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                                                                   EXHIBIT 10.46

                               SECURITY AGREEMENT


               THIS SECURITY AGREEMENT dated as of May 4, 1998, is made by
Progenitor, Inc. (the "Borrower"), a Delaware corporation having its principal
place of business and chief executive office at 4040 Campbell Avenue, Menlo
Park, California 94025, in favor of Transamerica Business Credit Corporation, a
Delaware corporation (the "Lender"), having its principal office at Riverway II,
West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, and an
office at 76 Batterson Park Road, Farmington, Connecticut 06032-2571.

               WHEREAS, the Borrower has requested that the Lender make a loan
to it; and

               WHEREAS, the Lender has agreed to make such loan on the terms and
conditions of this Security Agreement.

               NOW, THEREFORE, in consideration of the premises and to induce
the Lender to make such loan, the Borrower hereby agrees with the Lender as
follows:

               SECTION 1. DEFINITIONS.

               As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:

               "Applicable Law" shall mean the laws of the State of Illinois (or
any other jurisdiction whose laws are mandatorily applicable notwithstanding the
parties' choice of Illinois law) or, with respect to laws limiting the rates of
interest charges on loans, the laws of the United States of America, whichever
laws allow the greater interest to be charged thereon, as such laws now exist or
may be changed or amended or come into effect in the future.

               "Business Day" shall mean any day other than a Saturday, Sunday,
or public holiday or the equivalent for banks in New York City.

               "Code" shall have the meaning specified in Section 8(a).

               "Collateral" shall have the meaning specified in Section 2.

               "Designated Assets" shall have the meaning specified in Section
2(iii).

               "Effective Date" shall mean the date on which all of 


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the conditions specified in Section 3.3 shall have been satisfied.

               "Event of Default" shall mean any event specified in Section 7.

               "Financial Statements" shall have the meaning specified in
Section 6.1.

               "GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time.

               "Intellectual Property Assignment" shall mean the Assignment for
Security, substantially in the form of Exhibit D, as amended, supplemented or
otherwise modified from time to time.

               "Lease Agreement" shall mean the Master Lease Agreement of even
date herewith between the Borrower and the Lender, as amended, supplemented or
otherwise modified from time to time.

               "Loan" shall mean the loan made by the Lender to the Borrower in
accordance with the terms of this Security Agreement and the Note.

               "Loan Documents" shall mean, collectively, this Security
Agreement, the Note, the Lockbox Agreement, the Intellectual Property Assignment
and all other documents, agreements, certificates, instruments, and opinions
executed and delivered in connection herewith and therewith, as the same may be
amended, supplemented or otherwise modified from time to time.

               "Lockbox Agreement" shall mean the Lockbox Agreement,
substantially in the form of Exhibit B, as amended, supplemented or otherwise
modified from time to time.

               "Material Adverse Change" shall mean, with respect to any Person,
a material adverse change in the business, prospects, operations, results of
operations, assets, liabilities, or condition (financial or otherwise) of such
Person taken as a whole.

               "Material Adverse Effect" shall mean, with respect to any Person,
a material adverse effect on the business, prospects, operations, results of
operations, assets, liabilities, or condition (financial or otherwise) of such
Person taken as a whole.

               "Note" shall mean the Promissory Note, substantially in the form
of Exhibit A, as amended, supplemented, or otherwise modified from time to time.


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               "Obligations" shall mean all indebtedness, obligations, and
liabilities of the Borrower under the Loan Documents and the Lease Agreement,
whether on account of principal, interest, rent, finance charges, indemnities,
fees (including, without limitation, attorneys' fees, remarketing fees,
origination fees, collection fees, and all other professionals' fees), costs,
expenses, taxes, or otherwise.

               "Permitted Liens" shall mean (a) such of the following as to
which no enforcement, collection, execution, levy, or foreclosure proceeding
shall have been commenced: (i) liens for taxes, assessments, and other
governmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen, and other like Persons arising
by operation of law in the ordinary course of business for sums which are not
yet due and payable, or liens which are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves are maintained to the extent required by GAAP; (ii) deposits or pledges
to secure the payment of workmen's compensation, unemployment insurance, or
other social security benefits or obligations, public or statutory obligations,
surety or appeal bonds, bid or performance bonds, or other obligations of a like
nature incurred in the ordinary course of business; (iii) licenses,
restrictions, or covenants for or on the use of equipment which do not
materially impair either the use of such equipment in the operation of the
business of the Borrower or the value thereof; (iv) licenses on intellectual
property entered into on arms'-length terms in the ordinary course of business;
and (v) attachment or judgment liens that do not constitute an Event of Default;
(b) purchase money security interests upon equipment acquired or held by the
Borrower to secure the purchase price of such equipment; (c) liens existing on
the date hereof and specified in Schedule 1 hereto, but only to secure
indebtedness in the maximum amount secured thereby on the date hereof; and (d)
liens on assets acquired by the Borrower after the date hereof which liens
existed prior to such acquisition.

               "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (including any division,
agency, or department thereof), and the successors, heirs, and assigns of each.

               "Receivables" shall have the meaning specified in Section
8(a)(iii).

               "SBCL" shall mean SmithKline Beecham Clinical Laboratories, Inc.,
a Delaware corporation.

               "SBCL License" shall have the meaning specified in 


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Section 2(iii).

               "Security Agreement" shall mean this Security Agreement, as
amended, supplemented, or otherwise modified from time to time.

               "Solvent" shall mean, with respect to any Person, that as of the
date as to which such Person's solvency is measured:

                      (a) the fair saleable value of its assets is in excess of
               the total amount of its liabilities (including contingent
               liabilities as valued in accordance with GAAP) as they become
               absolute and matured;

                      (b) it has sufficient capital to conduct its business; and

                      (c) it is able generally to meet its debts as they mature.

               "Taxes" shall have the meaning specified in Section 5.5.

               SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The
Borrower hereby assigns and grants to the Lender a continuing general lien on,
and security interest in, all the Borrower's right, title, and interest in and
to the collateral described in the next sentence (the "Collateral") to secure
the payment and performance of all the Obligations. The Collateral consists of

                    (i) all present and future machinery, equipment, furniture,
                fixtures, leasehold improvements, conveyors, tools, materials,
                storage and handling equipment, hydraulic presses, cutting
                equipment, computer equipment and hardware, including central
                processing units, terminals, drives, memory units, printers,
                keyboards, screens, peripherals and input or output devices,
                molds, dies, stamps, and other equipment of every kind and
                nature and wherever situated now or hereafter owned and held for
                use by the Borrower or in which the Borrower may have any
                interest as lessee (to the extent of such interest), together
                with all additions and accessions thereto, all replacements and
                all accessories and parts therefor, all manuals, blueprints,
                know-how, warranties and records in connection therewith
                (including, without limitation, any computer software, whether
                on tape, disc, card, strip or cartridge or in any other form)
                and all rights against suppliers, warrantors, manufacturers, and
                sellers or others in connection therewith, together with all
                substitutes for any of the 


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                foregoing;

                    (ii) all present and future goods intended for sale, lease
                or other disposition by the Borrower including, without
                limitation, all raw materials, work in process, systems,
                accessories, spare parts, finished goods and other retail
                inventory, goods in the possession of outside processors or
                other third parties, consigned goods (to the extent of the
                consignee's interest therein), materials, parts and supplies of
                any kind, nature or description which are or might be used in
                connection with the manufacture, packing, shipping, advertising,
                selling or finishing of any such goods, all documents of title
                or documents representing the same and all records, files and
                writings (including, without limitation, any computer software,
                whether on tape, disc, card, strip or cartridge or in any other
                form) with respect thereto;

                    (iii) all of the Borrower's present and future accounts
                (including rights to receive payments for goods sold or services
                rendered arising out of the sale or delivery of personal
                property or work done or labor performed), contract rights,
                agreements, understandings, open purchase and sale orders,
                promissory notes, chattel paper, documents, tax refunds, rights
                to receive tax refunds, bonds, certificates, insurance policies,
                insurance proceeds, patents, patent applications, copyrights
                (registered and unregistered), royalties, licenses (including,
                without limitation, the License Agreement dated as of September
                18, 1997 (as amended, supplemented or otherwise modified from
                time to time, the "SBCL License") between the Borrower and
                SBCL), rights to receive fees, royalties and other payments
                under license agreements (including, without limitation, the
                SBCL License), permits, franchise rights, authorizations,
                customer and supplier lists, rights of indemnification,
                contribution and subrogation, leases, computer tapes, programs,
                discs and software, trade secrets, computer service contracts,
                trademarks, trade names, service marks and names, logos,
                goodwill, deposits, causes of action, choses in action,
                judgments, designs, blueprints, quotations and bids, plans,
                specifications, sales literature, know-how, all other general
                intangibles, claims against third parties of every kind or
                nature, investment securities, notes, drafts, acceptances,
                letters of credit and rights to receive payments under letters
                of credit, deposit accounts, book accounts, prepaid expenses,
                credits and reserves and all forms of obligations whatsoever
                owing, instruments, documents of title, leasehold rights,


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                including in any goods, books, ledgers, files (including credit
                and project files) and records (including tax records) with
                respect to any collateral or security, together with all right,
                title, security and guaranties with respect thereto, including
                any right of stoppage in transit; and

                    (iv) all proceeds of the foregoing;

provided, however, that the Collateral shall not include, and the Borrower shall
not be deemed to have granted a security interest in, any of the Borrower's
right, title or interest in, to or under (i) any operating lease or capital
lease of personal property or any intellectual property license, in each case
entered into in the ordinary course of business at arm's-length, with respect to
which the Borrower is the lessee or licensee to the extent that such grant would
result in a breach of the terms of such lease or license and (ii) any contract
or other agreement existing on the date hereof to the extent that such grant
would result in a breach of a term of such contract or agreement prohibiting
such grant without the consent of the other party thereto, and, in the case of
clause (i) and (ii) hereof, other than to the extent that any such term would be
rendered ineffective pursuant to Section 9-318 of the Code (the assets specified
in clauses (i) and (ii) hereof being referred to herein collectively as the
"Designated Assets").

               SECTION 3. THE LOAN.

                      SECTION 3.1. BORROWING. The Loan shall be in an amount not
greater than $1,900,000 available for borrowing in a single draw at any time
until June 30, 1998. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the Loan only after the Lender, in its sole
discretion, determines that the applicable conditions for borrowing contained in
Section 3.3 are satisfied.

                      SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall
not directly or indirectly use any proceeds of the Loan other than for general
working capital purposes.

                      SECTION 3.3. CONDITIONS TO LOAN.

                      (a) The obligation of the Lender to make the Loan is
subject to the Lender's receipt of the following, each dated the date of the
making of the Loan or as of an earlier date acceptable to the Lender, in form
and substance satisfactory to the Lender and its counsel:

                         (i) completed requests for information (Form UCC-11)
                listing all effective Uniform Commercial Code financing
                statements naming the Borrower as debtor and 


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                all patent, trademark, copyright, tax lien, judgment, and
                litigation searches for the Borrower as the Lender shall deem
                necessary or desirable, in each case with results satisfactory
                to the Lender;

                         (ii) Uniform Commercial Code financing statements (Form
                UCC-1) duly executed by the Borrower (naming the Lender as
                secured party and the Borrower as debtor and in form acceptable
                for filing in all jurisdictions that the Lender deems necessary
                or desirable to perfect the security interests granted to it
                hereunder) and, if applicable, termination statements or other
                releases duly filed in all jurisdictions that the Lender deems
                necessary or desirable to perfect and protect the priority of
                the security interests granted to it hereunder;

                         (iii) the Lockbox Agreement, duly executed by the
                Borrower, the Lender and Wells Fargo Bank;

                         (iv) the Intellectual Property Assignment, duly
                executed by the Borrower;

                         (v) the Note, duly executed by the Borrower;

                         (vi) a notification letter from the Borrower to SBCL,
                substantially in the form of Exhibit C, duly executed by the
                Borrower (which shall not be delivered by the Lender to SBCL
                except during the continuance of an Event of Default);

                         (vii) a copy of the SBCL License, attached to which is
                a certificate of the Secretary or an Assistant Secretary of the
                Borrower certifying that such copy is true, complete and
                accurate and contains any and all amendments thereto;

                         (viii) certificates of insurance required under Section
                5.4 of this Security Agreement together with loss payee
                endorsements for all such policies naming the Lender as lender
                loss payee and as an additional insured;

                         (ix) a copy of the resolutions of the Board of
                Directors of the Borrower (or a unanimous consent of directors
                in lieu thereof) authorizing the execution, delivery, and
                performance of this Security Agreement, the other Loan
                Documents, and the transactions contemplated hereby and thereby,
                attached to which is a certificate of the Secretary or an
                Assistant Secretary of the Borrower certifying (A) that the copy
                of the resolutions is true, complete, and accurate, and that


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                such resolutions have not been amended or modified since the
                date of such certification and are in full force and effect and
                (B) the incumbency, names, and true signatures of the officers
                of the Borrower authorized to sign the Loan Documents to which
                it is a party;

                         (x) the opinion of counsel for the Borrower covering
                such matters incident to the transactions contemplated by this
                Security Agreement as the Lender may reasonably require; and

                         (xi) such other agreements and instruments as the
                Lender deems necessary in its sole and absolute discretion in
                connection with the transactions contemplated hereby.

