
each party. Advisory Committees may provide advice and make recommendations to
the Project Team, but shall have no authority to bind the Project Team or any
of the parties.

2.4 RESPONSIBILITIES OF PROJECT TEAM. The Project Team shall: (1)
establish comprehensive and detailed plans designed to accomplish the goals of
the Process Development Program, the Clinical Development Program, and the
Manufacturing Program, (2) allocate tasks and coordinate activities required to
carry out the goals of the Clinical Development Program, the Process
Development Program, and the Manufacturing Program, (3) determine the strategy
for filing and prosecuting applications for Program Patents and otherwise
protecting Program Technology, (4) monitor progress of the Clinical Development
Program, the Process Development Program, and the Manufacturing Program, and
(5) discharge such other obligations as are assigned to the Project Team under
this Agreement.

2.5 DISAGREEMENTS. Disputes not resolved by the Project Team
shall be referred to the Steering Committee. Disputes not resolved by the
Steering Committee shall be referred to non-binding mediation in accordance
with Section 18.2.

2.6 GOVERNANCE FOLLOWING PRODUCT LAUNCH. As soon as practicable
following product launch of the Drug Product, the parties shall meet to review
whether it is appropriate to continue the collaboration under the day to day
management of the Project Team, or whether the objectives of the Project Team
have been substantially achieved and it is appropriate to disband or reorganize
the Project Team. Regardless of whether the parties elect to disband or
reorganize the Project Team, the Steering Committee shall continue to provide
overall direction to the collaboration.

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<PAGE> 15
ARTICLE 3

CLINICAL DEVELOPMENT PROGRAM

3.1 COMMENCEMENT; ROLES. The Clinical Development Program shall
commence as soon as practicable after the Effective Date. Lilly shall have
principal responsibility for the conduct of the Clinical Development Program,
and Ophidian shall provide consultation and advice. The Project Team shall
coordinate the efforts of the parties with respect to the Clinical Development
Program.

3.2 CLINICAL DEVELOPMENT PLAN. The Project Team shall prepare and
oversee the implementation of an overall development plan (the "CLINICAL
DEVELOPMENT PLAN") for the Drug Product which shall describe fully the proposed
preclinical studies, toxicology, clinical trials, regulatory plans and any
other key elements of obtaining Regulatory Approval in each country of the
world where Lilly elects to market the Drug Product.

3.3 REGULATORY APPROVALS. The parties shall use their respective
commercially reasonable efforts to file for and obtain all necessary Regulatory
Approvals. Except for Ophidian's Establishment License, and except where
Regulatory Approvals are legally required to be in Ophidian's name, Lilly shall
have the sole right to obtain Regulatory Approvals, which shall be in Lilly's
name, and Lilly shall own all submissions in connection therewith, provided
that Ophidian shall have an irrevocable right of reference thereto. All
contacts or filings with any regulatory agency shall be subject to overall
coordination by the Project Team. The Project Team shall develop a regulatory
contact plan that shall allocate authority for making regulatory contacts and
establish the procedures to be followed when making such contacts. All
formulary or marketing approvals shall also be obtained by and in the name of
Lilly.

3.4 CLINICAL DEVELOPMENT COSTS. Except as set forth below or
otherwise determined by the Project Team, **************************************
***************************************************************************.

ARTICLE 4

BULK DRUG SUBSTANCE AND PRODUCT
PROCESS DEVELOPMENT PROGRAMS

4.1 COMMENCEMENT; ROLES. The Bulk Process Development Program and
the Product Process Development Program shall commence as soon as practicable
after the Effective Date. Ophidian shall have principal responsibility for the
conduct of the Bulk Process Development Program, and Lilly shall have principal
responsibility for the conduct of the Product Process Development Program.
Each party shall provide advice and consultation with respect to the area of
principal responsibility of the other party. The Project Team shall coordinate
the

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<PAGE> 16
efforts of the parties with respect to both the Bulk Process Development
Program and the Product Process Development Program. The parties recognize
that certain manufacturing activities will be performed by Third Parties as
contemplated by Article 5, and that certain process development activities will
accordingly be conducted in cooperation with such Third Parties.

4.2 PROCESS DEVELOPMENT PLAN. The Project Team shall prepare and
oversee the implementation of a detailed, overall process development plan,
which shall address fully the key elements necessary for the Bulk Process
Development Program and the Product Process Development Program and for the
design and construction of necessary manufacturing facilities and shall further
define the roles of each party in the Process Development Program (the "PROCESS
DEVELOPMENT PLAN").

4.3 BULK PROCESS DEVELOPMENT PROGRAM. As set forth above,
Ophidian shall have principal responsibility for the Bulk Process Development
Program, including the development of the process to produce the Bulk Drug
Substance, provision of analytical methods, environmental testing, in-process
testing, and release testing of the Bulk Drug Substance, generation of
appropriate procedures and controls in order to ensure compliance with GLP and
GMP or other governing regulations, and the procurement of necessary
manufacturing facilities for production of the Bulk Drug Substance for the
supply of clinical studies. Lilly shall provide advice with respect to the
Bulk Process Development Program, and the Project Team shall review and approve
procedures and practices required to ensure compliance with GLP, GMP,
environmental and other regulatory requirements.

4.4 PRODUCT PROCESS DEVELOPMENT PROGRAM. Lilly shall have
principal responsibility for the Product Process Development Program including
the development of the process to produce the Drug Product from Bulk Drug
Substance, provision of analytical methods, environmental testing, in-process
testing, and release testing of the Drug Product, generation of appropriate
procedures and controls in order to ensure compliance with GLP and GMP
regulations, and the procurement of necessary manufacturing facilities for
production of the Drug Product from Bulk Drug Substance for the supply of
clinical studies. Ophidian shall provide advice with respect to the Product
Process Development Program, and the Project Team review and approve procedures
and practices required to ensure compliance with GLP and GMP.

4.5 PROCESS DEVELOPMENT COSTS. Except as set forth in this
Agreement,*********************************************************************
**********************************************************.

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<PAGE> 17
ARTICLE 5

BULK MANUFACTURING AND PRODUCT MANUFACTURING PROGRAM

5.1 COMMENCEMENT; ROLES. The Manufacturing Program shall commence
as soon as practicable after the Effective Date. Ophidian shall have principal
responsibility for the Bulk Manufacturing Program, and Lilly shall have
principal responsibility for the Product Manufacturing Program. The Project
Team shall coordinate the efforts of the parties with respect to the
Manufacturing Program.

5.2 MANUFACTURING PLAN. The Project Team shall prepare and
oversee the implementation of a detailed, overall manufacturing plan, which
shall address fully the key elements necessary for the clinical and commercial
manufacture of the Bulk Drug Substance and the Drug Product and the roles of
each party in the Manufacturing Program (the "MANUFACTURING PLAN").

5.3 MANUFACTURING BULK DRUG SUBSTANCE. To produce necessary
quantities of Bulk Drug Substance, Ophidian shall provide the following
facilities and services:

(a) Facilities will be provided ******** for the production of
************ necessary to produce the Bulk Drug Substance. As soon as
practicable after the Effective Date, Ophidian shall develop the capacity to
***************. Ophidian shall add such additional capacity following Product
Decision as may be necessary to insure adequate commercial supply of Bulk Drug
Substance. The location, scale and design of the hen production facilities
will be determined *************, but shall be of a type sufficient to comply
with all applicable regulatory and GMP requirements.***************************
*******************.

(b) As soon as practicable following the Effective Date, ****************
************************************************* in accordance with quality
requirements for clinical trials. *************************************
*************************************************************************.

(i) As soon as practicable following the Effective Date, *******
******************************************** to produce Bulk Drug Substance in
accordance with the quality and quantity requirements for clinical trials. It
is expected that Bulk Drug Substance will be produced ***********************
******************************************** .

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<PAGE> 18
(ii) As soon as practicable following the receipt by
Ophidian of the Milestone Equity Investment set forth in Article 8.2(a) of this
Agreement, ******************************************. The location, scale and
design of the facilities will be determined by Ophidian, subject to written
approval by Lilly, which approval shall not be unreasonably withheld.
********************************************************************************
**************************************************.

(d) Ophidian shall construct additional facilities for the
manufacture of Bulk Drug Substance as necessary to meet the market demand for
Drug Product. If market demand requires manufacturing capacity in excess of
Ophidian's bulk product pilot facilities, additional capacity will be provided
by Ophidian, through the expansion of Ophidian's bulk product pilot facilities
or additional facilities constructed separately. The location, scale and
design of any additional facilities will be determined by Ophidian, subject to
the written approval by Lilly, which approval shall not be unreasonably
withheld.

(e) All manufacturing facilities shall comply with and be operated
in accordance with all applicable GMP, GLP and other regulatory requirements.
Lilly shall have the right to audit and approve these facilities, including
procedures and practices, to verify their conformance with applicable GMP, GLP
and other regulatory requirements. Ophidian shall comply with all applicable
governmental requirements, and shall provide the Project Team with all
information pertinent to Regulatory Approvals for manufacturing facilities.
Ophidian shall have principal responsibility for in-process and final Bulk Drug
Substance release assays.

(f) As provided in this Agreement, Ophidian shall manufacture and
supply (either itself or through Third Parties approved by Lilly) all of
Lilly's commercial requirements for the Bulk Drug Substance. The Purchase
Price for Bulk Drug Substance supplied by Ophidian shall be as set forth in
Exhibit A. All sales of Bulk Drug Substance shall be subject to the terms and
conditions set forth in Exhibit B.

(g) Ophidian shall not engage any Third Party to manufacture Bulk
Drug Substance without the prior written consent of Lilly, which consent shall
not be unreasonably withheld. Ophidian understands that Lilly would approve a
Third Party manufacturer only after such manufacturer first received a
favorable review by Lilly's scientific, quality control/quality assurance,
manufacturing, financial and other groups.

5.4 PROCESSING BULK DRUG SUBSTANCE INTO DRUG PRODUCT. To produce
quantities of Drug Product from Bulk Drug Substance, Lilly shall provide the
following facilities and services:

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<PAGE> 19
(a) Lilly, either itself or through a Third Party acceptable to
Ophidian, shall provide pilot facilities and equipment for formulation, fill
and finish activities necessary for the manufacture of Drug Product from Bulk
Drug Substance. The location, scale and design of the facilities will be
determined by Lilly. Lilly shall comply with all applicable governmental
requirements, and shall provide the Project Team with all information pertinent
to Regulatory Approvals. Ophidian shall have the right to audit facilities for
formulation, fill and finish of Drug Product.

(b) Lilly shall either itself or through a Third Party acceptable
to Ophidian construct or otherwise provide additional facilities for the
formulation, fill and finish of Drug Product as necessary to meet the market
demand. The Drug Product shall be manufactured in accordance with then-current
GMP, applicable regulatory requirements and such further specifications as are
determined from time to time by the Project Team.

5.5 COSTS.
***********************************************************************
********************************************************************************
***************************.

ARTICLE 6

CDAD DIAGNOSTIC

The licenses granted to Lilly hereunder shall not include the right to
utilize any Ophidian intellectual property to develop, manufacture or use
diagnostic products for CDAD, whether in the form of methods, processes,
devices, compounds, kits or services.******************************************
**********************************************************************, unless
the parties earlier agree that an Agreement is not possible. Regardless of
whether Lilly and Ophidian reach an agreement *************** ******, if
Ophidian elects to develop ************************, either itself or through a
Third Party, and the ************************** will be developed in time for
use in the ********** **********************************, Ophidian shall use
its commercially reasonable efforts to ****************************************
******************************************************************** upon such
terms as the parties shall negotiate in good faith.

ARTICLE 7
COMMERCIALIZATION

7.1 COMMERCIALIZATION. Ophidian hereby appoints Lilly as the sole
and exclusive (even as to Ophidian) distributor of Drug Product throughout the
world, with the sole and exclusive right (even as to Ophidian) to promote,
market and sell

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<PAGE> 20
Drug Product throughout the world. Ophidian shall not sell Bulk Drug Substance
for therapeutic use (either directly or as an intermediate) or Drug Product to
any person other than Lilly or its Affiliates or permit any person other than
Lilly or its Affiliates to promote Drug Product without Lilly's prior written
consent. Lilly shall have the sole right to commercialize the Drug Product in
each country of the world.

7.2 MARKETING PARTNERS. Lilly shall have the right to appoint
one or more Third Party marketing partners to promote, co-promote, or co-market
Drug Product in any territory of the world. In the event Lilly elects to
appoint a marketing partner, Lilly shall have the right to supply Drug Product
to such partner at such prices as Lilly shall determine. With the consent of
Ophidian, which consent will not be unreasonably withheld, Lilly may, in
connection with the appointment of a marketing partner, assign to such partner
some or all of Lilly's obligations under the Clinical Development Program,
provided that such assignment shall not release Lilly from any obligation it
may have under this Agreement.

7.3 COMMERCIAL DILIGENCE. Lilly shall work diligently, consistent
with accepted business practices and legal requirements, to obtain regulatory
approval for and to market, sell and distribute the Drug Product in all
territories of the world where in the opinion of Lilly such marketing is
feasible and commercially justifiable, devoting the same degree of attention
and diligence to such efforts that it devotes to such activities for its own
products of comparable market potential.

7.4 COMMERCIALIZATION COSTS. Except as otherwise determined by
the Committee, **************************************************************.

ARTICLE 8

EQUITY INVESTMENTS AND MILESTONE FEES

8.1 INITIAL INVESTMENT. Within thirty (30) days after the
Effective Date, pursuant to a Stock Purchase Agreement substantially in the
form attached as Exhibit C to be entered into by the parties, Lilly shall
purchase and Ophidian shall sell 153,846 shares of unregistered common stock of
Ophidian at a price per share of $6.50, for an aggregate purchase price of nine
hundred ninety-nine thousand, nine hundred ninety-nine dollars ($999,999) .

8.2 MILESTONE EQUITY INVESTMENTS OR FEES. Provided that Ophidian
is not then in breach of any of its obligations under this Agreement, upon
achievement of the respective milestone events listed below, Lilly shall make
milestone equity investments in unregistered common stock of Ophidian or pay a
milestone fee to Ophidian as provided below:

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<PAGE> 21
(a) *********************************** upon the later of ************
********************************************************************************
**************************************** *********************************;

(b) ************************************************************
upon the later of *************************************************************
***********************************************************; and

(c) ******************************************************** upon
the later of *****************************************.

Upon the achievement of a milestone event, Ophidian shall send Lilly a written
request for the appropriate milestone investment or fee, which shall be made or
paid ******************* ************************* of Lilly's receipt of
Ophidian's written request.****************************************************
********************************************************************************
****************************************************************************. In
connection with developing its estimate of the******************************
*****************************, Lilly shall be provided access to all necessary
financial records of Ophidian. If the parties are not able to agree upon the
****************** of the ************* *******************, the
******************* shall be determined by a **********************************
******** selected by the parties, whose fees shall be borne equally by the
parties. If the parties are unable to agree upon ****************************,
the *** day period in which Lilly is to make **************** shall be extended
as necessary to permit necessary valuations
to be done. For every that the period for making a **************** is so
extended or adjusted,**********************************************************
************************************************************************* . The
parties shall enter into a Milestone Stock Purchase Agreement in substantially
the form attached as Exhibit D with respect to each milestone equity
investment. Each milestone equity investment shall be subject to applicable
regulatory requirements, including, if applicable, the notice provisions of the
Hart Scott Rodino Antitrust Improvements Act, and the period for making such
investments shall be adjusted as necessary to permit the parties to comply with
such regulatory requirements.

ARTICLE 9

LICENSES

9.1 LICENSES.

(a) LICENSE TO LILLY.

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<PAGE> 22
(i) Subject to the other provisions of this Agreement,
Ophidian hereby grants to Lilly and its majority owned Affiliates an exclusive
worldwide right and license, with the right to sublicense to Third Party
fill/finish manufacturers, under the Ophidian Patents, Ophidian Technology,
Program Patents and Program Technology to make, have made, use, have used,
import, offer for sale, sell and have sold the Drug Products for any human
therapeutic use and to otherwise comply with its obligations under this
Agreement. Ophidian shall have the limited right to practice under Ophidian
Patents, Ophidian Technology, Ophidian Program Patents, and Ophidian Program
Technology to the extent necessary to develop, manufacture and sell to Lilly,
its Affiliates or any Third Party marketing partner of Lilly as contemplated by
Section 7.2, the Bulk Drug Substance and to otherwise comply with its
obligations under this Agreement. Lilly may not exercise any rights granted
pursuant to this Section 9.1(a) to manufacture the Bulk Drug Substance unless a
Trigger Event as defined in Section 9.2 shall have occurred. Ophidian shall
retain all rights under Ophidian Patents, Ophidian Technology, Ophidian Program
Patents and Ophidian Program Technology not granted to Lilly, including but not
limited to the right to develop, manufacture and sell Bulk Drug Substance for
non-therapeutic uses.

(ii) Ophidian will use its best efforts to obtain, on or
prior to the Effective Date, all necessary consents to its granting a
sublicense to Lilly under, or assignment to Lilly of, any Third Party
intellectual property known to Ophidian that covers the manufacture, use, or
sale of the Bulk Drug Substance or Drug Product and, upon obtaining each such
consent, shall promptly grant to Lilly a royalty-free sublicense under or
assignment of all of its rights under each license for use in the manufacture,
use, sale, distribution or promotion of the Bulk Drug Substance and the Drug
Product; provided, however, that Lilly may not exercise any rights under such
sublicense or assignment obtained pursuant to this Section 9.2(a)(ii) to
manufacture Bulk Drug Product unless a Trigger Event shall have occurred.

(b) LICENSES TO OPHIDIAN. (i) Subject to the other provisions of
this Agreement, Lilly hereby grants to Ophidian the nonexclusive, right and
license with the right to sublicense solely to Third Party manufacturers as
provided in Section 5.3, to practice under the Lilly Patents, Lilly Technology,
Lilly Program Patents and Lilly Program Technology solely for the purpose of
developing, manufacturing, and selling to Lilly, its Affiliates or any Third
Party marketing partner of Lilly as contemplated by Section 7.2, the Bulk Drug
Substance under this Agreement and to otherwise comply with its obligations
under this Agreement.

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<PAGE> 23
9.2 LILLY MANUFACTURING AND OTHER RIGHTS FOLLOWING TRIGGER EVENT.

(a) Ophidian understands that Lilly will expend substantial monies
in reliance upon the availability of Bulk Drug Substance, and that continued
availability of Bulk Drug Substance will be important to Lilly's ability to
maintain its credibility as a supplier of products. Therefore, as part of the
consideration to induce Lilly to enter into this Agreement, Ophidian agrees as
follows:

(i) Ophidian hereby agrees that upon occurrence of a
Trigger Event, Lilly shall have the right to exercise the licenses granted in
Section 9.1(a) to manufacture, use and sell Bulk Drug Substance, and Ophidian
shall assign to Lilly any Regulatory Approvals and any trademarks related
thereto; provided, however, that Lilly may not exercise any of the rights
granted pursuant to this Section 9.2(a)(i) to manufacture the Bulk Drug
Substance unless a Trigger Event shall have occurred; and

(ii) Ophidian shall, upon request, transfer to a Third
Party escrow agent selected by mutual agreement of the parties samples of all
materials necessary for manufacture of the Bulk Drug Substance, including
master cell banks and working cell banks, and copies of all written
manufacturing procedures or other items necessary for manufacture of the Bulk
Drug Substance. The escrow agent shall hold such items in escrow pursuant to a
written escrow agreement to be entered into among Lilly, Ophidian and the
escrow agent, which agreement shall provide that such items shall be promptly
delivered to Lilly upon receipt of a written certification by Lilly that a
Trigger Event has occurred. The expense of the escrow agent shall be shared
equally by the parties; and

(iii) Ophidian hereby grants an option to Lilly exercisable
in whole or in part upon a Trigger Event to purchase any manufacturing facility
then owned by Ophidian, and all associated equipment, work in process,
supplies and related assets used in the manufacture of the Bulk Drug Substance
("Manufacturing Assets"), at the fair market value thereof as determined by an
appraisal to be prepared by a nationally recognized appraisal firm acceptable
to the parties, the cost of which shall be borne by the parties. If any of the
Manufacturing Assets are not used primarily in the production of Bulk Drug
Substance, Lilly and Ophidian shall negotiate in good faith an arrangement by
which Lilly shall accommodate Ophidian's need to utilize for other purposes any
of the Manufacturing Assets not used primarily in the production of Bulk Drug
Substance. If the parties are unable to agree upon an acceptable appraiser,
each party shall appoint its own nationally recognized appraisal firm which
shall promptly prepare an appraisal of the fair market value, and the average
of the two appraisals shall be the fair market value. In such event each party
shall bear the expenses of its own appraisal firm; and

(iv) Ophidian shall provide such assistance as Lilly may
reasonably request to assist Lilly in obtaining an alternate source of supply
of Bulk Drug Substance.

