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                                                                   EXHIBIT 10.16


                              SETTLEMENT AGREEMENT

        THIS SETTLEMENT AGREEMENT (this "Agreement") is dated as of August 31
2000, between APPLIED ANALYTICAL INDUSTRIES, INC., a Delaware corporation having
its principal place of business in Wilmington, North Carolina ("AAI") and
PHARMAPRINT, INC., a Delaware corporation having its principal place of business
in Irvine, California ("PharmaPrint").

                              BACKGROUND STATEMENT

        AAI provides analytical testing services to the pharmaceutical and
biotechnology industries, such as validation and stability studies, as well as
manufacturing services. PharmaPrint arranges for the production and marketing of
herbal and vitamin-herbal dietary supplements known in the industry as
"nutriceutical" products, using a proprietary technology known as "the
PharmaPrint(TM) Process". In 1998, PharmaPrint retained AAI to perform certain
analytical testing and manufacturing services in regard to its nutriceutical
products (the "Products"). On or about June 11, 1998, AAI and PharmaPrint
entered into an agreement (the "Manufacturing Agreement") for AAI to manufacture
the Products. Throughout 1998, AAI and PharmaPrint also entered into a series of
agreements for analytical testing and support services regarding the Products
(the "Service Estimates").

        On or about July 28, 1999, AAI filed a Demand for Arbitration with the
American Arbitration Association, Case No. 31 181 00181 99, seeking to recover
damages for alleged breach of the Manufacturing Agreement (the "Arbitration").
PharmaPrint filed a counterclaim in the Arbitration. On or about December 28,
1999, PharmaPrint filed a Complaint in the New Hanover County Superior Court,
Case No. 99 CVS 05159, seeking to recover damages for alleged breach of the
Manufacturing Agreement and of the Service Estimates, as well as other causes of
action (the "Superior Court Action"). AAI filed a counterclaim in the Superior
Court Action alleging breach of the Service Estimates. The Arbitration and the
Superior Court Action are referred to herein as the "Litigation". PharmaPrint
acknowledges that AAI has asserted claims approximating $5.5 million under the
Manufacturing Agreement and the Service Estimates (referred to herein as the
"AAI Claims").

        Each party is willing to release the other party from all claims it may
have against the other party as set forth in the preceding paragraph in exchange
for (i) a mutual release of any claim each party has or may have against the
other party and (ii) the issuance to AAI of certain shares of PharmaPrint common
stock. The parties therefore enter into this Agreement in full settlement of all
disputes between them. Neither of the parties admits any liability or
wrongdoing, but each enters into this Agreement solely to avoid the costs,
expenses and uncertainty of further litigation.

                             STATEMENT OF AGREEMENT

        NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter made by AAI and PharmaPrint, the receipt and sufficiency of which
are hereby expressly acknowledged by the parties hereto, it is agreed that:


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        1. ISSUANCE OF SHARES BY PHARMAPRINT. In consideration for AAI's release
of claims, PharmaPrint shall issue to AAI Two Million Two Hundred Thousand
(2,200,000) shares of authorized PharmaPrint common stock (the "Shares").

        A. Timing. Within ten (10) business days following PharmaPrint's
        satisfaction of the conditions set forth in paragraph 2 below,
        PharmaPrint shall issue and deliver the Shares into the possession of
        AAI. AAI may elect to accelerate such issuance date by delivery of
        written facsimile notice to PharmaPrint (the "Delivery Notice"). In that
        event, PharmaPrint shall issue and deliver the Shares into the
        possession of AAI within two (2) business days of PharmaPrint's receipt
        of AAI's Delivery Notice.

        B. Legends and Resale. The certificates for the Shares shall bear a
        restrictive legend in substantially the following form:

                The securities represented by this certificate have not been
                registered under the Securities Act of 1933, as amended, or the
                securities laws of any state of the United States. The
                securities represented hereby may not be offered, sold or
                transferred in the absence of an effective registration
                statement for the securities under applicable securities laws
                unless offered, sold or transferred under an available exemption
                from the registration requirements of those laws.

