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                                                                   Exhibit 10.84

Portions of this exhibit marked [*] are omitted and are requested to be treated
confidentially.

                                                                  Execution Copy

         SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 15,
         2002, among Incara Pharmaceuticals Corporation, a Delaware corporation
         ("Incara"), Aeolus Pharmaceuticals, Inc., a Delaware corporation, and
         the wholly owned subsidiary of Incara ("Aeolus"), Elan Pharma
         International Limited ("EPIL"), an Irish private limited liability
         company and wholly-owned subsidiary of Elan Corporation, plc., a public
         limited company incorporated under the laws of Ireland ("Elan") and
         Elan International Services, Ltd. ("EIS"), a Bermuda exempted limited
         liability company and wholly-owned subsidiary of Elan.

                                R E C I T A L S:


               A. Incara, Aeolus and EPIL wish to cooperate in the research,
development and commercialization of the Compounds in the Field (each as defined
in the Development Agreement (as defined herein)).

               B. Incara, Aeolus and EPIL desire to enter into an agreement
which shall set forth the terms by which the parties shall cooperate in the
research, development and commercialization of the Compounds.

               C. Incara desires to issue and sell to EPIL, and EPIL desires to
purchase and receive from Incara, shares (the "Shares") of Incara's Series B
preferred stock, par value U.S.$0.01 per share (the "Series B Preferred Stock"),
which are convertible (initially, on a 10-to-1 basis) into shares of Incara's
common stock, par value U.S.$0.001 per share (the "Common Stock") as provided in
Incara's Amended and Restated Certificate of Incorporation (the "Certificate")
(the Series B Preferred Stock and the Common Stock into which it is convertible
are referred to herein as the "Securities").

               D. Incara and EIS desire to amend and restate the Registration
Rights Agreement, dated December 21, 2000, among Incara and EIS (as amended and
restated and as may be amended, the "Registration Rights Agreement"), to include
all shares of the Common Stock issuable upon conversion of the Shares and to
effect certain mutually agreeable modifications to such agreement.

               E. EPIL, Incara and Aeolus contemplate entering into a
Development and Option Agreement, in the form attached hereto as Exhibit A (the
"Development Agreement" and together with this Agreement, the Registration
Rights Agreement and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby, the "Transaction
Documents"), which shall set forth the terms by which the parties shall
cooperate in the research, development and commercialization of the Compounds.

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                  Each term used herein but not otherwise defined, shall have
the meaning assigned to such term in the Development Agreement.

                               A G R E E M E N T:

                  In consideration of the foregoing premises and the mutual
covenants contained herein, the sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:

                  SECTION 1. Closings. The closing of the Initial Purchase (as
defined below) (the "Initial Closing") shall occur on the date (the "Initial
Closing Date") and at such time that original counterparts of the documents
contemplated hereby are exchanged and all conditions to the Initial Closing (as
set forth in Section 2(d)) have been satisfied or waived. The closing of any
Later Purchase (the closing of which is referred to herein as a "Later
Closing"), shall occur within fifteen (15) business days after the date when the
applicable Milestone Event (as defined below) has been met and when all
conditions to such Later Closing (as set forth in Section 2(e)) have been
satisfied or waived (the "Later Closing Date"). The Initial Closing and each
Later Closing individually are referred to herein as a "Closing", and the
Initial Closing Date and each Later Closing Date, individually, are referred to
herein as a "Closing Date". The Initial Closing and each Later Closing shall be
held at the offices of Reitler Brown LLC in New York City, New York (by means of
facsimile or overnight mail) or as otherwise agreed by the parties.

                  SECTION 2.  Sale and Purchase.

                  (a) Initial Purchase. At the Initial Closing, subject to the
terms and conditions hereof, Incara shall issue and sell to EPIL, and EPIL shall
purchase from Incara, 416,204 shares of Series B Preferred Stock (the "Initial
Purchase"), which was calculated at a price per share equal to twelve (12) times
the average closing price of the Common Stock of Incara for the thirty (30)
trading day period immediately prior to the Initial Closing Date (the "Initial
Market Price"), for an aggregate purchase price of U.S.$3,000,000 (the "Initial
Purchase Price").

                  (b) Milestone Purchases. Upon the occurrence of each of the
following events (each a "Milestone Event"), subject to the terms and conditions
hereof, EPIL shall purchase shares of Series B Preferred Stock, at a price per
share equal to ten (10) times the average closing price of the Common Stock of
Incara for the thirty (30) trading day period immediately prior to such Later
Closing Date (with respect to each Later Closing and subject to adjustment
pursuant to Section 2(g) below, the "Later Market Price"), for the aggregate
purchase price as set forth below for such Later Closing (each, a "Later
Purchase Price"):

                      (i) if at any time within 180 days of the Initial Closing
         Date, Incara closes (A) a sale of capital stock, or securities
         convertible into capital stock, of Incara to one or more investors in a
         single transaction (a "Third Party Equity Purchase") or (B) a
         collaboration transaction (other than any collaboration with EPIL or
         any of its affiliates or with any affiliate of Incara) with Incara or
         any of its wholly-owned subsidiaries (a "Third

                                        2

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         Party Collaboration"), in either case, pursuant to which Incara
         actually receives, (either directly or through dividend or repayment of
         debt from its wholly-owned subsidiaries), aggregate net cash proceeds
         (as of the closing of the Third Party Equity Purchase or the Third
         Party Collaboration and not contingent upon future events or
         occurrences) from independent, unaffiliated, third-party investors or
         collaborators of at least U.S.$3,000,000 (the "Preliminary Milestone"),
         EPIL shall purchase U.S.$1,000,000 of duly and validly issued, fully
         paid and non-assessable shares of Series B Preferred Stock, free and
         clear of all security interests, liens, pledges, charges, escrows,
         options, rights of first refusal, encumbrances, agreements,
         arrangements, commitments or other claims of any kind or character
         (collectively, "Liens"); provided, that such net cash proceeds must be
         received by Incara as a result of a single Third Party Equity Purchase
         or a single Third Party Collaboration and not from a combination of two
         or more such events;

                                    (ii)  if at any time prior to the
         termination of the Development Agreement, the Company reaches the IND
         Milestone with the Milestone Compound, EPIL shall purchase U.S.$500,000
         of duly and validly issued, fully paid and non-assessable shares of
         Series B Preferred Stock, free and clear of all Liens;

                                    (iii) if at any time prior to the
         termination of the Development Agreement, the Company has obtained the
         IND Milestone with the Milestone Compound and then reaches the First
         Phase I Milestone with the Milestone Compound, EPIL shall purchase
         U.S.$500,000 of duly and validly issued, fully paid and non-assessable
         shares of Series B Preferred Stock, free and clear of all Liens;

                                    (iv)  if at any time prior to the
         termination of the Development Agreement, the Company has obtained the
         First Phase I Milestone with the Milestone Compound and then reaches
         the Second Phase I Milestone with the Milestone Compound, EPIL shall
         purchase U.S.$1,000,000 of duly and validly issued, fully paid and
         non-assessable shares of Series B Preferred Stock, free and clear of
         all Liens;

                                    (v)   if at any time prior to the
         termination of the Development Agreement, the Company has obtained the
         Second Phase I Milestone with the Milestone Compound and then reaches
         the First Phase II Milestone with the Milestone Compound, EPIL shall
         purchase U.S.$1,000,000 of duly and validly issued, fully paid and
         non-assessable shares of Series B Preferred Stock, free and clear of
         all Liens; and

                                    (vi)  if at any time prior to the
         termination of the Development Agreement, the Company has obtained the
         First Phase II Milestone with the Milestone Compound and then reaches
         the Second Phase II Milestone with the Milestone Compound, EPIL shall
         purchase U.S.$1,000,000 of duly and validly issued, fully paid and
         non-assessable shares of Series B Preferred Stock, free and clear of
         all Liens.

                                        3

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For purposes of this Section 2(b), (x) the purchase obligations of EPIL shall be
triggered by the first occurrence of each Milestone Event and (y) any subsequent
occurrence of a previously achieved Milestone Event (whether with respect to
another Compound or otherwise) shall not result in any additional purchase
obligation on behalf of EPIL or any of its affiliates (as used in this
Agreement, the term "affiliate" shall have the meaning assigned to such term in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended). Incara hereby
agrees to provide EPIL with written notify within 5 business days of the
occurrence of any Milestone Event.

                  (c)      Delivery and Payment.

                           (i) At the Initial Closing, Incara or Aeolus, as the
          case may be, shall deliver to EPIL:

                                    (A) a certificate or certificates evidencing
                  the shares of Series B Preferred Stock as forth in Section
                  2(a) above;

                                    (B) the Amended and Restated Registration
                  Rights Agreement, in the form attached hereto as Exhibit B
                  (the "Amended and Restated Registration Rights Agreement"),
                  duly executed by Incara;

                                    (C) a Secretary's Certificate of Incara,
                  substantially in the form attached hereto as Exhibit C;

                                    (D) a Secretary's Certificate of Aeolus,
                  substantially in the form attached hereto as Exhibit C;

                                    (E) an Officer's Certificate of Incara,
                  substantially in the form attached hereto as Exhibit D;

                                    (F) an Officer's Certificate of Aeolus,
                  substantially in the form attached hereto as Exhibit D;

                                    (G) an opinion of counsel to Incara, in the
                  form attached hereto as Exhibit E;

                                    (H) the Development Agreement, in the form
                  attached hereto as Exhibit A, duly executed by Incara and
                  Aeolus; and

                                    (I) all other documents, instruments and
                  writings reasonably requested by EPIL to be delivered to it
                  pursuant to this Agreement, in form and substance reasonably
                  satisfactory to EPIL.

                           (ii) At the Initial Closing, EPIL shall deliver to
          Incara or Aeolus, as the case may be:

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                                  (A) the Initial Purchase Price by wire
                  transfer of U.S.$3,000,000 to an account designated in writing
                  by Incara prior to the Initial Closing;

                                  (B) the Amended and Restated Registration
                  Rights Agreement, duly executed by EIS;

                                  (C) the Development Agreement, in the form
                  attached hereto as Exhibit A, duly executed by EPIL; and

                                  (D) all other documents, instruments and
                  writings reasonably requested by Incara to be delivered to it
                  pursuant to this Agreement, in form and substance reasonably
                  satisfactory to Incara.

                           (iii) At each Later Closing, Incara or Aeolus, as the
         case may be, shall deliver to EPIL (or its designee):

                                  (A) a certificate or certificates evidencing
                  the shares of Series B Preferred Stock to be purchased by EPIL
                  at such Later Closing;

                                  (B) a Secretary's Certificate of Incara,
                  substantially in the form attached hereto as Exhibit C;

                                  (C) an Officer's Certificate of Incara,
                  substantially in the form attached hereto as Exhibit D (which
                  shall include a certification that the Milestone Event (as
                  defined below) with respect to such Later Closing has
                  occurred);

                                  (D) an opinion of counsel to Incara, in the
                  form attached hereto as Exhibit E; and

                                  (E) all other documents, instruments and
                  writings reasonably requested by EPIL to be delivered to it
                  pursuant to this Agreement, in form and substance reasonably
                  satisfactory to EPIL.

                           (iv) At each Later Closing, EPIL shall deliver to
         Incara:

                                  (A) the Later Purchase Price payable at such
                  Later Closing (as set forth in Section 2(b)(ii)) by wire
                  transfer to an account designated in writing by Incara prior
                  to such Later Closing; and

                                  (B) all other documents, instruments and
                  writings reasonably requested by Incara to be delivered to it
                  pursuant to this Agreement, in form and substance reasonably
                  satisfactory to Incara.

                                        5

<PAGE>

                  (d) Conditions to Initial Closing. The obligation of EPIL to
effect the Initial Closing is subject to the satisfaction of the following
conditions unless waived by EPIL:

                      (i)   the representations and warranties of Incara and
         Aeolus contained in this Agreement and the Development Agreement shall
         be true and correct in all respects as of the date of such agreement
         and as of the Initial Closing Date as if made on and as of the Initial
         Closing Date (except that such representations and warranties made as
         of a specified date shall be true and correct as of such date);

                      (ii)  Incara and Aeolus shall have each performed and
         complied with all covenants and agreements required to be performed or
         complied with on or prior to the Initial Closing Date under (x) each
         Transaction Document and (y) the Securities Purchase Agreement, dated
         as of December 21, 2000 between Incara, EPIL and EIS (the "Prior
         Purchase Agreement") and each document entered into or delivered in
         connection with the Prior Purchase Agreement (collectively, the "Prior
         Purchase Documents"), as the case may be, and no material breach or
         default by Incara under any Transactions Document or Prior Purchase
         Document shall have occurred and be continuing;

                      (iii) Incara and/or Aeolus, as the case may be, shall have
         made the closing deliveries set forth in Section 2(c)(i); and

                      (iv)  all permits, consents, approvals, licenses, orders,
         authorizations, registrations, declarations, filings and other actions
         that are required in connection with the execution, delivery, filing
         and/or performance of each Transaction Document and the certificates
         evidencing the Series B Preferred Stock or the consummation of the
         transactions contemplated hereby and thereby shall have been obtained
         or taken.

                  (e) Conditions to each Later Closing. The obligation of EPIL
to effect a Later Closing is subject to the satisfaction of the following
conditions unless waived by EPIL:

                      (i)   the Initial Closing shall have occurred;

                      (ii)  EPIL shall have received any required approvals
         under the Mergers and Takeovers (Control) Acts 1978-1996 (Ireland), the
         Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
         any other similar law or regulation (collectively, the "Applicable
         Anti-Trust Laws");

                      (iii) the representations and warranties of Incara and
         Aeolus contained in this Agreement and the Development Agreement shall
         be true and correct in all respects as of the date of such agreement
         and as of such Later Closing Date as if made on and as of such Later
         Closing Date (except that such representations and warranties made as
         of a specified date shall be true and correct as of such date);

                      (iv)  Incara and Aeolus shall have each performed and
         complied with all covenants and agreements required to be performed or
         complied with on or prior to such

                                        6

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         Later Closing Date under (x) each Transaction Document (including the
         occurrence of any prior Milestone Event required to have occurred prior
         to the achievement of the Milestone Event triggering such Later
         Closing) and (y) each Prior Purchase Documents, as the case may be, and
         no material breach or default by Incara under any Transactions Document
         or Prior Purchase Document shall have occurred and be continuing;

                      (v)    Incara and/or Aeolus, as the case may be, shall
         have made the closing deliveries set forth in Section 2(c)(i);

                      (vi)   there shall not have been any material adverse
         change in the condition (financial or otherwise), operations, business,
         assets, liabilities, earnings or prospects of either Incara or Aeolus
         since the date of the immediately preceding Closing, but not including
         a change in the listing of the Common Stock of Incara from the Nasdaq
         National Market to the Nasdaq SmallCap Market;

                      (vii)  all permits, consents, approvals, licenses, orders,
         authorizations, registrations, declarations, filings and other actions
         that are required in connection with the execution, delivery, filing
         and/or performance of each Transaction Document and the certificates
         evidencing the Series B Preferred Stock or the consummation of the
         transactions contemplated hereby and thereby shall have been obtained
         or taken;

                      (viii) with respect to the Later Closing triggered by the
         occurrence of the IND Milestone, the Steering Committee shall have
         approved the Phase I plan prepared by Aeolus with respect to the
         Milestone Compound;

                      (ix)   with respect to the Later Closing triggered by the
         occurrence of the Second Phase I Milestone, the Steering Committee
         shall have approved the Phase II plan prepared by Aeolus with respect
         to the Milestone Compound;

                      (x)    shares of Common Stock of Incara continue to be
         traded on a national securities exchange or quoted on the Nasdaq
         National Market or the Nasdaq SmallCap Market; and

                      (xi)   the Development Agreement shall be in effect and
         enforceable as to all parties thereto.