                      (b) There shall be no pending or, to the knowledge of the
Borrower after due inquiry, threatened litigation, proceeding, inquiry, or other
action (i) seeking an injunction or other restraining order, damages, or other
relief with respect to the transactions contemplated by this Security Agreement
or the other Loan Documents or (ii) which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have a
Material Adverse Effect in the judgment of the Lender.

                      (c) The Borrower shall have paid all fees and expenses
required to be paid by it to the Lender as of such date. (d) All representations
and warranties of the Borrower contained in this Security Agreement and the
other Loan Documents shall be true and correct on and as of the date of the
making of the Loan.

                      (e) No Event of Default or event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default
shall be continuing or would result from the making of the Loan.


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               SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.

                      SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS; NO
TRADE NAMES. The Borrower (a) is duly organized, validly existing, and in good
standing under the laws of the State of its organization, (b) has the power and
authority to own its properties and assets and to transact the businesses in
which it is presently, or proposes to be, engaged, and (c) is duly qualified and
authorized to do business and is in good standing in every jurisdiction in which
the failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents or (iii) the rights of the Lender hereunder. The Borrower does not
use, and has not used during the past five years, any trade or other fictional
name.

                      SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery,
and performance by the Borrower of each of the Loan Documents to which it is a
party are within the powers of the Borrower, do not contravene the
organizational documents of the Borrower and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage or deed of trust, or any material lease, agreement
or other instrument binding on the Borrower or any of its properties or (c)
require the consent of, authorization by, approval of, notice to or filing or
registration with any Person. This Security Agreement is, and each of the other
Loan Documents to which the Borrower is or will be a party, when delivered will
be, the legal, valid, and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and except as such
enforceability may be limited by general principles of equity, whether
considered in a suit in law or in equity).

                      SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent
and will be Solvent upon the completion of all transactions contemplated to
occur hereunder (including, without limitation, the making of the Loan); the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral other than Permitted Liens; and the
Borrower is, or will be at the time additional Collateral is acquired by it, the
absolute owner of the Collateral with full right to pledge, sell, consign,
transfer, and create a security interest therein, free and clear of any and all
claims or liens in favor of any other Person other than Permitted Liens.


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                      SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceeding by or against the Borrower except
judgments and pending or threatened litigation, contested claims, and
governmental proceedings which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.

                      SECTION 4.5. NO DEFAULTS. The Borrower is not in default
and has not received a notice of default under any material contract, lease, or
commitment to which it is a party or by which it is bound. The Borrower knows of
no dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Borrower.

                      SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, (i)
each item of the Collateral consisting of goods is located at the address of the
Borrower specified in the introductory paragraph of this Security Agreement and
(ii) the principal place of business and chief executive office of the Borrower
and the office where the Borrower keeps the original SBCL License and its
records is the address of the Borrower specified in the introductory paragraph
of this Security Agreement. None of the Collateral is evidenced by promissory
notes or other instruments.

                      SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.

                      SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except for
Permitted Liens, none of the Collateral is subject to contractual obligations
that may restrict or inhibit the Lender's rights or ability to sell or otherwise
dispose of the Collateral or any part thereof during the continuance of an Event
of Default.

                      SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Security Agreement creates a valid and, upon completion of all required
filings of financing statements and similar registrations, perfected first
priority and exclusive security interest in the Collateral (other than Permitted
Liens), securing the payment of all the Obligations.


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                      SECTION 4.10. ACCURACY AND COMPLETENESS OF INFORMATION.
All data, reports and information heretofore, contemporaneously or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Security Agreement or any other Loan
Document, or any transaction contemplated hereby or thereby, are or will be true
and accurate in all material respects on the date as of which such data, reports
and information are dated or certified and not incomplete by omitting to state
any material fact necessary to make such data, reports and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect on the Borrower and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion, or other written statement
previously furnished by the Borrower to the Lender.

                      SECTION 4.11. SBCL LICENSE. The SBCL License has been duly
authorized, executed and delivered by the Borrower and, to the best of the
Borrower's knowledge after due inquiry, by SBCL, has not been amended or
otherwise modified, is in full force and effect and is binding upon and
enforceable against the Borrower and, to the best of the Borrower's knowledge
after due inquiry, against SBCL in accordance with its terms. There exists no
default under the SBCL License by the Borrower or, to the best of the Borrower's
knowledge after due inquiry, by SBCL.

               SECTION 5. COVENANTS OF THE BORROWER.

                      SECTION 5.1. EXISTENCE, ETC. The Borrower will: (a) retain
its existence and its current yearly accounting cycle, (b) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts and other rights necessary or desirable to the conduct of its business
unless the failure to do so could not have a Material Adverse Effect on the
Borrower, (c) continue in, and limit its operations to, the same general lines
of business as those presently conducted by it and (d) comply with all
applicable laws and regulations of any federal, state or local governmental
authority, except for such laws and regulations the violations of which would
not, in the aggregate, have a Material Adverse Effect on the Borrower.


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                      SECTION 5.2. NOTICE TO THE LENDER. As soon as possible,
and in any event within five days after the Borrower learns of the following,
the Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted by or against the Borrower in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $50,000 in
the aggregate, (b) any contract that is terminated or amended and which has had
or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
Borrower and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time, or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.

                      SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The
Borrower will maintain books and records pertaining to the Collateral in such
detail, form, and scope as the Lender shall require in its commercially
reasonable judgment. The Borrower agrees that the Lender or its agents may enter
upon the Borrower's premises at any time and from time to time during normal
business hours, and at any time during the continuance of an Event of Default,
for the purpose of inspecting the Collateral and any and all records pertaining
thereto.


<PAGE>   13
                      SECTION 5.4. INSURANCE. The Borrower will maintain
insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts, and covering such risks as are at all
times satisfactory to the Lender. All such policies shall be made payable to the
Lender, in case of loss, under a standard non-contributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may
reasonably require to protect the Lender's interests in the Collateral and to
any payments to be made under such policies. Certificates of insurance policies
are to be delivered to the Lender, premium prepaid, with the loss payable
endorsement in the Lender's favor, and shall provide for not less than thirty
days' prior written notice to the Lender of any alteration or cancellation of
coverage. If the Borrower fails to maintain such insurance, the Lender may
arrange for (at the Borrower's expense and without any responsibility on the
Lender's part for) obtaining the insurance. During the continuance of an Event
of Default, the Lender shall have the sole right, in the name of the Lender or
the Borrower, to file claims under any insurance policies, to receive and give
acquittance for any payments that may be payable thereunder, and to execute any
endorsements, receipts, releases, assignments, reassignments, or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.

                      SECTION 5.5. TAXES. The Borrower will pay, when due, all
taxes, assessments, claims and other charges ("Taxes") lawfully levied or
assessed against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, and if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations.


