LICENSE AGREEMENT


                                 by and between


                         THE SCRIPPS RESEARCH INSTITUTE,
                             a California nonprofit
                           public benefit corporation

                                       and

                                   CYANOTECH,
                              a Nevada corporation




<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>      <C>                                                                                                   <C>
                                                                                                               Page

1.       Definitions............................................................................................  1
         1.1      Affiliate.....................................................................................  1
         1.2      Aldolase Catalytic Antibody 38C2..............................................................  1
         1.3      Confidential Information......................................................................  2
         1.4      Field.........................................................................................  2
         1.5      Licensed Process..............................................................................  2
         1.6      Licensed Product..............................................................................  2
         1.7      Net Sales.....................................................................................  2
         1.8      Scripps Patent Rights.........................................................................  2
         1.9      Scripps Technology............................................................................  3

2.       License Terms and Conditions...........................................................................  3
         2.1      Grant of License..............................................................................  3
         2.2      Royalties.....................................................................................  3
         2.3      Combination Products..........................................................................  3
                  2.3.1   Definition of Combination Product.....................................................  3
                  2.3.2   Royalty Payable on Combination Products...............................................  3
         2.4      Quarterly Payments............................................................................  4
         2.5      Term of License...............................................................................  4
         2.6      Duration of Royalty Obligations...............................................................  4
         2.7      Reports.......................................................................................  5
         2.8      Records.......................................................................................  5
         2.9      Foreign Sales.................................................................................  5
         2.10     Foreign Taxes.................................................................................  5

3.       Patent Matters.........................................................................................  6
         3.1      Patent Prosecution and Maintenance............................................................  6
         3.2      Ownership.....................................................................................  6

4.       Obligations Related to Commercialization...............................................................  6
         4.1      Commercial Development Obligation.............................................................  6
         4.2      Governmental Approvals and Marketing of Licensed Products...................................... 7
         4.3      Indemnity...................................................................................... 7
         4.4      Patent Marking................................................................................. 7
         4.5      No Use of Name................................................................................  7
         4.6      U.S. Manufacture............................................................................... 7
         4.7      Foreign Registration........................................................................... 7

5.       Limited Warranty........................................................................................ 7
</TABLE>
                                       i

<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>      <C>                                                                                                   <C>
                                                                                                               Page
6.       Interests in Intellectual Property Rights............................................................... 8
         6.1      Preservation of Title.......................................................................... 8
         6.2      Royalty-free License to Improvements........................................................... 8
         6.3      Governmental Interest.........................................................................  8
         6.4      Reservation of Rights.......................................................................... 8

7.       Confidentiality and Publication......................................................................... 8
         7.1      Treatment of Confidential Information.......................................................... 8
         7.2      Publicity...................................................................................... 9

8.       Term and Termination.................................................................................... 9
         8.1      Term........................................................................................... 9
         8.2      Termination Upon Default....................................................................... 9
         8.3      Termination Upon Bankruptcy or Insolvency...................................................... 9
         8.4      Rights Upon Expiration........................................................................ 10
         8.5      Rights Upon Termination....................................................................... 10
         8.6      Work-in-Progress.............................................................................. 10

9.       Assignment; Successors................................................................................. 10
         9.1      Assignment.................................................................................... 10
         9.2      Binding Upon Successors and Assigns........................................................... 10

10.      General Provisions..................................................................................... 11
         10.1     Independent Contractors....................................................................... 11
         10.2     Arbitration................................................................................... 11
                  10.2.1   Location............................................................................. 11
                  10.2.2   Selection of Arbitrators............................................................. 11
                  10.2.3   Discovery............................................................................ 11
                  10.2.4   Case Management...................................................................... 12
                  10.2.5   Remedies............................................................................. 12
                  10.2.6   Expenses............................................................................. 12
                  10.2.7   Confidentiality...................................................................... 12
         10.3     Entire Agreement; Modification................................................................ 12
         10.4     California Law................................................................................ 12
         10.5     Headings...................................................................................... 13
         10.6     Severability.................................................................................. 13
         10.7     No Waiver..................................................................................... 13
         10.8     Name.......................................................................................... 13
         10.9     Attorneys' Fees............................................................................... 13
</TABLE>

                                       ii

<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>      <C>                                                                                                   <C>
                                                                                                              Page
         10.10    Notices....................................................................................... 13
         10.11    Compliance with U.S. Laws..................................................................... 14
</TABLE>
                                      iii

<PAGE>
                                LICENSE AGREEMENT


                  This License  Agreement is entered into and made  effective as
of this 13th day of April, 1998,  by and between THE SCRIPPS RESEARCH INSTITUTE,
a California nonprofit public benefit corporation  ("Scripps")  located at 10550
North Torrey Pines Road, La Jolla,  California  92037,  and CYANOTECH,  a Nevada
corporation ("Licensee") located at 73-4460 Queen Kaahumanu Highway, Hawaii
96740, with respect to the facts set forth below.