                  (f) Issuance of Securities. EPIL hereby assigns to EIS its
right to receive all Securities purchased by EPIL under this Agreement and EIS
hereby agrees to pay to EPIL upon the receipt by EIS of such Shares an amount
equal to the purchase price paid by EPIL for such Shares hereunder in return for
similar consideration paid by EPIL to Incara. Incara and EPIL hereby agree that
all Securities purchased by EPIL under this Agreement shall be issued
beneficially in the name of "Elan International Services, Ltd." and delivered to
EIS, without any further action on behalf of EIS.

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                  (g) Restriction on Later Closings.  During this Agreement:

                      (i)   if at a Later Closing the Later Market Price is
         equal to or greater than $6.01, which is ten (10) times the average of
         the closing price of the Common Stock of Incara for the thirty (30)
         trading day period immediately prior to the Initial Closing Date (the
         "Initial Closing Price"), EPIL shall purchase at the Later Market Price
         all shares of Series B Preferred Stock required to be purchased by EPIL
         pursuant to such Later Closing;

                      (ii)  if at a Later Closing the Later Market Price is less
         than the Initial Closing Price, EPIL shall purchase at the Later Market
         Price up to an aggregate maximum of 279,158 shares of Series B
         Preferred Stock (as such number may be adjusted for stock splits,
         combinations, recapitalizations, reclassifications and dividends
         effected subsequent to the date hereof, the "Later Closing Maximum
         Shares"), which represents (on an as converted basis) less than 20% of
         the Common Stock of Incara issued and outstanding on the date hereof;
         and

                      (iii) if at a Later Closing the Later Market Price is less
         than the Initial Closing Price and EPIL has purchased all of the
         available Later Closing Maximum Shares, then Incara shall have 120 days
         to obtain the necessary approval of its stockholders and any
         governmental entity to permit the purchase by EPIL of all additional
         Shares required to be purchased hereunder at the then-applicable Later
         Market Price. If Incara is unable to obtain such approvals within such
         period, EPIL shall have the right, in its sole discretion, to purchase,
         at the Initial Closing Price, any remaining Shares otherwise required
         to be purchased and, if so purchased by EPIL, EPIL shall be entitled to
         the remedies available to EPIL under the Development Agreement in the
         case of a breach under Section 12.3 of the Development Agreement.

                  (h) Exemption from Registration. The Securities and any
underlying shares of Incara Common Stock will be issued under an exemption or
exemptions from registration under the U.S. Securities Act of 1933, as amended
(the "Securities Act"). Accordingly, the certificates evidencing the Series B
Preferred Stock and any shares of Incara Common Stock or other securities
issuable upon the exercise, conversion or exchange of any of the Securities
shall, upon issuance, contain a legend, substantially in the form as follows:

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
         STATE SECURITIES LAWS AND NO INTEREST THEREIN MAY BE SOLD, TRANSFERRED
         OR OTHERWISE DISPOSED OF UNLESS THERE IS (i) AN EFFECTIVE REGISTRATION
         STATEMENT FOR SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE
         SECURITIES LAWS OR (ii) A VALID EXEMPTION FROM THE REGISTRATION
         REQUIREMENTS UNDER SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE
         STATE SECURITIES LAWS.

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                  (i) Amendment to Registration Rights Agreement. EIS and Incara
agree to amend the Registration Rights Agreement so as to include all shares of
Common Stock issuable upon conversion of the Shares purchased hereunder within
the definition of "Registrable Securities", and to incorporate all prior
amendments to such agreement in a comprehensive amended and restated agreement.

                  (j) Amendment to Certificate of Incorporation of Incara.

                      (i) Incara hereby agrees, and to seek all required
         approval of its stockholders (the "Stockholder Approval"), to cause the
         Certificate as in effect as of the date hereof (the "Existing
         Charter"), to be amended and restated to incorporate the changes to the
         terms of its Series B Preferred Stock and Series C Preferred Stock, set
         forth in Exhibit F hereto (the "Amendment"), including, without
         limitation, calling a special meeting of the stockholders to be held
         within 90 days of the date hereof to authorize and approve the
         Amendment, and recommending the authorization and approval of the
         Amendment to its stockholders in the proxy statement to be delivered to
         its stockholders in connection with such special meeting.

                      (ii) Each of EIS and EPIL agree that, until the Amendment
         is effective:

                           (x) it shall not convert any share of Series B
                  Preferred Stock pursuant to the conversion rights under the
                  Existing Charter unless such share of Series B Preferred Stock
                  has been issued and outstanding for not less than two years;
                  provided, that each of EIS and EPIL may, at its option,
                  convert its respective shares of Series B Preferred Stock into
                  fully paid, non-assessable shares of Series B Conversion Stock
                  (as defined in the Existing Charter) in the event that there
                  shall occur a Significant Transaction (as defined in the
                  Existing Charter) or:

                               (I)   any consolidation or merger of the Company
                      with or into any other corporation or other entity or
                      person, or any other corporate reorganization, in which
                      the shareholders of the Company immediately prior to such
                      consolidation, merger or reorganization, own less than 50%
                      of the outstanding voting securities of the surviving or
                      resulting entity immediately after such consolidation,
                      merger or reorganization (other than any consolidation or
                      merger effected exclusively to change the domicile of the
                      Company);

                               (II)  any transaction or series of related
                      transactions in which securities of the Company
                      representing 50% or more of the combined voting power of
                      the Company's then outstanding voting securities are
                      acquired by a person, entity or group of related persons
                      or entities; or

                               (III) any sale, lease, exclusive license or other
                      disposition of all or substantially all of the assets of
                      the Company; and

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                            (y) it shall not transfer any shares of Series B
                  Preferred Stock to any of its affiliates without such
                  transferee's written agreement to be bound by the restrictions
                  on conversion of such shares set forth in clause (x) of this
                  Section 2(j)(ii).

                      (iii) Incara agrees that, until the Amendment is
         effective, it shall be bound by the provisions of the Amendment as if
         the amendments set forth in the Amendment had been previously included
         in the Certificate as of the date of this Agreement.

                  (k) Waiver of Right to Appoint Director. Notwithstanding the
rights of EIS pursuant to Section 5(b) of the Prior Purchase Agreement,
effective until the second anniversary of the Initial Closing Date, EIS hereby
waives its right to nominate or appoint a director to the board of directors of
Incara under Section 5(b) of the Prior Purchase Agreement; provided, that EIS
shall continue to have, during the term of such waiver, the right to select an
individual to attend all meetings of the board of directors of Incara and to
receive all notices and other correspondence and communications sent to members
of the board of directors of Incara (the "Observer Rights"); provided further
that the Observer Rights shall not apply to any meeting or action related to an
existing or proposed transaction between Incara and EIS (or any of its
affiliates) as to which a director appointed to the board of director of Incara
by EIS would be required to abstain from voting as a director due to a conflict
of interest.

                  (l) Waiver of Right to Vote Shares of Incara Stock. Effective
until the second anniversary of the Initial Closing Date, EIS and EPIL each
hereby (i) waives its right to vote (including with respect to the election of
directors of Incara), any shares of capital stock of Incara held by EIS, EPIL
(including all shares acquired by EIS or EPIL pursuant to this Agreement or the
Prior Purchase Agreement or by upon conversion or exercise of any security
acquired or right granted under this Agreement or the Prior Purchase Agreement),
except as required by non-waivable provisions of applicable law and (ii) agrees
to condition any transfer of any shares of capital stock of Incara held by EIS,
EPIL upon such transferee's written agreement to be bound by the restrictions on
voting of such shares set forth in this Section 2(l).

                  SECTION 3. Representations and Warranties of Incara and
Aeolus. Incara and Aeolus hereby, jointly and severally, represent and warrant
to EPIL, as of the date of this Agreement and as of each Closing Date, as
follows:

                  (a) Organization and Qualification. (i) Incara is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own and lease
its properties, to carry on its business as presently conducted and as proposed
to be conducted and to consummate the transactions contemplated hereby. Incara
is duly qualified as a foreign corporation and in good standing to do business
in each jurisdiction in which the nature of the business conducted or the
property owned by it requires such qualification, except where the failure to be
so qualified would not, individually or in the aggregate, have a material
adverse effect on the business, assets, liabilities (contingent or

                                       10

<PAGE>

otherwise), operations, condition (financial or otherwise), or prospects of
Incara taken as a whole (an "Incara Material Adverse Effect").

                      (ii)  Aeolus is duly organized, validly existing and in
         good standing under the laws of the State of Delaware and has all
         requisite corporate power and authority to own and lease its
         properties, to carry on its business as presently conducted and as
         proposed to be conducted and to consummate the transactions
         contemplated hereby. Aeolus is duly qualified as a foreign corporation
         and in good standing to do business in each jurisdiction in which the
         nature of the business conducted or the property owned by it requires
         such qualification, except where the failure to be so qualified would
         not, individually or in the aggregate, have a material adverse effect
         on the business, assets, liabilities (contingent or otherwise),
         operations, condition (financial or otherwise), or prospects of Incara
         taken as a whole (an "Aeolus Material Adverse Effect").

                  (b) Capitalization.

                      (i)   As of the Initial Closing Date, the authorized
         capital stock of Incara consists solely of: (A) 80,000,000 shares of
         Common Stock of which 13,957,908 are issued and outstanding; and (B)
         3,000,000 shares of preferred stock, par value $0.01 per share;
         comprised of (x) 600,000 shares of Series B Preferred Stock of which
         87,290 are issued and outstanding, prior to the shares issued pursuant
         to this Agreement, and (y) 20,000 shares of Series C Preferred Stock,
         par value $0.01, per share (the "Series C Preferred Stock") of which
         12,015 are issued and outstanding (all shares of Common Stock, Series B
         Preferred Stock and Series C Preferred Stock shall be collectively
         referred to from time to time as "Capital Stock").

                      (ii)  Incara has reserved a sufficient number of shares of
         Incara Common Stock for issuance upon conversion of the Series B
         Preferred Stock and Series C Preferred Stock and 4,282,713 shares of
         Common Stock for issuance under Incara's 1994 Stock Option Plan and
         173,414 shares of Common Stock for issuance under Incara's 1995
         Employee Stock Purchase Plan.

                      (iii) There are no preemptive rights, voting agreements,
         rights of first offer or refusal, options, warrants or other conversion
         privileges or rights presently outstanding to purchase, subscribe for
         or otherwise acquire, or any securities convertible into or exercisable
         or exchangeable for or into, any shares of Capital Stock (collectively,
         "Preemptive Rights"), except as described on Schedule 3(b). There are
         no agreements to register any of Incara's outstanding securities under
         U.S. federal securities laws, other than the Amended and Restated
         Registration Rights Agreement and except as described on Schedule 3(b).
         No dividends on any shares of Capital Stock have been declared but not
         yet paid.

                      (iv)  All of the outstanding shares of Capital Stock have
         been issued in accordance with applicable state and federal laws and
         regulations (or exemptions therefrom) governing the sale and purchase
         of securities, all of such shares have been

                                       11

<PAGE>

         duly and validly issued and are fully paid and non-assessable. Incara
         is not subject to any liability for any claim that Incara violated any
         applicable Federal or state securities laws in connection with the
         issuance of its Capital Stock or other securities. The Shares, when
         issued against payment therefore in accordance with this Agreement,
         will be duly and validly issued, fully paid and non-assessable, and in
         each case will not be issued in violation of any Preemptive Rights. The
         shares of Common Stock issuable upon conversion of the Shares (the
         "Underlying Shares"), when issued upon conversion in accordance with
         the terms thereof, will be duly and validly issued, fully paid and
         non-assessable, will be free and clear of all Liens and will not be
         issued in violation of any Preemptive Rights. There are no restrictions
         on the transfer of the Shares or the Underlying Shares, other than
         those imposed by relevant Federal and state securities laws.

                      (v)  Incara is the beneficial and record holder of all
         shares of outstanding capital stock of Aeolus. There are no preemptive
         rights, rights of first offer or refusal, options, warrants or other
         conversion privileges or rights presently outstanding to purchase,
         subscribe for or otherwise acquire, or any securities convertible into
         or exercisable or exchangeable for or into, any shares of capital stock
         of Aeolus.

                  (c) Authorization of Transaction Documents. (i) Incara has
full corporate power and authority to execute and deliver this Agreement and
each of the other Transaction Documents to which it is a party, and to perform
its obligations hereunder and thereunder. The execution, delivery and
performance by Incara of this Agreement and each of the other Transaction
Documents to which it is a party (including the issuance and sale of the
Securities and the Underlying Shares) have been duly authorized by all requisite
corporate action by Incara and, when executed and delivered by Incara, this
Agreement and each of the other Transaction Documents to which it is a party
will be the valid and binding obligations of Incara, enforceable against Incara
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of equity.

                      (ii) Aeolus has full corporate power and authority to
         execute and deliver this Agreement and each of the other Transaction
         Documents to which it is a party, and to perform its obligations
         hereunder and thereunder. The execution, delivery and performance by
         Aeolus of this Agreement and each of the other Transaction Documents to
         which it is a party have been duly authorized by all requisite
         corporate action by Aeolus and, when executed and delivered by Aeolus,
         this Agreement and each of the other Transaction Documents to which it
         is a party will be the valid and binding obligations of Aeolus,
         enforceable against Aeolus in accordance with their respective terms,
         subject to applicable bankruptcy, insolvency, fraudulent conveyance,
         reorganization or similar laws affecting the rights of creditors
         generally and subject to general principles of equity.