<PAGE>   14
                      SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS;
FEES ON COLLATERAL. The Borrower will defend the Collateral against all claims
and demands of all Persons at any time claiming the same or any interest
therein. The Borrower will not permit any notice creating or otherwise relating
to liens on the Collateral or any portion thereof to exist or be on file in any
public office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale or use of the Collateral, other than taxes on
or measured by the Lender's income and fees, assessments, charges and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.

                      SECTION 5.7. NO CHANGE OF LOCATION. The Borrower will not
(a) change the location of its chief executive office or establish any place of
business other than that specified herein or (b) move or permit the movement of
any item of Collateral from such location, except that the Borrower may change
its chief executive office and keep Collateral at other locations within the
United States provided that the Borrower has delivered to the Lender (i) prior
written notice thereof and (ii) duly executed financing statements and other
agreements and instruments (all in form and substance satisfactory to the
Lender) necessary or, in the opinion of the Lender, desirable to perfect and
maintain in favor of the Lender a first priority security interest in the
Collateral.


<PAGE>   15
                      SECTION 5.8. FURTHER ASSURANCES. The Borrower will,
promptly upon request by the Lender, execute and deliver or use its best efforts
to obtain any document required by the Lender (including, without limitation,
warehouseman or processor disclaimers, mortgagee waivers, landlord disclaimers,
or subordination agreements with respect to the Obligations under the Loan
Documents and the Collateral), give any notices, execute and file any financing
statements, mortgages, or other documents (all in form and substance
satisfactory to the Lender), mark any chattel paper, deliver any chattel paper
or instruments to the Lender, and take any other actions that are necessary or,
in the opinion of the Lender, desirable to perfect or continue the perfection
and the first priority of the Lender's security interest in the Collateral, to
protect the Collateral against the rights, claims, or interests of any Person
(other than Permitted Liens), or to effect the purposes of this Security
Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Borrower where permitted
by law. A carbon, photographic, or other reproduction of this Security Agreement
or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Security Agreement, the Borrower will pay all costs incurred
in connection with any of the foregoing.

                      SECTION 5.9. NO DISPOSITION OF COLLATERAL. The Borrower
will not in any way hypothecate or create or permit to exist any lien, security
interest, charge, or encumbrance on or other interest in any of the Collateral
or the Designated Assets, except for the lien and security interest granted
hereby and Permitted Liens, and the Borrower will not sell, transfer, assign,
pledge, collaterally assign, exchange, or otherwise dispose of any of the
Collateral. In the event the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Lender shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange, or other disposition, and the Borrower will hold the proceeds thereof
in a separate account for the benefit of the Lender. Following such a sale, the
Borrower will transfer such proceeds to the Lender in kind.

                      SECTION 5.10. NO LIMITATION ON LENDER'S RIGHTS. The
Borrower will not enter into any contractual obligations (other than Permitted
Liens) which may restrict or inhibit the Lender's rights or ability to sell or
otherwise dispose of the Collateral or any part thereof.


<PAGE>   16
                      SECTION 5.11. PROTECTION OF COLLATERAL. Upon not less than
fifteen days' prior written notice to the Borrower (provided that if an Event of
Default is continuing the Lender need not give any notice), the Lender shall
have the right at any time to make any payments and do any other acts the Lender
may deem necessary to protect its security interests in the Collateral if such
payments or other acts have not been made or done by the Borrower within such
fifteen-day period, including, without limitation, the rights to satisfy,
purchase, contest, or compromise any encumbrance, charge, or lien (other than
Permitted Liens) which, in the reasonable judgment of the Lender, appears to be
prior to or superior to the security interests granted hereunder (except in the
case of purchase money security interests in equipment), and appear in, and
defend any action or proceeding purporting to affect its security interests in,
or the value of, any of the Collateral. The Borrower hereby agrees to reimburse
the Lender for all payments made and reasonable expenses incurred under this
Security Agreement including reasonable fees, expenses, and disbursements of
attorneys and paralegals (including the allocated costs of in-house counsel)
acting for the Lender, including any of the foregoing payments under, or acts
taken to protect its security interests in, any of the Collateral, which amounts
shall be secured under this Security Agreement, and agrees it shall be bound by
any payment made or act taken by the Lender hereunder absent the Lender's gross
negligence or willful misconduct. The Lender shall have no obligation to make
any of the foregoing payments or perform any of the foregoing acts. The powers
conferred on the Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession, the accounting
for money actually received by it hereunder and the obligations of the Lender
under Section 9.7(b) hereof, the Lender shall have no duty as to any Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.

                      SECTION 5.12. DELIVERY OF ITEMS. The Borrower will (a)
promptly (but in no event later than one Business Day) after its receipt
thereof, deliver to the Lender any documents or certificates of title issued
with respect to any property included in the Collateral, and any promissory
notes, letters of credit or instruments related to or otherwise in connection
with any property included in the Collateral, which in any such case come into
the possession of the Borrower, or shall cause the issuer thereof to deliver any
of the same directly to the Lender, in each case with any necessary endorsements
in favor of the Lender and (b) deliver to the Lender as soon as available copies
of any and all press releases and other similar communications issued by the
Borrower.


<PAGE>   17
                      SECTION 5.13. SOLVENCY. The Borrower shall be and remain
Solvent at all times.

                      SECTION 5.14. FUNDAMENTAL CHANGES. The Borrower will not
(a) amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of such
amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure, in each
case without the Lender's prior written consent.

                      SECTION 5.15. SBCL LICENSE.

                      (a) The Borrower will, at its expense, (i) perform and
observe all of the terms and provisions of the SBCL License to be performed or
observed by it, maintain the SBCL License in full force and effect, enforce the
SBCL License in accordance with its terms, and take all such action to such end
as may be from time to time requested by the Lender; and (ii) furnish to the
Lender, promptly upon the Borrower's receipt thereof, copies of all notices,
requests and other documents received by the Borrower under or pursuant to the
SBCL License, and from time to time (A) furnish to the Lender such information
and reports regarding the SBCL License as the Lender may reasonably request and
(B) upon request of the Lender, make to SBCL such demands and request for
information and reports or for action as the Borrower is entitled to make under
the SBCL License.

                      (b) The Borrower will not (i) cancel or terminate the SBCL
License or consent to or accept any cancellation or termination thereof, (ii)
amend or otherwise modify the SBCL License or give any consent, waiver or
approval thereunder including, without limitation, a waiver of any default under
or breach of the SBCL License, (iii) consent to or permit any prepayment of any
fees, royalties or other amounts to become due under or in connection with the
SBCL License or (iv) take any other action in connection with the SBCL License
which would materially impair the value of the interest or rights of the
Borrower thereunder or which would materially impair the interest or rights of
the Lender.