                                    RECITALS

               A.  Scripps  is  engaged   in  fundamental   scientific  research
including  research  relating to  catalytic antibodies  and  the  expression  of
proteins in algae.

               B.  Licensee is engaged  in  the  development  of  algal  protein
expression systems for the large-scale production of proteins useful in research
and industrial enterprises.

               C.  Scripps  desires to grant to Licensee, and Licensee wishes to
acquire,  an  exclusive  worldwide  license  to  certain  technology  of Scripps
relating to the production of an aldolase catalytic antibody in microalgae.


                                    AGREEMENT

                  NOW,  THEREFORE,  in consideration of the mutual covenants and
conditions set forth herein, Scripps and Licensee hereby agree as follows:

1. Definitions. Capitalized terms shall have the meaning set forth below.

     1.1 Affiliate. The term "Affiliate" shall mean any entity which directly or
indirectly controls,  is controlled by or is under common control with Licensee.
The term "control" as used herein means the possession of the power to direct or
cause the  direction of the  management  and the policies of an entity,  whether
through the ownership of a majority of the outstanding  voting  securities or by
contract or otherwise.

     1.2 Aldolase Catalytic Antibody 38C2. The term "Aldolase Catalytic Antibody
38C2"  shall mean an aldol  addition  reaction  catalyzing  antibody or antibody
fragment  having an amino acid residue  sequence  equivalent to that of an aldol
addition  reaction  catalyzing  antibody or antibody fragment encoded by nucleic
acid in or from hybridoma 38C2 described in U.S. Patent No. 5,733,757.


                                       1
<PAGE>
     1.3 Confidential  Information.  The term  "Confidential  Information" shall
mean any and all proprietary or confidential  information of Scripps or Licensee
which may be  exchanged  between  the  parties at any time and from time to time
during  the  term  of  this  Agreement.  Information  shall  not  be  considered
confidential to the extent that it:

     a. Is  publicly  disclosed  through  no fault of any party  hereto,  either
before or after it becomes known to the receiving party; or

     b. Was known to the  receiving  party prior to the date of this  Agreement,
which knowledge was acquired independently and not from another party hereto (or
such party's employees); or

     c. Is  subsequently  disclosed  to the  receiving  party in good faith by a
third party who has a right to make such disclosure; or

     d. Has been published by a third party as a matter of right.

     1.4 Field.  The term "Field" shall mean all applications or products except
those adapted or intended for preventing,  treating,  mitigating or diagnosing a
disease or condition in humans or vertebrate animals.

     1.5 Licensed  Process.  The term "Licensed  Process" shall mean any process
utilizing  Scripps  Technology to produce  Aldolase  Catalytic  Antibody 38C2 in
microalgae.

     1.6  Licensed  Product.   The  term  "Licensed   Product"  shall  mean  any
composition of matter containing Aldolase Catalytic Antibody 38C2.

     1.7 Net Sales. The term "Net Sales" shall mean the gross amount invoiced by
Licensee,  or its Affiliates and  sublicensees,  or any of them, on all sales of
Licensed Product,  less (i) discounts actually allowed, (ii) credits for claims,
allowances,  retroactive  price  reductions  or returned  goods,  (iii)  prepaid
freight  and (iv) sales taxes or other  governmental  charges  actually  paid in
connection with sales of Licensed  Product (but excluding what is commonly known
as income taxes).  For purposes of determining Net Sales, a sale shall be deemed
to have  occurred  when an invoice  therefor  shall be generated or the Licensed
Product  shipped for  delivery.  Sales of Licensed  Product by  Licensee,  or an
Affiliate or sublicensee of Licensee to any Affiliate or sublicensee  which is a
reseller  thereof  shall  be  excluded,  and only  the  subsequent  sale of such
Licensed Products by Affiliates or sublicensees of Licensee to unrelated parties
shall be deemed Net Sales hereunder.

     1.8 Scripps  Patent  Rights.  The term "Scripps  Patent  Rights" shall mean
rights  arising  out of or  resulting  from  (I)  United  States  Patent  Serial
No.5,733,757 and all reissues,  reexaminations,  and extensions thereof, so long
as said patent(s) has not been held

                                       2

<PAGE>
invalid and/or  unenforceable  by a court of competent  jurisdiction  from which
there is no appeal or, if appealable,  from which no appeal has been taken, (ii)
PCT/US  Patent  Application  Serial  No.  98/00840  and  all  continuations  and
divisionals  thereof  and (iii)  all  foreign  counterpart  patents  and  patent
applications for (i) and (ii).

     1.9  Scripps   Technology.   The  term  "Scripps   Technology"  shall  mean
proprietary  property of Scripps  developed  in the  laboratory  of Dr.  Stephen
Mayfield for producing Aldolase Catalytic  Antibody 38C2,  including  materials,
processes,  information and know-how related thereto, whether or not the same is
eligible for protection under the patent laws of the United States or elsewhere,
and whether or not any such materials,  processes and technology, or information
related thereto,  would be enforceable as a trade secret or the copying of which
would be enjoined or restrained by a court as constituting unfair competition.