                  (d) No Violations. (i) The execution, delivery and performance
by Incara of this Agreement and each of the other Transaction Documents to which
it is a party (including the issuance and sale of the Securities) and the
compliance with the provisions hereof and thereof by

                                       12

<PAGE>

Incara do not violate, conflict with or constitute or result in a breach of or
default under (or an event which with notice or passage of time or both would
constitute a default) or give rise to any right of termination, cancellation or
acceleration under, or result in the creation of any Encumbrance upon any
properties or assets of Incara under (x) the Certificate of Incorporation or
bylaws of Incara, (y) applicable law, statute, rule or regulation, or any
ruling, writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to Incara or any of
its properties or assets or (z) any contract or agreement affecting Incara,
except, in each case, where such violation, conflict, breach, default,
termination, cancellation, acceleration or Encumbrance would not, individually
or in the aggregate, have an Incara Material Adverse Effect. As used herein, the
term "Encumbrance" shall mean any lien, charge, encumbrance, claim, option,
proxy, pledge, security interest, or other similar right of any nature other
than inchoate statutory tax liens securing payments not yet due and payable or
due but not yet delinquent.

                      (ii) The execution, delivery and performance by Aeolus of
         this Agreement and the compliance with the provisions hereof by Aeolus
         do not violate, conflict with or constitute or result in a breach of or
         default under (or an event which with notice or passage of time or both
         would constitute a default) or give rise to any right of termination,
         cancellation or acceleration under, or result in the creation of any
         Encumbrance upon any properties or assets of Aeolus under (x) the
         Certificate of Incorporation or bylaws of Aeolus, (y) applicable law,
         statute, rule or regulation, or any ruling, writ, injunction, order,
         judgment or decree of any court, arbitrator, administrative agency or
         other governmental body applicable to Aeolus or any of its properties
         or assets or (z) any contract or agreement affecting Aeolus, except, in
         each case, where such violation, conflict, breach, default,
         termination, cancellation, acceleration or Encumbrance would not,
         individually or in the aggregate, have an Aeolus Material Adverse
         Effect.

                  (e) Approvals. Except as set forth on Schedule 3(e) and for
consent which may be required under Applicable Anti-Trust Laws, no permit,
authorization, consent, approval, or order of or by, or any notification of or
filing with, any person or entity (governmental or otherwise) is required in
connection with the execution, delivery or performance of this Agreement or the
other Transaction Documents (including the issuance and sale of the Securities)
by Incara or by Aeolus.

                  (f) Financial Statements. The Annual Report on Form 10-K filed
by Incara with the Securities and Exchange Commission (the "SEC") on December
21, 2001 contains the audited consolidated balance sheets of Incara at September
30, 2001 and September 30, 2000 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended, together with the reports and opinions thereon of PricewaterhouseCoopers
LLP, and the Quarterly Report on Form 10-Q filed by Incara with the SEC on
February 14, 2002 contains the unaudited consolidated balance sheet of Incara at
December 31, 2001 and the related consolidated statements of operations and cash
flows for the three months then ended (collectively, the "Financial
Statements"). The Financial Statements are accurate and complete and fairly
present, in all material respects, the financial position of Incara

                                       13

<PAGE>

and the results of its operations and its cash flows at such dates and for the
periods indicated and were prepared in conformity in all material respects with
United States generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be otherwise indicated
therein). As of the Initial Closing Date, Incara has not incurred and is not
liable for any material liabilities or obligations required to be disclosed on
the Financial Statements in accordance with United States generally accepted
accounting principles, except as set forth in the Financial Statements or
Schedule 3(f).

                  (g) Taxes. Incara has filed in a timely manner any federal,
state, local and foreign tax returns, reports and filings with the appropriate
Governmental Authorities (as defined below) in all jurisdictions in which such
returns, reports and filings are required to be filed (collectively, the
"Returns"), including income, franchise, property and other taxes, and has paid
or accrued the appropriate amounts reflected on such Returns heretofore required
to be filed. All such returns, reports and filings are true, correct and
complete. Except as set forth on Schedule 3(g), none of the Returns have been
audited or challenged, nor has Incara received any notice of challenge nor have
any of the amounts or other data included in the Returns been challenged or
reviewed by any governmental authority. All Federal, state, local and foreign
income, profits, franchise, sales, use, occupation, property, excise, employment
and other taxes (including interest, penalties and withholdings of tax) due from
and payable by Incara have been fully paid on a timely basis. Incara is not a
party to any agreement, contract or arrangement that would result, separately or
in the aggregate, in the payment of any "excess parachute payments" as of the
Initial Closing Date within the meaning of Section 280G of the Internal Revenue
Code (the "Code"). Incara has complied and will comply with all applicable laws
relating to the payment and withholding of taxes (including withholding and
reporting requirements under Section 1441 through 1464, 3401 through 3406, 6041
and 6049 of the Code and similar provisions under any other laws) and, within
the time and in the manner prescribed by law, have withheld from wages, fees and
other payments and paid over to the proper Governmental Authorities all amounts
required.

                  (h) Plans. As of the Initial Closing Date, except as set forth
on Schedule 3(h), which sets forth an accurate and complete list and description
of all employee benefit plans maintained or sponsored by Incara or to which
Incara is required to make contributions (the "Benefit Plans"), Incara does not
maintain, sponsor, is not required to make contributions to or otherwise have
any liability with respect to any pension, savings, profit sharing, thrift or
other retirement plan, employee stock ownership plan, deferred compensation,
stock option, stock appreciation, stock ownership, stock purchase, performance
share, bonus or other incentive plan, severance plan, health or group insurance
plan, welfare plan, or other similar plan, agreement, policy or understanding
(whether written or oral), whether or not such plan is intended to be qualified
under Section 401(a) of the U.S. Internal Revenue Code of 1986, as amended, or
within the meaning of Section 3(3) of the U.S. Employee Retirement Income
Security Act of 1974, as amended, which plan covers any employee or former
employee of Incara. The Benefit Plans have been and are administered in
substantial compliance with their terms and the requirements of applicable law.
No Benefit Plan is subject to the provisions of Section 412 of the Code or Part
3 of Subtitle B of Title I of ERISA. No Benefit Plan is subject to Title IV of
ERISA. During the past five years, neither Incara nor any business or entity
then controlling, controlled by, or under common control with Incara contributed
to or was obliged to contribute to an employee pension

                                       14

<PAGE>

plan that was subject to Title IV of ERISA (no representation is made as to
plans administered by Interneuron Pharmaceuticals, Inc., who owned a majority of
Incara's Common Stock prior to August 1999). Incara has satisfied all funding,
compliance and reporting requirements for all Benefit Plans. With respect to
each Benefit Plan, Incara has timely paid all contributions (including employee
salary reduction contributions) and all insurance premiums that have become due
and any such expense accrued but not yet due has been properly reflected in the
Financial Statements. None of the execution and delivery of this Agreement by
the parties hereto, the performance by any party to this Agreement of their
respective obligations or undertakings contemplated under this Agreement, or the
consummation of the transactions contemplated under this Agreement will (A)
entitle any employee of Incara to severance pay or termination benefits, or (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee.

                  (i) Absence of Certain Events.

                      (i) Since September 30, 2001, except as contemplated by
         the Transaction Documents, or, as set forth on Schedule 3(i), Incara
         has operated in the ordinary course consistent with past practice and
         there has not been, other than in the ordinary course of business
         consistent with past practice:

                          (A) any declaration, setting aside or payment of any
                  dividend or other distribution with respect to any shares of
                  the Capital Stock or other securities of Incara or any direct
                  or indirect redemption, purchase or other acquisition of any
                  such shares or securities;

                          (B) any recapitalization, reclassification, stock
                  dividend, stock split or like change in capitalization with
                  respect to Incara;

                          (C) any acquisition on behalf of Incara, by merger,
                  consolidation, purchase of a substantial portion of assets or
                  equity interests, or by any other manner, of any business,
                  person, or division of either thereof, or of any assets which
                  are material, individually or in the aggregate, to Incara;

                          (D) any creation of any Lien on, or any assignment or
                  other disposition of, any property of Incara, except in the
                  ordinary course of business consistent with past practice, and
                  except to the extent such Liens, assignments and dispositions,
                  together with all other such Liens, assignments and
                  dispositions, would not have an Incara Material Adverse
                  Effect;

                          (E) any (I) change in any bonus, commission, pension,
                  profit-sharing or other benefit or compensation plan, policy,
                  or arrangement or commitment or (II) increase in any such
                  compensation, bonus, commission, pension, profit-sharing or
                  other benefit payable now or in the future;

                          (F) any material damage, destruction or loss (whether
                  or not covered by insurance) affecting any asset of Incara or
                  Aeolus;

                                       15

<PAGE>

                                (G) any (I) grant of severance or termination
                  pay to any director, officer, employee, consultant or
                  independent contractor of Incara, (II) execution of any
                  employment, deferred compensation or other similar agreement
                  (or any amendment to any such existing agreement) with any
                  director, officer, employee, consultant or independent
                  contractor of Incara, (III) increase in benefits payable under
                  existing severance or termination pay policies of Incara or
                  under employment or other agreements to which Incara is a
                  party, or (IV) acceleration of the time or payment or vesting
                  of compensation of any director, officer, employee, consultant
                  or independent contractor of Incara, except (x) in the case of
                  clauses (III) and (IV) any such increase as may be required
                  under an existing agreement, and (y) any such grant,
                  execution, increase or acceleration involving any employee
                  (other than an officer or a director), consultant or
                  independent contractor made in the ordinary course of
                  business, consistent with past practice;

                                (H) any incurrence or assumption by, or on
                  behalf of, Incara of any liabilities, obligations of
                  indebtedness for borrowed money or for the deferred purchase
                  price of property or services, or any guarantee of any such
                  liabilities, obligations or indebtedness, other than in the
                  ordinary course of business, consistent with past practice;

                                (I) any cancellation of any material
                  indebtedness (individually or in the aggregate) or waiver of
                  any material claims or material rights owned by Incara;

                                (J) any election relating to taxes on behalf of
                  Incara or any change in the method of accounting for tax
                  purposes for Incara;

                                (K) any financing, joint venture, license or
                  similar arrangement entered into by Incara that would limit or
                  restrict its ability to perform its obligations hereunder and
                  under each of the other Transaction Documents;

                                (L) any event, occurrence, development,
                  circumstance or fact which has had or would reasonably be
                  expected to have an Incara Material Adverse Effect except for
                  a change in the listing of the Common Stock of Incara from the
                  Nasdaq National Market to the Nasdaq SmallCap Market; and

                                (M) any agreement, whether in writing or
                  otherwise, to directly or indirectly take any of the actions
                  specified in the foregoing items (A) through (L).

                           (ii) Without limiting the generality of the
         foregoing, since September 30, 2001, except as set forth on Schedule
         3(i), there has not been (A) any lapse of any of trade secrets,
         inventions, patents, patent applications or continuations (in whole or
         in part), trademarks, trademark registrations, service marks, service
         mark registrations, copyrights, copyright registrations, or any
         application therefore or filing in respect thereof (collectively, and
         together with any and all know-how, trade secrets and proprietary

                                       16

<PAGE>

         business or technology information, the "Intellectual Property") of
         Incara that could reasonably be expected to result in an Incara
         Material Adverse Effect; (B) loss of the services of any of the key
         officers or key employees of Incara; (C) any incurrence of or entry
         into any mortgage, Encumbrance, commitment or transaction, including
         without limitation, any borrowing (or assumption or guarantee thereof)
         or guarantee of a third party's obligations in excess of U.S. $250,000;
         or (D) any change in the assets, liabilities, condition (financial or
         otherwise), results or operations or prospects of Incara from those
         reflected on the Financial Statements, except changes in the ordinary
         course of business and changes that have not had or could not
         reasonably be expected to have, individually or in the aggregate, an
         Incara Material Adverse Effect.

                  (j) No Liabilities. Since September 30, 2001, Incara has not
incurred or suffered any liability or obligation, matured or unmatured,
contingent or otherwise, except in the ordinary course of business and except
any such liability or obligation that have not had and could not reasonably be
expected to have, individually or in the aggregate, an Incara Material Adverse
Effect.

                  (k) Properties and Assets; Etc.

                      (i)   Except as set forth on Schedule 3(k), as of the
         Initial Closing Date Incara has good and marketable title to its
         properties and assets shown in the Financial Statements to be owned by
         Incara, and has valid leasehold interests to the properties and assets
         shown in the Financial Statements to be leased by Incara, in the case
         of owned property, subject to no Encumbrances.

                      (ii)  Incara owns or possesses sufficient legal rights to
         use pursuant to license, sublicense, agreement or permission all
         Intellectual Property used in the operation of its business as
         presently conducted, other than any failure to own or possess
         sufficient legal rights which, individually or in the aggregate, would
         not have an Incara Material Adverse Effect. All of the Intellectual
         Property which is owned by Incara is owned free and clear of all
         Encumbrances; none of Incara's rights in or use of the Intellectual
         Property has been or, to Incara's knowledge, is currently threatened to
         be challenged; to Incara's knowledge, without making any inquiry other
         than those, if any, routinely conducted by Incara in the ordinary
         course of business, no current or currently planned product based upon
         Incara's Intellectual Property would infringe any patent, trademark,
         service mark, trade name or copyright of any other person or entity
         issued or pending on the Closing Date if Incara were to distribute,
         sell, market or manufacture such products, and Incara is not aware of
         any actual or threatened claim by any person or entity alleging any
         infringement by Incara of a patent, trademark, service mark, trade name
         or copyright possessed by such person or entity. Except as disclosed on
         Schedule 3(k), none of such Intellectual Property, whether foreign or
         domestic, has been canceled, abandoned, or otherwise terminated.

                      (iii) Except as disclosed on Schedule 3(k), Incara has
         filed with the SEC all contracts that it believes are to be material.
         Each is a legal and valid agreement

                                       17

<PAGE>

         binding upon Incara and, to Incara's knowledge, is in full force and
         effect. To Incara's knowledge, there is no material breach or default
         by any party thereunder.

                           (iv)   Incara has and maintains adequate and
         sufficient insurance, including liability, casualty, workers'
         compensation and products liability insurance, covering risks
         associated with its business, properties and assets, including
         insurance that is customary for companies similarly situated.

                           (v)    Incara, its business and properties and assets
         are in compliance in all material respects with all applicable Federal,
         state, local and foreign laws, ordinances, regulations, interpretations
         and orders, including without limitation, those relating to (A) health,
         safety and employee relations, (B) environmental matters, including the
         discharge of any hazardous or potentially hazardous materials into the
         environment and (C) the development, commercialization and sale of
         pharmaceutical and biotechnology products, including all applicable
         regulations of the U.S. Food and Drug Administration and comparable
         applicable foreign regulatory authorities.