<PAGE>   18
                      SECTION 5.16. CERTAIN INTELLECTUAL PROPERTY.

                         (i) The Borrower agrees that, should it obtain an
                ownership interest in (x) any material patent or (y) any
                exclusive rights as a licensee under a material patent license
                which is not now a part of the Collateral, (A) the provisions of
                Section 2 (including the proviso thereto) shall automatically
                apply thereto, (B) except as limited by the proviso to Section
                2, any such patent rights shall automatically become part of the
                Collateral, and (C) with respect to any ownership interest in
                any such patent or patent license that the Borrower should
                obtain, it shall give notice thereof to the Lender in writing,
                promptly after obtaining such ownership interest. The Borrower
                authorizes the Lender to prepare and, during the continuance of
                an Event of Default, file with the United States Patent and
                Trademark Office a supplement to this Security Agreement or to
                the Intellectual Property Assignment to include any patent of
                which it receives notice under this Section.

                         (ii) The Borrower agrees to take all necessary steps
                including, without limitation, in the United States Patent and
                Trademark Office or in any court, to (A) maintain each of its
                patents and patent licenses and (B) pursue each of its patent
                applications, now or hereafter owned or submitted by it
                including, without limitation, the filing of divisional,
                continuation, continuation-in-part and substitute applications,
                the filing of applications for reissue, renewal or extensions,
                the payment of maintenance fees, and the participation in
                interference, reexamination, opposition or infringement and
                misappropriation proceedings, except, in each case in which the
                Borrower has reasonably determined that any of the foregoing is
                not of material economic value to it. The Borrower agrees to
                take corresponding steps with respect to each new or acquired
                patent, patent application, or any rights obtained under any
                patent license, in each case, to which it is now or later
                becomes entitled, except in each case in which the Borrower has
                reasonably determined that any of the foregoing is not of
                material economic value to it. Any expenses incurred in
                connection with such activities shall be borne by the Borrower.

                         (iii) The Borrower shall take all additional steps not
                set forth in subsections (i) and (ii) hereof which the Lender
                deems reasonably appropriate under the circumstances to preserve
                and protect the Borrower's 


<PAGE>   19
                material patents and patent licenses.

                         (iv) The Borrower shall not abandon any patent or any
                pending patent application without the written consent of the
                Lender, except, in each case in which the Borrower has
                reasonably determined that any of the foregoing is not of
                material economic value to it.

                         (v) In the event that the Borrower becomes aware that
                any of its material patents has been infringed or
                misappropriated by a third party, the Borrower shall notify the
                Lender promptly in writing, in reasonable detail, and shall take
                such actions as the Lender deems reasonably appropriate under
                the circumstances to protect such patent including, without
                limitation, suing for damages or for an injunction against such
                infringement or misappropriation. Any expense incurred in
                connection with such activities shall be borne by the Borrower.
                The Borrower will advise the Lender promptly in writing, in
                reasonable detail, of any averse determination or the
                institution of any proceeding (including, without limitation,
                the institution of any proceeding in the United States Patent
                and Trademark Office or any court) regarding any of its material
                patents.

                         (vi) The Borrower shall mark its products with the
                numbers of all appropriate patents or the designation "patent
                pending," as the case may be, to the extent that it is
                reasonably and commercially practicable.

                      SECTION 5.17. ADDITIONAL REQUIREMENTS. The Borrower will
take all such further actions and execute all such further documents and
instruments as the Lender may reasonably request.

               SECTION 6. FINANCIAL STATEMENTS. Until the payment and
satisfaction in full of all Obligations, the Borrower shall deliver to the
Lender the following financial information:

                      SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as
available, but not later than 120 days after the end of each fiscal year of the
Borrower and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for such
year, reported on by independent certified public accountants without an adverse
qualification; and
<PAGE>   20


                      SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than sixty days after the end of each of the first
three fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments).

               SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an Event of Default hereunder:

                      (a) the Borrower shall fail to pay within five days of
when due any amount required to be paid by the Borrower under or in connection
with the Note and this Security Agreement; (b) any representation or warranty
made or deemed made by the Borrower under or in connection with any Loan
Document or any Financial Statement shall prove to have been incorrect in any
material respect when made;

                      (c) the Borrower shall fail to perform or observe (i) any
of the terms, covenants or agreements contained in Sections 5.4, 5.7, 5.9, 5.10,
5.14, 5.15 or 5.16 hereof or (ii) any other term, covenant, or agreement
contained in any Loan Document (other than the other Events of Default specified
in this Section) and such failure remains unremedied for the earlier of fifteen
days from (A) the date on which the Lender has given the Borrower written notice
of such failure and (B) the date on which the Borrower knew or should have known
of such failure;

                      (d) any provision of any Loan Document to which the
Borrower is a party shall for any reason cease to be valid and binding on the
Borrower, or the Borrower shall so state;

                      (e) dissolution, liquidation, winding up or cessation of
the Borrower's business, failure of the Borrower generally to pay its debts as
they mature, admission in writing by the Borrower of its inability generally to
pay its debts as they mature, or calling of a meeting of the Borrower's
creditors for purposes of compromising any of the Borrower's debts;

                      (f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceeding;


<PAGE>   21
                      (g) an assignment for the benefit of creditors is made by
the Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, and in the case of any such involuntary appointment,
such appointment remains undismissed or unstayed for forty-five days following
the commencement thereof, or any action by the Borrower authorizing any such
proceeding;

                      (h) the Borrower shall default in (i) the payment of
principal or interest on any indebtedness in excess of $50,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of such
indebtedness to cause, with the giving of notice if required, such indebtedness
to become due prior to its stated maturity;

                      (i) any Event of Default (as defined in the Lease
Agreement) shall be continuing;

                      (j) the Borrower suffers and sustains a Material Adverse
Change;

                      (k) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower and is not bonded or discharged within fifteen
Business Days;

                      (l) any judgment is entered against the Borrower and such
judgment shall not be stayed, vacated, bonded, or discharged within sixty days;

                      (m) any material covenant, agreement, or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm any of the Obligations or any liens
granted in connection therewith; or any liens granted on any of the Collateral
in favor of the Lender shall be determined to be void, voidable, or invalid, or
shall not be given the priority contemplated by this Security Agreement;


<PAGE>   22
                      (n) there occurs a change in more than 40% of the
ownership of any equity interests of the Borrower on the date hereof as the
result of a single transaction or a series of related transactions (but not from
the sale of newly issued securities to investors), or more than 40% of such
interests become subject to any contractual, judicial, or statutory lien,
charge, security interest, or encumbrance;

                      (o) the SBCL License shall be cancelled or terminated for
any reason (including, without limitation, under the provisions of Article 9
thereof), or SBCL shall become the subject of any proceeding of the type
described in subsection (f) hereof and the SBCL License shall not be assumed by
SBCL (which, in the case of a proceeding under title 11 of the United States
Code, shall be strictly in accordance with 11 U.S.C. Section 365(b)) within
thirty days of the commencement of such proceeding; or

                      (p) the exclusive right and license granted by the
Borrower to SBCL under the SBCL License shall be converted to a nonexclusive
right and license in any country of the Territory (as defined in the SBCL
License) under Section 2.2 of the SBCL License.