2. License Terms and Conditions.

     2.1 Grant of License.  Scripps  hereby  grants to  Licensee  an  exclusive,
worldwide  license,  without the right to sublicense,  to Scripps Technology and
under  Scripps  Patent  Rights,  to use the  Licensed  Process to make  Licensed
Product and to use and sell Licensed Product in the Field,  subject to the terms
of this Agreement,  provided, however, such exclusive license shall convert to a
non-exclusive license either (a) on the second anniversary of the Effective Date
if Licensee has failed to sell Licensed Product prior to such anniversary or (b)
on the fifth anniversary of the Effective Date.

     2.2  Royalties.  Licensee  shall pay to Scripps a  continuing  royalty on a
country-by-country basis in the amount of (i) seven percent (7%) of Net Sales of
Licensed  Product  which cannot be made,  used or sold in such  country  without
infringing  one or more valid claims under  Scripps  Patent Rights or (ii) three
and one-half percent (3.5%) of Net Sales of all other Licensed Product.

     2.3 Combination Products.

     2.3.1  Definition  of  Combination   Product.  As  used  herein,  the  term
"Combination   Product"   shall  mean  a  Licensed   Product   which  cannot  be
manufactured,  used or sold without infringing Scripps Patent Rights,  utilizing
Scripps  Technology  licensed  hereunder,  infringing  or utilizing  one or more
patents or  proprietary  technology  or know-how of (I)  Licensee,  (ii) a third
party licensed  pursuant to an agreement  between Licensee and such third party,
or (iii) Scripps under a license  agreement other than this Agreement  (referred
to herein as "other licensed rights").

     2.3.2  Royalty  Payable on  Combination  Products.  The royalty  payable on
Combination  Products  shall be the royalty rate set forth in Section 2.2. above
based 
<PAGE>

on  a  pro rata portion of Net Sales of Combination  Products in accordance with
the following formula:

                                                 A
                                            X = ---
                                                 B, where


                                            X = the  pro  rata  portion  of  Net
                                    Sales  attributable to Scripps Patent Rights
                                    or other Scripps Technology  licensed herein
                                    (expressed as a percentage), and

                                            A = the  fair  market  value  of the
                                    component   in   the   Combination   Product
                                    utilizing   Scripps   Technology    licensed
                                    hereunder, and

                                            B = A plus the fair market  value of
                                    all  other  components  in  the  Combination
                                    Product using other licensed rights.

The fair market values described above shall be determined by the parties hereto
in good faith. In the absence of agreement as to the fair market value of all of
the components contained in a Combination Product, the fair market value of each
component  shall be determined by arbitration in accordance  with the provisions
of Section 10.2 hereof.

     2.4 Quarterly  Payments.  With  regard to Net Sales made by Licensee or its
Affiliates,  royalties shall be payable by Licensee quarterly, within sixty (60)
days  after  the end of each  calendar  quarter,  based  upon  the Net  Sales of
Licensed  Product during such preceding  calendar  quarter,  commencing with the
calendar  quarter in which the first  commercial sale of any Licensed Product is
made.

     2.5 Term of  License.  Unless  terminated  sooner  in  accordance  with the
provisions  of this  Agreement,  the term of this license  shall expire when the
last of the  royalty  obligations  set forth has  expired.  Notwithstanding  the
foregoing,  if applicable government regulations require a shorter term and/or a
shorter term of  exclusivity  than  provided  for herein,  then the term of this
License  Agreement  shall be so  shortened or this  License  Agreement  shall be
amended to provide for a non-exclusive  license, and, in such event, the parties
shall negotiate in good faith to reduce  appropriately  the royalties payable as
set forth under the section heading "Royalties" hereof.

     2.6 Duration of Royalty Obligations. The royalty obligations of Licensee as
to  each  Licensed  Product  shall  terminate  on  a  country-by-country   basis
concurrently  with the expiration of the last to expire of Scripps Patent Rights
utilized by or in such Licensed Product in each such country or, with respect to
Licensed Product not utilizing

                                       4

<PAGE>
any Scripps Patent Rights, fifteen (15) years after the date of first commercial
sale of such Licensed Product in such country.

     2.7  Reports.  Licensee  shall  furnish to Scripps at the same time as each
royalty payment is made by Licensee,  a detailed  written report of Net Sales of
the  Licensed  Product  and the royalty  due and  payable  thereon,  including a
description   of   any   offsets   or   credits   deducted   therefrom,   on   a
product-by-product and  country-by-country  basis, for the calendar quarter upon
which the royalty payment is based.