                           (vi)   Aeolus owns or possesses sufficient legal
         rights to use pursuant to license, sublicense, agreement or permission
         all Intellectual Property used in the operation of its business as
         presently conducted, other than any failure to own or possess
         sufficient legal rights which, individually or in the aggregate, would
         not have an Aeolus Material Adverse Effect. All of the Intellectual
         Property which is owned by Aeolus is owned free and clear of all
         Encumbrances; none of Aeolus' rights in or use of the Intellectual
         Property has been or, to Aeolus' knowledge, is currently threatened to
         be challenged; to Aeolus' knowledge, without making any inquiry other
         than those, if any, routinely conducted by Aeolus in the ordinary
         course of business, no current or currently planned product based upon
         Aeolus' Intellectual Property would infringe any patent, trademark,
         service mark, trade name or copyright of any other person or entity
         issued or pending on the Closing Date if Aeolus were to distribute,
         sell, market or manufacture such products, and Aeolus is not aware of
         any actual or threatened claim by any person or entity alleging any
         infringement by Aeolus of a patent, trademark, service mark, trade name
         or copyright possessed by such person or entity. Except as disclosed on
         Schedule 3(k), none of such Intellectual Property, whether foreign or
         domestic, has been canceled, abandoned, or otherwise terminated.

                           (vii)  Aeolus has and maintains adequate and
         sufficient insurance, including liability, casualty, workers'
         compensation and products liability insurance, covering risks
         associated with its business, properties and assets, including
         insurance that is customary for companies similarly situated.

                           (viii) Aeolus, its business and properties and assets
         are in compliance in all material respects with all applicable Federal,
         state, local and foreign laws, ordinances, regulations, interpretations
         and orders, including without limitation, those relating to (A) health,
         safety and employee relations, (B) environmental matters, including the
         discharge of any hazardous or potentially hazardous materials into the
         environment and (C) the

                                       18

<PAGE>

         development, commercialization and sale of pharmaceutical and
         biotechnology products, including all applicable regulations of the
         U.S. Food and Drug Administration and comparable applicable foreign
         regulatory authorities.

                  (l) Legal Proceedings, etc. There is no legal, administrative,
arbitration or other action or proceeding or governmental or investigation
pending, or to Incara's knowledge, threatened against Incara, or any director,
officer or employee of Incara in their capacities as such that (i) challenges
the validity or performance of this Agreement or the other Transaction Documents
or (ii) could reasonably be expected to have an Incara Material Adverse Effect.
Incara is not in violation of or default under, any material laws, judgments,
injunctions, orders or decrees of Federal, state, local, foreign or other court,
governmental department, commission, agency, board, bureau, instrumentality or
arbitrator (collectively, "Governmental Authority") applicable to its business,
other than any violation or default which, individually or in the aggregate,
would not have an Incara Material Adverse Effect.

                  (m) Disclosure. The representations and warranties set forth
herein and in the other Transaction Documents, when viewed collectively, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained herein not misleading in light
of the circumstances in which they were made.

                  (n) Brokers or Finders. There have been no investment bankers,
brokers or finders used by Incara or Aeolus in connection with the transactions
contemplated by the Transaction Documents and no persons or entities are
entitled to a fee or compensation in respect thereof.

                  (o) SEC Filings. Incara has filed with the SEC all forms,
reports, schedules, statements, exhibits and other documents (collectively, the
"SEC Filings") required to be filed by Incara on or before the date hereof. At
the time filed, the SEC Filings, including without limitation, any financial
statements, exhibits and schedules included therein or documents incorporated
therein by reference (i) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (ii) complied in all material respects with
the applicable requirements of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as the case may be.

                  SECTION 4. Representation and Warranties of EPIL and EIS. EPIL
and EIS hereby represent and warrant (individually as to itself) to Incara and
Aeolus, as of the date hereof, as follows:

                  (a) Organization. EPIL is a private limited liability company,
duly organized, validly existing and in good standing under the laws of Ireland
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as presently conducted and as proposed to
be conducted and to consummate the transactions to which it is a party
contemplated hereby. EPIL, where applicable, is duly qualified as a foreign
corporation and in good standing to do business in each jurisdiction in which
the nature of the business

                                       19

<PAGE>

conducted or the property owned by it requires such qualification, except where
the failure to be so qualified would not, individually or in the aggregate, have
a material adverse effect on the business, assets, liabilities (contingent or
otherwise), operations, condition (financial or otherwise), or prospects of
EPIL, as applicable (an "EPIL Material Adverse Effect"). EIS is an exempted
limited liability company, duly organized, validly existing and in good standing
under the laws of Bermuda and has all requisite corporate power and authority to
own and lease its properties, to carry on its business as presently conducted
and as proposed to be conducted and to consummate the transactions to which it
is a party contemplated hereby. EIS, where applicable, is duly qualified as a
foreign corporation and in good standing to do business in each jurisdiction in
which the nature of the business conducted or the property owned by it requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, liabilities (contingent or otherwise), operations, condition
(financial or otherwise), or prospects of EIS, as applicable (an "EIS Material
Adverse Effect").

                  (b) Authorization of Transaction Documents. Each of EPIL and
EIS has full corporate power and authority to execute and deliver this Agreement
and each of the other Transaction Documents to which it is a party, and to
perform its obligations hereunder and thereunder. The execution, delivery, and
performance by each of EPIL and EIS of this Agreement and each other Transaction
Document to which it is a party (including the purchase and acceptance of the
Securities) have been duly authorized by all requisite corporate action by EPIL
and EIS and, when executed and delivered by EPIL and EIS, this Agreement and
each of the other Transaction Documents to which it is a party will be the valid
and binding obligation of EPIL and EIS, enforceable against it in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.

                  (c) No Violation. The execution, delivery and performance by
EPIL and EIS of this Agreement and each other Transaction Document to which each
of them is a party (including the purchase and acceptance of the Securities) and
compliance with provisions hereof and thereof by EPIL and EIS will not violate
conflict with or constitute or result in a breach of or default under (or an
event which with notice or passage of time or both would constitute a default)
or give rise to any right of termination, cancellation or acceleration under (i)
the respective charter or bylaws of EPIL or EIS, (ii) applicable law, statute,
rule or regulation, or any ruling, writ, injunction, order, judgment or decree
of any court, arbitrator, administrative agency or other governmental body
applicable to EPIL or EIS or any of their respective properties or assets or
(iii) any material contract to which EPIL or EIS is a party, except, in each
case, where such violation, breach, default, termination, cancellation or
acceleration would not, individually or in the aggregate, have an EPIL Material
Adverse Effect or an EIS Material Adverse Effect.

                  (d) Approvals. Except for consents which may be required under
Applicable Anti-Trust Laws, no material permit, authorization, consent, approval
or order of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement by EPIL or EIS or the other
Transaction Documents to which it is a party.

                                       20

<PAGE>

                  (e) Investment Representations.

                      (i)   Each of EPIL and EIS is sophisticated in
         transactions of this type and capable of evaluating the merits and
         risks of the transactions described herein and in the other Transaction
         Documents to which it is a party, and has the capacity to protect its
         own interests. Neither EPIL nor EIS has been formed solely for the
         purpose of entering into the transactions described herein and therein
         and each is acquiring the Securities (and the Underlying Shares) for
         investment for its own account, not as a nominee or agent, and not with
         the view to, or for resale or distribution thereof, in whole or in
         part, and no other person has a direct or indirect interest, beneficial
         or otherwise in the Securities (or the Underlying Shares); provided,
         however, that EPIL and EIS shall be permitted to convert or exchange
         such Securities in accordance with their terms.

                      (ii)  EPIL and EIS acknowledge their understanding that
         the private placement and sale of the Securities (and the Underlying
         Shares) is exempt from registration under the Securities Act. In
         furtherance thereof, EPIL and EIS each represents and warrants that it
         is an "accredited investor" as that term is defined in Regulation D
         promulgated under the Securities Act, has the financial ability to bear
         the economic risk of its investment, has adequate means for providing
         for its current needs and personal contingencies and has no need for
         liquidity with respect to its investment in Incara.

                      (iii) Each of EPIL and EIS agrees that it shall not sell
         or otherwise transfer any of the Securities (or the Underlying Shares)
         without registration under the Securities Act or pursuant to an
         exemption from registration, and fully understands and agrees that it
         must bear the total economic risk of its purchase for an indefinite
         period of time because, among other reasons, none of the Securities (or
         the Underlying Shares) have been registered under the Securities Act or
         under the securities laws of any applicable state or other jurisdiction
         and, therefore, cannot be resold, pledged, assigned or otherwise
         disposed of unless subsequently registered under the Securities Act and
         under the applicable securities laws of such states or jurisdictions or
         an exemption from such registration is available. Each of EPIL and EIS
         understands that Incara is under no obligation to register the
         Securities (or the Underlying Shares) on its behalf with the exception
         of certain registration rights, as provided in the Amended and Restated
         Registration Rights Agreement. EPIL and EIS understand the lack of
         liquidity and restrictions on transfer of the Securities (and the
         Underlying Shares) and that this investment is suitable only for a
         person or entity of adequate financial means that has no need for
         liquidity of this investment and that can afford a total loss of its
         investment.

                  (f) Legal Proceedings, etc. There is no legal, administrative,
arbitration or other action or proceeding or governmental investigation pending,
or to the knowledge of either EPIL or EIS threatened, against EPIL or EIS that
challenges the validity or performance of this Agreement or the other
Transaction Documents to which EPIL and EIS or any of their affiliates is a
party.

                                       21

<PAGE>

                  (g) Brokers or Finders. There have been no investment bankers,
brokers or finders used by EPIL or EIS or their affiliates in connection with
the transactions contemplated by the Transaction Documents and no persons or
entities are entitled to a fee or compensation in respect thereof.

                  SECTION 5.  Covenants of the Parties.

                  (a) Confidentiality; Non-Disclosure.

                      (i)  Subject to clause (ii) below, from and after the date
         hereof, Incara, Aeolus, EPIL and EIS (and their respective affiliates)
         shall not disclose to any person or entity the terms of this Agreement
         or the other Transaction Documents or the contents thereof or the
         parties thereto, except that such parties may make such disclosure (x)
         to their directors, officers, employees and advisors, and potential
         bank creditors and investors, so long as they shall have advised such
         persons of the obligation of confidentiality herein and for whose
         breach or default the disclosing party shall be responsible or (y) as
         required by applicable law, rule, regulation or judicial or
         administrative process, provided that the disclosing party uses
         commercially reasonable efforts to obtain an order or ruling protecting
         the confidentiality of confidential information of the other party
         contained herein or therein and notifies the other party prior to such
         disclosure so that such other party may, if it chooses, seek such
         relief. The parties shall be entitled to seek injunctive or other
         equitable relief in respect of any breach or threatened breach of the
         foregoing covenant without the requirement of posting a bond or other
         collateral. This Section 5(a)(i) shall not restrict the ability of
         EPIL, EIS or their affiliates to complete and file with the Securities
         and Exchange Commission all required reports and filings to be made by
         EPIL or EIS as a stockholder of Incara, without the prior consent of
         Incara.

                      (ii) Prior to issuing the initial press release or public
         disclosure in respect of this Agreement or the transactions
         contemplated hereby (the "Initial Press Release") by Incara or Aeolus,
         the party proposing such issuance shall obtain the consent of EPIL to
         the contents thereof, which consent shall not be unreasonably withheld
         or delayed. Thereafter, Incara may issue press releases made in the
         ordinary course of its business, referring to research collaborations
         involving Incara, and which do not differ from or go beyond the terms
         of the Initial Press Release (except that no quotes from EPIL shall be
         repeated), without obtaining the consent of EPIL to the contents
         thereof; provided, however, that any other type of press release or
         public disclosure by Incara in respect of this Agreement or the
         transactions contemplated hereby will require the consent of EPIL to
         the contents thereof, which consent shall not be unreasonably withheld
         or delayed.

                  (b) Conduct of Business. From the date of this Agreement
until the earlier of (x) the final Later Closing Date and (y) the termination of
this Agreement pursuant to Section 7 hereof, Incara shall (i) operate its
business only in the ordinary course of business consistent with past practices
and (ii) not create, adopt, enact or approve any (nor amend, supplement or
modify any existing) agreement, contract or arrangement that would result,
separately or in the aggregate, in

                                       22

<PAGE>

the payment of any "excess parachute payments" within the meaning of Section
280G of the Code; provided, that this clause (ii) shall not be deemed violated
by any "excess parachute payments" resulting from any agreement, contract or
arrangement (including any stock options or other stock grants) in effect as of
the Initial Closing Date as to which Incara and Aeolus have represented herein
would not result in the payment of any "excess parachute payments" as of the
Initial Closing Date.

                  (c) Reserved Shares. Incara shall reserve and at all times
keep available, free from preemptive rights, out of its authorized but unissued
stock, a sufficient number of shares of Common Stock to provide for the issuance
of such shares upon the conversion of the Series B Preferred Stock.

                  (d) Use of Proceeds.

                      (i) Without the prior written approval of EPIL, the
         following proceeds from the sale of the Shares shall be used in the
         following manner:

                            (A) at least U.S.$[*] of the proceeds of the Initial
                  Purchase shall be used to fund the continued research and
                  development by Aeolus and Incara of the Compounds in the Field
                  and the achievement of the IND Milestone;

                            (B) the proceeds of the sale of Shares to EPIL
                  relating to the Preliminary Milestone shall be used, (x) if
                  the Preliminary Milestone was reached as a result of the
                  occurrence of a Third Party Equity Purchase, solely to fund
                  the continued research and development by Aeolus and Incara of
                  the Compounds in the Field and the achievement of the
                  remaining Milestone Events, and (y) if the Preliminary
                  Milestone was reached as a result of the occurrence of a Third
                  Party Collaboration, for general corporate purposes; and

                            (C) all of the proceeds of the sale of Shares to
                  EPIL relating to theany other Milestone Event shall be used
                  solely to fund the continued research and development by
                  Aeolus and Incara of the Compounds in the Field and the
                  achievement of the remaining Milestone Events; provided, that
                  to the extent that at the time Aeolus obtains any Milestone
                  Event, any proceeds from the purchase of Shares by EPIL that
                  were to be used to obtain such Milestone remain available,
                  Incara may use such unutilized funds in the ordinary course of
                  its business; provided, further that all proceeds of the
                  purchase of Shares resulting from the obtainment of such
                  Milestone Event shall be used in accordance with this clause
                  (C) to obtain the next Milestone Event

            [*] Confidential treatment requested; certain information
                          omitted and filed separately with SEC.

                                       23

<PAGE>

         In the event that Incara utilizes funds from a source other than the
         purchase of Shares by EPIL to fund the obtainment of any Milestone
         Event, the proceeds resulting from EPIL's purchase of the Share upon
         such Milestone Event may to used to reimburse Incara for such advances.