               SECTION 8. REMEDIES.

                      (a) If any Event of Default shall be continuing, the
Lender may, without prejudice to any of its other rights under any Loan Document
or Applicable Law:

                         (i) declare all Obligations under the Loan Documents to
                be immediately due and payable (except with respect to any Event
                of Default set forth in Section 7(f) hereof, in which case all
                Obligations under the Loan Documents shall automatically become
                immediately due and payable without necessity of any
                declaration) without presentment, representation, demand of
                payment, or protest, which are hereby expressly waived;

                         (ii) take possession of the Collateral and, for that
                purpose may enter, with the aid and assistance of any person or
                persons, any premises where the Collateral or any part thereof
                is, or may be placed, and remove the same;

                         (iii) remove for copying all documents, instruments,
                files and records (including the copying of any computer
                records) relating to the Borrower's accounts receivable,
                contract rights (including, without limitation, all license
                agreements under which the Borrower is the licensor) and all
                other rights to 


<PAGE>   23
                the payment of money (collectively, "Receivables"), or use (at
                the expense of the Borrower) such supplies or space of the
                Borrower at the Borrower's places of business necessary to
                administer and collect the Borrower's Receivables;

                         (iv) accelerate or extend the time of payment,
                compromise, issue credits, or bring suit on the Borrower's
                Receivables (in the name of the Borrower or the Lender) and
                otherwise administer and collect such Receivables including,
                without limitation, the delivery to SBCL of the notification
                letter specified in Section 3.3(a)(vi);

                         (v) sell, assign and deliver the Borrower's Receivables
                with or without advertisement, at public or private sale, for
                cash, on credit or otherwise, subject to applicable law;

                         (vi) use all computer software programs, data bases,
                processes, trademarks, tradenames and materials used by the
                Borrower in connection with its businesses or in connection with
                the Collateral (with respect to which the Lender shall have a
                limited license therefor);

                         (vii) exercise in respect of the Collateral, in
                addition to other rights and remedies provided for herein (or in
                any other Loan Document) or otherwise available to it, all the
                rights and remedies of a secured party under the applicable
                Uniform Commercial Code (the "Code") whether or not the Code
                applies to the affected Collateral and also may (i) require the
                Borrower to, and the Borrower hereby agrees that it will at its
                expense and upon request of the Lender forthwith, assemble all
                or part of the Collateral as directed by the Lender and make it
                available to the Lender at a place to be designated by the
                Lender that is reasonably convenient to both parties and (ii)
                without notice except as specified below, sell the Collateral or
                any part thereof in one or more parcels at public or private
                sale, at any of the Lender's offices or elsewhere, for cash, on
                credit, or for future delivery, and upon such other terms as the
                Lender may deem commercially reasonable. The Borrower agrees
                that, to the extent notice of sale shall be required by law, at
                least five days' notice to the Borrower of the time and place of
                any public sale or the time after which any private sale is to
                be made shall constitute reasonable notification. The Lender
                shall not be obligated to make any sale of Collateral regardless
                of notice of sale having been given. The 


<PAGE>   24
                Lender may adjourn any public or private sale from time to time
                by announcement at the time and place fixed therefor, and such
                sale may, without further notice, be made at the time and place
                to which it was so adjourned; and

                         (viii) record or cause to be recorded in the United
                States Patent and Trademark Office the Intellectual Property
                Assignment, it being understood that such recording shall not be
                made unless an Event of Default is continuing.

                      (b) All cash proceeds received by the Lender in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender
and remaining after the full and final payment of all the Obligations shall be
paid over to the Borrower or to such other Person to which the Lender may be
required under Applicable Law, or directed by a court of competent jurisdiction,
to make payment of such surplus.

                      (c) During the continuance of an Event of Default, all
fees, royalties and other payments received by the Borrower under or in
connection with the SBCL License shall be received in trust for the benefit of
the Lender, shall be segregated from other funds of the Borrower and shall be
forthwith paid over to the Lender in the same form as so received (with any
necessary indorsement).

               SECTION 9. MISCELLANEOUS PROVISIONS.

                      SECTION 9.1. NOTICES. Except as otherwise provided herein,
all notices and other communications required or desired to be given hereunder
shall be given in writing and shall be delivered by overnight courier, hand
delivery, or certified or registered mail, postage prepaid, if to the Lender,
then to Technology Finance Division, 76 Batterson Park Road, Farmington,
Connecticut 06032-2571, Attention: Assistant Vice President, Lease
Administration, with a copy to the Lender at Riverway II, West Office Tower,
9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department,
and if to the Borrower, then to Progenitor, Inc., 4040 Campbell Avenue, Menlo
Park, California 94025, or such other address as shall be designated by the
Borrower or the Lender to the other party in accordance herewith. All such
notices and communications shall be effective when received or when delivery is
refused.


<PAGE>   25
                      SECTION 9.2. HEADINGS. The headings in this Security
Agreement are for purposes of reference only and shall not affect the meaning or
construction of any provision of this Security Agreement.

                      SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the
right to assign the Note or this Security Agreement or any interest therein
unless the Lender shall have given the Borrower prior written consent and the
Borrower and its assignee shall have delivered assignment documentation in form
and substance satisfactory to the Lender in its sole discretion. The Lender may
assign its rights and delegate its obligations under the Note or this Security
Agreement.

                      SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any
amendment or waiver of any provision of this Security Agreement and any consent
to any departure by the Borrower from any provision of this Security Agreement
shall be effective only by a writing signed by the Lender and shall bind and
benefit the Borrower and the Lender and their respective successors and assigns,
subject, in the case of the Borrower, to the first sentence of Section 9.3.

                      SECTION 9.5. BORROWER REMAINS LIABLE. Anything herein to
the contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed, (b) the exercise by
the Lender of any of the rights hereunder shall not release the Borrower from
any of its duties or obligations under the contracts and agreements included in
the Collateral and (c) the Lender shall not have any obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Security Agreement, nor shall the Lender be obligated to perform any of the
obligations or duties of the Borrower thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.