             The legend set forth above shall be removed and PharmaPrint shall
        issue certificates without such legend to AAI or its designee for the
        Shares upon which it is stamped if, unless otherwise required by state
        securities laws, AAI provides PharmaPrint with an opinion of counsel, in
        form, substance and scope customary for opinions of counsel in
        comparable transactions, to the effect that a public sale or transfer of
        the Shares may be made without registration under the Securities Act and
        is in compliance with all applicable federal and state rules and
        regulations, including the regulations described in the Securities and
        Exchange Commission Staff Legal Bulletin Number 3 (as amended). AAI
        agrees to sell the Shares in compliance with all such federal and state
        laws.

        2. CONDITIONS TO ISSUANCE OF THE SHARES. The following conditions must
be satisfied prior to PharmaPrint's issuance of Shares:

        A. NASDAQ Listing. PharmaPrint shall use best commercially reasonable
        efforts to have PharmaPrint's shares re-listed in an unrestricted manner
        on the National Association of Securities Dealers, Inc. National Market.

        B. Fairness Opinion. PharmaPrint shall provide to AAI a written order
        issued by the North Carolina Secretary of State (in a form reasonably
        satisfactory to AAI) approving the exchange of the AAI Claims for the
        Shares. PharmaPrint covenants that on or before August __, 2000, it
        shall file with the North Carolina Secretary of State an application
        under Section 78A-30 of the North Carolina General Statutes for approval
        of the above-described exchange, and that such application shall request
        a August __, 2000 hearing date on the fairness of the terms and
        conditions of the exchange. PharmaPrint further represents that it shall
        use its best efforts to cause the North Carolina Secretary of State to
        issue an order approving such exchange as soon as possible.


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        3. EFFECT OF ACT OF BANKRUPTCY BY PHARMAPRINT. PharmaPrint represents
that there has not been an Act of Bankruptcy (as defined below) or any public
announcement with respect to any actual or contemplated Act of Bankruptcy
involving PharmaPrint. PharmaPrint covenants that for a period of two hundred
seventy (270) days following the receipt by AAI of the Shares, it shall not file
a petition for relief under any present or future federal or state insolvency,
bankruptcy, or similar law (collectively "Applicable Bankruptcy Law"); consent
to or admit the material allegations of an involuntary petition for relief
against it, or refuse or fail to seek to have such involuntarily petition
dismissed within sixty (60) days after the filing thereof, or request or consent
to an order for relief naming PharmaPrint as the debtor under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension, reorganization or
other relief of debtors now or hereinafter existing (collectively, an "Act of
Bankruptcy").

        A. Damages for Breach. In the event of an Act of Bankruptcy, PharmaPrint
        hereby acknowledges that AAI's damages arising from breach of the
        foregoing covenant shall equal the product of $1.37 per share times the
        number of Shares owned by AAI as of the date of the Act of Bankruptcy
        (the "Damages"). PharmaPrint shall compensate AAI for the Damages by
        reacquiring from AAI all Shares owned by AAI as of the date of the Act
        of Bankruptcy at a per share cash price equal to $1.37.

        B. Nullification of Release. In the event of an Act of Bankruptcy, the
        mutual release provided by the parties as provided in Section 6 herein
        shall be null, void and of no effect to the extent, and solely to the
        extent, of reviving $3,000,000 of the AAI Claims that are the subject of
        the mutual release, which revived AAI Claims shall survive this
        agreement, and which revived AAI Claims shall be subject to setoff for
        (i) the Damages actually received by AAI from PharmaPrint and (ii) the
        proceeds received by AAI from the sale of any Shares as of the date of
        the Act of Bankruptcy.

        4. DISMISSAL OF ARBITRATION. Upon issuance and delivery of the Shares,
the parties shall file a Notice of Dismissal of the Arbitration, in the form
attached as Exhibit "A", dismissing the Arbitration with prejudice.