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<PAGE> 24
(b) A "Trigger Event" shall occur if:

(i) Lilly terminates this Agreement pursuant to Section
15.5 or 15.7; or

(ii) Ophidian has failed to provide by the date of the
first regulatory submission for Drug Product approval, pilot manufacturing
facilities sufficient to meet the needs of the Commercialization Program for
******************************************************************************,
as the same were projected on the Effective Date, a copy of which is attached as
Schedule 9.2; or

(iii) Ophidian has failed other than as a result of a Force
Majeure referred to in Section 19.4 to supply to Lilly ************************
******** for Bulk Drug Substance for commercial sale ************************
***********************************************************************
***********************************************************************; or

(iv) Ophidian has failed to supply Lilly *****************
****** of Bulk Drug Substance over a period of **************** as a result of
any factor, including a Force Majeure condition and Ophidian has been unable to
establish to the reasonable satisfaction of Lilly that adequate supply will be
available within no more than *********** ; or

(v) Ophidian fails to pay principal or interest when due,
after giving effect to any applicable grace period, upon acceleration or
otherwise, with respect to any indebtedness for borrowed money in an aggregate
principal amount equal to or exceeding ************; or

(vi) Ophidian without proper cause provides notice to
Lilly that Ophidian will not perform its obligations under this Agreement; or

(vii) Ophidian violates, or is alleged to have violated,
any applicable law or regulatory requirement, which violation or alleged
violation renders, in Lilly's reasonable opinion, Ophidian unable to fulfill
its obligations under this Agreement after a period for cure that is reasonable
under the circumstances. Notwithstanding the foregoing, any failure to supply
Bulk Drug Substance under item (iii) or (iv) above shall not be deemed to be a
Trigger Event if such failure is a result of (A) either (i) a delay in
construction due to a delay in making the Product Decision or (ii) a
significant and unexpected increase in demand for Bulk Drug Substance, provided
that in either case Ophidian is using all commercially reasonable efforts to
increase its capacity as soon as practicable, or (B) changes to processes or
methods agreed to by the Project Team or imposed by law or regulatory
requirements, provided that Ophidian is using all commercially reasonable
efforts to implement such changes as soon as practicable, provided, in each of
(A) and (B)

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<PAGE> 25
that Ophidian demonstrates to the reasonable satisfaction of Lilly that
Ophidian has or can obtain adequate financing for such efforts and is otherwise
capable of increasing capacity or implementing changes in a reasonable period
of time.

9.3 TRIGGER EVENT INVOLVING FORCE MAJEURE. If a Trigger Event
occurs pursuant to Section 9.2(b)(iv), which event is the result of a Force
Majeure, and Lilly exercises its rights under Section 9.2 to manufacture Bulk
Drug Substance, Ophidian shall cooperate with and assist Lilly in arranging for
alternate sources of supply so as to avoid interruption of supply. Beginning
**************** after the effective date of Lilly's notice to Ophidian that it
is exercising its rights under Section 9.2, Lilly shall pay Ophidian a royalty
equal to *********** of Net Sales of Drug Product,*****************************
*******************************************************************************
***********************. No royalty will be due in the event a Trigger Event
occurs other than by reason of Force Majeure.

9.4 SPECIFIC PERFORMANCE. Each party agrees that money damages
would not be a sufficient remedy for any breach of this Article 9 of this
Agreement by the other party and that, in addition to all other remedies, the
injured party shall be entitled to specific performance and injunctive or other
equitable relief as a remedy for any such breach, and each party further agrees
in advance to the granting of injunctive relief in the other party's favor
without proof of actual damages.

ARTICLE 10

TRADEMARKS

10.1 SELECTION; LICENSE; EXPENSES. Lilly may select one or more
trademarks, as appropriate, for the marketing of the Drug Product. Such
trademarks shall be owned solely by Lilly (collectively, the "TRADEMARKS");
provided, however, that if required by law in any country Ophidian shall own
the Trademarks in that country and grant an exclusive license to Lilly.
Expenses for registration of the Trademarks shall be *************************.

10.2 INFRINGEMENT. Ophidian shall notify Lilly promptly upon
learning of any actual, alleged or threatened infringement of any of the
Trademarks or any unfair trade practices, passing off of counterfeit goods, or
like offenses.

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<PAGE> 26
ARTICLE 11

SUBSEQUENT PRODUCTS

During the term of this agreement and not later than the date of disclosure to
any Third Party (it being understood that this Article 11 does not authorize
disclosure of any information that Ophidian is not otherwise permitted to
disclose), Ophidian shall promptly disclose to Lilly any significant
improvement or enhancement to the Bulk Drug Substance or Drug Product or any
process used or useful in connection with the manufacture thereof unless in the
case of processes the same shall have been developed as part of a collaboration
with a Third Party, the terms of which prohibit disclosure to Lilly. The
licenses granted to Lilly pursuant to this Agreement shall be deemed to include
the right to utilize any such improvement or enhancement solely in connection
with the Bulk Drug Substance and the Drug Product, and to sell Drug Product for
any therapeutic purpose, all in accordance with this Agreement, but shall not
include the right to develop a diagnostic. In addition, Ophidian shall
disclose to Lilly, prior to the disclosure to any Third Party or the filing of
information with any regulatory agency any compound, product, invention,
technique, process, method or the like, in the field of CDAD, whether developed
independently by Ophidian outside of the collaboration contemplated by this
Agreement, or licensed by Ophidian from any Third Party, with the right to
sublicense unless in the case of techniques or processes the same shall have
been developed as part of a collaboration with a Third Party, the terms of
which prohibit disclosure to Lilly (a "PRODUCT IDEA"). Lilly shall have a
period of thirty (30) days following such disclosure to advise Ophidian whether
Lilly desires to engage in negotiations with Ophidian to obtain the right to
commercialize the Product Idea. If Lilly elects to engage in such
negotiations, Ophidian shall thereafter negotiate in good faith with Lilly on
an exclusive basis for an additional period of ninety (90) days in an effort to
reach an agreement by which Lilly may commercialize the Product Idea.

ARTICLE 12

INFORMATION AND REPORTS

12.1 INFORMATION DISCLOSURE. Lilly and Ophidian will disclose and
make available to each other promptly the results of the work conducted in the
Clinical Development Program, Process Development Program and Manufacturing
Program, including without limitation all preclinical, clinical, regulatory,
and other information known by Lilly or Ophidian concerning the Drug Product at
any time during the term of this Agreement. All significant information will
be disclosed to the other party promptly after it is learned or its
significance is appreciated. Lilly shall own and maintain its database of
clinical trial data and adverse drug event information accumulated from all
clinical trials of the Drug Product for which it was responsible.

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12.2 COMPLAINTS. Each party shall maintain a record of all
complaints it receives with respect to the Drug Product. Each party shall
notify the other of any complaint received by it in reasonable detail and
within five (5) days after the event, and, in any event in sufficient time to
allow the responsible party to comply with any and all regulatory requirements
imposed upon it in any country.

12.3 ADVERSE DRUG EVENTS. The parties recognize that the holder of
a drug approval application may be required to submit information and file
reports to various governmental agencies on compounds under clinical
investigation, compounds proposed for marketing, or marketed drugs, including
adverse event reports. The Project Team shall develop and the parties shall
adhere to appropriate procedures to insure compliance with all such applicable
regulatory requirements.

12.4 USE OF INFORMATION. Information contained in reports made
pursuant to this Article 12 or otherwise communicated between the parties will
be subject to the confidentiality provisions of Article 14 below. Lilly may
use any information obtained by it pursuant to this Agreement for the purposes
of obtaining Regulatory Approval for the Drug Product throughout the world.
Each party shall have the right to use the Confidential Information disclosed
by the other party without charge, but only to the extent necessary to enable
each party to carry out their respective roles defined in this Agreement.
Neither party has a license to use Confidential Information disclosed by the
other party for the development, use, manufacture or sale of products other
than the Drug Product.

12.5 PUBLICATIONS. The parties acknowledge that scientific lead
time is a key element of the value of the research to be performed under this
Agreement and further agree that scientific publications must be strictly
monitored to prevent any adverse effect of premature publication. The Project
Team will establish a procedure for publication review and approval and each
party shall first submit to the Project Team or its designee an early draft of
all such publications, whether they are to be presented orally or in written
form, prior to submission for publication. The Project Team or its designee
shall review each such proposed publication in order to avoid the unauthorized
disclosure of a party's Confidential Information and to preserve the
patentability of inventions and data package exclusivity arising from the
research performed in the course of the Agreement. If, within thirty (30) days
of receipt of an advance copy of a party's proposed publication, the Committee
or its designee informs such party that its proposed publication contains
Confidential Information of the other party, then such party shall delete such
Confidential Information from its proposed publication. If, within thirty (30)
days of receipt of an advance copy of a party's proposed publication, the
Committee or its designee informs such party that its proposed publication
could be expected to have a material adverse effect on any Program Patents or
Program Technology, then such party shall delay such proposed publication,
sufficiently long to permit the timely preparation and filing of a patent
application(s) on the information involved. If, within forty five (45) days of
receipt of an advance copy of a party's proposed publication, the Project Team
or its designee fails to approve of

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such party's proposed publication, then such proposed publication shall be
regarded as denied by the Project Team or its designee and shall not be
published.

12.6 REGULATORY REPORTING. The parties acknowledge that either or
both parties will be required to submit information and file reports with
various governmental agencies in addition to those contemplated by the
preceding sections. The Project Team shall establish procedures to be followed
by the parties which will allow each party to comply with its respective
regulatory obligations, and the parties agree to cooperate with each other as
necessary to allow each party to comply with its regulatory obligations. To
the extent practicable, Lilly shall coordinate all contacts with regulatory
agencies, keeping Ophidian appropriately advised of such contacts.

ARTICLE 13

INTELLECTUAL PROPERTY

13.1 OWNERSHIP OF INVENTIONS AND KNOW-HOW. Any significant
improvement or enhancement to the Bulk Drug Substance or Drug Product or any
process used or useful in connection with the manufacture thereof made by
either party during the term of this Agreement or within twelve (12) months
after termination or expiration of this Agreement will be disclosed to the
other party promptly after the disclosing party recognizes the significance
thereof unless in the case of process developments the same shall have been
developed as part of a collaboration with a Third Party, the terms of which
prohibit disclosure to the other party. All Program Patents and Program
Technology shall be owned by the party making the invention claimed or
contained therein or, if such invention is made jointly, shall be owned
jointly, all as determined in accordance with U.S. laws of inventorship. Lilly
shall have the right to select patent counsel and to take such other actions as
are reasonably necessary or appropriate to obtain patent protection with
respect to Program Technology and Ophidian shall cooperate in procuring Program
Patents including jointly owned Program Patents. *******************
**************************************************************************.
Lilly shall provide the Committee with a copy of any patent application which
first discloses any specific Program Technology, prior to filing the first of
such applications in any jurisdiction, if possible, for review and comment by
the Committee or its designees. If Lilly decides not to file or maintain an
application or patent on an invention, or on a joint invention, in any country,
it shall give Ophidian reasonable notice to this effect. After such notice,
Ophidian may file or maintain the application or patent. Lilly agrees to
prosecute and/or maintain the Lilly Patents and to prosecute any interference
proceedings with respect to such Lilly Patents. Ophidian agrees to prosecute
and/or maintain the Ophidian Patents and to prosecute any interference
proceedings with respect to such Ophidian

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Patents. ****************************************************************
******************************************************************. Ophidian
shall provide Lilly with an opportunity to review and comment on the
prosecution of the Ophidian Patents. The party initially responsible for such
prosecution and maintenance of Program Patents, Lilly Patents and Ophidian
Patents (the "Initial Responsible Party") shall give notice to the other party
of any decision to cease such prosecution and maintenance and, in such case,
shall permit the other party at its sole discretion to continue prosecution or
maintenance at its expense. If the other party elects to continue prosecution
or maintenance, the Initial Responsible Party shall execute such documents and
perform such acts as may be reasonably necessary for the other party to
continue prosecution or maintenance.

13.2 INFRINGEMENT CLAIMS BY THIRD PARTIES.

(a) If the manufacture, use or sale of Bulk Drug Substance and/or
Drug Product results in a claim against a party for patent infringement or for
inducing or contributing to patent infringement ("Infringement Claim"), the
party first having notice of an Infringement Claim shall promptly notify the
other in writing. The notice shall set forth the facts of the Infringement
Claim in reasonable detail.

(i) If the Infringement Claim relates to a Third Party patent issued prior
to the Effective Date, Lilly shall have the option to control the defense of
the Infringement Claim and to employ counsel of Lilly's choice. Lilly shall
elect to control the defense or not within forty-five (45) days of receipt of
notice of the Infringement Claim. If it is necessary to take any action prior
to the date of Lilly's decision regarding control of the defense in order to
protect the rights of either party, the parties shall cooperate to ensure that
such action is taken in a timely manner. If Lilly elects not to control the
defense, then Ophidian shall have the obligation to defend such Infringement
Claim and may control such defense and may employ counsel of its choice.

(ii) If the Infringement Claim relates to a Third Party patent issued after
the Effective Date, Lilly shall have the obligation to defend such Infringement
Claim and may control such defense and may employ counsel of its choice.

(iii) The party not controlling the defense of any Infringement Claim shall
have the right to participate in the defense, with counsel of its choice, but
solely at its expense. Lilly and Ophidian shall cooperate in the defense of
any Infringement Claim, and shall provide such assistance to the other party as
may reasonably be requested. No settlement shall be made without the consent
of the other party, which consent shall not be unreasonably withheld. If any
party shall fail to commence defense against any Infringement Claim that it is
obligated to defend within a period of sixty (60) days after receiving or
giving notice of such claim, the other party shall have the right to commence
such defense. The expenses of any defense shall be handled as provided in
subparagraph (b) below.

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(b) With respect to Infringement Claims related to Third Party
patents issued prior to the Effective Date:

(i) If Lilly exercises its option to control such litigation,*************
*********************************************************************.

(ii) If Lilly does not exercise its option to control such litigation,
**********************************************************************.

(iii) Within 60 days from the end of each quarter, Lilly shall send to
Ophidian an invoice for reimbursement of any of the aforementioned expenses
incurred by Lilly for which Lilly is entitled to reimbursement. Ophidian shall
have 30 days from the date of invoice to pay Lilly, either in cash or through a
credit against any then outstanding invoice for Lilly's purchases of Bulk Drug
Substance. ******************************************************************
************. Amounts deferred because of this limitation will be carried
forward to subsequent quarters until paid in full. If payment is not received
within 30 days, whether because of deferral as provided above or other reasons,
simple interest at ******************************** will begin to accrue and
will be paid to Lilly on a monthly basis until the invoice is paid in full.

For example,***********************************************************
***********************************************************************.

(c) With respect to Infringement Claims relating to patents issued
after the Effective Date, the parties shall share all costs and expenses
incurred in conducting the defense of such claims, including the investigation
and settlement thereof on the basis of *********** by Lilly and ******** by
Ophidian. Provided that Lilly is conducting the defense of the Infringement
Claim, Ophidian shall bear its own defense costs. Except as otherwise provided
in this Agreement, any and all royalties, amounts paid in settlement and
damages resulting from settlement or a final nonappealable judgment pursuant to
litigation relating to an Infringement Claim shall be ***********************.

13.3 INFRINGEMENT CLAIMS AGAINST THIRD PARTIES.

(a) Ophidian and Lilly each agrees to take reasonable actions to
protect the Ophidian Patents and Program Patents from infringement and to
protect the Program Technology from unauthorized use, when, from its own
knowledge or upon notice by the other party, the party with knowledge or
receiving notice becomes aware of the reasonable probability that such
infringement or unauthorized use exists.

(b) If any Ophidian Patent, Ophidian Technology, Program Patent or
Program Technology is infringed or misappropriated, as the case may be, by a
Third

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Party, the party to this Agreement first having knowledge of such infringement
or misappropriation, or knowledge of a reasonable probability of such
infringement or misappropriation, shall promptly notify the other in writing.
The notice shall set forth the facts of such infringement or misappropriation
in reasonable detail. The owner of the patent or technology shall have the
primary right, but not the obligation, to institute, prosecute, and control any
action or proceeding with respect to infringement or misappropriation of such
patent or technology by it own counsel and the other party shall have the
right, at its own expense, to be represented in such action by its own counsel.
The Committee shall determine which party shall have the primary responsibility
to institute, prosecute, and control any action or proceeding with respect to
infringement or misappropriation of jointly owned patents or technology and the
other party shall have the right, at its expense, to be represented by its
counsel. If the party having the primary right or responsibility to institute,
prosecute, and control such action or prosecution fails to do so within a
period of one hundred twenty (120) days after receiving notice of the
infringement, the other party shall have the right to bring and control any
such action by counsel of its own choice, and the other shall have the right,
at its own expense, to be represented in any such action by counsel of its own
choice. If one party brings any such action or proceeding, the second party
may be joined as a party plaintiff and, in case of joining, the second party
agrees to give the first party reasonable assistance and authority to file and
to prosecute such suit. The costs and expenses of all suits brought by a party
under this Section 13.3 shall be reimbursed to such filing party and then to
the participating party, pro rata, out of any damages or other monetary awards
recovered therein in favor of Ophidian or Lilly. Any remaining damages shall
then be split (i) ******************* to Ophidian and ****************** to
Lilly. No settlement or consent judgment or other voluntary final disposition
of a suit under this Section 13.3 may be entered into without the joint consent
of Ophidian and Lilly (which consent shall not be unreasonably withheld).

13.4 NOTICE OF CERTIFICATION. Ophidian and Lilly each shall
immediately give notice to the other of any certification filed under the U.S.
"Drug Price Competition and Patent Term Restoration Act of 1984" claiming that
a Program Patent is invalid or that any infringement will not arise from the
manufacture, use or sale of any product by a third party. If Ophidian decides
not to bring infringement proceedings against the entity making such a
certification, Ophidian shall give notice to Lilly of its decision not to bring
suit within twenty-one (21) days after receipt of notice of such certification.
Lilly may then, but is not required to, bring suit against the party that filed
the certification. Any suit by Lilly or Ophidian shall either be in the name
of Lilly or in the name of Ophidian, or jointly by Lilly and Ophidian, as may
be required by law. For this purpose, the party not bringing suit shall execute
such legal papers necessary for the prosecution of such suit as may be
reasonably requested by the party bringing suit.

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13.5 PATENT TERM EXTENSIONS. The parties shall cooperate with each
other in gaining patent term extension wherever applicable to Program Patents
covering Drug Products. Lilly and Ophidian shall mutually determine which
patents shall be extended. All filings for such extension shall be made by the
party to whom the patent is assigned, provided, however, that in the event that
the party to whom the patent is assigned elects not to file for an extension,
such party shall (i) inform the other party of its intention not to file and
(ii) grant the other party the right to file for such extension.

ARTICLE 14

CONFIDENTIALITY AND NONDISCLOSURE

14.1 CONFIDENTIALITY. For a period of five (5) years following the
later of: (a) the termination of this Agreement or (b) if Lilly is marketing
the Drug Product the date on which Lilly ceases to market the Drug Product,
each party shall maintain in confidence all Confidential Information disclosed
by the other party, and shall not, except as contemplated by this Agreement,
use it for its benefit or the benefit of others, without the consent of the
disclosing party. Documents made available to the other party shall remain the
property of the disclosing party and shall be returned upon written request,
except that one copy of all such information may be retained for legal archival
purposes.

14.2 AUTHORIZED DISCLOSURE. Each party may disclose the
Confidential Information for the purpose of making various regulatory filings
and complying with applicable governmental regulations, and to consultants and
others having a need to know for the purposes of development, manufacture or
marketing of the Drug Product pursuant to this Agreement, provided that such
consultants and others shall also agree to appropriate notice and protective
provisions.

14.3 NONDISCLOSURE OF AGREEMENT. Neither party shall disclose any
information about this Agreement, including its existence, without the prior
written consent of the other. Consent shall not be required, however, for
disclosures to tax authorities or to bona fide potential sublicensees, to the
extent required or contemplated by this Agreement, provided, that in connection
with such disclosure, each party agrees to use its commercially reasonable
efforts to secure confidential treatment of such information. Each party shall
have the further right to disclose the terms of this Agreement as required by
applicable law, including the rules and regulations promulgated by the
Securities and Exchange Commission and to disclose such information to
shareholders or potential investors as is customary for publicly-held
companies, provided the disclosing party provides to the other party a copy of
the information to be disclosed and an opportunity to comment thereon prior to
such disclosure and consults within a reasonable time in advance of the
proposed disclosure with the other on the necessity for the disclosure and the
text of the proposed release.

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14.4 SURVIVAL. The confidentiality obligations of this Article 14
shall survive the termination or expiration of the Agreement.

14.5 PRESS RELEASES. Attached hereto as Exhibit F is a press
release, which may be released upon the execution of this Agreement. All
future press releases by either party relating to the collaboration
contemplated by this Agreement shall be approved in advance by each party,
except for those communications required by law.

ARTICLE 15

TERM AND TERMINATION OF AGREEMENT

15.1 TERM. This Agreement shall become effective on the Effective
Date and shall continue in effect until the later of 20 years from the
Effective Date or the date on which all Ophidian Patents have expired in all
Major Markets, unless sooner terminated as provided below or by mutual written
agreement of the parties.

15.2 TERMINATION FOR MATERIAL BREACH. Either party shall have the
right to terminate this Agreement after ninety (90) days written notice to the
other in the event the other is in material breach of this Agreement, unless
the other party cures the breach before the expiration of such period of time.
Such notice shall set forth in reasonable detail the specifics of the breach.
In the event of termination hereunder by Lilly, all licenses granted under this
Agreement to Lilly shall not be affected and shall continue in full force and
effect, and Lilly shall have the right to exercise all licenses provided for in
Section 9.2. All licenses granted under this Agreement to Ophidian in such
event shall automatically terminate upon such termination by Lilly. In the
event of termination hereunder by Ophidian, licenses to Ophidian Patents and
Ophidian Technology granted hereunder to Lilly shall terminate, and Ophidian
shall have a limited non-exclusive, worldwide, fully paid license with the
right to sublicense to the Lilly Patents, Lilly Technology, Lilly Program
Patents and Lilly Program Technology to make, have made use, have used, import,
offer for sale, sell, and have sold Bulk Drug Substance and Drug Product.
Notwithstanding the foregoing, Lilly shall be permitted to distribute and sell
all supplies of Drug Product in its inventory at the time of termination until
such supplies are exhausted.

15.3 TERMINATION BASED ON RESULTS OF IMMUNOLOGY TESTS. Within
sixty (60) days following completion of the immunology tests set forth on
Exhibit E, Ophidian shall deliver to Lilly a detailed report of the results
thereof. If Lilly in good faith concludes that the results of such tests
suggests that the probability that the Drug Product can be successfully
developed is significantly diminished, Lilly

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<PAGE> 34
may, within thirty (30) days following receipt of the report described above,
elect to terminate this Agreement upon written notice to Ophidian. In such
event, all licenses granted to Lilly and Ophidian under this Agreement shall
terminate and Lilly shall have no further obligations under this Agreement.

15.4 TERMINATION BY LILLY FOR FAILURE TO MEET GOALS. Ophidian
acknowledges that the development and commercialization of pharmaceutical
products such as the Drug Product is an inherently uncertain process, and that
there can be no assurance either that the Drug Product can be successfully
developed or that the potential commercial rewards available for the
commercialization of the Drug Product, when weighed against the costs and
uncertainties involved and compared to Lilly's other commercial opportunities,
will be sufficient to justify Lilly's continued efforts to develop and/or
commercialize the Drug Product. Lilly agrees to work diligently, consistent
with accepted business practices, to fulfill its obligations under this
Agreement, devoting the same degree of attention and diligence to such efforts
as it devotes to such activities for its own products of comparable risk and
market potential. If Lilly in good faith concludes that further efforts under
this Agreement would not be commercially reasonable for Lilly, it may so notify
Ophidian, and the parties shall then promptly meet to explore whether any steps
may be taken that would lead Lilly to conclude that further efforts would be
justified. In the event the parties are unable to agree to continue efforts
within sixty (60) days of Lilly's notice to Ophidian provided for above, Lilly
shall be entitled to terminate this Agreement upon written notice to Ophidian.
Further, if in Lilly's sole opinion, Ophidian fails to gain adequate patent
protection for the CDAD Products, Lilly may terminate this Agreement upon
written notice to Ophidian. Upon termination by Lilly, the licenses under
Ophidian Patents and Ophidian Technology granted to Lilly under this Agreement
shall terminate, Lilly shall have no further obligation under this Agreement,
and Ophidian shall have a limited non-exclusive, worldwide, fully paid
license, with the right to sublicense, to the Lilly Patents, Lilly Technology,
Program Patents and Program Technology to make, have made, use, have used,
import, offer for sale, sell, and have sold Bulk Drug Substance and Drug
Products.

15.5 TERMINATION UPON INSOLVENCY. This Agreement may be terminated
by either party upon notice to the other should the other party:

(a) become insolvent; or

(b) file a petition under any bankruptcy or insolvency law or have any
such petition filed against it which has not been stayed within 60 days of such
filing.

15.6 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination of the
Agreement shall not affect any accrued rights of either party. As provided
herein, certain provisions, including, in certain circumstances, provisions
relating to

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licensing of intellectual property and confidentiality are intended to survive
termination of this Agreement.

15.7 RIGHTS UPON TERMINATION FOR BREACH. If a party (the
"Non-Breaching Party") terminates this Agreement under Article 15 following
material breach by the other party (the "Breaching Party"), (a) the Breaching
Party shall return to the Non-Breaching Party all Confidential Information and
materials received from the Non-Breaching Party during the Agreement, (b) the
Breaching Party shall cease all use of the Confidential Information and
materials received from the Non-Breaching Party for any purpose, except that
the Breaching Party may keep a copy of all documents for record keeping
purposes only, and (c) the Breaching Party shall deliver to the Non-Breaching
Party all data and information developed by the Breaching Party prior to such
termination as a result of the activities under this Agreement which can
reasonably be viewed as necessary or useful to obtain governmental regulatory
approvals.

15.8 ASSISTANCE FOLLOWING TERMINATION. In the event Lilly elects
to terminate this Agreement pursuant to Section 15.4 and if Ophidian so
requests, Lilly shall provide reasonable assistance to Ophidian for a period of
ninety (90) days following the date of notice of termination. During this
period, Lilly shall provide Ophidian copies of its registration dossier for the
Drug Product, clinical data and unrestricted permission to use the dossier and
data for development, registration and commercialization of the Drug Product;
written Drug Product process procedures and training in these procedures; and
assistance in transferring contracts with Third Parties (e.g. clinical test
sites, contract research organizations, manufacturers of Drug Product, and
marketers) to Ophidian. Lilly will also agree to negotiate in good faith the
sale of any dedicated equipment, work in process, and finished product
inventories and supplies then owned by Lilly provided that the same would not
be disruptive to Lilly's other operations. In addition, Lilly shall grant to
Ophidian the licenses provided for in Section 15.4. In the event Lilly has
registered a trademark or tradename for use in connection with the Drug
Product, Ophidian shall also have a paid-up license to use such trademark or
tradename, provided however that Ophidian shall not be entitled to such license
in the event the trademark or tradename chosen by Lilly is also associated with
other Lilly products (such as the "huma" association between humulin and
humalog).

ARTICLE 16

INDEMNITY

(a) Each party hereby agrees to indemnify, defend and hold
harmless the other party and its Affiliates, and their respective officers,
directors, agents and employees from and against any and all suits, claims,
actions, demands, liabilities, expenses and/or losses, including reasonable
attorneys' fees and other costs of

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defense other than claims for infringement as provided in Section 13.2,
("Claims") resulting directly or indirectly from the manufacture, use,
handling, storage, sale or other disposition of Bulk Drug Substance or Drug
Product by the indemnifying party, its Affiliates, agents or sublicensees, but
only to the extent such Claims result from the negligence of the indemnifying
party or its employees and agents and do not result from the negligence of the
party seeking indemnification.

(b) Lilly shall indemnify defend and hold harmless Ophidian, its
Affiliates, and their respective officers, directors, agents and employees from
and against all Claims based upon the death or actual bodily injury or property
damage resulting from the manufacturing (but not including manufacture of the
Bulk Drug Substance), packaging, labeling, handling, storage, promotion,
marketing, distribution, use or sale of the Drug Product, except to the extent
caused by the negligence or willful misconduct of Ophidian or the material
breach by Ophidian of this Agreement, or caused prior to Ophidian placing Bulk
Drug Substance on the common carrier selected by Lilly for delivery to Lilly.

(c) Ophidian shall indemnify, defend and hold harmless Lilly, its
Affiliates, and their respective officers, directors, agents and employees from
and against all Claims based upon the death or any actual bodily injury or
property damage resulting from its manufacture or handling of Bulk Drug
Substance (including, without limitation, any Claims relating to release of
materials into the environment) except to the extent caused by the negligence
or willful misconduct of Lilly.

(d) Any entity entitled to indemnification under this Article
shall give prompt written notice to the indemnifying party of any Claims with
respect to which it seeks indemnification, and the indemnifying party shall
have the option to assume the defense of such Claims with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed by the
indemnifying party with counsel so selected, the indemnifying party will not be
obligated to pay the fees and expenses of any separate counsel retained by the
indemnified party with respect to such Claims. Except with the prior consent
of the indemnified party, which consent shall not be unreasonably withheld, the
indemnifying party may not enter into any settlement of such litigation unless
such settlement includes an unqualified release of the indemnified party.

ARTICLE 17

REPRESENTATIONS AND WARRANTIES

17.1 RIGHT, POWER AND AUTHORITY. Each of Ophidian and Lilly
represents and warrants to the other that as of the Effective Date it has full
right, power and authority to enter into this Agreement, including the right to
grant the licenses granted hereunder.

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17.2 ABSENCE OF LITIGATION. As of the Effective Date, each party
represents and warrants to the other that it is not aware of any pending or
threatened litigation (and has not received any communication) which alleges
that such party's activities related to this Agreement have violated, or by
conducting the activities as contemplated herein would violate, any of the
intellectual property rights of any other person. To the best of Ophidian's
and Lilly's knowledge, there is no material unauthorized use, infringement or
misappropriation of any of its intellectual property rights licensed hereunder.

17.3 NO APPROVALS OR CONSENTS. Each party represents and warrants
to the other that no approval or consent of a governmental agency or
instrumentality is required for the authorization, execution, or delivery by it
of this Agreement.

17.4 PATENTS; PRIOR ART. Except as Ophidian has otherwise advised
Lilly in writing, each of Ophidian and Lilly represents and warrants to the
other that as of the Effective Date, to the best of its respective knowledge,
it has sufficient legal and/or beneficial title and ownership under its
intellectual property rights necessary for it to fulfill its obligations under
this Agreement and that it is not aware of any communication alleging that it
has violated or by conducting its business as contemplated by this Agreement
would violate any of the intellectual property rights of any other person, and
that to the best of its knowledge there is no material unauthorized use,
infringement or misappropriation of any of its intellectual property rights
relevant to this Agreement. Ophidian represents and warrants to Lilly that it
has advised Lilly in writing of any and all Third Party licenses necessary for
Ophidian to possess all necessary rights to all Third Party intellectual
property rights known to Ophidian that are required for the manufacture, use
and sale of the Bulk Drug Substance and the Drug Product, and has provided
Lilly with a true and correct copy of any relevant license agreement. As used
herein, "intellectual property rights" means all patent rights, copyrights,
trademarks, trade secret rights, chemical and biological material rights and
know-how rights necessary or useful to make use or sell the Bulk Drug Substance
and/or Drug Product. Ophidian has, or will obtain at its sole cost, all
necessary licenses to the Polson Patents (U.S. Patent Nos. 4,357,272 and
4,550,019), the Brookhaven Patent (U.S. Patent NO. 4,952,496) and the
Cohon-Boyer patents now owned by Stanford University.

17.5 PRIOR DATA. Ophidian represents and warrants to Lilly that it
has made available to Lilly (to the extent the same exists and is material to
accessing the commercial, medical, clinical or regulatory potential of the Drug
Product) all toxicology studies, clinical data, manufacturing process data and
other information in its possession regarding the Bulk Drug Substance and/or
Drug Product including all events or information that would be reportable to
the FDA under 21 C.F.R. 200 et. seq., and that to the best of its knowledge,
such data and information is accurate and complete and is what it purports to
be.

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17.6 NO DEBARRMENT. Each party represents and warrants to the
other that it will comply at all times with the provisions of the Generic Drug
Enforcement Act of 1992 and will upon request certify in writing to the other
that none of it, its employees, or any person providing services to such party
in connection with the collaboration contemplated by this Agreement have been
debarred under the provisions of such Act.

ARTICLE 18

GOVERNING LAW; DISPUTE RESOLUTION

18.1 GOVERNING LAW. The Agreement shall be governed by the laws of
the State of Indiana, without regard to Indiana choice of law provisions.

18.2 DISPUTE RESOLUTION. In the event of any dispute relating to
this Agreement or the collaborative effort contemplated hereby, the parties
shall prior to instituting any lawsuit on account of such dispute, refer such
dispute to the Chief Executive Officer of Ophidian and the President of Lilly's
Infectious Diseases and Generics Global Business Unit (or any successor
position having principal responsibility for Lilly's infectious diseases
products) who shall, as soon as practicable, and with the assistance of a
mediator as provided below, attempt in good faith to resolve the dispute. The
parties shall select a mediator who shall serve as an impartial facilitator of
such discussion. If the parties are unable to agree upon a mediator, a
mediator shall be designated by the American Arbitration Association. The
mediation shall be treated as a settlement discussion and therefore will be
confidential and privileged. The mediator may not testify for either party in
any later proceeding relating to the dispute, and no recording or transcript
shall be made of the mediation proceedings. Each party shall bear its own
costs in the mediation and the fees and expenses of the mediator shall be
shared equally by the parties. Either party shall be free to institute
litigation if such dispute is not resolved within ninety (90) days of the first
written request for mediation. Notwithstanding anything in this Agreement to
contrary, either party shall be entitled to institute litigation immediately if
the same shall be necessary to prevent irreparable harm to any party.

ARTICLE 19

MISCELLANEOUS PROVISIONS

19.1 NOTICES. All notices required or permitted to be given under
this Agreement shall be in writing and shall be mailed by registered or
certified mail addressed to the signatory to whom such notice is required or
permitted to be given

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and transmitted by facsimile to the number indicated below. All notices shall
be deemed to have been given when mailed as evidenced by the postmark at the
point of mailing or a confirmed facsimile transmission.

All notices to Lilly shall be addressed to Lilly as follows:

Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel

Fax: (317) 276-9152

All notices to Ophidian shall be addressed as follows:

Ophidian Pharmaceuticals, Inc.
5445 East Cheryl Parkway
Madison, WI 53711
Attention: President

Fax: (608) 277-2395

Any party may, by written notice to the others, designate a new address or fax
number to which notices to the party giving the notice shall thereafter be
mailed or faxed.

19.2 FOREIGN EXCHANGE. Sales and expenses of the parties under
this Agreement which are in currencies other than United States dollars shall
be converted into United States dollars according to the parties' customary and
usual currency translation procedures which shall be consistent with the
procedures used throughout the parties' operations and shall be in accordance
with GAAP, consistently applied.

19.3 NON COMPETITION. During the term of this Agreement, neither
Lilly nor Ophidian shall develop or market any antibody based treatment for
CDAD, except the Drug Product; provided, however, that (i) Lilly shall be free
to develop or market a product having activity for CDAD if such activity is
incidental to a broader spectrum product whose primary indication is not for
treatment of CDAD, (ii) Lilly shall be permitted to market CDAD products as
part of pharmacy benefit management, wholesale distribution, mail order
pharmacy, or similar businesses, (iii) Lilly shall be free to develop or market
any product acquired by Lilly as a result of any business combination between
Lilly and any other company, and (iv) Ophidian shall be permitted to develop or
market any product containing CDAD

33
<PAGE> 40
antibodies provided such product is not therapeutically effective against CDAD.
In the event Lilly develops and markets an antibody based treatment for CDAD
acquired as a result of a business combination referred to in (iii) above,
Ophidian may elect to terminate this Agreement upon ninety (90) days written
notice to Lilly, unless Lilly elects to discontinue marketing of the acquired
product within sixty (60) days of receipt of Ophidian's notice of termination.
Such termination shall be treated as if Lilly had terminated this Agreement
pursuant to Section 15.4.

19.4 FORCE MAJEURE. If either party is affected by any
extraordinary, unexpected and unavoidable event such as acts of God, floods,
fires, riots, war, accidents, labor disturbances, breakdown of plant or
equipment, lack or failure of transportation facilities, unavailability of
equipment, sources of supply or labor, raw materials, power or supplies,
infectious diseases of animals, or by the reason of any law, order,
proclamation, regulation, ordinance, demand or requirement of the relevant
government or any sub-division, authority or representative thereof, or by
reason of any other cause whatsoever (provided that in all such cases the party
claiming relief on account of such event can demonstrate that such event was
extraordinary, unexpected and unavoidable by the exercise of reasonable care)
("Force Majeure") it shall as soon as reasonably practicable notify the other
party of the nature and extent thereof and take all reasonable steps to
overcome the Force Majeure and to minimize the loss occasioned to that other
party. Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other party by reason of any delay in performance or
nonperformance of any of its obligations hereunder to the extent that such
delay and nonperformance is due to any Force Majeure of which it has notified
the other party and the time for performance of that obligation shall be
extended accordingly, subject however, to the rights of Lilly to exercise the
licenses granted pursuant to Section 9.2 should a Trigger Event occur. During
any period that adequate supply of Bulk Drug Substance is not available as a
result of any Force Majeure, Lilly may purchase and use Bulk Drug Substance
from any other supplier.

19.5 ENTIRETY OF AGREEMENT. This Agreement, its exhibits and
schedules and the Stock Purchase Agreement of even date herewith, sets forth
the entire agreement and understanding of the parties relating to the subject
matter contained herein and merges all prior discussions and agreements between
them. No party shall be bound by any representation other than as expressly
stated in this Agreement, or by a written amendment to this Agreement signed by
authorized representatives of both parties.

19.6 NON-WAIVER. The failure of a party in any one or more
instances to insist upon strict performance of any of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment, to any
extent, of the right to assert or rely upon any such terms or conditions on any
future occasion.

34
<PAGE> 41
19.7 DISCLAIMER OF AGENCY. This Agreement shall not constitute any
party the legal representative or agent of another, nor shall any party have
the right or authority to assume, create, or incur any Third Party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of another except as expressly set forth in this Agreement.

19.8 SEVERABILITY. In the event any term of this Agreement is or
becomes or is declared to be invalid or void by any court of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
deleted from this Agreement, and all the remaining terms of the Agreement shall
remain in full force and effect.

19.9 ASSIGNMENT. Lilly may discharge any obligations and exercise
any right hereunder through an Affiliate. References to Lilly shall include
any Affiliate of Lilly to whom such an assignment or delegation has been made
or ratified. Except as provided in this Section, neither Lilly, nor Ophidian
shall delegate duties of performance or assign, in whole or in part, rights or
obligations under this Agreement without the prior written consent of the other
party, and any attempted delegation or assignment without such written consent
shall be of no force or effect. Subject to the restrictions contained in the
preceding sentence, this Agreement shall be binding upon the successors and
assigns of the parties.

19.10 HEADINGS. The headings contained in this Agreement have been
added for convenience only and shall not be construed as limiting.

19.11 LIMITATION OF LIABILITY. No party shall be liable to another
for indirect, incidental, consequential or special damages, including but not
limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages.
Nothing in this Section is intended to limit or restrict the indemnification
rights or obligations of any party.

19.12 INTERPRETATION This Agreement has been jointly prepared by
the parties and their respective legal counsel and shall not be strictly
construed against either party.

19.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.

19.14 COMPLIANCE WITH LAWS. Each party shall, and shall cause its
respective Affiliates to, comply in all material respects with all federal,
state, local and foreign laws, statutes, rules and regulations applicable to
the parties and their respective activities under this Agreement.

35
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.

OPHIDIAN PHARMACEUTICALS, INC.

By: s/s Douglas C. Stafford
------------------------------------
Douglas C. Stafford
President

ELI LILLY AND COMPANY

By: s/s August M. Watanabe
------------------------------------
August M. Watanabe
Executive Vice President
Science and Technology

36
<PAGE> 43

**** Indicates where confidential material has been omitted and filed
separately with the Commission
EXHIBIT A

PURCHASE PRICE FOR BULK DRUG SUBSTANCE

1. The purchase price to be paid to Ophidian by Lilly for Bulk Drug
Substance for commercial sales shall be **************************
***************************************************************.

2. The price as determined in paragraph 1 above shall be subject to the
following adjustments:

(A) For purchases during the ************************ following the
date of first commercial sale of the Drug Product (the "Product
Launch"), the purchase price shall be *************************.

(B) For purchases during the******************* following the date of
Product Launch, the purchase price shall be *****************
***********************.

(C) For purchases ************************ following the date of
Product Launch there shall be **************************
***********************.

(D) There shall be *********************************************
***********************************************************. This
adjustment shall be calculated as follows:

(i) **************************************************
*************************************************
(ii) **************************************************
*************************************************
(iii) **************************************************
*************************************************

(E) "COPS" shall mean ************************************
******************************************************.

3. ***********************************************************
***********************************************************
<PAGE> 44
4. *****************************************************************
*****************************************************************

5.
(A) In the event Ophidian exercises its right to terminate pursuant to
paragraph 3, Ophidian shall provide assistance to Lilly for an
Assistance Period sufficient to permit Lilly to develop an
alternative source of supply, but not more than 4 years, such
Assistance Period commencing on the day of Lilly's receipt of
written notice of termination. During the Assistance Period,
Ophidian shall provide Lilly with copies of its Establishment
License dossier and all other regulatory filings and unrestricted
permission to use the dossier and other regulatory filings for
development, registration and commercialization of the Drug
Product; copies of written manufacturing procedures and training
in these procedures; master cell banks and working cell banks; and
assistance in transferring contracts with Third Parties (e.g., hen
facilities, veterinarians, Bulk Drug Substance manufacturers) to
Lilly if requested by Lilly. Ophidian will grant an option to
Lilly exercisable to purchase any and all dedicated facilities and
equipment where it has the legal right to transfer title, work in
process, finished product inventories and supplies then owned by
Ophidian, at the fair market value thereof as determined by an
appraisal.

(B) During the Assistance Period Ophidian will not be required to
initiate new activities or make further capital investments;
however, it will be expected to, in good faith, continue to
manufacture and supply Bulk Drug Substance to enable the
continuity of supply until an alternative source of supply can be
obtained and facilitate the orderly transfer of activities and
information.

(C) Both Ophidian and Lilly shall bear their own costs incurred during
the Assistance Period *************************************
*********************************************************.
Appraisals shall be prepared by a nationally recognized appraisal
firm acceptable to the parties, the cost of which shall be borne
by the party requesting the appraisal. If the parties are unable
to agree upon an acceptable appraiser with thirty (30) days, each
party shall appoint its own nationally recognized appraisal firm
which shall promptly prepare an appraisal of the fair market
value, and the average of the two appraisals shall be the fair
market value. In such event each party shall bear the expenses of
its own appraisal firm.
<PAGE> 45
(D) It is the intent of the parties that Lilly be unencumbered in its
efforts to take on the responsibilities of Ophidian or to arrange
for a third party to assume such obligation. Insofar as Enabling
Technology is needed from Ophidian, it is the intent of the
parties that Lilly's rights to such technology shall survive
termination. Insofar as the use of the Tradename owned by
Ophidian is desired, Lilly shall be deemed to have a royalty free
license to the Tradename upon notice of termination by Ophidian.
All licenses granted to Lilly under this Agreement shall not be
affected and shall continue in full force and effect and Lilly
shall have the right to manufacture or have manufactured, use and
sell the Bulk Drug Substance. All licenses to Ophidian in such
event shall automatically terminate. Lilly shall pay Ophidian a
royalty equal to **************** of Net Sales of Drug Product
manufactured by Lilly or Third Parties under license from Lilly on
a country-by-country basis until expiration of applicable
Ophidian or Program patents in that country. In the event that
Lilly later terminates and/or ceases activities and/or ceases all
sales of Drug Product, all license under Ophidian Patents,
Ophidian Program Patents, Ophidian Program Technology and Ophidian
Technology granted to Lilly under this Agreement shall terminate.

6. **************************************************************
**************************************************************

7. Ophidian shall supply all Bulk Drug Substance necessary for the Clinical
Development Program, the Product Process Development Program, validation
testing and similar matters. **************
*************************************************************

8. Before or during the first year following product launch for the Drug
Product, Lilly shall purchase not less than of Lilly's forecast at
product launch for sales during such year.

9. All terms used but not defined herein shall have the meanings set forth
in the Agreement.
<PAGE> 46

**** Indicates where confidential material has been omitted and filed
separately with the Commission

EXHIBIT B

TERMS AND CONDITIONS OF SALE OF BULK DRUG SUBSTANCE

BULK DRUG SUBSTANCE SUPPLY

All sales of Bulk Drug Substance from Ophidian to Lilly shall be subject to the
following terms and conditions.

Section 1. Definitions

As used in this Exhibit B, the following terms shall have the meanings set
forth below. Capitalized terms used but not defined in this Exhibit B shall
have the meanings set forth in the Agreement.

1.1. "Contract Requirements" shall mean ************************* of
Lilly's requirements for Bulk Drug Substance. Lilly may at its option commence
a commercial scale process development project for the Bulk Drug Substance to
enable Lilly to register its facilities or those of a Third Party contingent
manufacturer in the registration. Lilly or the Third Party may manufacture
limited quantities of the Bulk Drug Substance as part of that development
project. Lilly shall have the right to make and sell Drug Product made from
limited quantities of Bulk Drug Substance that Lilly or its Third Party
manufacturers have produced, in jurisdictions other than Major Markets. Lilly
shall pay Ophidian a ************** on Net Sales of such limited quantities and
Ophidian reserves the right to be the sole supplier of any of the materials,
including but not limited to ************, used in the facility. Ophidian's
Technology and Ophidian's Program Technology shall not be used in the
contingent facilities to manufacture any substance other than the Bulk Drug
Substance. Ophidian shall have the right to have a representative on site and
audit these facilities at reasonable intervals upon reasonable notice.

1.2. "Latent Defects" shall mean defects that cause the Bulk Drug
Substance to fail to conform to the Bulk Drug Substance Specifications or
otherwise fail to conform to the warranties provided by Ophidian hereunder,
which defects are not discoverable upon reasonable physical inspection and
testing using the methodology specified in the Manufacturing Requirements
Document.

1.3. "Manufacturing Requirements Document" shall mean a manual
containing certain specifications, procedures, methods and personnel contacts
relating to the manufacturing and supply of the Bulk Drug Substance by Ophidian
to Lilly that will be compiled and agreed upon by the Project Team prior to the
<PAGE> 47
commencement of manufacture of the Bulk Drug Substance by Ophidian. Sections
of the Manufacturing Requirements Document may be modified from time to time by
the Project Team.

1.4. "Bulk Drug Substance Specifications" shall mean the
specifications for Bulk Drug Substance that are included in the Manufacturing
Requirements Document.

Section 2. Manufacture and Supply of Bulk Drug Substance

2.1. Pursuant to the terms and conditions of this Agreement, Lilly
shall purchase or have purchased from Ophidian the Contract Requirements, and
Ophidian shall manufacture, sell and deliver to Lilly such quantities of Bulk
Drug Substance. Ophidian shall not manufacture or sell Bulk Drug Substance for
or to any other person for human therapeutic use.

2.2. Bulk Drug Substance shall be manufactured to conform with the
Bulk Drug Substance Specifications. The Bulk Drug Substance Specifications may
be modified from time to time by the Project Team.

Section 3. Forecasts and Orders

3.1. At the time of *****************************, Lilly will supply
Ophidian with a non-binding estimate of Bulk Drug Substance requirements for
the ******************* following *********************. Beginning with
******** ************* Lilly shall provide Ophidian with a non-binding rolling
forecast, provided **********, for each of the **************. If Lilly
believes that market demand will require Ophidian to expand its manufacturing
capacity, it will advise Ophidian as soon as possible.

3.2. Orders for Bulk Drug Substance may be submitted to Ophidian by
Lilly or by one or more Affiliates of Lilly. Lilly will guarantee payment by
its Affiliates. When possible, orders shall be placed ************** in
advance of expected shipment.

3.3. Each Lilly order shall be governed by the terms of the Agreement
(including this Exhibit B) and none of the terms or conditions of Lilly's
purchase order or any acknowledgment form from Ophidian shall be applicable,
except those specifying quantity ordered, delivery dates, special supply
instructions and invoice information.

Timing of shipments shall be agreed upon between the parties.
<PAGE> 48
-3-

Section 4. Price

4.1. The price for Bulk Drug Substance to be delivered during the
term of this Agreement is set forth in Exhibit A to the Agreement, which is
attached hereto and made a part hereof.

4.2. Bulk Drug Substance shall be delivered to Lilly ***************,
by a common carrier selected by Lilly. ****************************************

4.3. Ophidian shall invoice Lilly or the Lilly Affiliate designated
on each order upon shipment of Bulk Drug Substance. Invoicing and payment
shall be in United States Dollars. Payment shall be made by Lilly or its
Affiliate net ********************** from the date of invoice.*****************
********************************************************************** Lilly
shall guarantee payment by its Affiliates.

4.4. Any federal, state, county, or municipal sales or use tax,
excise or similar charge, or other tax assessment, foreign or domestic, (other
than that assessed against income), assessed or charged on the sale of Bulk
Drug Substance sold pursuant to this Agreement shall be paid by Lilly or its
Affiliate.

4.5. If Bulk Drug Substance Specifications are modified pursuant to
Subsection 2.2 hereof and such modification results in the requirement to
rework otherwise acceptable Bulk Drug Substance, each party shall be
responsible for the rework costs resulting from the Bulk Drug Substance
specification changes it initiates.********************************************
*******************************************************************************

Section 5. Manufacture of Bulk Drug Substance

5.1. Bulk Drug Substance shall be manufactured in accordance with
GMP. Ophidian shall promptly advise Lilly of any proposed process change,
which change must be approved by Lilly (and if necessary the appropriate
regulatory authorities) prior to its implementation by Ophidian. Such approvals
shall not be unreasonably withheld by Lilly.

5.2. Lilly shall have the right to audit Ophidian and its contractors
for compliance with the manufacturing process referenced in the appropriate
regulatory filings, GMP's, GLP's and applicable regulatory requirements at
reasonable intervals. Such audits shall be scheduled at mutually agreeable
times upon at least ten (10) days advance written notice to Ophidian. Ophidian
agrees to inform Lilly in advance of any regulatory inspection which affects
the manufacture of the Bulk Drug Substance, to permit a Lilly representative to
be present at the
<PAGE> 49
-4-

time of such inspection and to promptly advise Lilly of the results of such
inspection. In the event of an FDA inspection (or other regulatory authority)
which involves the Bulk Drug Substance, Lilly shall be immediately informed of
the issuance of a notice of inspection. In the event that there are
inspectional observations (or their equivalent), Lilly shall be informed
immediately and shall have the opportunity to review and have input to the
response. If during manufacture of any lot of Bulk Drug Substance, any rework
or remanufacture is required in order to meet the Bulk Drug Substance
Specifications, Ophidian shall conduct such reworks or remanufacture only
pursuant to the referenced procedures in the appropriate regulatory filings.
Ophidian shall inform Lilly of any inadvertent deviation from the manufacturing
process referenced in the appropriate regulatory filings for the Bulk Drug
Substance or from GMP. Both the notification and the Lilly response shall be
in writing before the lot will be given final disposition. Lilly, at its
option, upon 10 days prior notice to Ophidian, may have Lilly personnel present
at the Ophidian facility where Bulk Product is manufactured to monitor
manufacturing activities. The observing and monitoring of Ophidian's
operations by Lilly personnel, or the consultation by Lilly personnel with
personnel of Ophidian, shall in no way relieve Ophidian of its responsibility
hereunder.

5.3. Ophidian shall provide certificates of analysis to Lilly for
each shipment of Bulk Drug Substance delivered hereunder as specified in the
Manufacturing Requirements Document.

5.4. Each party shall promptly advise the other of any safety or
toxicity problem of which either party becomes aware regarding Bulk Drug
Substance or intermediates used in the manufacture of Bulk Drug Substance.

Section 6. Acceptance of Bulk Drug Substance

(a) Lilly shall have a period of thirty (30) days from the date of
receipt of Bulk Drug Substance at the Lilly facility designated in the purchase
order to inspect any shipment of Bulk Drug Substance to determine whether that
shipment conforms to the Bulk Drug Substance Specifications. That inspection
shall be performed in accordance with the Manufacturing Requirements Document.
The parties may agree from time to time to revise the analytical methods with
the revisions to become effective as of the date agreed by the parties.

(b) If Lilly determines the Bulk Drug Substance does not conform
to the Bulk Drug Substance specifications it shall notify Ophidian by telephone
with a written confirmation. If Ophidian agrees that the Bulk Drug Substance
does not conform to the Bulk Drug Substance, Lilly shall have the right to
return that non-conforming Bulk Drug Substance to Ophidian. All or any part of
any shipment which does not conform to the Bulk Drug Substance may be held for
Ophidian's
<PAGE> 50
-5-

disposition and at Ophidian's expense. If Ophidian does not agree with Lilly's
determination that the Bulk Drug Substance does not conform to the Bulk Drug
Substance, Ophidian shall as quickly as possible, but in any event within
thirty (30) days, so advise Lilly by telephone with written confirmation.
Lilly and Ophidian shall meet and attempt to agree whether the Bulk Drug
Substance conforms to the Bulk Drug Substance Specifications.

(c) Ophidian shall use its best efforts to replace any non-
conforming Bulk Drug Substance within the shortest possible time. Lilly shall
have no responsibility to Ophidian for the price of non-conforming Bulk Drug
Substance but shall pay Ophidian the price for the replacement Bulk Drug
Substance. As to quantities of Bulk Drug Substance in relation to which Lilly
and Ophidian are unable to agree as to whether they conform to the Bulk Drug
Substance Specifications, the parties may submit appropriate samples of that
Bulk Drug Substance to a mutually acceptable third party testing laboratory
that will perform testing to determine whether the Bulk Drug Substance conforms
to the Bulk Drug Substance Specifications, using the test protocols and
methodology provided in the Manufacturing Requirements Document. If the third
party testing laboratory determines that the Bulk Drug Substance conforms to
the Bulk Drug Substance Specifications, Lilly shall pay Ophidian the price
established under this Agreement for that Bulk Drug Substance. The parties
hereto recognize that it is possible for a shipment of Bulk Drug Substance to
have Latent Defects. As soon as either party becomes aware of a Latent Defect
in any lot of Bulk Drug Substance, it shall immediately notify the other party
and the lot or batch involved shall, at Lilly's election, be deemed rejected as
of the date of such notice. The party shall then investigate to determine
whether latent defects are caused by a party of negligence in production of
Bulk Drug Substance or handling of Bulk Drug Substance after shipment from
Ophidian, or whether there is unforeseen variability in the process requiring
revalidation. The rejected lot will be paid for by the non-compliant party or
shared by both parties if the process requires revalidation.

Section 7. Audits

Lilly and its Affiliates will keep records of the sales of the Drug
Product in sufficient detail to permit the determination of Net Sales. At the
request and expense of Ophidian, Lilly will permit its auditors, Ernst & Young
LLP, or another independent auditor acceptable to Lilly, to examine these
records during ordinary business hours to the extent necessary to verify the
propriety of Net Sales. Such examination will be made no later than two years
after the invoice dates of Bulk Drug Substance shipments to be examined. The
results of any such examination will be made available to both Ophidian and
Lilly provided that the auditor will not disclose to Ophidian the business
details of Lilly's records, but will report only as to the propriety of Net
Sales of the Drug Product, calculation of the price paid to Ophidian, and, if
applicable, the amount by which the auditor's
<PAGE> 51
-6-

calculation varies from Lilly's calculation. Upon Ophidian's request to be
made no later than seven (7) days following issuance of the auditor's report,
Lilly and/or the auditors will make available for Ophidian's inspection Lilly's
calculation, auditor's calculation and Net Sales of the Drug Product. Ophidian
shall have sixty (60) days following the issuance of the auditor's report to
meet with and ask questions regarding the auditor's report. If the auditor's
calculation varies by more than five percent (5%) from Lilly's calculation and
such variance is to the disadvantage of Ophidian, Lilly will refund Ophidian
the cost of such audit examination.

Section 8. Guarantee and Warranty

8.1. Ophidian guarantees and warrants that Bulk Drug Substance
delivered to Lilly pursuant to this Agreement shall, at the time of delivery,
not be adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act, as amended, or within the meaning of any applicable foreign,
state or municipal law, as such Act and such laws are constituted and effective
at the time of delivery and will not be an article which may not, under the
provisions of Sections 404 and 505 of such Act, be introduced into interstate
commerce.

8.2. Ophidian warrants that Bulk Drug Substance delivered to Lilly
pursuant to this Agreement shall conform with the Bulk Drug Substance
Specifications and shall be in compliance with applicable law and all
applicable regulatory requirements. OPHIDIAN MAKES NO OTHER WARRANTIES, EXPRESS
OR IMPLIED, WITH RESPECT TO BULK DRUG SUBSTANCE. ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY
OPHIDIAN. IN NO EVENT SHALL OPHIDIAN BE LIABLE FOR INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR PROFITS.

8.3 Ophidian warrants that it shall conform to the provisions of the
EEO clause in Section 2.02 of Executive Order 11246 as amended, 41 C.F.R. 60-
250 and 41 C.F.R. 60-741, as amended, which are incorporated herein by
reference.

Section 9. Recalls

9.1. In the event of a recall ordered by a government agency or a
confirmed failure of the CDAD Product ("Recall"), Lilly shall be responsible
for the coordination of Recall activities.

9.2. Where the Recall is caused by Ophidian's negligence or willful
misconduct or its material breach of this Agreement, Ophidian agrees to pay all
costs and expenses of any Recall, including costs of retrieving Bulk Drug
Substance
<PAGE> 52
-7-

or the Drug Product already delivered to Lilly's customers. Ophidian further
agrees to reimburse Lilly for costs and expenses Lilly is required to pay for
notification, shipping and handling charges. Prior to any such reimbursement,
Lilly shall provide Ophidian with supporting documentation of all reimbursable
costs and expenses. If the Recall is caused by reasons other than Ophidian's
negligence, willful misconduct or material breach, Lilly shall pay all of the
costs and expenses described above for such Recall.
<PAGE> 53

EXHIBIT C

OPHIDIAN PHARMACEUTICALS, INC.

STOCK PURCHASE AGREEMENT

WITH

ELI LILLY AND COMPANY

**** Indicates where confidential material has been omitted and filed
separately with the Commission

JUNE 3, 1996

<PAGE> 54

TABLE OF CONTENTS

STOCK PURCHASE AGREEMENT

**** Indicates where confidential material has been omitted and filed
separately with the Commission

<TABLE>
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II REPRESENTATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Organization, Good Standing and Qualification . . . . . . . . . . . . . . . . 1
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Valid Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Patents and Other Proprietary Rights . . . . . . . . . . . . . . . . . . . . . 3
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 No Conflict With Other Instruments . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 No Material Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Voting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 Inventions and Secrecy Agreements . . . . . . . . . . . . . . . . . . . . . . 6
2.21 Company Contracts and Documents . . . . . . . . . . . . . . . . . . . . . . . 6
2.22 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.23 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.25 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.26 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.27 FDA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.28 Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.29 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.30 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.31 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.32 Development Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>

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<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS OF THE INVESTOR . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE IV SECURITIES LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Securities Laws Representations and Covenants
of the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE V DISCLOSURE OF THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VI CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT
THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.4 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE VII CONDITIONS OF THE COMPANY'S OBLIGATIONS AT
THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Blue Sky Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE VIII POST-CLOSING COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 14
8.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Open Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.5 Invention and Secrecy Agreements . . . . . . . . . . . . . . . . . . . . . . . 14
8.6 Payment of Documentary, Stamp and Similar Taxes . . . . . . . . . . . . . . . 14
8.7 Reports Under Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . 15
8.8 Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE IX SUBSEQUENT OFFERINGS AND REGISTRATIONS . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Participation in Subsequent Offerings . . . . . . . . . . . . . . . . . . . . 16
9.2 Subsequent Offerings Having Dilutive Effect . . . . . . . . . . . . . . . . . 16
9.3 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.4 Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>

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<PAGE> 56
<TABLE>
<S> <C> <C>
10.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.8 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.10 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>

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<PAGE> 57

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into and
effective as of the 3rd day of June, 1996, by and between OPHIDIAN
PHARMACEUTICALS, INC., a Wisconsin corporation, (the "Company"), and ELI LILLY
AND COMPANY, an Indiana corporation (the "Investor").

ARTICLE I

PURCHASE AND SALE OF SHARES

1.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, the
Investor agrees to purchase from the Company, and the Company agrees to issue
and sell to the Investor, 153,846 shares of the Company's common stock, $.0025
par value (the "Shares"), at a price of $6.50 per share for a total purchase
price of one million dollars ($999,999) (the "Purchase Price").

1.2 THE CLOSING. The closing ("Closing") of the purchase and sale of the
Shares is to be held at the offices of Eli Lilly and Company located at Lilly
Corporate Center, Indianapolis, IN, on July 1, 1996, at 9:00 a.m., or at such
other time and place as the Company and Investor shall mutually agree. At the
Closing, the Company shall deliver the Shares to the Investor upon delivery to
the Company by the Investor of a check drawn on a U.S. bank or wire transfer of
funds in the amount of the Purchase Price. The Shares to be delivered to the
Investor will be evidenced by a single certificate registered in the Investor's
name.

ARTICLE II

REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Investor as follows:

2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company: (a ) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Wisconsin; (b) has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as it is presently being conducted and as proposed to be conducted;
and (c) is qualified and is in good standing as a foreign corporation in all
other jurisdictions in which the failure so to qualify would have a material
adverse effect on its business or properties.

2.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital of the Company will consist of:
<PAGE> 58

(a) COMMON STOCK, 22,400,000 shares of common stock, $0.0025 par
value, of which 6,092,192 shares are duly and validly issued
(including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid,
non-assessable, and outstanding. A true and correct list of
all five percent (5%) shareholders has been furnished to the
Investor.

(b) PREFERRED STOCK. 0 shares of preferred stock.

(c) OTHER SECURITIES. Except with respect to (i) the Company's
stock option plan as described below, (ii) preemptive rights
granted to shareholders in Article XIII of the Company's
Bylaws, (iii) a Stock Warrant dated January 17, 1990, and
amended on February 8, 1991, issued to Fitchburg Research Park
Associates enabling it, under certain circumstances, to
purchase 114,290 shares of Company common stock at a purchase
price of $0.0025 per share, and (iv) a certain Consulting
Agreement dated May 19, 1994, enabling the consultant to
purchase 200,000 shares of Company common stock at a purchase
price of $4.50 per share, there are no outstanding options,
warrants, rights (including conversion or preemptive rights)
or agreements for the purchase or acquisition from or by the
Company of any shares of its capital stock. Options to
purchase 430,346 shares of the Company's common stock have
been issued pursuant to the Company's stock option plan for
employees, officers and directors and are currently
outstanding. 657,160 shares of the Company's common stock are
currently reserved for issuance pursuant to such plan.

2.3 SUBSIDIARIES. The Company has no subsidiaries and does not control,
directly or indirectly any other corporation, association, or business
organization.

2.4 AUTHORIZATION. All corporate action on the part of the Company and
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the
Shares has been taken or will be taken on or prior to the Closing, and this
Agreement constitutes a valid and legally binding obligation of the Company.

2.5 VALID ISSUANCE OF SHARES. When issued in accordance with the terms of
this Agreement, the Shares shall be duly and validly authorized and issued
(including, without limitation, issued in compliance with applicable federal
and state securities laws), fully paid and non-assessable and not subject to
any preemptive rights, liens, claims or encumbrances, or other restriction on
transfer, except as set forth in this Agreement and Article XII of the
Company's Bylaws

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<PAGE> 59

pertaining to the Company's right of first refusal with respect to transfers of
Company common stock.

2.6 GOVERNMENTAL CONSENTS. All consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations, or
filings of or with any federal, state or local governmental authority on the
part of the Company required in connection with the consummation of the
transactions contemplated herein have been or shall be obtained prior to the
Closing and shall be effective as of the Closing.

2.7 TITLE TO PROPERTY. The Company owns its property and assets free and
clear of all mortgages, liens, loans and encumbrances, except those that arise
in the ordinary course of business and do not materially impair the Company's
ownership or use of such property or assets. With respect to the property and
assets the Company leases, the Company is in compliance with such leases and,
to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances which would be materially adverse to the Company.

2.8 PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient
title and ownership of all Proprietary Rights (as defined below) necessary for
its business as now conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the Company's Proprietary Rights, nor is the Company bound
by or a party to any options, licenses or agreements of any kind with respect
to the Proprietary Rights of any other person or entity, that prevent the
Company from carrying out its business as it is now conducted. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate the Proprietary Rights of
others. Proprietary Rights shall mean patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes.

2.9 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the best of the Company's knowledge and belief,
any basis therefor or threat thereof, against or affecting the Company which
question the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the business, prospects, conditions, affairs or operations of the Company or
in any of the properties or assets, or in any material impairment of the right
or ability of the Company to carry on its business as now conducted or as
proposed to be conducted. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving
the prior employment of any of the Company's employees, use in connection with
the Company's business of any information or techniques allegedly proprietary
to any former employers of the Company's employees, or obligations of the
Company's employees under any agreements with

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<PAGE> 60

their prior employers. The Company is not a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or governmental
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.

2.10 NO CONFLICT WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any provisions of its Articles of Incorporation or Bylaws or of
any instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company, which violation
or default would be materially adverse to the Company. The execution, delivery
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Articles of
Incorporation or Bylaws subject, however, to compliance with certain preemptive
rights that are provided to the Company's shareholders as set forth in the
Company Bylaws; (b) any provision of any judgment, decree or order to which the
Company is a party or by which it is bound; (c) any material contract,
obligation or commitment to which the Company is a party or by which it is
bound; or (d) to the Company's knowledge, any statute, rule or governmental
regulation applicable to the Company.

2.11 FINANCIAL STATEMENTS. Attached as Exhibit A are the audited financial
statements (balance sheet, statement of operations and statement of cash flows)
of the Company as of and for the three (3) years ending September 30, 1993,
1994 and 1995, together with the accompanying notes and report of the Company's
independent auditors together with the unaudited financial statements for the
interim period ended March 31, 1996 (such audited and unaudited financial
statements are collectively referred to as the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and are
consistent with each other.

2.12 NO MATERIAL LIABILITY. There are no outstanding material liabilities
except for those that are set forth in the Financial Statements.

2.13 NO ADVERSE CHANGE. Since the date of the latest audited Financial
Statements, there has not been:

(a) any change in the assets, properties, liabilities, financial
condition, operating results, prospects or business of the
Company (as such business is presently conducted and as it is
proposed to be conducted) from that reflected in the Financial
Statements, except changes in the ordinary course of business
which have not been, in the aggregate, materially adverse;

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<PAGE> 61

(b) any waiver by the Company of a valuable right or of a material
debt owed to it;

(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company,
except in the ordinary course of business and which is not
material to the assets, properties, financial condition,
operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to
be conducted);

(d) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is
bound or subject;

(e) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the
assets, properties, financial condition, prospects or business
of the Company (as such business is presently conducted and as
it is proposed to be conducted).

2.14 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of
which has been approved by the Investor), the Articles of Incorporation and
By-laws of the Company are in the form previously provided to the Investor.
The minute books of the Company made available to the Investor contain a
complete summary of all meetings of the board of directors (including
committees thereof) and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.

2.15 VOTING ARRANGEMENTS. Except for the voting agreement dated February
8, 1991, by and between Margaret B. van Boldrik and Sean B. Carroll, husband
and wife, and Fitchburg Research Park Associates, a Wisconsin partnership, to
the Company's knowledge, there are no outstanding stockholder agreements,
voting trusts, proxies or other arrangements or understandings among the
stockholders of the Company relating to the voting of their respective shares.

2.16 PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf
has offered any securities of the Company for issuance or sale to, or solicited
any offer to acquire any of the same from, any person or entity so as to make
the issuance and sale of the Shares subject to the registration requirements of
Section 5 of the Securities Act of 1933, as amended ("Securities Act").

2.17 REGISTRATION RIGHTS. Except as provided in this Agreement, or as set
forth in the Disclosure Schedule, the Company is under no contractual
obligation to

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<PAGE> 62

register (now or in the future, whether contingent or not) under the Securities
Act any of its presently outstanding securities or any of its securities that
may subsequently be issued.

2.18 BROKERS AND FINDERS. Except as set forth in the Disclosure Schedule,
the Company has not retained any investment banker, broker or finder, and is
not obligated to any such person for any fee, in connection with the
transactions contemplated by this Agreement.

2.19 FULL DISCLOSURE. The Company believes it has provided the Investor
with all information that the Investor has requested for deciding whether to
purchase the Shares and all information reasonably necessary to enable the
Investor to make such decision. Neither this Agreement nor any other
statements or certificates made or delivered in connection herewith contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements not misleading.

2.20 INVENTIONS AND SECRECY AGREEMENTS. Each employee, consultant and
subcontractor of the Company with access to the Company's proprietary
information has executed an agreement regarding inventions and confidential
information in substantially the form previously provided to the Investor. The
Company, after reasonable investigation, is not aware that any such employee,
consultant, or contractor is in violation thereof.

2.21 COMPANY CONTRACTS AND DOCUMENTS.

(a) Except for (i) transactions relating to purchases of shares of
the Company's securities and (ii) regular salary payments and
fringe benefits paid in the ordinary course of the Company's
business, none of the officers, employees, directors or other
affiliates of the Company is a party to any transaction,
agreement or understanding with the Company, and there have
been no assumptions or guarantees by the Company of any
obligations of such persons;

(b) Except for items that the Company is prohibited from
disclosing under the terms of a confidentiality agreement with
a third party, there are no agreements, undertakings,
instruments, contracts or proposed transactions to which the
Company is a party or by which it is bound which involve (i)
the license of any Proprietary Rights of the Company, or (ii)
the prohibition or limitation of the Company's ability to
engage in its business or any other business or to compete
with any person;

(c) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any
restriction under its Articles of Incorporation or By-laws,
which adversely affect, in any

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<PAGE> 63

material respect, its business as now conducted or as proposed
to be conducted, or its assets, properties, financial
condition or prospects; and

(d) The Company has not engaged in the past 12 months in any
discussions (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the
Company with or into any such corporation or corporations;
(ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the
assets of the Company or a transaction or series of
transactions in which more than 50% of the voting power of the
Company is disposed of, or (iii) regarding any other forms of
business combination, liquidation, dissolution or winding up
of the Company.

2.22 DISTRIBUTION. There has been no declaration or payment by the Company
of any dividend, nor any distribution by the Company of any assets of any kind,
to any of its shareholders with respect to any of the Company's securities,
except as set forth in the Financial Statements.

2.23 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects and accurately reflect all tax liabilities of
the Company with respect to all tax periods ending on or prior to the date
hereof. The Company has received no notice that the Company's federal income
tax returns or any state income or franchise or other tax returns have been or
are being audited by any governmental authority. The Company has paid all
taxes and other assessments due on or before the date hereof and such payments
were made prior to the time penalties would accrue thereon. The provision for
taxes of the Company is adequate for taxes due or accrued as of the date
hereof. All taxes which should be reserved on the books of the Company in
accordance with generally accepted accounting principles, consistently applied,
have been so reserved.

2.24 INSURANCE. The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, reasonably sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company has also obtained
any other insurance coverages with respect to risks associated with its
business in such amounts as are customary in its industry. The Company is not
aware of any pending or threatened claims against or by the Company for
property damages or personal injuries.

2.25 EMPLOYEE RELATIONS. The Company is not bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company,
has sought to represent

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<PAGE> 64

any of the employees, representatives or agents of the Company. There is not a
strike or other labor dispute involving the Company pending, or to the
knowledge of the Company threatened, which could have a material adverse effect
on the assets, properties, financial condition, prospects or business (as now
conducted or as proposed to be conducted) of the Company, nor is the Company
aware of any labor organization activity involving its employees. The Company
is not aware that any officer or key employee intends to terminate his or her
employment with the Company, nor does the Company intend to terminate the
employment of any such person. The Company believes its relations with its
employees are satisfactory.

2.26 INVESTMENT COMPANY ACT. The Company is not an "investment company" or
a company controlled by an "investment company" as such terms are defined in
the Investment Company Act of 1980, as amended.

2.27 FDA MATTERS. There are no applications or other proceedings presently
pending before the United States Food and Drug Administration ("FDA"). The FDA
has not delivered a letter of nonapproval, or threatened to deliver such a
letter, with respect to any product manufactured, marketed, licensed or
developed by the Company, or any product which the Company intends to
manufacture, market, license or develop.

2.28 BUSINESS PLAN. The Company's business plan entitled Business Summary
and Financial Model (1996-2004), as furnished to the Investor, has been
prepared in good faith by the Company, does not contain any untrue statement of
material fact and does not omit to state a material fact necessary to make the
statements made therein not misleading.

2.29 CONDITION OF ASSETS. All property of the Company, whether real or
personal, is in good condition, reasonable wear and tear excepted, and is
sufficient for its current use in the business of the Company.

2.30 CONFLICT OF INTEREST. The Company and its executive officers have no
interest (other than as holders of securities of a publicly-traded company),
either directly or indirectly, in any entity, including, without limitation
thereto, any corporation, partnership, joint venture, proprietorship, firm,
person, licensee, business or association (whether as an employee, officer,
director, shareholder, agent, independent contractor, security holder,
creditor, consultant or otherwise) that presently (i) provides any services, or
designs, produces and/or sells any products, or engages in any activity which
is the same, similar to or competitive with any activity or business in which
the Company is now engaged or proposes to become engaged; (ii) is a supplier,
customer, or creditor of the Company, or has an existing contractual
relationship with any of the Company's managing employees; or (iii) has any
direct or indirect interest in any asset or property, real or personal,
tangible or intangible, of the Company or any property, real or personal,
tangible or intangible, that is necessary or desirable for the conduct of the
Company's business.

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<PAGE> 65

2.31 COMPLIANCE WITH LAW. The business of the Company is not being
conducted in violation of any material law, ordinance or regulation of any
governmental entity (including, without limitation, those relating to
environmental protection and occupational safety and health practices). All
material governmental approvals, permits and licenses required to conduct the
current business of the Company have been obtained and are in full force and
effect and are being complied with in all material respects.

2.32 DEVELOPMENT AGREEMENT. The representations and warranties made by the
Company in the Agreement dated of even date herewith by and between the Company
and the Investor ("Development Agreement") are true and correct.

ARTICLE III

REPRESENTATIONS OF THE INVESTOR

The Investor represents and warrants to the Company as follows:

3.1 AUTHORIZATION. The Investor has full power and authority to enter
into this Agreement. This Agreement constitutes a valid and legally binding
obligation of the Company.

3.2 BROKERS AND FINDERS. The Investor has not retained any investment
banker, broker or finder, and is not obligated to any such person for any fee,
in connection with the transactions contemplated by this Agreement.

ARTICLE IV

SECURITIES LAWS

4.1 Securities Laws Representations and Covenants of the Investor. The
Investor represents, warrants and covenants to the Company as follows:

(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Shares are being
acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Investor has no
present intention of selling, granting any participation in,
or otherwise distributing the same. The Investor does not
have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the
Shares.

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<PAGE> 66

The Investor was not organized solely for the purpose of
acquiring the Shares.

(b) DISCLOSURE OF INFORMATION. The Investor believes it has
received all information it considers necessary or appropriate
for deciding whether to purchase the Shares. The Investor has
had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the offering
of the Shares. The foregoing does not, however, limit or
modify the representations and warranties of the Company in
Article II of this Agreement.

(c) INVESTMENT EXPERIENCE. The Investor has previously invested
in companies in the development stage, can bear the economic
risks of the investment and has such knowledge and experience
in financial or business matters that it is capable of
evaluating the merits and risks of its investment in the
Shares.

(d) ACCREDITED INVESTOR. The Investor is an accredited investor
as defined in Rule 501(a) of Regulation D, as amended, of the
Securities and Exchange Commission ("SEC") under the
Securities Act.

(e) RESTRICTED SECURITIES. The Investor understands that the
Shares it is purchasing pursuant to this Agreement are
characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and
that under such laws and applicable regulations the Shares may
be resold without registration under the Securities Act only
in certain limited circumstances. In this connection, the
Investor is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby
and by the Securities Act.

(f) DISPOSITION OF SHARES. The Investor will not dispose of any
of the Shares (other than pursuant to SEC Rules 144 or 144A or
any similar or analogous rule or rules) unless and until (i)
the Investor shall have notified the Company of the proposed
disposition and the circumstances surrounding the proposed
disposition and, if reasonably requested by the Company, the
Investor shall have furnished the Company with an opinion of
counsel reasonably satisfactory in form and substance to the
Company to the effect that such disposition will not require
registration under the Securities Act; or (ii) there is in
effect a registration statement under the Securities Act
covering the proposed disposition and the proposed disposition
is made in accordance with such registration statement.

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4.2 LEGENDS. The certificates evidencing the Shares may bear the
restrictive legends set forth below, except that such certificates shall not
bear the legends set forth in (a) and (c) below if the transfer was made in
compliance with Rule 144 or if the opinion of counsel, if any, referred to in
Section 4.1(f)(i) is to the effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act:

(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"). THE SECURITIES MAY NOT BE TRANSFERRED UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR SUCH TRANSFER IS MADE PURSUANT TO RULES 144 OR
144A OF THE ACT OR AN EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF THE ACT."

(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF FIRST REFUSAL
AND MANDATORY SALE UPON THE HAPPENING OF CERTAIN EVENTS AS SET
FORTH IN ARTICLE XII OF THE BYLAWS OF THE CORPORATION, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."

(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
CORPORATION RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF SAID ACT."

(d) Any legend required by the laws of any applicable state or
other jurisdiction governing the Shares.

ARTICLE V

DISCLOSURE OF THE AGREEMENT

Neither party shall disclose any information about this Agreement,
including its existence, without the prior written consent of the other.
Consent shall not be required, however, for disclosures to tax authorities or
to bona fide potential sublicensees, to the extent required or contemplated by
this Agreement, provided,

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that in connection with such disclosure, each party agrees to use its
commercially reasonable efforts to secure confidential treatment of such
information. Each party shall have the further right to disclose the terms of
this Agreement as required by applicable law, including the rules and
regulations promulgated by the Securities and Exchange Commission and to
disclose such information to shareholders or potential investors as is
customary for publicly-held companies, provided the disclosing party provides
to the other party a copy of the information to be disclosed and an opportunity
to comment thereon prior to such disclosure and consults within a reasonable
time in advance of the proposed disclosure with the other on the necessity for
the disclosure and the text of the proposed release.

ARTICLE VI

CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING

The obligations of the Investor under this Agreement to purchase the Shares
from the Company are subject to the fulfillment on or before the Closing of
each of the following conditions, any of which may be waived in writing by the
Investor:

6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Article II of this Agreement shall be true on and as
of the Closing with the same effect as though such representation and
warranties had been made on and as of the Closing.

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

6.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investor a certificate dated as of the Closing, executed by an executive
officer of the Company and in a form reasonably acceptable to the Investor,
certifying that the conditions set forth in Sections 6.1 and 6.2 have been
satisfied and that there has been no material adverse change in the assets,
properties, prospects, condition, affairs, operations or business of the
Company, as now conducted or as proposed to be conducted, since the date of
this Agreement.

6.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings taken
by the Company in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Investor, and the Investor shall have received all
such documents as it may have reasonably requested.

6.5 OPINION OF COUNSEL. The Investor shall have received an opinion from
the Company's counsel, dated as of the Closing and in a form and substance
reasonably acceptable to the Investor, to the effect that:

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(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Wisconsin,
and the Company has the requisite corporate power and
authority to own its properties and to conduct its business;

(b) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement. This Agreement
has been duly and validly authorized by the Company, duly
executed and delivered by an authorized officer of the Company
and constitutes a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as
enforceability may be limited by law affecting the rights of
creditors generally;

(d) The certificates representing the Shares are in due and proper
form and have been duly and validly executed by the officers
of the Company named thereon;

(e) The execution, delivery, performance and compliance with the
terms of this Agreement do not violate any provision of the
Company's Articles of Incorporation or By-laws and, to the
best of such counsel's knowledge, do not conflict with or
constitute a default under the provisions of any judgment,
writ, decree, order or agreement to which the Company is a
party or by which it is bound, which conflict or default would
be materially adverse to the Company.

(f) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations, or
filings with, any federal or Wisconsin governmental authority
required to be made prior to the Closing in connection with
the consummation of the transactions contemplated by this
Agreement have been obtained, and are effective, as of the
Closing and such counsel is not aware of any proceedings, or
threat thereof, which question the validity thereof;

(g) Based in part upon the representations of the Investor set
forth in this Agreement, the offer and sale of the Shares
pursuant to the terms of this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act
and from any state qualification requirements of the Company's
state of incorporation and principal place of business;

(h) Such counsel is not aware of any action, proceeding or
investigation pending against the Company or any of its
officers, directors, or

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employees, or that any of the foregoing has received any
threat thereof, which questions the validity of this
Agreement, or the right of the Company or its officers or
directors to enter into this Agreement or which might result,
either individually or in the aggregate, in any material
adverse change in the assets, conditions, affairs, or
prospects of the Company nor is such counsel aware of any
litigation pending against the Company or any of its officers,
directors or employees, or that any of the foregoing has
received any threat thereof, by reason of the proposed
activities of the Company, the past employment relationships
of its officers, directors or employees, or negotiations by
the Company or any of its officers, directors or employees
with possible investors in the Company or its business; and

(i) The Shares have been duly and validly authorized and issued
(including, without limitation, issued in compliance with
applicable federal and state securities laws), fully paid and
non-assessable and not subject to any preemptive rights,
liens, claims or encumbrances, or other restriction on
transfer, except as set forth in this Agreement and Article
XII of the Company's Bylaws pertaining to the Company's right
of first refusal with respect to transfers of Company common
stock.

ARTICLE VII

CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING

The obligations of the Company under this Agreement to issue and sell
the Shares to the Investor are subject to the fulfillment on or before the
Closing of each of the following conditions, any of which may be waived in
writing by the Company:

7.1 REPRESENTATIONS AND WARRANTIES. The representation and warranties of
the Investor contained in Article III and Section 4.1 of this Agreement shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.

7.2 PAYMENT OF PURCHASE PRICE. The Investor shall at the Closing pay the
Purchase Price upon delivery by the Company of a certificate representing the
Shares.

7.3 BLUE SKY COMPLIANCE. The Company shall have complied with all
applicable state securities laws as necessary to offer and sell the Shares to
the Investor.

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ARTICLE VIII

POST-CLOSING COVENANTS OF THE COMPANY

8.1 FINANCIAL STATEMENTS. The Company shall deliver to the Investor all
financial and other reports required under federal, state or local law and such
other reports as the parties may agree upon. In addition, the Company shall
deliver to the Investor: (i) as soon as practicable, but in any event within
120 days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet as of the end of such year and a schedule
as to the sources and applications of funds for such year, such year end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, consistently applied, and audited and
certified by independent public accountants reasonably acceptable to the
Investor; and (ii) within 30 days of the end of each quarter, an unaudited
income statement, balance sheet and cash flow analysis for and as of the end of
such quarter, including the foregoing information on a comparative and year to
date basis.

8.2 OPEN COMMUNICATION. The Company shall permit the Investor at
reasonable times to discuss the Company's affairs, finances and accounts with
the Company's officers.

8.3 INSURANCE. The Company shall maintain insurance coverage covering
risks associated with its business in such amounts as are customary in the
industry.

8.4 PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf
will offer any securities of the Company for issuance or sale to, or solicit
any offer to acquire any of the same from, any person or entity so as to make
the issuance and sale of the Shares subject to the registration requirements of
Section 5 of the Securities Act.

8.5 INVENTION AND SECRECY AGREEMENTS. Each employee and consultant of the
Company who may have access to the Company's and Investor's proprietary
information shall execute an appropriate confidentiality agreement.

8.6 PAYMENT OF DOCUMENTARY, STAMP AND SIMILAR TAXES. The Company shall
pay any and all documentary, stamp, transfer or other taxes which may become
due or payable with respect to or as a result of the issuance and delivery of
the Shares.

8.7 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Investor the benefits of SEC Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Investor to sell
securities of the Company to the public without registration or pursuant to a
registration on SEC Form S-3, the Company agrees to:

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(a) make and keep public information available, as those terms are
defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement
filed by the Company for the offering of its securities to the
general public;

(b) take such action, which may, but shall not be required to,
include the voluntary registration of its securities under
Section 12 of the Securities Exchange Act of 1934, as amended
("1934 Act"), as is necessary to enable the Investor to
utilize SEC Form S-3 for the sale of the Shares, such action
to be taken, as required under the 1934 Act, after the end of
the fiscal year in which the first registration statement
filed by the Company for the offering of its securities to the
general public is declared effective;

(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and
the 1934 Act; and

(d) furnish to the Investor, so long as the Investor owns Shares,
upon request (i) a written statement by the Company that it
has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company), the
Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold
pursuant to SEC Form S-3 (at any time after it so qualifies),
(ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be
reasonably requested in availing the Investor of any rule or
regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such plan.

8.8 TERMINATION OF COVENANTS. The covenants contained in Sections 8.1,
8.2, and 8.6 shall terminate upon an underwritten public offering by the
Company of its securities.

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ARTICLE IX

SUBSEQUENT OFFERINGS AND REGISTRATIONS

9.1 PARTICIPATION IN SUBSEQUENT OFFERINGS. If at any time the Company
shall issue, for cash, shares of its common stock or any other security which
can be converted into shares of the Company's common stock (a "Subsequent
Offering"), other than shares to be issued to employees or directors or
consultants of the Company pursuant to the Company's stock option plan, and
other than pursuant to an agreement that also provides for the transfer of
technology or other similar strategic alliance, the Company shall offer upon
the same price and terms to the Investor such number of additional shares of
such common stock or other security as would result in the Investor maintaining
the same overall percentage ownership of such common stock of the Company
(taking into consideration the conversion rights of all securities) following
such new issuance as existed immediately prior thereto. Upon receipt of written
notice of such offer, the Investor shall have a period of forty-five (45)
calendar days within which to accept or reject the offer of sale of such
securities. Closing for the purchase of such securities shall occur
immediately following the closing of the Subsequent Offering. The requirements
of this Section shall terminate upon the first sale of the Company's common
stock to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act covering the offer and
sale of the Company's common stock with an aggregate offering price to the
public of not less than ten million dollars ($10,000,000).

9.2 SUBSEQUENT OFFERINGS HAVING DILUTIVE EFFECT. If the Company shall
issue shares of its common stock or any other security which can be converted
into shares of the Company's common stock ("Additional Issuance"), other than
shares to be issued to employees or directors of the Company pursuant to the
Company's stock option plan, for a per share consideration less than the per
share consideration paid by the Investor pursuant to this Agreement (taking
into consideration conversion rights and subdivisions of the securities by
stock dividends, splits or otherwise), the Company shall issue to the Investor
such additional number of shares of the Company's common stock as necessary so
that the number of shares purchased under this Agreement plus any such
additional shares issued pursuant to this Section 9.2 shall equal the number of
shares which the Investor would have been able to purchase for the Purchase
Price had the per share consideration paid by the Investor pursuant to this
Agreement been equal to the per share consideration paid for the Additional
Issuance. For purposes of this Section 9.2, the per share consideration shall
not be considered to be less than the per share consideration paid by the
Investor under circumstances where the Investor's independent certified public
accountant renders an opinion to the effect that the Additional Issuance will
not result in a permanent impairment in the value of the Investor's shares of
Company common stock in accordance with Generally Accepted Accounting
Principles. Additional shares under this Section 9.2 shall be issued to the
Investor contemporaneously with the closing of the Additional Issuance. The
requirements of this Section 9.2 shall terminate upon completion of the first
public offering of the Company's common stock pursuant to a registration
statement filed with, and declared effective by, the SEC under the Securities
Act

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with an aggregate price to the public of not less than ten million dollars
($10,000,000) (it being understood that this Section 9.2 shall apply to the
sale of shares of the Company's common stock in such public offering).

For the purposes of determining the per share consideration paid for the
Additional Issuance, the following provisions shall be applicable.

(a) In the case of issuance of common stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefore without deducting any discounts or commissions paid
or incurred by the Company in connection with the issuance and
sale thereof.

(b) In the case of the issuance of common stock for consideration
in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as may
be mutually agreed upon by the Company and the Investor. If
the Company and the Investor are unable to agree on such fair
value, the fair value shall be determined by a nationally
recognized investment banking firm or nationally recognized
firm of independent certified public accountants selected by
the parties, whose fees shall be borne equally by the parties;
provided, however, that if, at the time of such determination,
the Company's common stock is traded in the over-the-counter
market or on a national or regional securities exchange, such
fair market value as determined shall not exceed the aggregate
"current market price" (as defined below) of shares of common
stock being issued.

(c) In the case of issuance of (i) options to purchase or rights
to subscribe for common stock, (ii) securities by their terms
convertible into or exchangeable for common stock, or (iii)
options to purchase or rights to subscribe for securities by
their terms convertible into or exchangeable for common stock:

(1) The aggregate maximum number of shares of common
stock deliverable upon exercise of such options to
purchase or rights to subscribe for common stock
shall be deemed to have been issued at the time such
options or rights were issued and for a consideration
equal to the consideration (determined in the manner
provided in subdivisions (a) and (b) above), if any,
received by the Company upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the common
stock covered thereby;

(2) The aggregate maximum number of shares of common
stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities,
or upon the exercise of

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options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were
issued or such options or rights were issued and for
a consideration equal to the consideration received
by the Company for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Company upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (a) and (b) above;

(d) For purpose of any computation pursuant to this section 9.2,
the "Current Market Price" at any date of one share of common
stock shall be deemed to be the average of the highest
reported bid and the lowest reported offer prices on the
preceding business day as furnished by the National Quotation
Bureau, Incorporated (or equivalent recognized source of
quotations).

9.3 REGISTRATION RIGHTS.

(a) DEFINITIONS. As used in this Section 9.3, the following terms
shall have the following respective meanings:

o "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time
administering the Securities Act.
o "TRANSFER" shall mean any disposition of the Shares
which would constitute a sale thereof within the meaning
of the Securities Act.
o "RESTRICTED SECURITIES" shall mean (i) the Shares; (ii)
any common stock issued to the Investor as a result of
any Subsequent Offering under Section 9.1 or otherwise;
(iii) any common stock issued to the Investor as a
result of any Additional Issuance under Section 9.2 or
otherwise; and (iv) any common stock or other security
issued as a dividend or other distribution with respect
to the foregoing.

(b) REQUEST FOR REGISTRATION. In the event the Company shall
receive from Investor a written request that the Company
effect any registration, qualification or compliance with
respect to shares of Restricted Securities with an expected
aggregate offering price to the public of at least five
million dollars ($5,000,000), the Company will: within ten
(10) days of the receipt by the Company of such notice, give
written notice of the proposed registration, qualification or
compliance to all other holders of Restricted Securities; and
as soon as practicable,

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use its best efforts to effect such registration,
qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and
distribution of all the Restricted Securities as are specified
in such requests; together with all or such portion of the
Restricted Securities of any holder or holders of Restricted
Securities, joining in such request as are specified in a
written request received by the Company within twenty (20)
days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification
or compliance pursuant to this Section 9.3(b):

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

(2) prior to December 31, 1998;

(3) during the period starting with the date sixty (60)
days prior to the Company's estimated date of filing
of, and ending on the date three (3) months
immediately following the effective date of, any
registration statement pertaining to securities of
the Company (other than registration of securities in
a Rule 145 transaction, with respect to an employee
benefit plan or with respect to the Company's first
registered public offering of its stock in which case
the period shall end on the date six (6) months
following the effective date), provided that the
Company is actively employing in good faith
reasonable efforts to cause such registration
statement to become effective;

(4) after the Company has effected three (3) such
registrations pursuant to this section 9.3(b), and
such registrations have been declared or ordered
effective; provided, however, that in the event that
any legal restrictions or prohibitions shall result
in the inability of the holders of Restricted
Securities participating in a registration pursuant
to this Section 9.3(b) to sell at least seventy-five
percent (75%) of the Restricted Securities included
in any such registration within one hundred eighty
(180) days of the effectiveness thereof, then the
Investor shall be entitled to

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demand an additional registration pursuant to this
Section 9.3(b);

(5) If the Company shall furnish to the Investor a
certificate signed by the President of the Company
stating that in the good faith judgment of the Board
of Directors it will be seriously detrimental to the
Company or its shareholders for a registration
statement to be filed in the near future, then the
Company's obligation to use its best efforts to
register, qualify or comply under this Section 9.3
shall be deferred for a period not to exceed one
hundred twenty (120) days from the date of receipt of
written request from the Investor; provided, however,
that the Company shall not exercise such rights more
than once in any twelve (12) months.

(6) Subject to the foregoing clauses (1)-(5), the Company
shall file registration statement covering the
Restricted Securities so requested to be registered
as soon as practicable, after receipt of the request
or requests of the Investor.

(c) REQUEST FOR REGISTRATION ON FORM S-3. If the Investor
requests that the Company file a registration statement on
Form S-3 (or any successor form to Form S-3) or any similar
short-form registration statement, for a public offering of
Restricted Securities, the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts
and commissions, would exceed one million dollars ($1,000,000)
and the Company is a registrant entitled to use Form S-3 to
register the Restricted Securities for such an offering, the
Company shall use its best efforts to cause such Restricted
Securities to be registered on such form for the offering and
to cause such Restricted Securities to be qualified as the
Investor may reasonably request; provided, however, that the
Company shall not be required to effect more than four (4)
registrations pursuant to this Section 9.3(c) or more than one
(1) such registration in any twelve (12) month period. After
the Company's first public offering of its securities, the
Company will use its best efforts to qualify for Form S-3
registration or a similar short-form registration.

Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 9.3(c):

(1) In any particular jurisdiction in which the Company
would be required to execute a general consent to
service of process in effecting such registration,
qualification or compliance unless

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the Company is already subject to service in such
jurisdiction and except as may be required by the
Securities Act;

(2) If the Company within ten (10) days of the receipt of
the request described herein, gives notice of its
bonafide intention to effect the filing of a
registration statement with the Commission within
ninety (90) days of receipt of such request (other
than with respect to a registration statement
relating to a Rule 145 transaction, or an offering
solely to employees);

(3) During the period starting with the date ninety (90)
days prior to the Company's estimated date of filing,
and ending on the date three (3) months immediately
following, the effective date of any registration
statement pertaining to securities of the Company
(other than a registration of securities in a Rule
145 transaction or with respect to an employee
benefit plan) provided that the Company is actively
employing in good faith all reasonable efforts to
cause such registration statement to become
effective; or

(4) If the Company shall furnish to the Investor, a
certificate signed by President of the Company
stating that in good faith judgment of the Board of
Directors it would be seriously detrimental to the
Company or its shareholders for registrations
statements to be filed in the near future, then the
Company's obligation to use its best effort to file a
registration statement shall be deferred for a period
not to exceed ninety (90) days from the receipt of
request to file such registration by the Investor;
provided, however, that the Company shall not
exercise such right more than once in any twelve (12)
month period.

(d) "PIGGYBACK" REGISTRATIONS. If and whenever the Company
proposes to register any of its equity securities under the
Securities Act for an offering to the general public for cash,
whether on its own behalf or on behalf of controlling
shareholders of the Company participating in a secondary
distribution, it will give written notice to all holders of
Restricted Securities of its intention to do so and, upon the
written request of the holders of any Restricted Securities
given within forty-five (45) business days after the Company's
giving of such notice (which request shall state the intended
method of disposition of such Restricted Securities by the
prospective sellers), the Company will use its best efforts to
cause the Restricted Securities as to which registration shall
have been so requested to be included in the shares of
securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent
requisite to permit the sale or

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other disposition (in accordance with the written request of
the holders) by the prospective seller or sellers of such
Restricted Securities.

(e) UNDERWRITING. In the event that any registration pursuant to
this Section 9.3 shall be, in whole or in part, a firm
commitment underwritten offering of securities of the Company,
any request by such holders pursuant to this Section 9.3 to
register Restricted Securities must specify that such shares
are to be included in the underwriting (i) on the same terms
and conditions as the shares of securities, if any, otherwise
being sold through underwriters under such registration; (ii)
in the event that no shares of securities, other than
Restricted Securities, are being sold through underwriters
under such registration, then on terms and conditions
comparable to those normally applicable to offerings of common
stock in reasonably similar circumstances. Notwithstanding
any other provision of this Section 9.3, if the underwriter
determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may
exclude a pro rata portion of the Restricted Securities of the
requesting holders based on the proportion of such Restricted
Securities to the total securities to be included in the
registration (excluding securities to be issued directly by
the Company if the Company initiated the registration).

(f) REGISTRATION PROCEDURES AND EXPENSES. If and whenever the
Company is required by the provisions of this Section to
include any of the Restricted Securities of the Investor in a
registration under the Securities Act, the Investor will
furnish in writing such information as is reasonably requested
by the Company for inclusion in the registration statement
relating to such offering and such other information and
documentation as the Company shall reasonably request, and the
Company will, as expeditiously as possible:

(1) Prepare and file with the Commission a registration
statement with respect to such securities and use its
best efforts to cause such registration to become and
remain effective for such period as may be necessary
to permit the successful marketing of such securities
but not exceeding 120 days.

(2) Prepare and file with the Commission such amendments
and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to comply with the provisions of the
Securities Act and to keep such registration
statement effective for that period of time specified
in paragraph 9.3(f)(1).

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<PAGE> 80

(3) Furnish to each selling shareholder such number of
prospectuses and preliminary prospectuses in
conformity with the requirements of the Securities
Act, and such other documents as such seller may
reasonably request in order to facilitate the public
sale or other disposition of the Restricted
Securities owned by such seller.

(4) If the Company is required by the underwriters, if
any, of the securities registered under this Section
9.3 to deliver an opinion of counsel to such
underwriters in connection with such registration,
and if requested by any holders of Restricted
Securities participating in such registration, use
its best efforts to furnish such opinion to such
holders on the day of delivery to the underwriters,
addressed to such underwriters and to such holders
containing substantially the following provisions:

(a) that the registration statement covering
such registration of securities has become
effective under the Securities Act;

(b) that, to the best of such counsel's
knowledge, no stop order suspending the
effectiveness thereof has been issued and
no proceedings for that purpose have been
instituted or are pending or threatened
under the Securities Act;

(c) that at the time the registration statement
became effective, the registration
statement and the related prospectus
complied as to form in all material
respects with the requirements of the
Securities Act and the applicable rules and
regulations of the Commission thereunder
(except that such counsel need express no
opinion as to financial statements and
related schedules contained therein);

(d) that while such counsel has not
independently verified the accuracy or
completeness of the information contained
therein, such counsel has no reason to
believe that the registration statement at
the time it became effective or the
prospectus contained any untrue statement
of a material fact or omitted to state a
material fact required to be stated therein
or necessary to make the statements therein
not misleading;

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<PAGE> 81

(e) that, to the best of such counsel's
knowledge, the descriptions in the
registration statement and the prospectus,
and any amendments or supplements thereto,
of all legal and governmental matters and
all contracts and other legal documents or
instruments described therein are accurate
and fairly present the information required
to be stated therein concerning such
matters, contracts, documents and
instruments;

(f) that such counsel does not know of any
legal or governmental proceedings, pending
or threatened, required to be described in
the registration statement or prospectus,
or any amendment or supplement thereto,
which are not described as required, nor of
any contracts or documents or instruments
of a character required to be described in
the registration statement or prospectus;
or any amendment or supplement thereto, or
to be filed as exhibits to the registration
statement which are not described or filed
as required. Such opinion shall be in such
form as is customary for similar opinions
delivered by such counsel so long as such
form is acceptable to the underwriters.

(5) If the Company is required by the underwriters, if
any, of the securities registered in a registration
under this Section 9.3 to deliver a letter from the
independent certified public accountants of the
Company to such underwriters in connection with such
registration, and if requested by any holders of
Restricted Securities participating in such
registration, use its best efforts to furnish such
letter to such holders on the day of delivery to the
underwriters, addressed to such underwriters and to
such holders, providing substantially that such
accountants are independent certified public
accountants within the meaning of the Securities Act
and that in the opinion of such accountants, the
financial statements and other financial data of the
Company included in the registration statement and
the prospectus, and any amendment or supplement
thereto, comply as to form in all material respects
with the applicable accounting requirements of the
Securities Act. Such letter shall additionally cover
such other financial matters (including information
as to the period ending not more than five business
days prior to the date of such letter) with respect
to the registration in respect of which such letter
is being given as the holders of Restricted
Securities requesting such letter may reasonably
request, and shall be in such form as is customary

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<PAGE> 82

for similar letters delivered by such certified
independent public accountants so long as such form
is acceptable to the underwriters.

(6) Use its best efforts to register or qualify the
Restricted Securities covered by such registration
statement under such other securities or blue sky
laws of such jurisdictions as each such selling
shareholder shall reasonably request and do any and
all other acts and things which may be necessary or
desirable to enable such seller to consummate the
public sale or other disposition in such
jurisdictions of the Restricted Securities owned by
such seller and covered by such registration
statement.

(g) MANAGING UNDERWRITERS. In the event holders of Restricted
Securities propose to sell Restricted Securities in accordance
with this Section 9.3 pursuant to an underwritten offering,
the Company shall have the right to approve the managing
underwriters for such offering; providing, however, that such
approval shall not be unreasonably withheld.

(h) REGISTRATION AND SELLING EXPENSES. As used herein,
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Section 9.3, including,
without limitation, all registration and filing fees; printing
expenses; fees and disbursements of counsel for the Company;
blue sky fees and expenses; and the expense of any special
audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company); and "Selling
Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sales. The Company will pay all
Registration Expenses in connection with the registration
pursuant to Section 9.3. All Selling Expenses in connection
with each registration pursuant to this Section 9.3 shall be
borne by the Company and the selling shareholders pro rata in
proportion to the securities covered thereby being sold by
them.

(i) STANDOFF AGREEMENT. Investor agrees in connection with any
registration of the Company's securities that, upon the
request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to
sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Restricted Securities
(other than those included in the registration) without the
prior written consent of the Company or such underwriters, as
the case may be, for such reasonable period of time from the

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<PAGE> 83

effective date of such registration as the underwriters may
specify, provided that all officers and directors of the
Company and all other holders of the Securities of the Company
enter into similar agreements. Such agreement shall be in
writing and in a form satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions
with respect to the shares subject to the foregoing
restrictions until the end of such period.

(j) INDEMNIFICATION. In the event of a registration of any of the
Restricted Securities under the Securities Act pursuant to
this Section, the Company will indemnify and hold harmless the
seller of such Restricted Securities and each underwriter of
such Restricted Securities and each other person, if any, who
controls such seller or underwriter within the meaning of
Section 15 of the Securities Act, against any and all losses,
claims, damages or liabilities, joint or several, to which
such seller or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained on
the effective date thereof in any registration statement under
which such Restricted Securities are registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse such seller and
each such underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by them in
connection with their investigating or defending any such
loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such
registration statement, said preliminary prospectus or said
prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to the
Company by such seller or underwriter specifically for use in
the preparation thereof; and provided, further, that if any
losses, claims, damages or liabilities arise out of or are
based upon an untrue statement, alleged untrue statement,
omission or alleged omission contained in any preliminary
prospectus which did not appear in the final prospectus, the
Company shall not have any liability with respect thereto to
(i) the seller or any person who controls such seller within
the meaning of Section 15 of the Securities Act, if the seller
delivered a copy of the preliminary prospectus to the person

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<PAGE> 84

alleging such losses, claims, damages or liabilities and
failed to deliver a copy of the final prospectus, as amended
or supplemented if it has been amended or supplemented, to
such person at or prior to the written confirmation of the
sale to such person or (ii) any underwriter or any person who
controls such underwriter within the meaning of Section 15 of
the Securities Act, if such underwriter delivered a copy of
the preliminary prospectus to the person alleging such losses,
claims, damages or liabilities and failed to deliver a copy of
the final prospectus, as amended or supplemented if it has
been amended or supplemented to such person at or prior to the
written confirmation of the sale to such person.

In the event of any registration of any of the Restricted
Securities under the Securities Act pursuant to this Section,
each seller of such Restricted Securities, severally and not
jointly, will indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company
who signs the registration statement, each director of the
Company, each underwriter and each person who controls any
underwriter within the meaning of Section 15 of the Securities
Act, against any and all such losses, claims, damages or
liabilities referred to in the first paragraph of this
Subsection, if the statement, alleged statement, omission or
alleged omission in respect of which such loss, claim, damage
or liability is asserted was made in reliance upon and in
conformity with information furnished in writing to the
Company by or on behalf of such seller specifically for use in
connection with the preparation of such registration
statement, preliminary prospectus, prospectus, amendment or
supplement; provided, however, that if any losses, claims,
damages or liabilities arise out of or are based upon an
untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which
did not appear in the final prospectus, such seller shall not
have any such liability with respect thereto to the Company,
any person who controls the Company within the meaning of
Section 15 of the Securities Act, any officer of the Company
who signed the registration statement or any director of the
Company, if the Company delivered a copy of the preliminary
prospectus to the person alleging such losses, claims, damages
or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended
or supplemented, to such person at or prior to the written
confirmation of the sale to such person.

(k) TERMINATION OF CONDITIONS AND OBLIGATIONS. Except for the
Company's indemnification obligation contained in Subsection
9.3(j), the obligations and conditions precedent imposed by
this Section shall

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<PAGE> 85

cease and terminate as to any of such Restricted Securities
when (i) such securities shall have been effectively
registered under the Securities Act and sold or otherwise
disposed of in accordance with the intended method of
disposition by the seller or sellers thereof set forth in the
registration statement covering such securities or (ii) such
time as an opinion of counsel with respect to free
transferability shall have been rendered pursuant to
Subsection 4.1(f)(i) above.

(l) AMENDMENTS OF REGISTRATION RIGHTS. Without the written
consent of the holders of 51% of the total number of shares
which would, at the time of such calculation, constitute
Restricted Securities, the Company shall not amend this
Section 9.3, or enter into any agreement with any holder or
prospective holder of any securities of the Company which
would grant to such holder or prospective holder rights
superior to or in conflict with any rights conferred upon the
Investor and other holders of Restricted Securities under this
Section.

9.4 COMPANY ACTION. The Company shall not amend its Articles of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action for the purpose of avoiding or seeking to avoid the observance
or performance of any of the provisions of this Article, but will at all times
in good faith assist in carrying out all of its actions as may be reasonably
necessary or appropriate in order to protect the rights of the Investor and
other holders of Restricted Securities.

ARTICLE X

MISCELLANEOUS

10.1 ENTIRE AGREEMENT. This Agreement (together with any attachments or
exhibits) constitutes the entire agreement between the Company and the Investor
relating to the subject matter hereof, and no party shall be liable or bound to
the other in any manner by any warranties, representations or covenants except
as specifically set forth herein.

10.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Except as expressly provided in this Agreement,
nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.

10.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin without application of the
choice of laws provisions of such laws.

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<PAGE> 86

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

10.5 HEADINGS. The headings used in this Agreement are for convenience and
shall not by themselves be considered in construing or interpreting this
Agreement.

10.6 NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be conclusively deemed effectively given upon either (a)
personal delivery; (b) one day after facsimile transmission to the facsimile
number indicated below and evidenced by a written record of completed
transmission to such number; or (c) five days after deposit in the United
States mail, by registered or certified mail, postage prepaid, addressed to the
following address, or to such other address as the party may designate by ten
(10) days' advance written notice to the other party:

If to the Investor:

Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attn: General Counsel
Facsimile #: 317-276-9152

If to the Company

Ophidian Pharmaceuticals, Inc.
5445 East Cheryl Parkway
Madison, WI 53711
Attn: Douglas Stafford, President
Facsimile #: 608-277-2395
(with a copy to LaFollette & Sinykin,
Attn: Michael E. Skindrud
One East Main Street
Madison, WI 53703
Facsimile #: 608-257-3911)

10.7 SURVIVAL OF WARRANTIES. The warranties, representations and covenants
of the parties contained in or made pursuant to this Agreement shall survive
the execution and deliver of this Agreement and the Closing and shall in no way
be affected by any investigation of the subject matter thereof by or on behalf
of the

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<PAGE> 87

Investor; provided, however, that such representations and warranties need only
be accurate as of the date of such execution and delivery and as of the
Closing.

10.8 FINDER'S FEES. Each party agrees to indemnify and hold harmless the
other party from and against any liability for any commission or compensation
in the nature of investment banking or finder's fees in connection with the
transactions contemplated by this Agreement (and the costs and expenses of
defending against such liability or asserted liability) for which the
indemnifying party or any of its officers, employees or representatives is
responsible.

10.9 EXPENSES. Irrespective of whether the Closing is effected, the
Company and the Investor will each pay their respective legal and other fees
and expenses in connection with the negotiation, execution, delivery and
performance of this Agreement.

10.10 AMENDMENTS AND WAIVERS. Except as expressly provided in this
Agreement, any provision of this Agreement may be amended only by the mutual
written agreement of the parties and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only in a written document executed by
the waiving party.

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

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<PAGE> 88

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

OPHIDIAN PHARMACEUTICALS, INC. ELI LILLY AND COMPANY

By /s/ Douglas C. Stafford By /s/ August M. Watanabe
----------------------------------- --------------------------------
Douglas C. Stafford August M. Watanabe
President Executive Vice President
Science and Technology

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<PAGE> 89
**** Indicates where confidential material has been omitted and filed
separately with the Commission

EXHIBIT D

OPHIDIAN PHARMACEUTICALS, INC.

MILESTONE STOCK PURCHASE AGREEMENT

WITH

ELI LILLY AND COMPANY

THIS AGREEMENT ("AGREEMENT") is entered into as of the 15th day of
November, 1996 ("EFFECTIVE DATE"), by and among OPHIDIAN PHARMACEUTICALS, INC.,
a Wisconsin corporation (the "COMPANY"), and ELI LILLY AND COMPANY, and Indiana
corporation (the "INVESTOR").

RECITALS

A. Company has developed avian antibody-based technology for the
treatment of Clostridium difficile associated diseases ("CDAD").

B. Investor is engaged in the research, development, marketing,
manufacture and distribution of therapeutic pharmaceutical and animal health
products and health care solutions.

C. Company and Investor have entered into a certain collaborative
agreement dated June 3, 1996, (the "DEVELOPMENT AGREEMENT") with respect to the
further research, development, manufacture and sale of products for the
treatment of CDAD.

D. In connection with the Development Agreement, the Investor agreed
to make an initial investment in the Company pursuant to a certain stock
purchase agreement dated June 3, 1996, (the "INITIAL STOCK PURCHASE AGREEMENT")
and to make certain subsequent milestone equity investments in exchange for
Company stock at the occurrence of certain defined events (the "MILESTONE
EVENTS").

E. A Milestone Event has occurred and the parties desire to effect
the milestone equity investment required by the Development Agreement.
<PAGE> 90
AGREEMENT

In consideration of the foregoing, and the covenants and promises
contained in this Agreement, Company and Investor agree as follows:

ARTICLE I

INCORPORATION BY REFERENCE

As of the date of this Agreement, except for Sections 1.1, 1.2, 2.2,
2.3, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15, 2.17, 2.19, 2.20, 2.21,
2.22, 2.23, 2.24, 2.25, 2.26, 2.27, 2.28, 2.29, 2.30, 2.31, 2.32 and Article VI
of the Initial Stock Purchase Agreement, all the terms, definitions,
provisions, representations, warranties and obligations of the Initial Stock
Purchase Agreement are hereby incorporated by reference, in their entirety, to
apply in full force and effect with respect to the purchase and sale of Shares
as described in Article II of this Agreement as if the same were made as of the
date of this Agreement.

ARTICLE II

PURCHASE AND SALE OF SHARES

2.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, the
Investor agrees to purchase from the Company, and the Company agrees to issue
and sell to the Investor, 545,454 shares of the Company's common stock, $.0025
par value (the "Shares"), at a price of $5.50 per share for a total purchase
price of $2,999,997.00 (the "Purchase Price").

2.2 THE CLOSING. The closing ("Closing") of the purchase and sale of the
Shares shall be held on November 20, 1996, or at such other time as the
Company and Investor shall mutually agree. At the Closing, the Company shall
deliver the Shares to the Investor upon delivery to the Company by the Investor
of a check drawn on a U.S. bank or wire transfer of funds in the amount of the
Purchase Price. The Shares to be delivered to the Investor will be evidenced by
a single certificate registered in the Purchaser's name.

ARTICLE III

In addition to the representation and warranties made by the Company
under Article I above, the Company also represents and warrants to the Investor
as follows:

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<PAGE> 91

3.1 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital of the Company will consist of:

(a) COMMON STOCK. 22,400,000 shares of common stock, $0.0025 par
value, of which 6,738,312 shares are duly and validly issued
(including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid, non-
assessable, outstanding. A true and correct list of all five
percent (5%) shareholders has been furnished to the Investor.

(b) OTHER SECURITIES. Except with respect to (i) the Company's stock
option plan as described below, (ii) a Stock Warrant dated
January 17, 1990, and amended on February 8, 1991, issued to
Fitchburg Research Park Associates enabling it, under certain
circumstances, to purchase 114,290 shares of Company common stock
at a purchase price of $0.0025 per share, and (iii) a certain
Consulting Agreement dated May 19, 1994, enabling the consultant
to purchase 200,000 shares of Company common stock at a purchase
price of $4.50 per share, there are no outstanding options,
warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from or by the Company
of any shares of its capital stock. Options to purchase 461,889
shares of the Company's common stock have been issued pursuant to
the Company's stock option plan for employees, officers and
directors and are currently outstanding. 657,160 shares of the
Company's common stock are currently reserved for issuance
pursuant to such plan.

3.2 FINANCIAL STATEMENTS. The Company has furnished the Investor with the
audited financial statements (balance sheet, statement of operations and
statement of cash flows) of the Company as of and for the year ending September
30, 1995, together with the accompanying notes and report of the Company's
independent auditors together with unaudited financial statements for the
interim period ended September 30, 1996 (such audited and unaudited financial
statements are collectively referred to as the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and are
consistent with each other.

3.3 DEVELOPMENT AGREEMENT. The Company is not in violation or breach of any
provisions, representations, warranties or obligations set forth in the
Development Agreement.

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<PAGE> 92

3.4 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Articles of
Incorporation or Bylaws; (b) any provision of any judgment, decree or order to
which the Company is a party or by which it is bound; (c) any material
contract, obligation or commitment to which the Company is a party or by which
it is bound; or (d) to the Company's knowledge, any statute, rule or
governmental regulation applicable to the Company.

3.5 NO MATERIAL LIABILITY. As of the date of this Agreement, there are no
outstanding material liabilities except for those that are set forth in the
Financial Statements.

3.6 DISTRIBUTION. As of the date of the Financial Statements, there has
been no declaration or payment by the Company of any dividend, nor any
distribution by the Company of any assets of any kind, to any of its
shareholders with respect to any of the Company's securities, except as set
forth in the Financial Statements.

3.7 CONFLICT OF INTEREST. The Company and its executive officers have no
interest (other than as holders of securities of a publicly-traded company)
that are material to the Company's ability to meet its responsibilities and
obligations under this Agreement and the Development Agreement, either directly
or indirectly, in any entity, including, without limitation thereto, any
corporation, partnership, joint venture, proprietorship, firm, person,
licensee, business or association (whether as an employee, officer, director,
shareholder, agent, independent contractor, security holder, creditor,
consultant or otherwise) that presently (i) provides any services, or designs,
produces and/or sells any products, or engages in any activity which is the
same, similar to or competitive with any activity or business in which the
Company is now engaged or proposes to become engaged; (ii) is a supplier,
customer, or creditor of the Company, or has an existing contractual
relationship with any of the Company's managing employees; or (iii) has any
direct or indirect interest in any asset or property, real or personal,
tangible or intangible, of the Company or any property, real or personal,
tangible or intangible, that is necessary or desirable for the conduct of the
Company's business.

3.8 INSURANCE. The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, reasonably sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company has also obtained
any other insurance coverages with respect to risks associated with its
business in such amounts as are customary in its industry.

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<PAGE> 93

ARTICLE IV

CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING

4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Article I and Article III of this Agreement shall be
true on and as of the Closing with the same effect as though such
representation and warranties had been made on and as of the Closing.

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

4.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investor a certificate dated as of the Closing, executed by an executive
officer of the Company and in a form reasonably acceptable to the Investor,
certifying that the conditions set forth in Sections 4.1 and 4.2 have been
satisfied and that there has been no material adverse change in the assets,
properties, prospects, condition, affairs, operations or business of the
Company, as now conducted or as proposed to be conducted, since the date of
this Agreement.

4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings taken by
the Company in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and the Investor shall have received all such
documents as it may have reasonably requested.

4.5 OPINION OF COUNSEL. The Investor shall have received an opinion from
the Company's counsel, dated as of the Closing and in a form and substance
reasonably acceptable to the Investor, to the effect that:

(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation,
and the Company has the requisite corporate power and authority
to own its properties and to conduct its business;

(b) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement. This

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<PAGE> 94

Agreement has been duly and validly authorized by the Company,
duly executed and delivered by an authorized officer of the
Company and constitutes a legal, valid and binding obligation of
the Company enforceable in accordance with its terms, except as
enforceability may be limited by law affecting the rights of
creditors generally;

(d) The certificates representing the Shares are in due and proper
form and have been duly and validly executed by the officers of
the Company named thereon;

(e) The execution, delivery, performance and compliance with the
terms of this Agreement do not violate any provision of the
Company's Articles of Incorporation or By-laws and, to the best
of such counsel's knowledge, do not conflict with or constitute a
default under the provisions of any judgment, writ, decree, order
or agreement to which the Company is a party or by which it is
bound, which conflict or default would be materially adverse to
the Company.

(f) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations, or
filings with, any federal, state of incorporation or principal
place of business governmental authority required to be made
prior to the Closing in connection with the consummation of the
transactions contemplated by this Agreement have been obtained,
and are effective, as of the Closing and such counsel is not
aware of any proceedings, or threat thereof, which question the
validity thereof;

(g) Based in part upon the representations of the Investor set forth
in this Agreement, the offer and sale of the Shares pursuant to
the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act and from any
state qualification requirements of the Company's state of
incorporation and principal place of business;

(h) Such counsel is not aware of any action, proceeding or
investigation pending against the Company or any of its officers,
directors, or employees, or that any of the foregoing has
received any threat thereof, which questions the validity of this

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<PAGE> 95

Agreement, or the right of the Company or its officers or
directors to enter into this Agreement.

(i) The Shares have been duly and validly authorized and issued
(including, without limitation, issued in compliance with
applicable federal and state securities laws), fully paid and
non-assessable and not subject to any preemptive rights, liens,
claims or encumbrances, or other restriction on transfer, except
as set forth in this Agreement.

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

OPHIDIAN PHARMACEUTICALS, INC. ELI LILLY AND COMPANY

By By
--------------------------------- ---------------------------------
Douglas C. Stafford August M. Watanabe
President Executive Vice President
Science and Technology

-7-
<PAGE> 96
**** Indicates where confidential material has been omitted and filed
separately with the Commission

EXHIBIT E

IMMUNOLOGY INVESTIGATIONS

*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************

<PAGE> 97

OPHIDIAN PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
5445 East Cheryl Parkway, Madison, WI 53711 Phone: (608) 271-0878
Fax: (608) 277-2395

EXHIBIT F

DR. DOUGLAS STAFFORD, PRESIDENT & CEO
OPHIDIAN PHARMACEUTICALS, INC.
FOR IMMEDIATE RELEASE (608) 271-0878

JAMES P. KAPPEL
ELI LILLY AND COMPANY
(317) 276-5795

LILLY AND OPHIDIAN TEAM UP TO DEVELOP A NEW, NON-ANTIBIOTIC
THERAPY FOR SERIOUS GASTROINTESTINAL INFECTIONS

June 4, 1996, Indianapolis, IN; Madison, WI. Eli Lilly and Company and Ophidian
Pharmaceuticals, Inc. announced today that they will jointly develop a new type
of pharmaceutical for the treatment of gastrointestinal infections. The
collaborative effort will first focus on developing Ophidian's lead compound to
treat Clostridium difficile - associated diseases (CDAD). CDAD is a serious
diarrheal disease that results from broad-spectrum antibiotic therapy of other
infections and is increasing at an alarming rate worldwide. Unlike currently
available antibiotics used to treat CDAD, the new compound selectively targets
toxins produced by the disease-causing microbe and not the intestine's normal
microbes. This approach should provide more effective management of CDAD.

Under the agreement, Ophidian could receive up to $12.4 million in equity
investments, milestone and other precommercial payments and will manufacture
the compound for Lilly. Lilly will conduct clinical testing, register and
market of the drug worldwide. In addition, the companies will begin to
negotiate an agreement for the supply of Ophidian's companion CDAD diagnostic
product.

The overuse of powerful, broad-spectrum antibiotics has led to a growing
medical problem of antibiotic resistance and opportunistic infections.
"Broad-spectrum antibiotics indiscriminately destroy both the good and the bad
bacteria" comments Dr. Dennis Maki, Head, Section of Infectious Diseases, at
the University of Wisconsin Hospitals and Clinics. "Some bacteria that escape
through resistance, and others like C. difficile that sprout like weeds in the
barren gut, multiply at an alarming rate--especially in hospitals," explains

<PAGE> 98

Dr. Maki. The normal bacterial residents of the gut keep C. difficile in check.
When this ecological balance is altered by antibiotics, C. difficile can take
over.

CDAD now affects hundreds of thousands of hospitalized patients worldwide.
Already weakened by other conditions, infected patients often develop diarrhea,
but some progress to a more debilitating or life-threatening form of the
disease--colitis. CDAD also adds considerably to treatment and containment
costs, imposing a growing economic burden on hospitals.

Antibiotics used to treat CDAD, while effective, further devastate the
intestinal microbial ecology--thereby promoting selection and over growth of
drug-resistant microbes in the gut. One intestinal bacterial species, the
enterococcus, are now resistant to virtually all antibiotics. To address this
difficult issue, Ophidian developed an antibody that specifically targets the
toxins of C. difficile, thus allowing the normal bacteria to recover and
contribute to the patient's natural defenses.

Comments August Watanabe, M.D., Lilly Executive Vice President, Science and
Technology, "As a leader in the treatment of infectious diseases, Lilly is
committed to providing solutions to unmet medical needs, such as this difficult
problem. Ophidian's technology offers the potential for more effective CDAD
therapy while helping to preserve the usefulness of essential antibiotics."