<PAGE>   26
                      SECTION 9.6. INTERPRETATION OF AGREEMENT. Time is of the
essence in each provision of this Security Agreement of which time is an
element. All terms not defined herein or in the Note shall have the meaning set
forth in the Code, except where the context otherwise requires. To the extent a
term or provision of this Security Agreement conflicts with any term or
provision of the Note, this Security Agreement shall control with respect to the
subject matter of such term or provision. Acceptance of or acquiescence in a
course of performance rendered under this Security Agreement shall not be
relevant in determining the meaning of this Security Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.

                      SECTION 9.7. CONTINUING SECURITY INTEREST.

                      (a) This Security Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect until the indefeasible payment in full of the Obligations, (ii) be
binding upon the Borrower and its successors and assigns and (iii) inure,
together with the rights and remedies of the Lender hereunder, to the benefit of
the Lender and its successors, transferees, and assigns.

                      (b) Upon the indefeasible payment in full of the
Obligations, the security interest provided herein shall terminate with respect
to all Collateral and the Lender shall at the expense of the Borrower return to
the Borrower all Collateral then held by the Lender, if any, and upon request of
the Borrower and at the expense of the Borrower shall execute, in form for
filing, termination statements of the security interest herein granted or any
other documents reasonably requested by the Borrower to evidence such
termination, and thereafter, no party shall have any further right or obligation
hereunder except for the obligations of the Borrower under Section 9.10 hereof.


<PAGE>   27
                      (c) The security interest provided herein shall be deemed
to be released with respect to any item of Collateral consisting of patents,
patent applications or know-how, in each case as reasonably required by the
Borrower to consummate licenses or collaborative agreements with third parties
in the ordinary course of business and at arm's-length, and the Lender shall at
the expense of the Borrower return to the Borrower all such Collateral then held
by the Lender, if any, and upon request of the Borrower and at the expense of
the Borrower shall execute, in form for filing, partial releases or amendments
of the security interest herein granted or any other documents reasonably
requested by the Borrower to evidence such release. The Borrower shall give the
Lender written notice within fifteen days of entering into any such licenses or
collaborative agreements specifying the items of Collateral released in
connection therewith.

                      SECTION 9.8. REINSTATEMENT. To the extent permitted by
law, this Security Agreement and the rights and powers granted to the Lender
hereunder and under the Loan Documents shall continue to be effective or be
reinstated if at any time any amount received by the Lender in respect of the
Obligations is rescinded or must otherwise be restored or returned by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of
the Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.

                      SECTION 9.9. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Security Agreement, and shall terminate only upon
the full and final payment and performance by the Borrower of the Obligations.

                      SECTION 9.10. INDEMNIFICATION. The Borrower agrees to
indemnify and hold harmless the Lender and its directors, officers, agents,
employees and counsel from and against any and all costs, expenses, claims or
liability incurred by the Lender or such other Person hereunder and under any
other Loan Document or in connection herewith or therewith, unless such claim or
liability shall be due to willful misconduct or gross negligence on the part of
the Lender or such other Person.


<PAGE>   28
                      SECTION 9.11. COUNTERPARTS; TELECOPIED SIGNATURES. This
Security Agreement may be executed in counterparts, each of which when so
executed and delivered shall be an original, but both of which shall together
constitute one and the same instrument. Each of this Security Agreement and the
other Loan Documents may be executed and delivered by telecopier or other
facsimile transmission all with the same force and effect as if the same was a
fully executed and delivered original manual counterpart.

                      SECTION 9.12. SEVERABILITY. In case any provision in or
obligation under this Security Agreement, the Note or any other Loan Document
shall be invalid, illegal, or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

                      SECTION 9.13. DELAYS; PARTIAL EXERCISE OF REMEDIES. No
delay or omission of the Lender to exercise any right or remedy hereunder,
whether before or after the occurrence of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such Event
of Default. No single or partial exercise by the Lender of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.

                      SECTION 9.14. ENTIRE AGREEMENT. The Borrower and the
Lender agree that this Security Agreement and the other Loan Documents are the
complete and exclusive statement and agreement between the parties with respect
to the subject matter hereof, superseding all proposals and prior agreements,
oral or written, and all other communications between the parties with respect
to the subject matter hereof.

                      SECTION 9.15. SETOFF. In addition to and not in limitation
of all rights of offset that the Lender may have under Applicable Law, and
whether or not the Lender has made any demand or the Obligations of the Borrower
have matured, the Lender shall have the right to appropriate and apply to the
payment of the Obligations all deposits and other obligations then or thereafter
owing by the Lender to or for the credit or the account of the Borrower.

                      SECTION 9.16. WAIVER OF JURY TRIAL. THE BORROWER AND THE
LENDER IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, ANY OTHER
LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.


<PAGE>   29
                      SECTION 9.17. GOVERNING LAW. THE VALIDITY, INTERPRETATION,
AND ENFORCEMENT OF THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.

                      SECTION 9.18. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY,
OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND,
BY EXECUTION AND DELIVERY OF THIS SECURITY AGREEMENT, THE BORROWER HEREBY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY
IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (A) ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND (B) THE RIGHT TO INTERPOSE ANY NONCOMPULSORY SETOFF,
COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE BORROWER AT THE ADDRESS FOR IT SPECIFIED IN SECTION 9.1 HEREOF.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN EACH INSTANCE
TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.


<PAGE>   30
               IN WITNESS WHEREOF, the undersigned Borrower has caused this
Security Agreement to be duly executed and delivered by its proper and duly
authorized officer as of the date first set forth above.


                            PROGENITOR, INC.



                            By:/s/ Mark N.K. Bagnall
                               -------------------------------
                               Name: Marh N.K. Bagnall
                               Title: Vice President & C.F.O


Accepted as of the
4th day of May, 1998


TRANSAMERICA BUSINESS CREDIT CORPORATION



By:/s/Gary P. Moro
   -------------------------------
   Name: Gary P. Moro
   Title:Vice President


<PAGE>   31
                                                                      SCHEDULE 1


                        EXISTING LIENS/PROTECTIVE FILINGS


<TABLE>
<CAPTION>
                                                                         ORIGINAL         REMAINING
HOLDER'S NAME AND ADDRESS       COLLATERAL/LEASED EQUIPMENT                VALUE           PAYMENTS
-------------------------       ---------------------------                -----           --------
<S>                        <C>                                         <C>              <C>
Phoenix Leasing            Equipment, fixtures and general
 Incorporated              intangibles under a Master Lease
2401 Kerner Blvd.          Agreement dated October 1, 1993
San Rafael, CA  94901
Phoenix Leasing            Equipment, fixtures and general
 Incorporated              intangibles under a Master Lease
2401 Kerner Blvd.          Agreement dated February 22, 1995
San Rafael, CA  94901
                                          Schedule PGEN 1              $112,850.00       $85,632.00
                                          Schedule PGEN 2               $19,670.00       $16,794.00
                                          Schedule PGEN 3               $87,771.00       $10,086.64
                                          Schedule PGEN 4               $71,159.00       $28,621.60
                                          Schedule PGEN 5               $46,166.00       $21,221.60
                                          Schedule PGEN 6              $295,381.00      $228,353.16
Mellon US Leasing,         Equipment under a Master Lease
 a Division of Mellon      Agreement dated February 26, 1997
 Leasing Corporation
733 Front Street
San Francisco, CA  94111
                                          Schedule 1                   $225,295.00      $156,751.00
                                          Schedule 2                   $275,998.00      $204,026.13
</TABLE>