        5. DISMISSAL OF SUPERIOR COURT ACTION. Upon issuance and delivery of the
Shares, the parties shall file a Notice of Dismissal of the Superior Court
Action, in the form attached as Exhibit "B", dismissing the Superior Court
Action with prejudice.

        6. MUTUAL RELEASES BY AAI AND PHARMAPRINT. Upon issuance and delivery of
the Shares, the parties shall execute the Mutual Release attached hereto as
Exhibit "C".

        7. NO ADMISSION OF LIABILITY. AAI and PharmaPrint each hereby
acknowledge that neither the execution nor the performance of this Agreement is
intended as, and shall not constitute, an admission of liability by any party,
and further that this Agreement has been entered into solely to avoid the costs,
expenses and uncertainty of further litigation.

        8. REPRESENTATIONS AND WARRANTIES BY THE PARTIES. Each of the parties
represents and warrants that (i) it has the capacity, full power and authority
to enter into this Agreement, (ii) the individual signing on behalf of each of
the corporate parties is authorized to do so, (iii) it has not assigned,
encumbered or in any manner transferred all or any portion of the claims covered
by this Agreement, (iv) there are no other charges, complaints, suits,
arbitrations or other


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claims or proceedings pending between the parties in any court, before any
agency, or in any forum, and (v) no other person, party or corporation has any
right, title or interest in any of the claims covered by this Agreement.

        9. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties, integrates all the terms and conditions mentioned or
incidental to this Agreement and supersedes all prior negotiations and writings.
No modification or waiver of any provisions of this Agreement shall be valid
unless set forth in writing and signed by all parties hereto.

        10. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors, heirs and assigns.

        11. ARBITRATION. All disputes arising out of or in any way related to
this Agreement or the rights or obligations of either party shall be settled by
arbitration to be held in Charlotte, North Carolina in accordance with the rules
of the American Arbitration Association then prevailing. The prevailing party
shall be entitled to reimbursement of attorneys' fees and costs associated with
the proceeding.

        12. SEVERABILITY. If any provision contained in this Agreement shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

        13. EACH PARTY TO BEAR ITS OWN COSTS. Each party shall bear all of his
or its own costs, expenses, and attorneys' fees arising out of the Litigation.

        14. CONSTRUCTION. This Agreement is not to be construed against any
party but shall be construed equally as to each party hereto.

        15. COUNTERPARTS. This Agreement shall be executed in four counterparts,
each of which may be enforceable as an original, but all of which together shall
constitute but one agreement.

        16. AUTHORIZATION. This Agreement has been properly executed by the
appropriate persons authorized to do so.


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        IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized officers as of the date first set forth above.

                                      APPLIED ANALYTICAL INDUSTRIES, INC.


                                      By:      /s/ William L. Ginna Jr.
                                          -----------------------------------
                                      Name:    William L. Ginna Jr.
                                      Title:   EVP & CFO


                                      PHARMAPRINT, INC.


                                      By:      /s/ Steven A. Bowman
                                          -----------------------------------
                                      Name:    Steven A. Bowman
                                      Title:   CEO


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                                    EXHIBIT A


                        AMERICAN ARBITRATION ASSOCIATION
                                 31 181 00181 99


Re:   Arbitration between

      Applied Analytical Industries, Inc.
                                                   NOTICE OF DISMISSAL
      - and -

      PharmaPrint, Inc.


        The parties, through counsel, hereby DISMISS WITH PREJUDICE the claims
and counterclaims asserted in this arbitration proceeding.

        This ______ day of August, 2000.


---------------------------------           -----------------------------------
Gary J. Rickner                             David C. Wright, III
N.C. Bar No. 25129                          N.C. Bar No. 11161
Cheryl A. Marteney                          Sarah B. Kemble
N.C. Bar No. 16733                          N.C. Bar No. 22682

Attorneys for PharmaPrint, Inc.             Attorneys for Applied Analytical
Inc.                                        Industries, Inc.
WARD AND SMITH, P.A.                        ROBINSON, BRADSHAW & HINSON, P.A.
1001 College Court                          101 North Tryon Street, Suite 1900
Post Office Box 867                         Charlotte, North Carolina 28246-1900
New Bern, North Carolina 28563-0867         (704) 377-2536
(252) 636-2121


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                                    EXHIBIT B


STATE OF NORTH CAROLINA                         IN THE GENERAL COURT OF JUSTICE
                                                   SUPERIOR COURT DIVISION
COUNTY OF NEW HANOVER                            CIVIL ACTION NO: 99 CVS 05159

PHARMAPRINT, INC.,

                             PLAINTIFF,

        V.
                                                      NOTICE OF DISMISSAL
APPLIED ANALYTICAL INDUSTRIES, INC.,

                                   DEFENDANT.


        The parties, through counsel and pursuant to Rules 41(a)(1)(ii) and
41(c) of the North Carolina Rules of Civil Procedure, hereby DISMISS WITH
PREJUDICE the claims and counterclaims asserted in this action.

        This the ____ day of August, 2000.

---------------------------------           -----------------------------------
Gary J. Rickner                             David C. Wright, III
N.C. Bar No. 25129                          N.C. Bar No. 11161
Cheryl A. Marteney                          Sarah B. Kemble
N.C. Bar No. 16733                          N.C. Bar No. 22682

Attorneys for PharmaPrint, Inc.             Attorneys for Applied Analytical
Inc.                                        Industries, Inc.
WARD AND SMITH, P.A.                        ROBINSON, BRADSHAW & HINSON, P.A.
1001 College Court                          101 North Tryon Street, Suite 1900
Post Office Box 867                         Charlotte, North Carolina 28246-1900
New Bern, North Carolina 28563-0867         (704) 377-2536
(252) 636-2121


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                                    EXHIBIT C

                                 MUTUAL RELEASE

        APPLIED ANALYTICAL INDUSTRIES, INC., a Delaware corporation having its
principal place of business in Wilmington, North Carolina ("AAI") and
PHARMAPRINT, INC., a California corporation having its principal place of
business in Irvine, California ("PharmaPrint"), entered into a Settlement
Agreement dated as of August _____, 2000, attached hereto. In consideration for
the undertakings provided in that Settlement Agreement and the issuance by
PharmaPrint of shares of common stock to AAI as described therein, the parties
(and their parent, affiliate, subsidiary and related entities, divisions,
successors and assigns, and the employees, officers, directors, legal
representatives and agents thereof) hereby fully and mutually release one
another from any and all claims, causes of action, suits, claims, counterclaims,
charges, complaints, demands, liabilities or obligations of any kind whatsoever
that exist or that could exist based on any act, omission, event, or thing
whatsoever through the date of this Release. Subject only to Paragraph 3.B. of
the Settlement Agreement, this Release shall become effective and shall
thereafter be fully binding on AAI and PharmaPrint, and their heirs, successors,
and assigns, upon its full execution by these parties; provided, however, that
this Release shall not apply to any rights or duties arising under the
Settlement Agreement or under documents to be executed or action to be taken
pursuant to the Settlement Agreement.

        IN WITNESS WHEREOF, the undersigned have caused this Release to be
executed by their duly authorized officers as of this ____ day of __________,
2000.

                                      APPLIED ANALYTICAL INDUSTRIES, INC.


                                      By:      /s/ William L. Ginna Jr.
                                          -----------------------------------
                                      Name:    William L. Ginna Jr.
                                      Title:   EVP & CFO


                                      PHARMAPRINT, INC.


                                      By:      /s/ Steven A. Bowman
                                          -----------------------------------
                                      Name:    Steven A. Bowman
                                      Title:   CEO