                     (ii) Notwithstanding the foregoing, no proceeds of the
         purchase by EPIL of Shares under this Agreement shall be used to
         effectuate any of the following:

                            (A) a declaration or payment of any dividends or
                 distributions on any capital stock of Incara, Aeolus or any of
                 their respective affiliates (other than any dividends or
                 distributions to any affiliate of Elan);

                            (B) the purchase, redemption, retirement or other
                 acquisition of any of the capital stock now or hereafter
                 outstanding of Incara, Aeolus or any of their respective
                 affiliates (other than repurchases from employees, consultants
                 or other parties subject to reverse vesting arrangements);

                            (C) any transaction (other than for the payment of
                 salary of, or reimbursement of expenses incurred by, an
                 employee, or payments of compensation made under a consulting
                 agreement, in each case in the ordinary course of business
                 consistent with past practice of Incara), with any officer,
                 manager, director or shareholder of Incara, Aeolus or any of
                 their respective affiliates or with any affiliates of an
                 officer, manager, director or shareholder of Incara, Aeolus or
                 any of their respective affiliates (including family members);

                            (D) the making of any loans, except advances and
                 similar expenditures in the ordinary course of business
                 consistent with past practices; or

                            (E) the payment of any bonus, salary, commission
                 profit sharing or other compensation, except such payments as
                 are within ordinary course of business consistent with past
                 practices of such company.

                 (e) Further Assurances. From and after the date hereof, each
of the parties hereto agree to do or cause to be done such further acts and
things and deliver or cause to be delivered to each other such additional
assignments, agreements, powers and instruments, as each may reasonably require
or deem advisable to carry into effect the purposes of this Agreement and the
other Transaction Documents.

                 SECTION 6. Survival and Indemnification.

                 (a) Survival. For the purposes of this Section, the
representations and warranties of Incara, Aeolus, EPIL and EIS contained in
Sections 3 and 4 hereof shall survive for a period of 24 months from and after
the date hereof, and the provisions of Sections 1, 5, 6, 7, 16

                                       24

<PAGE>

and 17 shall survive the termination of this Agreement; all other terms and
provisions of this Agreement shall cease to have effect and be null and void
upon the termination of this Agreement.

                  (b) Indemnification. In addition to all rights and remedies
available to the parties hereto at law or in equity, Incara and Aeolus (each, in
such capacity, "Indemnifying Party") shall indemnify EPIL, its stockholders,
officers, directors and assigns, their affiliates, and their affiliates'
stockholders, officers, directors, employees, agents, representatives,
successors and assigns (collectively, the "Indemnified Person"), and save and
hold each Indemnified Person harmless from and against and pay on behalf of or
reimburse each such Indemnified Person, as and when incurred, for any and all
loss, liability, demand, claim, action, cause of action, cost, damage,
deficiency, tax, penalty, fine or expense, whether or not arising out of any
claims by or on behalf of such Indemnified Person or any third party, including
interest, penalties, reasonable attorneys' fees and expenses and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, "Losses"), that any such Indemnified Person may suffer, sustain
incur or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of:

                      (i)   any misrepresentation or breach of any
         representation or warranty of Incara or Aeolus contained in this
         Agreement or the Development Agreement;

                      (ii)  any third party claim or action, or potential or
         threatened claim or action, related to this Agreement, the Development
         Agreement and the transactions contemplated hereby or thereby;

                      (iii) any nonfulfillment, default or breach of any
         covenant or agreement on the part of Incara or Aeolus under this
         Agreement or the Development Agreement; or

                      (iv)  the research and development activities conducted by
         Incara or Aeolus on any Compound prior to the Initial Closing Date.

                  (c) Maximum Recovery. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Indemnifying Party be liable
for indemnification under this Section 6 in an amount in excess of the aggregate
of the purchase price paid for the Shares. No Indemnified Person shall assert
any such claim unless Losses in respect thereof incurred by any Indemnified
Person, when aggregated with all previous Losses hereunder, equal or exceed U.S.
$250,000, but at such time that an Indemnified Person is entitled to assert a
claim, such claim shall include all Losses covered by this Section 6.

                  (d) Exception. Notwithstanding the foregoing, upon judicial
determination that is final and no longer appealable, that the act or omission
giving rise to the indemnification set forth above resulted primarily out of or
was based primarily upon the Indemnified Person's negligence (unless such
Indemnified Person's negligence was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Indemnifying Party herein), the Indemnifying Party shall not be
responsible for any Losses sought to be indemnified in connection therewith, and
the Indemnifying Party shall be

                                       25

<PAGE>

entitled to recover from the Indemnified Person all amounts previously paid in
full or partial satisfaction of such indemnity, together with all costs and
expenses (including reasonable attorneys fees) of the Indemnifying Party
reasonably incurred in connection with the Indemnified Persons claim for
indemnity, together with interest at the rate per annum publicly announced by
Morgan Guaranty Trust Company, or its successor, as its prime rate from the time
of payment of such amounts to the Indemnified Person until repayment to the
Indemnifying Party.

                  (e) Investigation. All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, irrespective of any investigation, inquiry or
examination made for or on behalf of, or any knowledge of the Indemnified Person
or the acceptance of any certificate or opinion.

                  (f) Contribution. If the indemnity provided for in this
Section 6 shall be, in whole or in part, unavailable to any Indemnified Person,
due to Section 6(b) being declared unenforceable by a court of competent
jurisdiction based upon reasons of public policy, so that Section 6(b) shall be
insufficient to hold each such Indemnified Person harmless from Losses which
would otherwise be indemnified hereunder, then the Indemnifying Party and the
Indemnified Person shall each contribute to the amount paid or payable for such
Loss in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Person on the other, but also the relative fault of the Indemnifying Party and
be in addition to any liability that the Indemnifying Party may otherwise have.
The indemnity, contribution and expense reimbursement obligations that the
Indemnifying Party has under this Section 6 shall survive the expiration of the
Transaction Documents. The parties hereto further agree that the indemnification
and reimbursement commitments set forth in this Agreement shall apply whether or
not the Indemnified Person is a formal party to any such lawsuit, claims or
other proceedings.

                  (g) Limitation. This Section 6 is not intended to limit the
rights or remedies otherwise available to any party hereto with respect to this
Agreement or any other the Transaction Document.

                  (h) Exclusion of Liability. Notwithstanding anything to the
contrary in this Agreement, no party shall be liable to any other party by
reason of any representation or warranty, condition or other term or any duty of
common law, or under the express terms of this Agreement, for any consequential,
special or incidental or punitive loss or damage, whether for loss of current or
future profits, loss of enterprise value or otherwise.

                  SECTION 7. Termination. (a) This Agreement shall terminate on
the earliest to occur of any of the following events:

                      (i)  the mutual written agreement of the parties hereto;

                      (ii) by written notice of EPIL and EIS to Incara, if (A)
         the First Phase I Milestone shall not have occurred prior to the close
         of business on the date that is 180

                                       26

<PAGE>

         days after the date set forth in the Development Plan for the
         achievement of such Milestone Event or (B) the First Phase II Milestone
         shall not have occurred prior to the close of business on the date that
         is 180 days after the date set forth in the Development Plan for the
         achievement of such Milestone Event, in each case, subject to the
         extension by the Steering Committee of such date set forth in the
         Development Plan;

                      (iii) by written notice of EPIL and EIS to Incara, if
         Incara or Aeolus shall have materially breached any of its
         representations, warranties or agreements contained in this Agreement
         or the Development Agreement, which breach, if curable, has not been
         cured within 15 days of such notice or if a Bankruptcy Event (as
         defined below) shall have occurred with respect to Incara or Aeolus; or

                      (iv)  by written notice of Incara to EPIL, if EPIL or EIS
         shall have materially breached any of its representations, warranties
         or agreements contained in this Agreement or the Development Agreement,
         which breach, if curable, has not been cured within 15 days of such
         notice or if a Bankruptcy Event (as defined below) shall have occurred
         with respect to EPIL or EIS.

                  (b) Nothing in this Section 7 shall relieve any party of any
liability for a breach of this Agreement prior to its termination. Except as set
forth in Section 6(a), all rights and obligations of the parties under this
Agreement shall terminate.

                  (c) For the purpose of this Section 7, a "Bankruptcy Event",
with respect to any party, shall occur upon the following:

                      (i)   the appointment of a liquidator, receiver,
         administrator, examiner, trustee or similar officer of such party or
         over all or substantially all of its assets under the law of any
         applicable jurisdiction, including without limitation, the United
         States of America, Bermuda or Ireland; or

                      (ii)  an application or petition for bankruptcy, corporate
         re-organization, composition, administration, examination, arrangement
         or any other procedure similar to any of the foregoing under the law of
         any applicable jurisdiction, including without limitation, the United
         States of America, Bermuda or Ireland, is filed, and is not discharged
         within sixty (60) days, or a party applies for or consents to the
         appointment of a receiver, administrator, examiner or similar officer
         of it or of all or a material part of its assets, rights or revenues or
         the assets and/or the business of a party are for any reason seized,
         confiscated or condemned.

                  SECTION 8. Relationship of the Parties. Nothing contained in
this Agreement is intended or is to be construed to constitute EPIL or EIS and
Incara or Aeolus as partners, or EPIL or EIS as an employee or agent of Incara
or Aeolus, or Incara or Aeolus as an employee or agent of EPIL or EIS.

                                       27

<PAGE>

                  SECTION 9. Notices. All notices, demands and requests of any
kind to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by an internationally-recognized overnight delivery courier
or by registered or certified mail, return receipt requested and postage
prepaid, or by facsimile transmission addressed as follows:

                  (a)      if to Incara or Aeolus, to:

                           Incara Pharmaceuticals Corporation
                           Post Office Box 14287
                           79 T. W. Alexander Drive
                           4401 Research Commons, Suite 200
                           Research Triangle Park, North Carolina 27709
                           Attention: Chief Executive Officer
                           Facsimile: (919) 544-1245

                           with a copy to:

                           Wyrick Robbins Yates & Ponton LLP
                           4101 Lake Boone Trail
                           Suite 300
                           Raleigh, North Carolina 27607
                           Attention: Larry Robbins
                           Facsimile: (919) 781-4865

                  (b)      If to EPIL to:

                           Elan Pharma International Limited
                           Wil House
                           Shannon Business Park
                           Shannon, Co. Clare
                           Ireland
                           Facsimile: (011) 353-1-7094082

                           with a copy to:

                           Reitler Brown LLC
                           800 Third Avenue
                           New York, New York 10022

                                       28

<PAGE>

                           Attention:  Scott Rosenblatt
                           Facsimile:  (212) 371-5500

                  (c)      If to EIS to:

                           Elan International Services, Ltd.
                           102 St. James Court
                           Flatts, Smiths Parish
                           Bermuda FL 04
                           Attention:  Chief Executive Officer
                           Facsimile:  441-292-2224

                           with a copy to:

                           Reitler Brown LLC
                           800 Third Avenue
                           New York, New York  10022
                           Attention:  Scott Rosenblatt
                           Facsimile:  (212) 371-5500

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 9. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted and (iv) in the case of
facsimile transmission, the date of telephone confirmation of receipt.

                  SECTION 10. Entire Agreement. This Agreement and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties with respect thereto; provided
that the Transaction Documents shall not affect the rights of EPIL and its
affiliates under the Prior Purchase Agreement, and all documents, agreement,
instruments and securities executed or issued in connection with the Prior
Purchase Agreement.

                  SECTION 11. Amendments and Waiver. This Agreement may not be
modified or amended, or any of the provisions hereof waived, except by written
agreement of the parties hereto dated after the date hereof.

                  SECTION 12. Counterparts and Facsimile. The Transaction
Documents may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement. Each of the Transaction
Documents may be signed and delivered to the other party by facsimile
transmission; such transmission shall be deemed a valid signature.

                                       29

<PAGE>

                  SECTION 13. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Agreement.

                  SECTION 14. Governing Law; Disputes. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to principles of conflicts of laws. Any dispute
under this Agreement that is not settled by mutual consent may be finally
adjudicated by any federal or state court sitting in the City, County and State
of New York, and each party consents to the non-exclusive jurisdiction of such
courts (or any appellate court therefrom) over any such dispute. Nothing
contained in this Section shall prevent the adjudication of any dispute under
this Agreement by any other state or federal court, regardless of location, so
long as such court has jurisdiction and is located in a proper venue.

                  SECTION 15. Expenses. Each of the parties shall be responsible
for its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.

                  SECTION 16. Exhibits and Schedules. The exhibits to and
schedules delivered by or on behalf of any party in connection with this
Agreement are an integral part of this Agreement, and any statements contained
in such schedules shall be deemed to be representations and warranties under
this Agreement.

                  SECTION 17. Assignments and Transfers. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. All or any
part of this Agreement, the shares of Series B Preferred Stock purchased
hereunder and the Underlying Shares may be assigned or transferred by EPIL and
its permitted assigns and transferees to their respective affiliates and
subsidiaries, as well as any special purpose financing or similar vehicle
established by EPIL or its affiliates or subsidiaries; provided, that the
parties hereto shall continue to be bound by the terms, conditions and
obligations of this Agreement. Other than as set forth above, no party shall
assign or transfer all or any part of this Agreement, without the prior written
consent of the other party. Subject to compliance with applicable Federal and
state securities laws, the shares of Series B Preferred Stock purchased
hereunder and the Underlying Shares may be assigned or transferred by EPIL.

                  SECTION 18. Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.

                            [Signature page follows]

                                       30

<PAGE>

                  IN WITNESS WHEREOF, each of the undersigned has duly executed
this Agreement as of the date first written above.

                          INCARA PHARMACEUTICALS CORPORATION


                          By:   ______________________________________
                                Name: Clayton I. Duncan
                                Title: President and Chief Executive Officer


                          AEOLUS PHARMACEUTICALS, INC.


                          By:   ______________________________________
                                Name: Clayton I. Duncan
                                Title: President and Chief Executive Officer


                          ELAN PHARMA INTERNATIONAL LIMITED


                           By:   ______________________________________
                                Name:  ____________________
                                Title: Authorized Signatory


                          ELAN INTERNATIONAL SERVICES, LTD.


                          By:   ______________________________________
                                Name:  ____________________
                                Title: Authorized Signatory

<PAGE>

                                    EXHIBIT A

                        Development and Option Agreement

                                       [filed as a separate exhibit]

<PAGE>

                                    EXHIBIT B

               Amended and Restated Registration Rights Agreement

                                [filed as a separate exhibit]

<PAGE>

                                    EXHIBIT C

                             SECRETARY'S CERTIFICATE

          The undersigned, Secretary of [________], a Delaware corporation (the
"Corporation"), does hereby certify as follows:

     1. Attached hereto as Exhibit A is a true, correct and complete copy of the
     Certificate of Incorporation of the Corporation (the "Certificate of
     Incorporation"), certified by the Secretary of State of the State of
     Delaware, as in effect as of the date hereof and at all times since
     _________.

     2. Attached hereto as Exhibit B is a true, correct and complete copy of the
     by-laws of the Corporation (the "By-Laws"), as in effect as of the date
     hereof and at all times since ____________.

     1. No further amendments to the Certificate of Incorporation or By-Laws
have been approved by the Board of Directors or stockholders of the Corporation,
or filed with Secretary of State of the State of Delaware. No transaction or
proceeding for the dissolution, merger, consolidation or liquidation of the
Corporation, or for the sale of all or substantially all of its assets, is
pending or threatened, and no such transaction or proceeding is contemplated by
the Corporation.

     3. Attached hereto as Exhibit C are true, correct and complete copies of
     resolutions duly adopted by the Board of Directors of the Corporation on
     [________]. Such resolutions have not been amended or modified, are in full
     force and effect in the form adopted, and are the only resolutions adopted
     by the Board of Directors of the Corporation relating to the authorization
     of each of the execution and delivery of the Securities Purchase Agreement
     (the "Agreement") [and the Registration Rights Agreement], the performance
     by the Corporation of its obligations thereunder, and the consummation of
     the transactions contemplated thereby, including the issuance and sale of
     the Series B Preferred Stock (as defined in the Agreement).

     4. [Each of] the Agreement [and the Registration Rights Agreement] is in
     the form approved by the Board of Directors of the Corporation in the
     resolutions referred to in paragraph 4 above.

     5. Attached hereto as Exhibit D is a true, correct and complete copy of the
     Long-Form Certificate of Good Standing of the Corporation, issued on
     [______], by the Secretary of State of the State of Delaware.

     6. Attached hereto as Exhibit E are true, correct and complete copies of
     long-form good standing certificates from each foreign jurisdiction in
     which the Corporation is authorized to transact business.

     7. The persons named below have been duly elected and appointed, have been
     duly qualified and, as of the date hereof, are officers of the Corporation
     holding the respective

<PAGE>

offices set forth opposite their names, are each duly authorized on behalf of
the Corporation in their capacities as officers of the Corporation to execute
and deliver all documents contemplated by the resolutions referred to in
paragraph 4 above, and the signatures set out opposite their names are their
genuine signatures.

            Name               Title(s)                   Signature

                                                    ______________________


                                                    ______________________


                                                    ______________________


                                                    ______________________


                                                    ______________________


              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       -2-

<PAGE>

         In Witness Whereof, the undersigned has executed this Secretary's
Certificate on the ____day of [_________], [___].

                                          ______________________________________
                                          Name:
                                          Title: Secretary


         The undersigned, being the duly appointed and acting President of
[__________] does hereby certify that [___________] has been duly appointed and,
on this date, is the Secretary of [____________] and that the signature set
forth above is his genuine signature.

         In Witness Whereof, the undersigned has executed this Secretary's
Certificate on this ___ day of [_________], [___].


                                          ______________________________________
                                          Name:
                                          Title: President

<PAGE>

                                    EXHIBIT D

                              OFFICER'S CERTIFICATE

                  I, ________________, the [__________] of [__________], a
         Delaware corporation (the "Corporation"), do hereby certify that (i)
         all covenants, agreements and conditions contained in the Securities
         Purchase Agreement (the "Agreement"), dated as of the date hereof,
         among the Corporation, [_______], Elan International Services, Ltd. and
         Elan Pharma International Limited to be performed or complied with by
         the Corporation prior to the Closing (as defined in the Agreement) for
         which this certificate is to be delivered, including, without
         limitation, the conditions set forth in Section 2 of the Agreement,
         have been performed or complied with in all material respects, and (ii)
         the representations and warranties of the Corporation set forth in the
         Agreement are true, correct and complete in all material respects.

                  In Witness Whereof, I have signed this Officer's Certificate
         as of [_________].


                                                  ______________________________
                                                  Name:
                                                  Title:

<PAGE>

                                    EXHIBIT E

                     Form of Opinion of Incara Legal Counsel

1.       Each of Incara and Aeolus is a corporation duly organized, validly
         existing and in good standing under the laws of the State of Delaware,
         and is duly qualified and in good standing to do business as a foreign
         corporation in North Carolina which, to our knowledge, represents all
         jurisdictions in which the nature of its business or the ownership of
         its property has made such qualification necessary.

2.       Each of Incara and Aeolus has full corporate power and authority to
         execute, deliver and perform its obligations under each of the
         Transaction Documents and to consummate the transactions contemplated
         thereby, to own its property and to conduct its business in the manner
         currently conducted.

3.       The Transaction Documents and the transactions contemplated thereby,
         have been duly authorized by all requisite corporate action on the part
         of Incara and Aeolus, and have been duly executed and delivered by
         Incara and Aeolus.

4.       The Transaction Documents are valid and binding obligations of Incara
         and Aeolus, enforceable in accordance with their respective terms.

5.       Upon consummation of the purchase of the the Series B Preferred Stock
         pursuant to the Purchase Agreement, the Series B Preferred Stock will
         be duly and validly authorized and issued, and fully paid and
         nonassessable. The holders of the Series B Preferred Stock are entitled
         to the rights, preferences and priorities set forth in Incara's Amended
         and Restated Certificate of Incorporation (the "Certificate"). Upon
         conversion of shares of the Series B Preferred Stock in accordance with
         the terms of the Certificate, the Common Stock received thereon will be
         duly and validly issued, fully paid and non-assessable.

6.       The authorized capital stock of Incara consists of (a) ____________
         shares of Common Stock, (b) __________ shares of Preferred Stock, of
         which ______ shares are designated as Series B Convertible Preferred
         Stock and _________ shares are designated as Series C Convertible
         Exchangeable Preferred Stock. All issued and outstanding shares of
         Common Stock are fully paid and non-assessable.

7.       The execution and delivery of the Transaction Documents and performance
         by Incara and Aeolus of their respective obligations thereunder do not
         conflict with or violate the Certificate or Aeolus's Certificate of
         Incorporation, as amended, or their respective by-laws, or any
         applicable law, statute, rule or regulation or, to our knowledge, any
         ruling, writ, injunction, order, judgment or decree of any court,
         arbitrator, administrative agency or other governmental body, and do
         not conflict with and will not violate or conflict with, in any
         material respect, any contract, agreement or instrument listed as an
         exhibit to Incara's Annual Report on Form 10-K for the year ended
         September 30, 2001, as filed with the Securities and Exchange
         Commission ("SEC Filings"), and which Incara has

<PAGE>

         informed us sets forth all of its and Aeolus's material contracts and
         agreements. To our knowledge, each of Incara and Aeolus is in
         compliance, in all material respects, with all applicable laws and
         regulations, and is not in breach, in any material respect, of any
         contract, agreement or instrument as filed as an exhibit to Incara's
         SEC Filings.

8.       No approval, authorization or other action by any governmental
         authority or filing with any such authority which has not been obtained
         or accomplished is required in connection with the execution, delivery
         and performance by Incara and Aeolus of the Transaction Documents.

<PAGE>

                                    EXHIBIT F

            Form of Amended and Restated Certificate of Incorporation

                              AMENDED AND RESTATED

                          CERTIFICATE OF INCORPORATION

                                       OF

                       INCARA PHARMACEUTICALS CORPORATION

                  Incara Pharmaceuticals Corporation (the "Corporation"), a
corporation duly organized and existing under the General Corporation Law of the
State of Delaware (the "DGCL"), which was incorporated under the name of
"Intercardia, Inc." on March 15, 1994, does hereby certify that:

                  1. The name of the Corporation is Incara Pharmaceuticals
Corporation.

                  2. The Corporation was originally incorporated and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State for the State of Delaware on March 15, 1994 under the name
Intercardia, Inc.

                  3. This Amended and Restated Certificate of Incorporation was
duly adopted by the Board of Directors of the Corporation and the Corporation's
stockholders in accordance with the provisions of Sections 242 and 245 of the
DGCL. This Amended and Restated Certificate of Incorporation restates,
integrates and amends the Corporation's Certificate of Incorporation, as amended
or supplemented prior to the date hereof.

                  4. The Corporation's Certificate of Incorporation is hereby
amended and restated to read in its entirety as follows:

                  FIRST: The name of the corporation is Incara Pharmaceuticals
Corporation.

                  SECOND: The registered office of the Corporation is to be
located at 2711 Centerville Road, Suite 400, in the City of Wilmington, in the
County of New Castle, in the State of Delaware. The name of its registered agent
at that address is The Prentice-Hall Corporation System, Inc.

                  THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.

<PAGE>

                  FOURTH: Authorization. The total number of shares of stock
which the Corporation shall be authorized to issue is Eighty-Three Million
(83,000,000) shares of stock, with Eighty Million (80,000,000) shares designated
Common Stock, each share having $.001 par value, and Three Million (3,000,000)
shares of Preferred Stock, each share having $.01 par value, of which Six
Hundred Thousand (600,000) shares are designated Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and Twenty Thousand (20,000) shares are
designated Series C Convertible Exchangeable Preferred Stock (the "Series C
Preferred Stock"). The Series B Preferred Stock and the Series C Preferred Stock
shall have the terms and provisions set forth in Appendix A attached hereto.

                  The Board of Directors may divide the Preferred Stock into any
number of series, fix the designation and number of shares of each such series,
and determine or change the designation, relative rights, preferences, and
limitations or any series of Preferred Stock. The Board of Directors (within the
limits and restrictions of any resolutions adopted by it originally fixing the
number of shares of any series of Preferred Stock) may increase or decrease the
number of shares initially fixed for any series, but no such decrease shall
reduce the number below the number of shares then outstanding duly reserved for
issuance.

                  FIFTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of the powers
of the Corporation and of its directors and stockholders:

                  (1) The election of directors need not be by written ballot,
unless the by-laws so provide.

                  (2) The Board of Directors shall have power without the assent
or vote of the stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.

                  SIXTH: The Corporation shall indemnify and advance expenses to
the fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, each person who is or was a director or
officer of the Corporation and the heirs, executors and administrators of such a
person.

                  SEVENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware, may, on application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or a class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be bind-

<PAGE>

ing on all the creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of the Corporation, as the case may be, and also on
the Corporation.

                  EIGHTH: The personal liability of directors of the Corporation
is hereby eliminated to the full extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware as the same may be amended and
supplemented.

                  NINTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.

                  IN WITNESS WHEREOF, Incara Pharmaceuticals Corporation has
caused this Restated Certificate of Incorporation to be executed by its duly
authorized officer this ____ day of March 2002.

                                 INCARA PHARMACEUTICALS CORPORATION


                                 _______________________________________________
                                 Name:  Richard W. Reichow
                                 Title: Executive Vice President and
                                        Chief Financial Officer

<PAGE>

                                                                      APPENDIX A

                            PREFERENCES AND RIGHTS OF
                      SERIES B CONVERTIBLE PREFERRED STOCK
              AND SERIES C CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
                                       OF
                       INCARA PHARMACEUTICALS CORPORATION

         The Series B Preferred Stock and the Series C Preferred Stock shall
have the terms and provisions herein set forth:

                                   ARTICLE I.
                            Series B Preferred Stock.

         1. Rank. The Series B Preferred Stock shall, with respect to dividend
rights and with respect to rights upon liquidation, winding up or dissolution,
rank pari passu with each class of Common Stock (as defined in Article IV below)
on an as-converted basis.

         2. Dividends.

            (a) Subject to prior and superior rights of holders of any shares of
Series C Preferred Stock and any other series or class of capital stock ranking
prior and superior to the Series B Preferred Stock with respect to dividends,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
as, when and if declared by the Board of Directors, out of funds legally
available for the purpose, dividends or distributions in cash, stock or
otherwise.

            (b) In addition to Section 2(a) above, from and after the date
hereof, when and if the Board of Directors of the Corporation shall declare a
dividend or distribution payable with respect to the then-outstanding shares of
Common Stock, the holders of Series B Preferred Stock shall be entitled to the
amount of dividends per share in the same form as such Common Stock dividends
that would be payable on the largest number of whole shares of Common Stock into
which a holder's aggregate shares of Series B Preferred Stock could then be
converted pursuant to Section 5 hereof (such number to be determined as of the
record date for the determination of holders of Common Stock entitled to receive
such dividend).

         3. Liquidation. In the event of any Wind-up or Asset Sale (each as
defined in clauses (i) and (ii), respectively, of the definition of Liquidation
Event in Article IV below), whether voluntary or involuntary, the holders of
Series B Preferred Stock shall have the right to receive, pari passu with the
holders of the Common Stock and subject to the rights of the holders of Series C
Preferred Stock and any other senior class or series of capital stock of the
Corporation, the assets of the Corporation in proportion to the number of shares
of Common Stock held by each such holder (assuming, for such purposes, the
holders of Series B Preferred Stock are deemed to hold that number of shares of
Common Stock equal to the number of shares of Common Stock into which such
shares of Series B Preferred Stock are then convertible).

<PAGE>

         4.       Voting.

                  (a) Except as provided in Section 4(b) below, the holders of
Series B Preferred Stock shall not be entitled to vote on matters submitted to
the holders of the Common Stock or any other class of capital stock of the
Corporation.

                  (b) Subject to the rights of any series of preferred stock
that may from time to time come into existence, so long as any shares of Series
B Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then-outstanding shares of Series B
Preferred Stock, voting separately as a series:

                      (i)   amend its Certificate of Incorporation so as to
affect adversely the shares of Series B Preferred Stock or any holder thereof
(including by creating any additional classes or series of senior and/or pari
passu capital stock of the Corporation); or

                      (ii)  change the rights of the holders of the Series B
Preferred Stock in any other respect.


         5.       Conversion of Series B Preferred Stock into Common Stock.

                  (a) Conversion Procedure.

                      (i)   Subject to Article III below, from time to time
after the Issue Date (as defined in Article IV below), any holder of Series B
Preferred Stock may convert all or any portion of his or its Eligible Series B
Shares (as defined in Article IV below) into a number of validly issued, fully
paid and non-assessable shares of Conversion Stock (as defined in Article IV
below) computed by multiplying the number of shares to be converted by the
Series B Conversion Ratio (as defined below) then in effect.

                      (ii)  Each conversion of Series B Preferred Stock shall be
deemed to have been effected as of the close of business on the date on which
notice of election of such conversion is delivered to the Corporation by such
holder. Until the certificates representing the shares of Series B Preferred
Stock that are being converted have been surrendered and new certificates
representing shares of the Conversion Stock shall have been issued by the
Corporation, such certificate(s) evidencing the shares of Series B Preferred
Stock being converted shall be evidence of the issuance of such shares of
Conversion Stock. At such time as such conversion has been effected, the rights
of the holder of such Series B Preferred Stock as such holder shall cease and
the Person or Persons in whose name or names any certificate or certificates for
shares of Conversion Stock are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Conversion Stock
represented thereby.

                      (iii) As soon as practicable after a conversion has been
effected in accordance with clause (i) above, the Corporation shall deliver to
the converting holder: (A) a cer-

<PAGE>

tificate or certificates representing, in the aggregate, the number of shares of
Conversion Stock issuable by reason of such conversion, in the name or names and
in such denomination or denominations as the converting holder has specified;
and (B) a certificate representing any shares of Series B Preferred Stock which
were represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which were not converted.

                           (iv)     The issuance of certificates for shares of
Conversion Stock upon conversion of Series B Preferred Stock shall be made
without charge to the holders of such Series B Preferred Stock for any issuance
tax in respect thereof or other cost incurred by the Corporation in connection
with such conversion and the related issuance of shares of Conversion Stock,
except for any transfer or similar tax payable as a result of issuance of a
certificate to other than the registered holder of the shares being converted.

                           (v)      The Corporation shall not close its books
against the transfer of Series B Preferred Stock or of Conversion Stock issued
or issuable upon conversion of Series B Preferred Stock in any manner which
interferes with the timely conversion of Series B Preferred Stock. The
Corporation shall assist and cooperate with any holder of shares of Series B
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares
hereunder (including, without limitation, making any filings reasonably required
to be made by the Corporation).

                           (vi)     No fractional shares of Conversion Stock or
scrip representing fractional shares shall be issued upon conversion of shares
of Series B Preferred Stock. If more than one share of Series B Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Conversion Stock issuable upon the conversion thereof
shall be computed on the basis of the aggregate number of shares of Series B
Preferred Stock so surrendered by such record holder. Instead of any fractional
share of Conversion Stock otherwise issuable upon conversion of any shares of
Series B Preferred Stock, the number of shares of Conversion Stock to be issued
upon conversion of any shares of Series B Preferred Stock shall be rounded down
to the nearest whole share.

                           (vii)    The Corporation shall use its best efforts
at all times to reserve and keep available out of its authorized but unissued
shares of Conversion Stock, solely for the purpose of issuance upon the
conversion of Series B Preferred Stock, such number of shares of Conversion
Stock as are issuable upon the conversion of all outstanding Series B Preferred
Stock. All shares of Conversion Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges, other than those created or agreed to by the holder.
The Corporation shall use its best efforts to take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).

<PAGE>

                  (b) Conversion Ratio.

                      (i)  "Series B Conversion Ratio" shall initially mean the
Initial Series B Conversion Ratio described in this Section 5, as the same may
be subsequently adjusted from time to time in accordance with this Section 5.

                      (ii) The "Initial Series B Conversion Ratio" shall be 10
shares of Common Stock for each one share of Series B Preferred Stock.

                  (c) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend or
distribution, recapitalization, reclassification or any similar transaction) one
or more classes of its outstanding shares of Common Stock into a greater number
of shares, or if the Corporation at any time combines (by reverse stock split,
recapitalization, reclassification or any similar transaction) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Series B Conversion Ratio in effect immediately prior to such
subdivision or combination shall be proportionately adjusted.

                  (d) Consolidation, Merger or Sale of Assets. Prior to the
consummation of any Significant Transaction (as defined in Article IV below),
and subject to applicable regulatory approvals the Corporation shall make
appropriate provisions to insure that each of the holders of Series B Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series B Preferred Stock, such assets as such holder would have received in
connection with such Significant Transaction if such holder had converted its
Series B Preferred Stock into Conversion Stock immediately prior to such
Significant Transaction. The Corporation shall not effect any Significant
Transaction unless prior to the consummation thereof, the successor entity (if
other than the Corporation) resulting from consolidation or merger or the person
or entity purchasing such assets assumes by written instrument the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.

                  (e) Recapitalizations, Reclassifications or Reorganizations.
If at any time or from time to time there shall be a recapitalization,
reclassification or reorganization affecting the Common Stock (other than a
subdivision, combination or merger or sale of assets otherwise provided for in
Sections 5(c) or 5(d)) provision shall be made so that the holders of the Series
B Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of the
Series B Preferred Stock after the recapitalization, reclassification or
reorganization to the end that the provisions of this Section 5 shall be
applicable after that event as nearly equivalent as may be practicable.

<PAGE>

            (f) Notices.

                (i)   Promptly upon any adjustment of the Series B Conversion
Ratio, the Corporation shall give written notice thereof to all holders of
Series B Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.

                (ii)  The Corporation shall give written notice to all holders
of Series B Preferred Stock at least 10 days prior to the date on which the
Corporation closes its books or takes a record (A) with respect to any dividend
or distribution upon Common Stock, (B) with respect to any pro rata subscription
offer to holders of Common Stock, or (C) for determining rights with respect to
any Significant Transaction or Liquidation Event.

                (iii) The Corporation shall give written notice to the holders
of Series B Preferred Stock at least 10 days prior to the date on which any
Significant Transaction shall take place, which notice may be one and the same
as that required by (ii) above.

         6. Voting on Amendment. Notwithstanding anything to the contrary in the
Certificate of Incorporation, no class or series of the capital stock of the
Corporation other than the Series B Preferred Stock shall be entitled to vote
with respect to any amendment, modification or termination of any of the
designations, preferences or relative, participating, optional, or other special
rights, or the qualifications, limitations, or restrictions of the Series B
Preferred Stock, except as otherwise provided by non-waivable provisions of the
DGCL.

                                   ARTICLE II.
                            Series C Preferred Stock.

         1. Rank. The Series C Preferred Stock shall, with respect to dividend
rights and with respect to rights upon liquidation, winding up or dissolution,
rank senior and prior to (a) the Series B Preferred Stock, (b) the Common Stock,
(c) any series of preferred stock hereafter created and (d) any other equity
interests (including, without limitation, warrants, stock appreciation rights,
phantom stock rights, profit participation rights in debt instruments or other
rights with equity features, calls or options exercisable for or convertible
into such capital stock or equity interests) in the Corporation that by its
terms rank junior to the Series C Preferred Stock.

         2. Dividends.

            (a) Mandatory Dividends. The holders of Series C Preferred Stock
shall be entitled to receive a mandatory dividend equal to 7.0 % per year,
compounded annually on each succeeding 12 month anniversary of the first
issuance. Such dividend shall be cumulative and shall be payable annually on
each succeeding 12 month anniversary of the Issue Date and shall be payable, at
the option of the Corporation by the issuance of additional shares of Series C
Preferred Stock at a price per share equal to the Series C Original Issue Price;
provided, that such dividend shall not be declared or paid to any holder without
the consent of such holder.

<PAGE>

                  (b) Discretionary Dividends. In addition to any mandatory
dividends pursuant to Section 2(b) above, from and after the date hereof, when
and if the Board of Directors of the Corporation shall declare a dividend or
distribution payable with respect to the holders of either Series B Preferred
Stock or Common Stock, or both, the holders of Series C Preferred Stock shall be
entitled to the amount of dividends per share in the same form as such dividends
or distributions that would be payable on the largest number of whole shares of
Series B Preferred Stock (or, if such dividends are declared only with respect
to the holders of Common Stock, the largest number of whole shares of Common
Stock) into which a holder's aggregate shares of Series C Preferred Stock could
then be converted pursuant to Section 5 of this Article III (and, if such
dividends are declared only with respect to the holders of Common Stock,
subsequently pursuant to Section 5 of Article II), in either instance, such
number to be determined as of the record date for the determination of holders
of the Series B Preferred Stock or Common Stock entitled to receive such
dividend.

                  (c) Dividend Preference. From and after the date hereof, when
and if the Board of Directors of the Corporation shall declare a dividend or
distribution payable with respect to (i) the Common Stock, Series B Preferred
Stock, or any other capital stock or security issued by the Corporation which
shall be junior to the Series C Preferred Stock as to such dividends and
distributions, such dividend or distribution shall not be paid until the payment
of all Series C Preferred Stock dividends accrued or to be accrued through that
date, or (ii) the then-outstanding capital stock of the Corporation that is pari
passu to the Series C Preferred Stock as to such dividends or distributions,
such dividends shall not be paid unless an equivalent payment is made to the
holders of the Series C Preferred Stock, pro-rata, on the accrued and unpaid
dividends payable to the Series C Preferred Stock as of the date of such
payment.

         3.       Liquidation Preference.

                  (a) In any Liquidation Event, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the holders of the Common Stock, the Corporation's Series B Preferred
Stock or any other class or series of stock subordinate in liquidation
preference to the Series C Preferred Stock, the holders of the Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its shareholders, the Original
Series C Issue Price (as defined below) as adjusted to reflect any and all
subdivisions (by stock split, stock dividend, recapitalization or any similar
transaction) or combination or consolidations (by reverse stock split,
reclassification or any similar transaction) (the "Series C Liquidation
Preference").

                  (b) If, upon any Liquidation Event, the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of the Series C Preferred Stock the full amounts to which
they shall be entitled, the holders of the Series C Preferred Stock shall share
ratably in any distribution of assets in proportion to the aggregate liquidation
preferential amounts owed to such holders.

<PAGE>

        4. Voting.

           (a) Except as provided in Section 4(b) below, the holders of Series C
Preferred Stock shall not be entitled to vote on matters submitted to the
holders of the Common Stock or any other class of capital stock of the
Corporation.

           (b) Subject to the rights of any series of preferred stock that may
from time to time come into existence, so long as any shares of Series C
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then-outstanding shares of Series C
Preferred Stock, voting separately as a series:

               (i)  amend its Certificate of Incorporation so as to affect
adversely the shares of Series C Preferred Stock or any holder thereof
(including by creating any additional classes or series of senior and/or pari
passu capital stock of the Corporation); or

               (ii) change the rights of the holders of the Series C Preferred
Stock in any other respect.

        5. Conversion of Series C Preferred Stock into Series B Preferred Stock.

           (a) Conversion at Election of Holders of Series C Preferred Stock.

               (i)  Subject to Article III below, from time to time after the
second anniversary after the Issue Date, and subject to receipt of all
applicable regulatory approvals, any holder of Series C Preferred Stock may
convert all or any portion of the Series C Preferred Stock, including shares of
Series C Preferred Stock issuable as accrued and unpaid dividends, held by such
holder into a number of shares validly issued, fully paid and non-assessable
shares of Series B Conversion Stock (as defined in Article IV below) computed by
multiplying the number of shares to be converted by the Original Series C Issue
Price (as defined below) and dividing the result by the Series C Conversion
Price (as defined below) then in effect.

               (ii) Each conversion of Series C Preferred Stock shall be deemed
to have been effected as of the close of business on the date on which notice of
election of such conversion is delivered to the Corporation by such holder.
Until the certificates representing the shares of Series C Preferred Stock that
are being converted have been surrendered and new certificates representing
shares of the Series B Conversion Stock shall have been issued by the
Corporation, such certificate(s) evidencing the shares of Series C Preferred
Stock being converted shall be evidence of the issuance of such shares of Series
B Conversion Stock. At such time as such conversion has been effected, the
rights of the holder of such Series C Preferred Stock as such holder shall cease
and the Person or Persons in whose name or names any certificate or certificates
for shares of Series B Conversion Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Series B Conversion Stock represented thereby.

<PAGE>

                      (iii) As soon as practicable after a conversion has been
effected in accordance with clause (i) above, the Corporation shall deliver to
the converting holder: (A) a certificate or certificates representing, in the
aggregate, the number of shares of Series B Conversion Stock issuable by reason
of such conversion, in the name or names and in such denomination or
denominations as the converting holder has specified; and (B) a certificate
representing any shares which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.

                      (iv)  The issuance of certificates for shares of Series B
Conversion Stock upon conversion of Series C Preferred Stock shall be made
without charge to the holders of such Series C Preferred Stock for any issuance
tax in respect thereof or other cost incurred by the Corporation in connection
with such conversion and the related issuance of shares of Series B Conversion
Stock, except for any transfer or similar tax payable as a result of issuance of
a certificate to other than the registered holder of the shares being converted.

                      (v)   The Corporation shall not close its books against
the transfer of Series C Preferred Stock or of Series B Conversion Stock issued
or issuable upon conversion of Series C Preferred Stock in any manner which
interferes with the timely conversion of Series C Preferred Stock. The
Corporation shall assist and cooperate with any holder of shares of Series C
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares
hereunder (including, without limitation, making any filings reasonably required
to be made by the Corporation).

                      (vi)  No fractional shares of Series B Conversion Stock or
scrip representing fractional shares shall be issued upon conversion of shares
of Series C Preferred Stock. If more than one share of Series C Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Series B Conversion Stock issuable upon the conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series C Preferred Stock so surrendered by such record holder. Instead of any
fractional share of Series B Conversion Stock otherwise issuable upon conversion
of any shares of the Series C Preferred Stock, the number of shares of Series B
Conversion Stock upon conversion of Series C Preferred Stock to be issued shall
be rounded down to the nearest whole share.

                      (vii) The Corporation shall use its best efforts at all
times to reserve and keep available out of its authorized but unissued shares of
Series B Conversion Stock, solely for the purpose of issuance upon the
conversion of Series C Preferred Stock, such number of shares of Series B
Conversion Stock as are issuable upon the conversion of all outstanding Series C
Preferred Stock. All shares of Series B Conversion Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges, other than those created or agreed to by
the holder. The Corporation shall use its best efforts to take all such actions
as may be necessary to assure that all such shares of Series B Conversion Stock
may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Series

<PAGE>

B Conversion Stock may be listed (except for official notice of issuance which
shall be immediately delivered by the Corporation upon each such issuance).

                  (b) Conversion Price.

                      (ii) "Series C Conversion Price" for the Series C
Preferred Stock shall initially mean U.S.$64.90, as the same may be subsequently
adjusted from time to time in accordance with this Section 5.

                      (ii) The "Original Series C Issue Price" shall be
U.S.$1,000.00 per share.

                  (c) Conversion upon Occurrence of Significant Transaction.
Upon the occurrence of a Significant Transaction, the Corporation and any holder
of Series C Preferred Stock may convert all or any portion of the Series C
Preferred Stock held by such holder into a number of shares of Series B
Conversion Stock in the same manner as provided in subsection (a) above, and
then, into a number of shares of Common Stock in the same manner as provided in
Article I, Section 5 hereof, provided that if the Significant Transaction
results in the holders of the outstanding equity securities of the Corporation
immediately prior to such Significant Transaction holding securities
representing less than 25% of the outstanding equity securities (on an as
converted common stock basis) of the surviving entity immediately following the
Significant Transaction, then, notwithstanding the provisions of Article II,
Section 5(b)(i) hereof, the Series C Conversion Price shall be equal to the Fair
Market Value (on an as converted to common stock basis), provided further that
the Series C Conversion Price shall not be less than the Share Price Floor (as
defined in Article II Section 6(a) hereof) (on an as converted to common stock
basis) or greater than the Series C Conversion Price set forth in Article II,
Section 5(b)(i) hereof (as might be adjusted as provided in Article II, Section
5(d) hereof).

                  (d) Subdivision or Combination of Common Stock. If the
Corporation at any time (i) subdivides (by any stock split, stock dividend or
distribution, recapitalization, reclassification or similar transaction) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, then the Series C Conversion Price in effect immediately prior to such
subdivision or combination shall be proportionately decreased, or (ii) combines
(by reverse stock split, recapitalization, reclassification or any similar
transaction) one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, then the Series C Conversion Price in effect
immediately prior to such subdivision or combination shall be proportionately
increased.

                  (e) Consolidation, Merger or Sale of Assets. Subject to
applicable regulatory approvals, prior to the consummation of any Significant
Transaction, the Corporation shall make appropriate provisions to insure that
each of the holders of Series C Preferred Stock shall thereafter have the right
to acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Series B Conversion Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series C Preferred Stock, such
assets as such holder would have received in connection with such Significant
Transaction if such holder had converted its Series

<PAGE>

C Preferred Stock into Series B Conversion Stock (and such holder had the
opportunity to convert such Series B Preferred Stock into Common Stock)
immediately prior to such Significant Transaction. The Corporation shall not
effect any Significant Transaction unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.

                  (f) Recapitalizations, Reclassifications or Reorganizations.
If at any time or from time to time there shall be a recapitalization,
reclassification or reorganization affecting the Common Stock (other than a
subdivision, combination or merger or sale of assets otherwise provided for in
Sections 5(d) or 5(e)) provision shall be made so that the holders of the Series
C Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series C Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of the
Series C Preferred Stock after the recapitalization, reclassification or
reorganization to the end that the provisions of this Section 5 shall be
applicable after that event as nearly equivalent as may be practicable.

                  (g) Notices.

                      (i)   Promptly upon any adjustment of the Series C
Conversion Price, the Corporation shall give written notice thereof to all
holders of Series C Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.

                      (ii)  The Corporation shall give written notice to all
holders of Series C Preferred Stock at least 10 days prior to the date on which
the Corporation closes its books or takes a record (A) with respect to any
dividend or distribution upon Series B Preferred Stock or Common Stock or (B)
for determining rights to vote with respect to any Significant Transaction or
Liquidation Event.

                      (iii) The Corporation shall give written notice to the
holders of Series C Preferred Stock at least 10 days prior to the date on which
any Significant Transaction shall take place, which notice may be one and the
same as that required by (ii) above.

         6.       Redemption of Series C Preferred Stock.

                  (a) Mandatory Redemption. On the sixth anniversary after the
Issue Date (the "Redemption Date"), the Corporation shall redeem all then issued
and outstanding shares of Series C Preferred Stock, including shares of Series C
Preferred Stock issuable as accrued and unpaid dividends (the "Series C
Mandatory Redemption") in accordance with this Section 6. The Corporation shall
effect the Series C Mandatory Redemption on the Redemption Date, by paying, in
the sole discretion of the Corporation, either (the "Series C Redemption
Price"):

<PAGE>

                      (i)  cash in exchange for each share of Series C Preferred
Stock to be redeemed on the Redemption Date in an amount equal to the Series C
Outstanding Amount (as defined below), or

                      (ii) shares of, at the option of a majority of the holders
of Series C Preferred Stock, (A) Common Stock, (B) Series B Preferred Stock or
(C) a combination of Common Stock and Series B Preferred Stock (collectively,
the "Redemption Shares"), in each case, having an aggregate then Fair Market
Value (as defined in Article IV below) equal to the Series C Outstanding Amount;
provided that, in the event redemption is made in shares of Common Stock or
Series B Preferred Stock (or, at the option of a majority of the holders of
Series C Preferred Stock, a combination of Common Stock and Series B Preferred
Stock), (x) the number of shares of Common Stock to be issued in connection with
the redemption shall not exceed the relevant portion of the Series C Redemption
Price attributable to the Common Stock divided by U.S.$1.30 (subject to
adjustment pursuant to the immediately subsequent sentence, the "Share Price
Floor") and (x) the number of shares of Series B Preferred Stock to be issued in
connection with the redemption shall not exceed a number of shares of Series B
Preferred Stock convertible, as of the date of issuance, into a number of shares
of Common Stock equal to the relevant portion of the Series C Redemption Price
attributable to the Series B Preferred Stock divided by the applicable Share
Price Floor. The "Share Price Floor" shall be proportionately adjusted for any
stock split, stock combination or similar event affecting the Common Stock. Any
redemption effected pursuant to this Section 6 shall be made pro rata on the
basis of the number of shares then held by each holder of Series C Preferred
Stock. If any date fixed for redemption of shares pursuant to this paragraph is
a Saturday, Sunday or legal holiday, then such redemption shall occur on the
first business day thereafter.

                  (b) Mechanics of Redemption. Not less than 15 days nor more
than 30 days prior to the Redemption Date, the Corporation shall give written
notice by first class mail, postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series C Preferred Stock, at the address of such holder last shown
on the records of the Corporation, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder on the
Redemption Date, whether payment will be made in cash or in Redemption Shares
the place at which payment may be obtained and calling upon such holder to
surrender to the Corporation in the manner and at the place designated, its
certificate or certificates representing the shares of Series C Preferred Stock
to be redeemed on the Redemption Date. On the Redemption Date, each holder of
Series C Preferred Stock shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in such notice, and thereupon the Series C Redemption Price of such shares shall
be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled.

                  (c) Series C Outstanding Amount. The "Series C Outstanding
Amount" shall be an amount equal to the aggregate Series C Liquidation
Preference on the Redemption Date, plus an amount equal to all accrued but
unpaid dividends.

<PAGE>

         7. Exchange of Series C Preferred Stock.

            (a) The holder of all of the then issued and outstanding Series C
Preferred Stock, including shares of Series C Preferred Stock issuable as
accrued and unpaid dividends, which shall not be declared payable and shall not
be due, may exchange all, but only all, of the Series C Preferred Stock held by
such holder into a number of shares of IDL Conversion Stock (as defined in
Article IV below) equal to 30.1% of the aggregate shares of IDL (as defined in
Article IV below) issued on the Issue Date (as defined in Article IV below).

            (b) The exchange of Series C Preferred Stock hereunder shall be
deemed to have been effected as of the close of business on the date on which
notice of election of such exchange is delivered to the Corporation by such
holder. Until the certificates representing the shares of Series C Preferred
Stock which are being exchanged have been surrendered and new certificates
representing shares of the IDL Conversion Stock shall have been issued by IDL,
such certificate(s) evidencing the shares of Series C Preferred Stock being
exchanged shall be evidence of the issuance of such shares of IDL Conversion
Stock. At such time as such exchange has been effected, the rights of the holder
of such Series C Preferred Stock as such holder shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares of IDL
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of IDL Conversion Stock
represented thereby. The Series C Preferred Stock so exchanged shall no longer
be redeemable or convertible into Series B Preferred Stock and all such rights
of conversion under Section 5 shall terminate upon the date of exchange.

            (c) The right of exchange provided hereunder shall expire upon the
election by the holder of the Series C Preferred Stock to convert the Series C
Preferred Stock into Series B Preferred Stock pursuant to Section 5 above.

            (d) The right of exchange provided hereunder shall also apply to
all, but only all, of the shares of the Series B Conversion Stock into which the
Series C Preferred Stock is to be converted pursuant to Section 5 above upon the
occurrence of a Significant Transaction, provided that the exchange must occur
on the date that the conversion would have occurred, and provided further that
the right of exchange under this subsection (d) shall expire simultaneously with
such conversion if this right of exchange is not exercised as provided in this
subsection (d).

         8. Voting on Amendment. Notwithstanding anything to the contrary in the
Certificate of Incorporation, no class or series of the capital stock of the
Corporation other than the Series C Preferred Stock shall be entitled to vote
with respect to any amendment, modification or termination of any of the
designations, preferences or relative, participating, optional, or other special
rights, or the qualifications, limitations, or restrictions of the Series C
Preferred Stock, except as otherwise provided by non-waivable provisions of the
DGCL.

<PAGE>

                                   ARTICLE III
                Limitations On Rights of Conversion and Exchange.

         1. In the event that any exercise of the rights of conversion and
exchange under Articles I and II by the holders of the Series B Preferred Stock
or the Series C Preferred Stock would result in the holders owning, directly or
indirectly, in the aggregate more that 9.9% of the Common Stock on a fully
converted basis, then all or a portion of the Common Stock into which the Series
B Preferred Stock (both owned or issuable upon conversion of the Series C
Preferred Stock) would convert shall automatically be converted into shares of
Series B Preferred Stock to the extent that the holders of the Series B
Preferred Stock and the Series C Preferred Stock do not own more than 9.9% of
the then outstanding Common Stock, after such conversion.

         2. The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions hereof and in the taking of all such action as may be necessary or
appropriate in order to protect against impairment both the conversion rights of
the Series B Preferred Stock and the conversion, redemption and exchange rights
of the Series C Preferred Stock.

                                   ARTICLE IV
                              Certain Definitions.

            The following terms, as used throughout Articles I through III of
this Certificate of Incorporation, shall have the meanings specified below:

         1. Affiliate. The term "Affiliate" shall mean (i) any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with the Corporation (or other specified Person), (ii) any Person who is
a beneficial owner of at least 10% of the then outstanding voting capital stock
(or options, warrants or other securities which, after giving effect to the
exercise thereof, would entitle the holder thereof to hold at least 10% of the
then outstanding voting capital stock) of the Corporation (or other specified
Person), (iii) any director or executive officer of the Corporation (or other
specified Person) or Person of which the Corporation (or other specified Person)
shall, directly or indirectly, either beneficially or of record, own at least
10% of the then outstanding equity securities of such Person, and (iv) in the
case of Persons specified above who are individuals, Family Members of such
Person; provided, however, that no holder of preferred stock nor any of their
designated members of the Board of Directors shall be an Affiliate of the
Corporation for purposes hereof.

         2. Common Stock. The term "Common Stock" shall mean the common stock,
par value $0.001 per share, of the Corporation.

<PAGE>

         3. Conversion Stock. The term "Conversion Stock" shall mean the shares
of Common Stock issuable upon conversion of shares of Series B Preferred Stock;
provided that if there is a change such that the securities issuable upon
conversion of the Series B Preferred Stock are issued by an entity other than
the Corporation or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean shares of the security issuable upon
conversion of the Series B Preferred Stock if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.

         4. Eligible Series B Share. The term "Eligible Series B Share" shall
mean a share of Series B Preferred Stock (including any fraction thereof) which
has been issued and outstanding for two years or more.

         5. Fair Market Value. The "Fair Market Value" of any one share of
Common Stock or Series B Preferred Stock (on an as converted to Common Stock
basis) shall be deemed to be (i) the average of the closing sale price of the
Common Stock of the Corporation as traded on the Nasdaq National Market, the
Nasdaq SmallCap Market, or any other securities exchange (collectively, the
"Exchange") for the 10-day period (or such shorter period for which closing sale
prices are available if the Common Stock commenced trading during such period)
ending three (3) days prior to the date of exercise of redemption pursuant to
Article III hereof; provided, that, if the Common Stock ceases to be traded on
the Exchange, the Fair Market Value shall be reasonably determined by the Board
of Directors in good faith and certified in a board resolution (taking into
account the most recently or concurrently completed arm's length transaction
between the Corporation and an unaffiliated third party the closing of which
occurs within the six months preceding or on the date of such calculation, if
any).

         6. Family Members. The term "Family Members" shall mean, as applied to
any individual, any spouse, child, grandchild, parent, brother or sister thereof
or any spouse of any of the foregoing, and each trust created for the benefit of
one or more of such Persons (other than any trust administered by an independent
trustee) and each custodian of property of one or more such Persons.

         7. IDL. The term "IDL" shall mean Incara Development, Ltd., a Bermuda
corporation.

         8. IDL Conversion Stock. The term "IDL Conversion Stock" shall mean the
shares of preferred stock of IDL issuable upon exchange of shares of Series C
Preferred Stock; provided that if there is a change such that the securities
issuable upon exchange of the Series C Preferred Stock are issued by an entity
other than the Corporation or there is a change in the class of securities so
issuable, then the term "IDL Conversion Stock" shall mean shares of the security
issuable upon exchange of the Series C Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.

         9. Issue Date. The term "Issue Date" shall mean December 21, 2000, the
date on which a share of Series C Preferred Stock was first issued by the
Corporation.

<PAGE>

         10. Liquidation Event. The term "Liquidation Event" means an event
occasioned by, and including, (i) the liquidation, dissolution, bankruptcy or
winding-up of the affairs of the Corporation (each, a "Wind-Up"), (ii) the sale
of all or substantially all of the Corporation's assets (an "Asset Sale"), or
(iii) the issuance by the Corporation of equity securities in a transaction or
series of related transactions which results in the holders of the outstanding
equity securities of the Corporation immediately prior to such to such
transaction or series of related transactions holding securities representing
less than 25% of the outstanding equity securities (on an as converted common
stock basis) of the Corporation immediately following such transaction or series
of related transactions.

         11. Person. The term "Person" shall mean an individual, corporation,
partnership, association, trust, joint venture or unincorporated organization or
any government, governmental department or any agency or political subdivision
thereof.

         12. Public Offering. The term "Public Offering" shall mean any offering
by the Corporation of its equity securities to the public pursuant to an
effective registration statement under the Securities Act or any comparable
statement under any similar federal statute then in force, other than an
offering in connection with an employee benefit plan.

         13. Securities Act. The term "Securities Act" shall mean the Securities
Act of 1933, as amended, or any successor federal statute, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder,
all as the same shall be in effect from time to time.

         14. Series B Conversion Stock. The term "Series B Conversion Stock"
shall mean the shares of Series B Preferred Stock issuable upon conversion of
shares of Series C Preferred Stock; provided that if there is a change such that
the securities issuable upon conversion of the Series C Preferred Stock are
issued by an entity other than the Corporation or there is a change in the class
of securities so issuable, then the term "Series B Conversion Stock" shall mean
shares of the security issuable upon conversion of the Series C Preferred Stock
if such security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.

         15. Significant Transaction. The term "Significant Transaction" shall
mean any consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) assets other than Conversion Stock with
respect to or in exchange for Common Stock.

         16. Subsidiary. The term "Subsidiary" shall mean any Person of which
the Corporation shall at the time own, directly or indirectly through another
Subsidiary, 50% or more of the outstanding voting capital stock (or other shares
of beneficial interest with voting rights), or which the Corporation shall
otherwise control.