<PAGE>   32
                                                                      SCHEDULE 2

               EXCLUDED PATENTS, PATENT APPLICATIONS AND KNOW-HOW

U.S. Serial No. 08/632673
U.S. Serial No. 08/891250
U.S. Serial No. 08/652265
U.S. Serial No. 08/834497
U.S. Serial No. 08/852495
U.S. Serial No. 08/436074
U.S. Serial No. 08/599252
PCT Application No. 97/06254
PCT Application No. 96/06583
South Africa Application No. 97/6370
South Africa Application No. 96/3639


<PAGE>   33
                                                                       EXHIBIT A

                                 PROMISSORY NOTE


                                                               Date: May 4, 1998


               FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Transamerica Business Credit Corporation or its assigns (the "Payee") at its
office located at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018, or at such other place as the Payee or the holder
hereof may designate in writing, the principal amount of One Million Nine
Hundred Thousand Dollars ($1,900,000) received by the undersigned, plus interest
on the principal amount hereof from time to time outstanding, from the date
hereof until the date this Note is paid in full, payable monthly in arrears on
the first day of each month commencing June 1, 1998 and on the date this Note is
paid in full, at a rate equal at all times to 14.75% per annum. The principal
amount of this Note shall be payable in the following amounts on the following
dates:


<TABLE>
<CAPTION>
                   Amount                   Date
                   ------                   ----
<S>                                         <C>
                   $200,000                 October 31, 1998
                   $300,000                 October 31, 1999
                   $400,000                 October 31, 2000
                   $500,000                 October 31, 2001
                   $500,000                 October 31, 2002
</TABLE>


No amount of principal paid or prepaid hereunder may be reborrowed. All amounts
shall be paid hereunder in lawful money of the United States and in immediately
available funds.

               This Note is the Note referred to in the Security Agreement dated
as of even date herewith (as amended, supplemented or otherwise modified from
time to time, the "Agreement") by the undersigned in favor of the Payee, and is
subject and entitled to all provisions and benefits thereof. Capitalized terms
used but not defined herein shall have the meanings set forth in the Agreement.

               If any installment of this Note is not paid within five days
after its due date, the undersigned agrees to pay on demand, in addition to the
amount of such installment, an amount equal to 5% of such installment, but only
to the extent permitted by Applicable Law.

               The undersigned shall have the right to prepay this Note, in
whole or in part, at any time on thirty days' prior written notice to the Payee.
On the date of any such prepayment, 


<PAGE>   34
the undersigned shall pay the principal amount of this Note being so prepaid,
together with all accrued and unpaid interest thereon and a prepayment fee in an
amount equal to (a) 4% of the amount prepaid if such prepayment occurs prior to
the first anniversary hereof, (b) 3% of the amount prepaid if such prepayment
occurs on or after the first anniversary but prior to the second anniversary
hereof, (c) 2% of the amount prepaid if such prepayment occurs after the second
anniversary but prior to the third anniversary hereof or (d) 1% of the amount
prepaid if such prepayment occurs thereafter. Any prepayments shall be applied
to the installments hereof in the inverse order of maturity.

               Upon the maturity of this Note or the acceleration of the
maturity of this Note in accordance with the terms of the Agreement, the entire
unpaid principal amount on this Note, together with all interest, fees and other
amounts payable hereon or in connection herewith, shall be immediately due and
payable without further notice or demand, with interest on all such amounts at a
rate not to exceed the lawful limit, from the date of such maturity or
acceleration, as the case may be, until all such amounts have been paid.

               If any payment on this Note becomes payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day.

               The undersigned hereby waives diligence, demand, presentment,
protest and notice of any kind, and assents to extensions of the time of
payment, release, surrender or substitution of security, or forbearance or other
indulgence, without notice. The undersigned agrees to pay all amounts under this
Note without offset, deduction, claim, counterclaim, defense or recoupment, all
of which are hereby waived.

               The Payee, the undersigned and any other parties to the Loan
Documents intend to contract in strict compliance with applicable usury law from
time to time in effect. In furtherance thereof such Persons stipulate and agree
that none of the terms and provisions contained in the Loan Documents shall ever
be construed to create a contract to pay, for the use, forbearance or detention
of money, interest in excess of the maximum amount of interest permitted to be
charged by Applicable Law from time to time in effect. Neither the undersigned
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under Applicable Law from time
to time in effect, and the provisions of this paragraph shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith. The Payee expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation 


<PAGE>   35
is accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
the Payee or any other holder of any or all of the Obligations shall otherwise
collect amounts which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that permitted to be charged by Applicable Law then in effect, then
all sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at the Payee's or such holder's option, promptly
returned to the undersigned upon such determination. In determining whether or
not the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under Applicable Law, the Payee and the undersigned
(and any other payors thereof) shall to the greatest extent permitted under
Applicable Law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate, and spread the total
amount of interest through the entire contemplated term of this Note in
accordance with the amount outstanding from time to time thereunder and the
maximum legal rate of interest from time to time in effect under Applicable Law
in order to lawfully charge the maximum amount of interest permitted under
Applicable Law.

               This Note may not be changed, modified or terminated orally, but
only by an agreement in writing signed by the undersigned and the Payee or any
holder hereof.

               The undersigned shall, upon demand, pay to the Payee all costs
and expenses incurred by the Payee (including the reasonable fees and
disbursements of counsel and other professionals) in connection with the
preparation, execution and delivery of this Note and all other Loan Documents,
and in connection with the administration, modification and amendment of the
Loan Documents, and pay to the Payee all costs and expenses (including the fees
and disbursements of counsel and other professionals) paid or incurred by the
Payee in (A) enforcing or defending its rights under or in respect of this Note
or any of the other Loan Documents, (B) collecting any of the liabilities by the
undersigned to the Payee or otherwise administering the Loan Documents, (C)
foreclosing or otherwise collecting upon any collateral and (D) obtaining any
legal, accounting or other advice in connection with any of the foregoing.

               This Note shall be binding upon the successors and assigns of the
undersigned and inure to the benefit of the Payee and its successors, endorsees
and assigns. If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected thereby.


<PAGE>   36
               EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

               THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.



                                     PROGENITOR, INC.



                                     By:
                                        -------------------------------
                                           Name:
                                           Title: