Document:

EXHIBIT 10.7

                      PHAGE THERAPEUTICS INTERNATIONAL INC.

                                 2000 STOCK PLAN

1.  Purposes  of the Plan.  The  purposes  of this Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional  incentive to Employees,  Directors and Consultants and to
promote the success of the Company's  business.  Options  granted under the Plan
may be Incentive Stock Options or Non-statutory  Stock Options, as determined by
the  Administrator  at the time of  grant.  Stock  Purchase  Rights  may also be
granted under the Plan.

2.  Definitions.  As used in this Stock Plan,  the  following  definitions  will
apply:

          (a)  "Administrator"  means the Board or any of its Committees as will
               be administering the Plan under Section 4 of the Plan.

          (b)  "Applicable   Laws"  means  the  requirements   relating  to  the
               administration  of stock option plans under U.S. state  corporate
               laws, U.S. federal and state securities laws, the Code, any stock
               exchange or quotation  system on which the Common Stock is listed
               or  quoted  and the  applicable  laws  of any  other  country  or
               jurisdiction  where Options or Stock Purchase  Rights are granted
               under the Plan.

          (c)  "Board" means the Board of Directors of the Company.

          (d)  "Code" means the Internal Revenue Code of 1986, as amended.

          (e)  "Committee" means a committee of Directors appointed by the Board
               under Section 4 of the Plan.

          (f)  "Common Stock" means the Common Stock of the Company.

          (g)  "Company" means Phage Therapeutics  International Inc., a Florida
               corporation.

          (h)  "Consultant"  means any person  who is engaged by the  Company or
               any  Parent  or  Subsidiary  to  render  consulting  or  advisory
               services to such entity.

          (i)  "Director"  means a  member  of the  Board  of  Directors  of the
               Company.

          (j)  "Disability"  means total and permanent  disability as defined in
               Section 22(e)(3) of the Code.

          (k)  "Employee"  means any person,  including  Officers and Directors,
               employed  by the  Company  or any  Parent  or  Subsidiary  of the
               Company.  A Service  Provider will not cease to be an Employee in
               the case of (i) any leave of absence  approved  by the Company or
               (ii)  transfers  between  locations of the Company or between the
               Company,  its  Parent,  any  Subsidiary,  or any  successor.  For
               purposes of  Incentive  Stock  Options,  no such leave may exceed
               ninety days, unless  re-employment on expiration of such leave is
               guaranteed by statute or contract. If re-employment on expiration
               of a  leave  of  absence  approved  by  the  Company  is  not  so
               guaranteed,  on the 181st day of such leave any  Incentive  Stock
               Option  held by the  Optionee  will  cease  to be  treated  as an
               Incentive  Stock Option and will be treated for tax purposes as a
               Non-statutory  Stock  Option.  Neither  service as a Director nor
               payment of a director's  fee by the Company will be sufficient to
               constitute "employment" by the Company.

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          (l)  "Exchange  Act" means the  Securities  Exchange  Act of 1934,  as
               amended.

          (m)  "Fair Market  Value" means,  as of any date,  the value of Common
               Stock determined as follows:

               (i)  If the  Common  Stock is  listed  on any  established  stock
                    exchange  or a national  market  system,  including  without
                    limitation the Nasdaq National Market or The Nasdaq SmallCap
                    Market of The Nasdaq  Stock  Market,  its Fair Market  Value
                    will  be the  closing  sales  price  for the  stock  (or the
                    closing  bid,  if no sales were  reported)  as quoted on the
                    exchange or system for the last market  trading day prior to
                    the time of  determination,  as  reported in The Wall Street
                    Journal or any other source as the  Administrator  considers
                    reliable;

               (ii) If the  Common  Stock is  regularly  quoted by a  recognized
                    securities  dealer but selling prices are not reported,  its
                    Fair Market  Value will be the mean between the high bid and
                    low asked  prices  for the Common  Stock on the last  market
                    trading day prior to the day of determination; or

               (iii)In the  absence  of an  established  market  for the  Common
                    Stock,  the Fair  Market  Value will be  determined  in good
                    faith by the Administrator.

          (n)  "Incentive  Stock Option" means an Option  intended to qualify as
               an incentive  stock  option  within the meaning of Section 422 of
               the Code.

          (o)  "Non-statutory  Stock  Option"  means an Option not  intended  to
               qualify as an Incentive Stock Option.

          (p)  "Officer"  means a person who is an officer of the Company within
               the meaning of Section 16 of the  Exchange  Act and the rules and
               regulations promulgated thereunder.

          (q)  "Option" means a stock option granted pursuant to the Plan.

          (r)  "Option  Agreement"  means  a  written  or  electronic  agreement
               between  the Company  and an  Optionee  evidencing  the terms and
               conditions of an individual Option grant. The Option Agreement is
               subject to the terms and conditions of the Plan.

          (s)  "Option  Exchange  Program" means a program  whereby  outstanding
               Options are exchanged for Options with a lower exercise price.

          (t)  "Optioned Stock" means the Common Stock subject to an Option or a
               Stock Purchase Right.

          (u)  "Optionee"  means the  holder of an  outstanding  Option or Stock
               Purchase Right granted under the Plan.

          (v)  "Parent" means a "parent  corporation,"  whether now or hereafter
               existing, as defined in Section 424(e) of the Code.

          (w)  "Plan" means this 2000 Stock Plan.

          (x)  "Restricted Stock" means shares of Common Stock acquired pursuant
               to a grant of a Stock Purchase Right under Section 11 below.

          (y)  "Rule  16b-3"  means  Rule  16b-3  of  the  Exchange  Act  or any
               successor to Rule 16b-3,  as in effect when  discretion  is being
               exercised with respect to the Plan.

          (z)  "Section 16(b)" means Section 16(b) of the Exchange Act.

          (aa) "Service Provider" means an Employee, Director or Consultant.

          (bb) "Share"  means a share of the Common  Stock,  as  adjusted  under
               Section 12 below.

          (cc) "Stock  Purchase  Right"  means a right to purchase  Common Stock
               pursuant to Section 11 below.

          (dd) "Subsidiary"  means a  "subsidiary  corporation,"  whether now or
               hereafter existing, as defined in Section 424(f) of the Code.

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3. Stock  Subject to the Plan.  Subject to the  provisions  of Section 12 of the
Plan, the maximum  aggregate  number of Shares that may be subject to option and
sold  under the Plan is  3,000,000  Shares.  The Shares  may be  authorized  but
unissued, or reacquired Common Stock.-

If an Option or Stock  Purchase Right expires or becomes  unexercisable  without
having been exercised in full, or is surrendered  pursuant to an Option Exchange
Program,  the  unpurchased  underlying  Shares will become  available for future
grant or sale under the Plan (unless the Plan has terminated).  However,  Shares
that have  actually  been issued under the Plan, on exercise of either an Option
or Stock  Purchase  Right,  will not be returned to the Plan and will not become
available  for  future  distribution  under the Plan,  except  that if Shares of
Restricted  Stock are  repurchased  by the  Company at their  original  purchase
price, the Shares will become available for future grant under the Plan.

4.  Administration of the Plan.

         (a)      Procedure.

               (i)  Multiple Administrative Bodies. The Plan may be administered
                    by different  Committees with respect to different groups of
                    Service Providers.

               (ii) Section  162(m).   To  the  extent  that  the  Administrator
                    determines  it to be  desirable to qualify  Options  granted
                    hereunder as  "performance-based  compensation,"  within the
                    meaning  of  Section  162(m) of the  Code,  the Plan will be
                    administered   by  a  Committee  of  two  or  more  "outside
                    directors,"  within the  meaning  of  Section  162(m) of the
                    Code.

               (iii)Rule 16b-3. To the extent desirable to qualify  transactions
                    hereunder  as exempt  under  Rule  16b-3,  the  transactions
                    contemplated  hereunder  will be  structured  to satisfy the
                    requirements for exemption under Rule 16b-3.

               (iv) Other Administration. Other than as provided above, the Plan
                    will be  administered  by (A) the Board or (B) a  Committee,
                    which  committee will be  constituted to satisfy  Applicable
                    Laws.

         (b)       Powers of the Administrator. Subject to the provisions of the
                   Plan and, in the case of a  Committee,  the  specific  duties
                   delegated by the Board to the  Committee,  and subject to the
                   approval of any relevant authorities,  the Administrator will
                   have the authority in its discretion:

               (i)  to determine the Fair Market Value;

               (ii) to select the Service  Providers  to whom  Options and Stock
                    Purchase Rights may from time to time be granted hereunder;

               (iii)to  determine  the  number of Shares to be  covered  by each
                    award granted under the Plan;

               (iv) to approve forms of agreement for use under the Plan;

               (v)  to  determine  the terms and  conditions,  of any  Option or
                    Stock  Purchase  Right granted under the Plan. The terms and
                    conditions  include,  but are not limited  to, the  exercise
                    price,  the time or times  when  Options  or Stock  Purchase
                    Rights may be exercised  (which may be based on  performance
                    criteria),  any vesting acceleration or waiver of forfeiture
                    restrictions,  and any  restriction or limitation  regarding
                    any  Option or Stock  Purchase  Right or  underlying  Common
                    Stock,   based  in  each   case  on  the   factors   as  the
                    Administrator, in its sole discretion, will determine;

               (vi) to determine whether and under what  circumstances an Option
                    may be  settled  in cash under  subsection  9(e)  instead of
                    Common Stock;

<PAGE>

               (vii)to  reduce  the  exercise  price of any  Option  to the then
                    current  Fair Market  Value if the Fair Market  Value of the
                    Common Stock  covered by the Option has  declined  since the
                    date the Option was granted;

               (viii) to initiate an Option Exchange Program;

               (ix) to  prescribe,  amend  and  rescind  rules  and  regulations
                    relating  to  the  Plan,  including  rules  and  regulations
                    relating  to  sub-plans   established  for  the  purpose  of
                    qualifying  for preferred  tax  treatment  under foreign tax
                    laws;

               (x)  to allow Optionees to satisfy withholding tax obligations by
                    electing to have the Company  withhold from the Shares to be
                    issued on exercise of an Option or Stock Purchase Right that
                    number of Shares  having a Fair  Market  Value  equal to the
                    amount required to be withheld. The Fair Market Value of the
                    Shares to be withheld  will be  determined  on the date that
                    the amount of tax to be  withheld is to be  determined.  All
                    elections  by  Optionees  to have Shares  withheld  for this
                    purpose will be made in the form and under the conditions as
                    the Administrator may consider necessary or advisable; and

               (xi) to construe and  interpret  the terms of the Plan and awards
                    granted pursuant to the Plan.

     (c)  Effect of Administrator's Decision. All decisions,  determinations and
          interpretations  of the Administrator will be final and binding on all
          Optionees.

5.  Eligibility.

     (a)  Non-statutory  Stock Options and Stock Purchase  Rights may be granted
          to Service  Providers.  Incentive Stock Options may be granted only to
          Employees.

     (b)  Each Option will be  designated  in the Option  Agreement as either an
          Incentive  Stock  Option or a  Non-statutory  Stock  Option.  However,
          notwithstanding the designation, to the extent that the aggregate Fair
          Market  Value of the  Shares  with  respect to which  Incentive  Stock
          Options are  exercisable for the first time by the Optionee during any
          calendar  year  (under  all  plans of the  Company  and any  Parent or
          Subsidiary)   exceeds  $100,000,   the  Options  will  be  treated  as
          Non-statutory  Stock  Options.  For  purposes  of this  Section  5(b),
          Incentive  Stock  Options  will be taken into  account in the order in
          which they were  granted.  The Fair Market Value of the Shares will be
          determined  as of the time the  Option  with  respect to the Shares is
          granted.

     (c)  Neither the Plan nor any Option or Stock Purchase Right will confer on
          any  Optionee  any right with  respect to  continuing  the  Optionee's
          relationship  as a  Service  Provider  with the  Company,  nor will it
          interfere in any way with his or her right or the  Company's  right to
          terminate the relationship at any time, with or without cause.

     (d)  The following limitations will apply to grants of Options:

                  (i)       No Service  Provider will be granted,  in any fiscal
                            year of the Company,  Options to purchase  more than
                            10% of the total issued and outstanding Shares.

                  (ii)      The   foregoing   limitations   will   be   adjusted
                            proportionately in connection with any change in the
                            Company's capitalization as described in Section 12.

<PAGE>

                  (iii)     If an Option is cancelled in the same fiscal year of
                            the Company in which it was  granted  (other than in
                            connection  with a transaction  described in Section
                            12), the  cancelled  Option will be counted  against
                            the  limits  set forth in  subsections  (i) and (ii)
                            above. For this purpose, if the exercise price of an
                            Option is reduced,  the transaction  will be treated
                            as a  cancellation  of the Option and the grant of a
                            new Option.

6. Term of Plan. The Plan will become effective on its adoption by the Board. It
will  continue in effect for a term of ten (10) years  unless  terminated  at an
earlier date under Section 14 of the Plan.

7.  Term of  Option.  The  term of each  Option  will be  stated  in the  Option
Agreement;  provided, however, that the term will be no more than ten (10) years
from the date of grant.  In the case of an Incentive  Stock Option granted to an
Optionee who, at the time the Option is granted,  owns stock  representing  more
than ten  percent  (10%) of the  voting  power  of all  classes  of stock of the
Company or any  Parent or  Subsidiary,  the term of the Option  will be five (5)
years from the date of grant or a shorter  term as may be provided in the Option
Agreement.

8.  Option Exercise Price and Consideration.

     (a)  Option Exercise Price.  The per share exercise price for the Shares to
          be issued on exercise of an Option will be the price as is  determined
          by the Administrator, but will be subject to the following:

                  (i)      In the case of an Incentive Stock Option

                           (A)       granted to an Employee  who, at the time of
                                     grant   of   the    Option,    owns   stock
                                     representing more than ten percent (10%) of
                                     the voting power of all classes of stock of
                                     the  Company or any  Parent or  Subsidiary,
                                     the  exercise  price  will be no less  than
                                     110% of the Fair Market  Value per Share on
                                     the date of grant.

                           (B)       granted  to any  other  Employee,  the  per
                                     Share  exercise  price will be no less than
                                     100% of the Fair Market  Value per Share on
                                     the date of grant.

                  (ii)      In the case of a Non-statutory Stock Option, the per
                            Share  exercise  price  will  be  determined  by the
                            Administrator.  In the case of a Non-statutory Stock
                            Option  intended  to qualify  as  "performance-based
                            compensation"  within the meaning of Section  162(m)
                            of the Code, the per Share exercise price will be no
                            less than 100% of the Fair Market Value per Share on
                            the date of grant.

                  (iii)     Notwithstanding   the  foregoing,   Options  may  be
                            granted with a per Share  exercise  price other than
                            as  required  above  pursuant  to a merger  or other
                            corporate transaction.

         (b)       Consideration. The consideration to be paid for the Shares to
                   be issued on exercise of an Option,  including  the method of
                   payment, will be determined by the Administrator (and, in the
                   case of an Incentive Stock Option,  will be determined at the
                   time of grant). The consideration may consist of:

                  (i)      cash,

                  (ii)     check,

                  (iii)    promissory note,

                  (iv)     other Shares which:

<PAGE>

                           (A)       in the case of Shares  acquired on exercise
                                     of  an  Option,  have  been  owned  by  the
                                     Optionee  for more  than six  months on the
                                     date of surrender, and

                           (B)       have a Fair  Market  Value  on the  date of
                                     surrender  equal to the aggregate  exercise
                                     price of the  Shares as to which the Option
                                     will be exercised,

                  (v)     consideration received by the Company under a cashless
                          exercise program implemented by  the Company in
                          connection with the Plan, or

                  (vi)     any combination of the foregoing methods of payment.

                  In making its determination as to the type of consideration to
                  accept,  the Administrator  will consider if acceptance of the
                  consideration  may  be  reasonably  expected  to  benefit  the
                  Company.

9.  Exercise of Option.

          (a)  Procedure  for  Exercise;  Rights as a  Shareholder.  Any  Option
               granted under the Plan will be exercisable according to the terms
               of the Plan at the  times,  and  under any  other  conditions  as
               determined  by the  Administrator  and set  forth  in the  Option
               Agreement.  Unless the Administrator provides otherwise,  vesting
               of  Options  granted to  Officers  and  Directors  will be tolled
               during  any  unpaid  leave  of  absence.  An  Option  may  not be
               exercised for a fraction of a Share.

               An Option will be considered exercised when the Company receives:

               (i)  written or electronic  notice of exercise  (under the Option
                    Agreement)  from the person entitled to exercise the Option,
                    and

               (ii) full payment for the Shares with respect to which the Option
                    is exercised.

               Full  payment  may  consist  of any  consideration  and method of
               payment  authorized  by the  Administrator  and  permitted by the
               Option  Agreement  and the Plan.  Shares issued on exercise of an
               Option  will  be  issued  in the  name  of the  Optionee  or,  if
               requested by the Optionee, in the name of the Optionee and his or
               her  spouse.  Until the Shares are  issued (as  evidenced  by the
               appropriate  entry  on  the  books  of the  Company  or of a duly
               authorized  transfer  agent of the Company),  no right to vote or
               receive dividends or any other rights as a shareholder will exist
               with respect to the Shares,  notwithstanding  the exercise of the
               Option. The Company will issue (or cause to be issued) the Shares
               promptly  after the Option is exercised.  No  adjustment  will be
               made for a dividend  or other  right for which the record date is
               prior to the date the Shares are  issued,  except as  provided in
               Section 12 of the Plan.

               Exercise  of an Option in any manner will result in a decrease in
               the number of Shares thereafter  available,  both for purposes of
               the Plan and for sale under the  Option,  by the number of Shares
               as to which the Option is exercised.