     2.8 Records. Licensee shall keep, and cause its Affiliates and sublicensees
to keep, full, complete and proper records and accounts of all sales of Licensed
Product in  sufficient  detail to enable the  royalties  payable on Net Sales of
each Licensed Product to be determined.  Scripps shall have the right to appoint
an independent  certified  public  accounting  firm approved by Licensee,  which
approval shall not be unreasonably  withheld,  to audit the records of Licensee,
its Affiliates  and  sublicensees  as necessary to verify the royalties  payable
pursuant to this Agreement.  Licensee, its Affiliates and sublicensees shall pay
to Scripps  an amount  equal to any  additional  royalties  to which  Scripps is
entitled as disclosed by the audit, plus interest thereon at the rate of one and
one-half  percent  (1.5%) per month.  Such audit shall be at Scripps's  expense;
provided,  however,  that if the audit  discloses  that  Scripps  was  underpaid
royalties with respect to any Licensed Product by at least five percent (5%) for
any calendar quarter, then Licensee, its Affiliates or sublicensee,  as the case
may be, shall reimburse  Scripps for any such audit costs.  Scripps may exercise
its right of audit as to each of Licensee,  its  Affiliates or  sublicensees  no
more  frequently  than once in any  calendar  year.  The  accounting  firm shall
disclose to Scripps  only  information  relating to the  accuracy of the royalty
payments.  Licensee, its Affiliates and sublicensees shall preserve and maintain
all such  records  required  for audit for a period of three (3) years after the
calendar quarter to which the record applies.

     2.9 Foreign Sales. The remittance of royalties payable on sales outside the
United States, if sold in other than United States Dollars,  shall be payable to
Scripps in United States Dollar  equivalents at the official rate of exchange of
the currency of the country from which the royalties  are payable,  as quoted in
the Wall Street  Journal for the last  business day of the  calendar  quarter in
which the royalties are payable.  If the transfer of or the conversion  into the
United States Dollar  equivalents of any such remittance in any such instance is
not  lawful  or  possible,  the  payment  of such  part of the  royalties  as is
necessary  shall be made by the deposit  thereof,  in the currency of the county
where the sale was made on which the royalty was based to the credit and account
of Scripps or its nominee in any  commercial  bank or trust company of Scripps's
choice located in that country, prompt written notice of which shall be given by
Licensee to Scripps.

     2.10 Foreign  Taxes.  Any tax required to be withheld by Licensee under the
laws of any foreign  country for the accounts of Scripps  shall be promptly paid
by  Licensee  for and on  behalf  of  Scripps  to the  appropriate  governmental
authority, and Licensee

                                       5

<PAGE>
shall use its best efforts to furnish  Scripps with proof of payment of such tax
together with official or other  appropriate  evidence  issued by the applicable
government  authority.  Any such tax actually paid on Scripps's  behalf shall be
deducted from royalty payments due Scripps.

3. Patent Matters.

     3.1 Patent  Prosecution  and  Maintenance.  From and after the date of this
Agreement,  the provisions of this Section 3 shall control the  prosecution  and
maintenance of any patent included within Scripps Patent Rights.  Subject to the
requirements,  limitations and conditions set forth in this  Agreement,  Scripps
shall  direct and control (I) the  preparation,  filing and  prosecution  of the
United  States and foreign  patent  applications  within  Scripps  Patent Rights
(including  any  interferences  and foreign  oppositions)  and (ii) maintain the
patents issuing therefrom.

     3.2 Ownership.  The patent  applications  filed and the patents obtained by
Scripps  pursuant  to  Section  3.1  hereof  shall be owned  solely by  Scripps,
assigned to Scripps and deemed a part of Scripps Patent Rights.

4. Obligations Related to Commercialization.

     4.1  Commercial  Development  Obligation.  In order to maintain the license
granted  hereunder  in force,  Licensee  shall use  reasonable  efforts  and due
diligence to develop  Scripps  Technology  and Scripps  Patent  Rights which are
licensed hereunder into commercially  viable Licensed Product, as promptly as is
reasonably  and  commercially  feasible,  and  thereafter  to  produce  and sell
reasonable quantities of Licensed Product. Licensee shall keep Scripps generally
informed as to Licensee's  progress in such  development,  production  and sale,
including its efforts,  if any, to  sublicense  Scripps  Technology  and Scripps
Patent Rights,  and Licensee shall deliver to Scripps a quarterly written report
and such other reports as Scripps may  reasonably  request.  The parties  hereto
acknowledge and agree that achievement of the milestones  described in Exhibit A
attached  hereto on or before the dates set forth  therein  shall be evidence of
compliance by Licensee with its commercial development obligations hereunder for
the time periods  specified in Exhibit A. In the event  Scripps has a reasonable
basis to believe that Licensee is not using reasonable efforts and due diligence
as required  hereunder,  upon notice by Scripps to Licensee which  specifies the
basis for such  belief,  Scripps and Licensee  shall  negotiate in good faith to
attempt to mutually  resolve the issue. In the event Scripps and Licensee cannot
agree upon any matter related to Licensee's commercial development  obligations,
the parties  agree to utilize  arbitration  pursuant  to Section  10.2 hereof in
order to resolve the matter. If the arbitrator  determines that Licensee has not
complied  with its  obligations  hereunder,  and such default is not fully cured
within sixty (60) days after the  arbitrator's  decision,  Scripps may terminate
Licensee's rights under this Agreement.

                                       6
<PAGE>
     4.2  Governmental  Approvals and Marketing of Licensed  Products.  Licensee
shall be responsible for obtaining all necessary  governmental approvals for the
development,  production, distribution, sale and use of any Licensed Product, at
Licensee's expense, including,  without limitation, any safety studies. Licensee
shall  have  sole   responsibility   for  any  warning  labels,   packaging  and
instructions  as to the use of Licensed  Product and for the quality control for
any Licensed Product.

     4.3  Indemnity.  Licensee  hereby  agrees  to  indemnify,  defend  and hold
harmless Scripps and any parent, subsidiary or other affiliated entity and their
trustees,  officers,  employees,  scientists  and agents  from and  against  any
liability or expense  arising from any product  liability  claim asserted by any
party as to any  Licensed  Product  or any  claims  arising  from the use of any
Scripps Patent Rights or Scripps  Technology  pursuant to this  Agreement.  Such
indemnity and defense  obligation shall apply to any product  liability or other
claims, including without limitation, personal injury, death or property damage,
made by employees, subcontractors,  sublicensees, or agents of Licensee, as well
as any member of the general public. Licensee shall use its best efforts to have
Scripps  and any  parent,  subsidiary  or  other  affiliated  entity  and  their
trustees, officers, employees, scientists and agents named as additional insured
parties on any product liability insurance policies maintained by Licensee,  its
Affiliates and sublicensees applicable to Licensed Products.

     4.4 Patent  Marking.  To the extent  required by applicable  law,  Licensee
shall mark all Licensed  Products or their  containers  in  accordance  with the
applicable patent marking laws.

     4.5 No Use of Name. The use of the name "The Scripps  Research  Institute",
"Scripps",  or any variation  thereof in connection with the advertising or sale
of Licensed Products is expressly prohibited.

     4.6 U.S.  Manufacture.  To the extent required by applicable  United States
laws, if at all,  Licensee agrees that Licensed Products will be manufactured in
the  United  States,  or its  territories,  subject  to such  waivers  as may be
required,  or obtained,  if at all, from the United States  Department of Health
and Human Services, or its designee.

     4.7 Foreign  Registration.  Licensee agrees to register this Agreement with
any foreign  governmental agency which requires such registration,  and Licensee
shall pay all  costs  and  legal  fees in  connection  therewith.  In  addition,
Licensee shall assure that all foreign laws affecting this Agreement or the sale
of Licensed Products are fully satisfied.

     5. Limited  Warranty.  Scripps  hereby  represents and warrants that it has
full  right  and  power to enter  into this  Agreement.  SCRIPPS  MAKES NO OTHER
WARRANTIES  CONCERNING  SCRIPPS PATENT RIGHTS OR SCRIPPS  TECHNOLOGY  COVERED BY
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A

                                       7
<PAGE>
PARTICULAR  PURPOSE AS TO  SCRIPPS  PATENT  RIGHTS,  SCRIPPS  TECHNOLOGY  OR ANY
LICENSED PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY
OR SCOPE OF SCRIPPS  PATENT  RIGHTS,  OR THAT ANY LICENSED  PRODUCT WILL BE FREE
FROM AN INFRINGEMENT ON PATENTS OR OTHER  INTELLECTUAL  PROPERTY RIGHTS OF THIRD
PARTIES,  OR THAT NO THIRD  PARTIES  ARE IN ANY WAY  INFRINGING  SCRIPPS  PATENT
RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT.

6. Interests in Intellectual Property Rights.

     6.1 Preservation of Title. Scripps shall retain full ownership and title to
Scripps  Technology,  and Scripps Patent Rights licensed hereunder and shall use
its  reasonable  best efforts to preserve and maintain  such full  ownership and
title,  subject to Licensee fully  performing all of its obligations  under this
Agreement.

     6.2 Royalty-free License to Improvements. Licensee hereby grants to Scripps
a non-exclusive,  royalty-free  license to any improvement to Scripps Technology
developed  by Licensee,  to use for its own research  purposes or grant to other
nonprofit institutions for their research purposes.

     6.3 Governmental  Interest.  Licensee and Scripps  acknowledge that Scripps
has received, and expects to continue to receive, funding from the United States
Government  in support of Scripps's  research  activities.  Licensee and Scripps
acknowledge and agree that their respective  rights and obligations  pursuant to
this Agreement  shall be subject to Scripps's  obligations and the rights of the
United States  Government,  if any, which arise or result from Scripps's receipt
of  research  support  from the  United  States  Government,  including  without
limitation,  the  grant  by  Scripps  to  the  United  States  a  non-exclusive,
irrevocable,  royalty-free  license to Scripps  Technology  and  Scripps  Patent
Rights licensed hereunder for governmental purposes.

     6.4  Reservation  of  Rights.  Scripps  reserves  the  right to use for any
non-commercial  research  purposes  and  the  right  to  allow  other  nonprofit
institutions  to use  for  any  non-commercial  research  purposes  any  Scripps
Technology and Scripps Patent Rights licensed hereunder, without Scripps or such
other  institutions  being  obligated  to pay  Licensee  any  royalties or other
compensation.

7. Confidentiality and Publication.

     7.1 Treatment of  Confidential  Information.  The parties agree that during
the term of this  Agreement,  and for a period  of three (3)  years  after  this
Agreement terminates,  a party receiving  Confidential  Information of the other
party will (I) maintain in confidence such Confidential  Information to the same
extent such party maintains its own proprietary industrial information, (ii) not
disclose such Confidential Information to any third

                                       8

<PAGE>
party without  prior  written  consent of the other party and (iii) not use such
Confidential  Information  for  any  purpose  except  those  permitted  by  this
Agreement.

     7.2 Publicity.  Except as otherwise  provided herein or required by law, no
party  shall   originate   any   publication,   news  release  or  other  public
announcement,  written  or oral,  whether  in the  public  press,  stockholders'
reports,  or  otherwise,  relating  to  this  Agreement  or  to  any  sublicense
hereunder,  or to the performance hereunder or any such agreements,  without the
prior  written  approval  of  the  other  party,  which  approval  shall  not be
unreasonably  withheld.  Scientific  publications  published in accordance  with
Section 7.2 of this  Agreement  shall not be construed as publicity  governed by
this Section 7.3.

8. Term and Termination.

     8.1 Term.  Unless  terminated sooner in accordance with the terms set forth
herein,  this Agreement,  and the license granted hereunder,  shall terminate as
provided in Section 2.6 hereof.

     8.2 Termination Upon Default. Any one or more of the following events shall
constitute an event of default hereunder:  (i) the failure of a party to pay any
amounts when due hereunder and the expiration of fifteen (15) days after receipt
of a written notice requesting the payment of such amount; (ii) the failure of a
party to perform any obligation required of its to be performed  hereunder,  and
the  failure to cure  within  sixty (60) days after  receipt of notice  from the
other party specifying in reasonable detail the nature of such default. Upon the
occurrence of any event of default,  the non-defaulting party may deliver to the
defaulting  party written notice of intent to terminate,  such termination to be
effective upon the date set forth in such notice.

     Such termination rights shall be in addition to and not in substitution for
any  other  remedies  that  may  be  available  to  the  non-defaulting   party.
Termination  pursuant to this Section 8.2 shall not relieve the defaulting party
from  liability  and  damages to the other  party for breach of this  Agreement.
Waiver by either party of a single default or a succession of defaults shall not
deprive such party of any right to terminate this Agreement arising by reason of
any subsequent default.

     8.3  Termination  Upon  Bankruptcy  or  Insolvency.  This  Agreement may be
terminated by Scripps  giving written notice of termination to Licensee upon the
filing of bankruptcy or bankruptcy of Licensee or the  appointment of a receiver
of any of Licensee's assets, or the making by Licensee of any assignment for the
benefit of creditors,  or the  institution of any proceedings  against  Licensee
under any bankruptcy law. Termination shall be effective upon the date specified
in such notice.

                                       9

<PAGE>
     8.4 Rights Upon Expiration.  Neither party shall have any further rights or
obligations  upon the expiration of this Agreement upon its regularly  scheduled
expiration  date with respect to this  Agreement,  other than the  obligation of
Licensee to make any and all reports and payments for the final quarter  period.
Provided,  however,  that upon such expiration,  each party shall be required to
continue to abide by its non-disclosure obligations as described in Section 7.1,
and Licensee shall  continue to abide by its obligation to indemnify  Scripps as
described in Section 4.3 and by its obligations under Section 6.2 hereof.

     8.5 Rights Upon  Termination.  Notwithstanding  any other provision of this
Agreement,  upon  any  termination  of this  Agreement  prior  to the  regularly
scheduled expiration date of this Agreement, the license granted hereunder shall
terminate.  Except as otherwise  provided in Section 8.6 of this  Agreement with
respect  to  work-in-progress,  upon such  termination,  Licensee  shall have no
further  right to develop,  manufacture  or market any Licensed  Product,  or to
otherwise use any Scripps Patent Rights or any Scripps  Technology not otherwise
includable  therein.  Upon any such termination,  Licensee shall promptly return
all materials, samples, documents, information, and other materials which embody
or disclose  Scripps  Patent  Rights or any  Scripps  Technology  not  otherwise
includable therein;  provided,  however, that Licensee shall not be obligated to
provide  Scripps with  proprietary  information  which Licensee can show that it
independently  developed.  Any such  termination  shall not relieve either party
from  any  obligations  accrued  to the  date of  such  termination.  Upon  such
termination,  each  party  shall  be  required  to  abide  by its  nondisclosure
obligations as described in Section 7.1, and Licensee shall continue to abide by
its obligations to indemnify Scripps as described in Section 4.3.

     8.6  Work-in-Progress.  Upon  any such  early  termination  of the  license
granted hereunder in accordance with this Agreement,  Licensee shall be entitled
to finish any work-in-progress and to sell any completed inventory of a Licensed
Product  covered  by such  license  which  remain  on hand as of the date of the
termination,  so long as Licensee  pays to Scripps the  royalties  applicable to
said  subsequent  sales in accordance with the terms and conditions as set forth
in this  Agreement,  provided  that no such sales shall be  permitted  after the
expiration of six (6) months after the date of termination.

9. Assignment; Successors.

     9.1 Assignment. Neither this Agreement nor any rights granted hereunder may
be assigned or transferred by Licensee except (I) to an Affiliate of Licensee or
(ii) as expressly  permitted  hereunder,  without the prior  written  consent of
Scripps.

     9.2 Binding Upon  Successors  and Assigns.  Subject to the  limitations  on
assignment herein, this Agreement shall be binding upon and inure to the benefit
of any  successors  in interest  and assigns of Scripps and  Licensee.  Any such
successor or assignee of

                                       10

<PAGE>



Licensee's interest shall expressly assume in writing the performance of all the
terms and conditions of this Agreement to be performed by Licensee.

10. General Provisions.

     10.1 Independent Contractors. The relationship between Scripps and Licensee
is  that  of  independent  contractors.  Scripps  and  Licensee  are  not  joint
venturers,  partners,  principal  and agent,  master and  servant,  employer  or
employee,  and have no other  relationship  other than  independent  contracting
parties. Scripps and Licensee shall have no power to bind or obligate each other
in any manner, other than as is expressly set forth in this Agreement.

     10.2  Arbitration.  Any  controversy or claim arising out of or relating to
this Agreement,  or the breach thereof,  shall be settled by binding arbitration
in accordance with the Commercial  Arbitration Rules of the American Arbitration
Association  ("AAA"),  and the procedures  set forth below.  In the event of any
inconsistency  between the Rules of AAA and the procedures set forth below,  the
procedures  set forth below shall  control.  Judgment upon the award rendered by
the arbitrators may be enforced in any court having jurisdiction thereof.

     10.2.1 Location.  The location of the arbitration shall be in the County of
San Diego.

     10.2.2  Selection of Arbitrators.  The arbitration  shall be conducted by a
panel of three neutral  arbitrators who are independent and  disinterested  with
respect to the parties, this Agreement, and the outcome of the arbitration. Each
party  shall  appoint  one  neutral  arbitrator,  and these two  arbitrators  so
selected by the parties shall then select the third arbitrator. If one party has
given  written  notice to the other party as to the  identity of the  arbitrator
appointed by the party,  and the party  thereafter makes a written demand on the
other party to appoint its designated  arbitrator  within the next ten days, and
the other party fails to appoint its designated arbitrator within ten days after
receiving  said  written  demand,  then  the  arbitrator  who has  already  been
designated shall appoint the other two arbitrators.

     10.2.3  Discovery.  Unless the  parties  mutually  agree in writing to some
additional and specific pre-hearing  discovery,  the only pre-hearing  discovery
shall be (a)  reasonably  limited  production  of  relevant  and  non-privileged
documents,  and (b) the identification of witnesses to be called at the hearing,
which identification  shall give the witness's name, general  qualifications and
position,  and a brief  statement as to the general scope of the testimony to be
given by the  witness.  The  arbitrators  shall  decide any  disputes  and shall
control the process concerning these pre-hearing discovery matters.  Pursuant to
the  Rules  of AAA,  the  parties  may  subpoena  witnesses  and  documents  for
presentation at the hearing.

                                       11

<PAGE>



     10.2.4 Case  Management.  Prompt  resolution of any dispute is important to
both parties; and the parties agree that the arbitration of any dispute shall be
conducted  expeditiously.  The arbitrators are instructed and directed to assume
case management  initiative and control over the arbitration  process (including
scheduling of events,  pre-hearing discovery and activities,  and the conduct of
the  hearing),  in order to complete  the  arbitration  as  expeditiously  as is
reasonably practical for obtaining a just resolution of the dispute.

     10.2.5 Remedies. The arbitrators may grant any legal or equitable remedy or
relief that the  arbitrators  deem just and  equitable,  to the same extent that
remedies  or relief  could be  granted  by a state or  federal  court,  provided
however,  that no  punitive  damages  may be  awarded.  No court  action  may be
maintained  seeking  punitive  damages.  The  decision  of any two of the  three
arbitrators appointed shall be binding upon the parties.

     10.2.6   Expenses.   The  expenses  of  the   arbitration,   including  the
arbitrators'  fees,  expert witness fees, and attorney's fees, may be awarded to
the  prevailing  party,  in  the  discretion  of  the  arbitrators,  or  may  be
apportioned  between  the  parties  in  any  manner  deemed  appropriate  by the
arbitrators.  Unless and until the  arbitrators  decide that one party is to pay
for all (or a share) of such  expenses,  both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.

     10.2.7  Confidentiality.  Except as set forth below, the parties shall keep
confidential the fact of the arbitration,  the dispute being arbitrated, and the
decision of the  arbitrators.  Notwithstanding  the  foregoing,  the parties may
disclose  information  about the arbitration to persons who have a need to know,
such  as  directors,   trustees,   management  employees,   witnesses,  experts,
investors,  attorneys,  lenders,  insurers,  and  others  who  may  be  directly
affected. Additionally, if a party has stock which is publicly traded, the party
may make  such  disclosures  as are  required  by  applicable  securities  laws.
Further, if a party is expressly asked by a third party about the dispute or the
arbitration, the party may disclose and acknowledge in general and limited terms
that  there is a  dispute  with the  other  party  which is being  (or has been)
arbitrated.  Once the  arbitration  award has become final,  if the  arbitration
award is not promptly satisfied, then these confidentiality  provisions shall no
longer be applicable.

     10.3 Entire Agreement;  Modification.  This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof.
There shall be no amendments or  modifications  to this  Agreement,  except by a
written document which is signed by both parties.

     10.4  California  Law.  This  Agreement  shall be construed and enforced in
accordance with the laws of the State of California.


                                       12

<PAGE>
     10.5 Headings.  The headings for each article and section in this Agreement
have been  inserted for  convenience  of reference  only and are not intended to
limit or expand on the  meaning  of the  language  contained  in the  particular
article or section.

     10.6  Severability.  Should  any  one or  more  of the  provisions  of this
Agreement be held invalid or unenforceable by a court of competent jurisdiction,
it shall be  considered  severed  from  this  Agreement  and  shall not serve to
invalidate the remaining provisions thereof. The parties shall make a good faith
effort to  replace  any  invalid  or  unenforceable  provision  with a valid and
enforceable one such that the objectives contemplated by them when entering this
Agreement may be realized.

     10.7 No  Waiver.  Any  delay in  enforcing  a  party's  rights  under  this
Agreement  or any waiver as to a  particular  default or other  matter shall not
constitute  a waiver of such  party's  rights to the future  enforcement  of its
rights under this Agreement,  excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.

     10.8  Name.  Whenever  there  has been an  assignment  or a  sublicense  by
Licensee as permitted by this  Agreement,  the term  "Licensee"  as used in this
Agreement  shall also  include and refer to, if  appropriate,  such  assignee or
sublicensee.

     10.9 Attorneys'  Fees. In the event of a dispute between the parties hereto
or in the event of any default hereunder, the party prevailing in the resolution
of any such  dispute or default  shall be  entitled  to recover  its  reasonable
attorneys'  fees and other costs  incurred in  connection  with  resolving  such
dispute or default.

     10.10 Notices.  Any notices required by this Agreement shall be in writing,
shall  specifically  refer to this  Agreement and shall be sent by registered or
certified  airmail,  postage  prepaid,  or by telefax,  telex or cable,  charges
prepaid, or by overnight courier,  postage prepaid and shall be forwarded to the
respective  addresses  set forth below  unless  subsequently  changed by written
notice to the other party:

         For Scripps:               The Scripps Research Institute
                                    10550 North Torrey Pines Road
                                    La Jolla, California  92037
                                    Attention:
                                    Fax No.:  (619) 784-9910

         For Licensee:              Cyanotech Corporation
                                    73-4460 Queen Kaahumanu Highway
                                    Kailua-Kona, HI  96740
                                    Attention:  President and CEO
                                    Fax No.:  (808) 329-3597

                                       13

<PAGE>
Notice shall be deemed  delivered  upon the earlier of (i) when  received,  (ii)
three (3) days after deposit into the mail, or (iii) the date notice is sent via
telefax,  telex  or  cable,  (iv)  the day  immediately  following  delivery  to
overnight courier (except Sunday and holidays).

     10.11 Compliance with U.S. Laws.  Nothing contained in this Agreement shall
require  or permit  Scripps  or  Licensee  to do any act  inconsistent  with the
requirements of any United States law, regulation or executive order as the same
may be in effect from time to time.


     IN WITNESS WHEREOF,  the parties have executed this Agreement by their duly
authorized representatives as of the date set forth above.


SCRIPPS:                                             LICENSEE:


THE SCRIPPS RESEARCH INSTITUTE                       CYANOTECH CORPORATION



By:/s/Arnold LaGuardia                               By:/s/Gerald R. Cysewski
   -------------------                                  ---------------------
   Senior Vice President                                President & CEO


                                       14

<PAGE>


                                    EXHIBIT A


Milestones

     I. Pilot production of Licensed Product and shipment of sufficient Licensed
Product to Scripps for  evaluation.  To be  completed  within four months  after
receipt of Licensed Product from Scripps.

     II.  Production of reagent  quantities of Licensed Product (1 to 10 grams).
To be  completed  within eight  months  after  receipt of Licensed  Product from
Scripps.

     III.  Commercial  Sales of Licensed  Product.  To commence within 12 months
after receipt of Licensed Product from Scripps.


                                       15