"While still early in the development process Ophidian has collected extensive
preclinical data showing the compound's efficacy in animals," says Dr. Douglas
Stafford, President and Chief Executive Officer of Ophidian. "To make this
approach work, we had to combine several scientific and manufacturing
strengths. First we focused on discovering what parts of the disease process
make the best drug target. Then we designed antibodies that block this target
and found a way to get these antibodies through the digestive system to the
diseased parts of the gut. What we now have is a technology which has the
potential to

Page 2 of 3
<PAGE> 99

create an expanding family of products to manage gastrointestinal
infections. Lilly's unparalleled strengths in biologic products and infectious
disease management make them a perfect partner for this product," adds
Stafford.

Lilly is a global research-based pharmaceutical corporation headquartered in
Indianapolis, IN, that is dedicated to creating and delivering superior health
care solutions--by combining pharmaceutical innovation, existing pharmaceutical
technology, disease prevention and management, and information technologies--in
order to provide customers worldwide with optimal clinical and economic
outcomes.

Ophidian is a privately-held biopharmaceutical firm headquartered in Madison,
WI, focused on the discovery and development of new drugs to prevent and treat
infectious diseases. Ophidian's proprietary technologies for the production and
oral delivery of pathogen-specific anti-infectives have opened a new pathway to
the management of gastrointestinal infections that does not lead to antibiotic
resistance or opportunistic infections.

Page 3 of 3
<PAGE> 100
**** Indicates where confidential material has been omitted and filed
separately with the Commission

Schedule 8.2

MANUFACTURING MILESTONES

Section 8.2(a) Manufacturing Milestone:

*********************************************************
*********************************************************

Section 8.2(b) Manufacturing Milestone:

*********************************************************
*********************************************************

Section 8.2(c) Manufacturing Milestone:

*********************************************************
*********************************************************

<PAGE> 101

**** Indicates where confidential material has been omitted and filed
separately with the Commission

Schedule 1.20

Lilly Patents

***************************

<PAGE> 102

Schedule 1.26

Ophidian Patents

United States Patent Appln. Serial No. 07/985,321, filed 12/4/92

PCT Patent Appln. No. PCT/U.S. 93/11755, filed 12-4-93

United States Patent Appln. Serial No. 08/329,154, filed 10/24/94

United States Patent Appln. Serial No. 08/422,711, filed 4/14/95

United States Patent Appln. Serial No. 08/456,997, filed 6/1/95

Canadian Patent Appln. No. 2150935, filed 6/2/95

United States Patent Appln. Serial No. 08/456,847, filed 6/1/95

United States Patent Appln. Serial No. 08/480,604, filed 6/7/95

United States Patent Appln. Serial No. 08/161,907, filed 12/2/93

PCT Patent Appln. No. PCT/U.S. 94/03765, filed 4/6/94

PCT Patent Appln. No. PCT/U.S. 95/13737, filed 10-23-95

United States Patent Appln. Serial No. 08/457,890, filed 6/1/95

Australian Patent Appln. No. 66538/94, filed 7/3/95

EPC Patent Appln. No. 94 903 438.3, filed 6/12/95

United States Patent Appln. Serial No. 08/457,048, filed 6/1/95

<PAGE> 103

**** Indicates where confidential material has been omitted and filed
separately with the Commission

Schedule 9.2

Projected Sales at Effective Date

*********************************************************************
*********************************************************************

<PAGE> 104
**** Indicates where confidential material has been omitted and filed
separately with the Commission Schedule A-2

Base Bulk Drug Substance Manufacturing Process

1. ***************************************************************
*******************************************************************************
*******************************************************************************.

2. ***************************************************************
*******************************************************************************
*******************************************************************************.

3. ***************************************************************
*******************************************************************************
*******************************************************************************.

<PAGE> 1
EXHIBIT 10.6
AGREEMENT

================================================================================

THIS AGREEMENT, made as of the 1st day of June, 1997, between OPHIDIAN
PHARMACEUTICALS, INC., a Wisconsin corporation, (the "Employer"), and DOUGLAS
C. STAFFORD, PH.D., (the "Employee");

RECITALS

The Employer is engaged in the business of the creation and marketing
of pharmaceutical products, and has developed methods, techniques, concepts and
systems for this business which are unique and distinctive.

The Employer desires to continue to employ the Employee as its
President and Chief Executive Officer, and in the course of his employment to
give him important information about its business methods, techniques, concepts
and systems, and to have him meet and deal with customers of the Employer,
obtain or have access to information about them, and develop special
relationships with them.

The Employer and the Employee desire to enter into an Agreement with
respect to the continued employment of the Employee by the Employer pursuant to
the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises of the parties
hereinafter set forth, the parties agree as follows:

1. EMPLOYMENT. The Employer agrees to continue to employ the
Employee, and the Employee agrees to continue to serve in the employment of the
Employer, upon the terms and conditions hereinafter set forth.

2. DUTIES. The Employee shall continue to serve as President and
Chief Executive Officer of the Employer, with substantially the same duties,
responsibilities, and work schedule, as maintained prior to the effective date
of this Agreement, in accordance with the directions of the Board of Directors
of the Employer. The Employee shall devote his full time professional effort,
attention and energy to the business and affairs of the Employer and shall use
his best efforts to promote the interests of the Employer.

3. TERM. The term of the employment of the Employee hereunder
shall commence as of the effective date of this Agreement, and shall continue
for a period of three (3) years thereafter, subject to termination as
hereinafter provided.

4. COMPENSATION. The Employer shall pay to the Employee, and the
Employee shall accept in full payment for his services to the Employer, such
base compensation,
<PAGE> 2
incentive compensation and bonus compensation as may be established by the
Employer from time to time. Notwithstanding the foregoing, the total amount of
such compensation shall not be reduced to less than the total amount of such
compensation that is being paid to the Employee as of the effective date of
this Agreement.

5. VACATION, SICK LEAVE AND OTHER BENEFITS.

(a) The Employee shall be entitled to vacation days and
sick leave in accordance with the Employer's established rules and policies.

(b) The Employee shall be eligible to participate in
insurance and other benefit programs provided to employees of the Employer
similarly situated, all in accordance with the Employer's established rules and
policies.

6. EXPENSES. The Employer shall reimburse the Employee for any
out of pocket expenses reasonably incurred by the Employee in the furtherance
of the business of the Employer, upon submission of a satisfactory accounting
by the Employee to the Employer.

7. INTELLECTUAL PROPERTY, TRADE SECRETS AND COMPETITIVE
ACTIVITIES. The provisions of the letter agreement between the parties dated
December 13, 1990, a copy of which is attached hereto as Addendum A, are
incorporated herein by reference.

8. TERMINATION.

(a) TERMINATION BY EMPLOYER FOR CAUSE. The Employer may,
by resolution of a majority of its Board of Directors, excluding the Employee,
terminate this Agreement and the Employee's employment effective immediately
upon written notice to the Employee for any of the following reasons:

(i) Commission by the Employee of any act of
intentional dishonesty material to the Employer.

(ii) Conviction of the Employee of an offense
involving moral turpitude constituting a felony criminal offense under federal,
state or local laws by the Employee.

(iii) Intentional and prolonged failure of the
Employee to devote his best efforts to performance of his duties for the
Employer or the incompetent performance of such duties. Such intentional and
prolonged failure to perform his duties, or the incompetent performance
thereof, shall be deemed to exist if the Employee has not substantially
corrected, or taken reasonable steps to correct, such failure within thirty
(30) days after having been notified in writing by the Board of Directors of
the Employer of such failure to perform or incompetent performance.

-2-
<PAGE> 3
Upon termination as set forth in the paragraph, the Employer shall
have no further obligations to the Employee under this Agreement, and the
Employee shall have no further obligations to the Employer, except as provided
in Paragraph 7 hereof.

(b) TERMINATION BECAUSE OF DEATH OR DISABILITY. This
Agreement and the Employee's employment shall be terminated immediately upon
the death or the disability of the Employee. For purposes of this Agreement,
the Employee shall be considered to be disabled if he is unable to perform the
above described services for a continuous period of six (6) months by reason of
physical or mental illness or incapacity. If there is any dispute as to
whether the Employee is or was physically or mentally unable to perform his
duties hereunder, such question shall be submitted to a licensed physician
mutually acceptable to the Employee and the Employer for determination.

Upon termination due to the Employee's death or disability, the
Employee, the personal representative of the Employee's estate or his legal
representative, as appropriate, shall have no further obligation to the
Employer except as provided in Paragraph 7 hereof, and the Employer shall have
no further obligation to the Employee's estate or the Employee under this
Agreement, except to pay the Employee or his estate any unpaid base
compensation, incentive compensation, and bonus compensation payable hereunder
with respect to the period prior to the effective date of termination and
reimbursement of expenses to which the Employee is entitled under Paragraph 6
hereof in respect to periods prior to the termination date.

(c) TERMINATION WITHOUT CAUSE. It is understood and
agreed by the parties hereto that the Employee is an employee-at-will and may
be terminated by the Employer at any time for any reason or no reason, and that
the Employee may terminate his employment with the Employer for any reason or
no reason, subject to the following:

(i) By the Employer. If the Employer terminates
this Agreement without cause, the Employee shall be entitled to full salary
("Severance Pay") and benefits for a term of twelve (12) months after the date
of such termination, and the Employee's right to exercise any unvested options
for the purchase of Employer stock under any stock option agreements entered
into pursuant to any qualified or nonqualified stock option plans of the
Employer, shall be accelerated so as to enable the Employee to fully exercise
the options granted under such agreements. Upon termination pursuant to this
Paragraph, the Employee shall have no further obligations to the Employer
except as provided in Paragraph 7 hereof.

(ii) By the Employee. The Employee may, upon
thirty (30) days advance written notice to the Employer, terminate this
Agreement and his employment hereunder. If the Employee terminates his
employment as provided hereunder for any reason other than for good reason, the
Employer shall have no further obligations to the Employee under this Agreement
for Severance Pay or other benefits beyond the effective date of

- 3 -
<PAGE> 4
termination. The Employee shall have no further obligations to the Employer
under this Agreement except as provided in Paragraph 7.

(d) TERMINATION FOR GOOD REASON.

(i) The Employee may, upon thirty (30) days
advance written notice to the Employer, terminate this Agreement and his
employment hereunder for good reason. In the event of a termination by the
Employee for good reason, the Employee shall be entitled to receive Severance
Pay in the same manner and amount as set forth in Paragraph 8(c)(i) above, and
the Employee's rights to exercise stock options shall be accelerated in the
same manner as set forth in Paragraph 8(c)(i) above.

(ii) For purposes of this Agreement, the Employee
shall have a "good reason" for termination of employment in the event of:

a. any breach of this Agreement by the
Employer; or

b. a good faith determination by the
Employee that there has been a significant adverse change, without the
Employee's written consent, in the Employee's working conditions or status with
the Employer from such working conditions or status as were in effect during
the 180-day period immediately prior to the effective date of this Agreement,
including but not limited to (A) a significant change in the nature or scope of
the Employee's authority, powers, functions, duties or responsibilities, or (B)
a significant reduction in the level of support services, staff, secretarial
and other assistance, office space and accoutrements provided to the Employee.

c. a change in control of the Employer,
which for purposes of this Agreement shall be deemed to occur if: (i)
securities of the Employer representing twenty-five percent (25%) or more of
the combined voting power of the Employer's then outstanding voting securities
are acquired pursuant to a tender offer or an exchange offer; (ii) the
shareholders of the Employer approve a merger, consolidation, or reorganization
of the Employer with any other corporation as a result of which less than
seventy-five percent (75%) of the outstanding voting securities of the
surviving or resulting entity are owned by the former shareholders of the
Employer other than a shareholder who is an affiliate or associate of any party
to such consolidation or merger; (iii) the shareholders of the Employer approve
the sale or other transfer of all or substantially all of the Employer's assets
to a corporation or other person which is not a wholly owned subsidiary of the
Employer; or (iv) the employer acquires, whether through purchase, merger or
otherwise, all or substantially all of the operating assets or capital stock of
another entity and in connection with such acquisition persons are elected or
appointed to the Board of Directors of the Employer who are not directors
immediately prior to such acquisition and such persons constitute a majority of
the Board of Directors after such acquisition.

- 4 -
<PAGE> 5
9. PARTIAL INVALIDITY. The terms and provisions of this
Agreement shall be deemed severable, and if any term or provision of this
Agreement or the application thereof to any person or circumstances shall to
any extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to the persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term, covenant or condition of this Agreement shall be valid
and be enforced to the fullest extent permitted by law.

10. APPLICABLE LAW. This Agreement is executed, delivered and
intended to be performed pursuant to the laws of the State of Wisconsin.

11. NOTICES. Any notices required or desired to be given
hereunder shall be complete if sent by Certified or Registered Mail, Return
Receipt Requested, to his residence in the case of the Employee, and to its
principal office in the case of the Employer, or by personal delivery.

12. ENTIRE AGREEMENT. This instrument, the letter agreement
between the parties dated December 13, 1990 the provisions of which are
incorporated herein by reference, and any stock option agreements entered into
pursuant to any qualified or nonqualified stock option plans of the Employer,
contain the entire agreement of the parties, and may not be changed orally, but
only by an agreement in writing executed by both parties.

13. SUCCESSORS AND ASSIGNS. The Employee shall have no power to
transfer, assign, anticipate, mortgage, or otherwise encumber in advance any of
the sums payable hereunder, nor shall any of such sums be subject to seizure
for the payment of any debt or judgment or be transferable by operation of law
in the event of bankruptcy or insolvency. This Agreement shall inure to the
benefit of, and shall be binding upon, the successors and assigns of the
Employer.

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

EMPLOYER: EMPLOYEE:

OPHIDIAN PHARMACEUTICALS, INC. (Seal)

By: /s/ Douglas C. Stafford /s/ Douglas C. Stafford (Seal)
--------------------------------------- -------------------------------
Douglas C. Stafford, President Douglas C. Stafford, Ph.D.

Attest: /s/ Margaret van Boldrik
---------------------------------
Margaret van Boldrik, Secretary

- 5 -

<PAGE> 1

EXHIBIT 10.7

AGREEMENT
================================================================================

THIS AGREEMENT, made as of the 1st day of June, 1997, between OPHIDIAN
PHARMACEUTICALS, INC., a Wisconsin corporation, (the "Employer"), and JOSEPH
FIRCA, PH.D., (the "Employee");

RECITALS

The Employer desires to continue to employ the Employee as its Vice
President of Research and Development, and in the course of his employment to
give him important information about its business methods, techniques, concepts
and systems, and to have him meet and deal with customers of the Employer,
obtain or have access to information about them, and develop special
relationships with them.

The Employer and the Employee desire to enter into an Agreement with
respect to the continued employment of the Employee by the Employer pursuant to
the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises of the parties
hereinafter set forth, the parties agree as follows:

2. DUTIES. The Employee shall continue to serve as Vice
President of Research and Development of the Employer, with substantially the
same duties, responsibilities, and work schedule, as maintained prior to the
effective date of this Agreement, in accordance with the directions of the
President of the Employer. The Employee shall devote his full time
professional effort, attention and energy to the business and affairs of the
Employer and shall use his best efforts to promote the interests of the
Employer.

4. COMPENSATION. The Employer shall pay to the Employee, and the
Employee shall accept in full payment for his services to the Employer, such
base compensation, incentive compensation and bonus compensation as may be
established by the Employer from
<PAGE> 2
time to time. Notwithstanding the foregoing, the total amount of such
compensation shall not be reduced to less than the total amount of such
compensation that is being paid to the Employee as of the effective date of
this Agreement.

5. VACATION, SICK LEAVE AND OTHER BENEFITS.

(a) The Employee shall be entitled to vacation days and
sick leave in accordance with the Employer's established rules and policies.

7. INTELLECTUAL PROPERTY, TRADE SECRETS AND COMPETITIVE
ACTIVITIES. The provisions of the letter agreement between the parties dated
July 13, 1992, a copy of which is attached hereto as Addendum A, are
incorporated herein by reference.

8. TERMINATION.

(a) TERMINATION BY EMPLOYER FOR CAUSE. The Employer may
terminate this Agreement and the Employee's employment effective immediately
upon written notice to the Employee for any of the following reasons:

(i) Commission by the Employee of any act of
intentional dishonesty material to the Employer.

(ii) Conviction of the Employee of an offense
involving moral turpitude constituting a felony criminal offense under federal,
state or local laws by the Employee.

(iii) Intentional and prolonged failure of the
Employee to devote his best efforts to performance of his duties for the
Employer or the incompetent performance of such duties. Such intentional and
prolonged failure to perform his duties, or the incompetent performance
thereof, shall be deemed to exist if the Employee has not substantially
corrected, or taken reasonable steps to correct, such failure within thirty
(30) days after having been notified in writing by the President of the
Employer of such failure to perform or incompetent performance.

Upon termination as set forth in the paragraph, the Employer shall
have no further obligations to the Employee under this Agreement, and the
Employee shall have no further

-2-
<PAGE> 3
obligations to the Employer, except as provided in Paragraph 7 hereof.

-3-
<PAGE> 4
(d) TERMINATION FOR GOOD REASON.

(ii) For purposes of this Agreement, the Employee
shall have a "good reason" for termination of employment in the event of:

a. any breach of this Agreement by the
Employer; or

9. PARTIAL INVALIDITY. The terms and provisions of this
Agreement shall be deemed severable, and if any term or provision of this
Agreement or the application thereof to any person or circumstances shall to
any extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to the persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and

-4-
<PAGE> 5
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.

10. APPLICABLE LAW. This Agreement is executed, delivered and
intended to be performed pursuant to the laws of the State of Wisconsin.

12. ENTIRE AGREEMENT. This instrument, the letter agreement
between the parties dated July 13, 1992 the provisions of which are
incorporated herein by reference, and any stock option agreements entered into
pursuant to any qualified or nonqualified stock option plans of the Employer,
contain the entire agreement of the parties, and may not be changed orally, but
only by an agreement in writing executed by both parties.

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

EMPLOYER: EMPLOYEE

OPHIDIAN PHARMACEUTICALS, INC. (Seal)

By:

/s/ Douglas C. Stafford /s/ Joseph Firca (seal)
- ------------------------------------- -------------------------------------
Douglas C. Stafford, Ph.D., President Joseph Firca, Ph.D.

Attest:

/s/ Margaret van Boldrik
- -------------------------------------
Margaret van Boldrik, Secretary

-5-

<PAGE> 1
Exhibit 11.1

STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
Year ended September 30, Nine Months Ended June 30
1994 1995 1996 1996 1997
----------- ----------- ----------- ------ -------
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding 6,086,065 6,089,128 6,115,289 6,090,841 7,072,828
Adjustment pursuant to the Securities and
Exchange Commission (SEC) Staff
Accounting Bulletin No. 83 (a) 1,232,104 1,232,104 1,208,157 1,232,104 251,468
----------- ----------- ----------- --------- ---------
7,318,169 7,321,232 7,323,446 7,322,945 7,324,296
Net loss $ (705,295) $(1,603,887) $(2,004,572) (1,321,217) (1,536,351)
----------- ----------- ----------- --------- ---------
Per share amount $ (0.10) $ (0.22) $ (0.27) (0.18) (0.21)
=========== =========== =========== ========= =========
</TABLE>

(a) Common equivalent shares are excluded from the weighted average
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 83,
common and common equivalent shares issued during the 12-month period
prior to the initial filing of the proposed offering at prices below the
assumed public offering price have been included in the calculation as if
they were outstanding for all periods being presented (using the treasury
stock method for stock options and warrants at the estimated public
offering price).

<PAGE> 1
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP. INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our reports dated October 9, 1996
(except for Note 10, as to which the date is February 17, 1997) in the
Registration Statement (Form S-1) and related Prospectus of Ophidian
Pharmaceuticals, Inc. for the registration of 2,500,000 shares of its common
stock and 2,500,000 warrants to purchase its common stock.

ERNST & YOUNG LLP

Milwaukee, Wisconsin
August 4, 1997

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 JUN-30-1997
<CASH> 3,276,339 4,675,016
<SECURITIES> 481,463 478,950
<RECEIVABLES> 28,554 205,878
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,798,690 5,390,980
<PP&E> 570,505 739,824
<DEPRECIATION> 290,438 377,188
<TOTAL-ASSETS> 5,247,761 6,888,056
<CURRENT-LIABILITIES> 470,587 509,262
<BONDS> 0 0
0 0
0 0
<COMMON> 16,791 18,215
<OTHER-SE> 4,726,469 6,321,966
<TOTAL-LIABILITY-AND-EQUITY> 5,247,761 6,888,056
<SALES> 0 0
<TOTAL-REVENUES> 321,444 775,162
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,320 3,138
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,004,572) (1,536,351)
<EPS-PRIMARY> (0.27) (0.21)
<EPS-DILUTED> 0 0

</TABLE>