          (b)  Termination of Relationship as a Service Provider. If an Optionee
               ceases to be a Service Provider, the Optionee may exercise his or
               her  Option  within  the  period of time as is  specified  in the
               Option  Agreement  to the extent that the Option is vested on the
               date of termination (but in no event later than the expiration of
               the term of the Option as set forth in the Option Agreement).  In
               the  absence of a  specified  time in the Option  Agreement,  the
               Option will remain exercisable for three (3) months following the
               Optionee's  termination.  If,  on the  date of  termination,  the
               Optionee is not vested as to his or her entire Option, the Shares
               covered by the unvested  portion of the Option will revert to the
               Plan. If, after  termination,  the Optionee does not exercise his
               or her Option within the time specified by the Administrator, the
               Option will terminate,  and the Shares covered by the Option will
               revert to  the Plan.

<PAGE>

          (c)  Disability  of  Optionee.  If an Optionee  ceases to be a Service
               Provider as a result of the Optionee's  Disability,  the Optionee
               may  exercise  his or her Option  within the period of time as is
               specified  in the  Option  Agreement  to the extent the Option is
               vested on the date of termination (but in no event later than the
               expiration  of the term of the  Option as set forth in the Option
               Agreement).  In the  absence  of a  specified  time in the Option
               Agreement,  the Option  will remain  exercisable  for twelve (12)
               months following the Optionee's  termination.  If, on the date of
               termination,  the  Optionee is not vested as to his or her entire
               Option,  the Shares covered by the unvested portion of the Option
               will revert to the Plan. If, after termination, the Optionee does
               not exercise  his or her Option  within the time  specified,  the
               Option will terminate,  and the Shares covered by the Option will
               revert  to the Plan.

          (d)  Death of Optionee.  If an Optionee dies while a Service Provider,
               the  Option  may be  exercised  within  the  period of time as is
               specified  in the Option  Agreement to the extent that the Option
               is vested on the date of death  (but in no event  later  than the
               expiration  of the term of the  Option as set forth in the Option
               Agreement) by the  Optionee's  estate or by a person who acquires
               the right to exercise  the Option by bequest or  inheritance.  In
               the  absence of a  specified  time in the Option  Agreement,  the
               Option will remain  exercisable for twelve (12) months  following
               the  Optionee's  termination.  If,  at the  time  of  death,  the
               Optionee  is not  vested  as to the  entire  Option,  the  Shares
               covered by the  unvested  portion of the Option will  immediately
               revert to the Plan. If the Option is not so exercised  within the
               time specified, the Option will terminate, and the Shares covered
               by the Option will revert to the Plan.

          (e)  Buyout Provisions. The Administrator may at any time offer to buy
               out for a  payment  in  cash  or  Shares,  an  Option  previously
               granted,  based on the terms and conditions as the  Administrator
               will  establish and  communicate to the Optionee at the time that
               the offer is made.

10.  Non-Transferability  of Options and Stock Purchase Rights.  The Options and
Stock  Purchase  Rights  may  not  be  sold,  pledged,  assigned,  hypothecated,
transferred,  or disposed of in any manner  other than by will or by the laws of
descent  or  distribution  and may be  exercised,  during  the  lifetime  of the
Optionee, only by the Optionee.

11.  Stock Purchase Rights.

          (a)  Rights to Purchase.  Stock  Purchase  Rights may be issued either
               alone,  in addition  to, or in tandem with other  awards  granted
               under the Plan and/or cash awards made outside of the Plan. After
               the  Administrator  determines  that it will offer Stock Purchase
               Rights  under the Plan,  it will advise the offeree in writing or
               electronically of the terms,  conditions and restrictions related
               to the offer, including the number of Shares that the person will
               be  entitled  to  purchase,  the  price to be paid,  and the time
               within which the person must accept the offer.  The offer will be
               accepted by execution of a Restricted Stock purchase agreement in
               the form determined by the Administrator.

          (b)  Repurchase Option. Unless the Administrator determines otherwise,
               the Restricted Stock purchase  agreement will grant the Company a
               repurchase  option  exercisable  on the voluntary or  involuntary
               termination of the  purchaser's  service with the Company for any
               reason  (including  death or disability).  The purchase price for
               Shares  repurchased  pursuant to the  Restricted  Stock  purchase
               agreement  will be the original  price paid by the  purchaser and
               may be paid by cancellation of any  indebtedness of the purchaser
               to the Company.  The repurchase  option will lapse at the rate as
               the Administrator may determine.

          (c)  Other  Provisions.  The Restricted Stock purchase  agreement will
               contain  any  other  terms,   provisions   and   conditions   not
               inconsistent   with  the  Plan  as  may  be   determined  by  the
               Administrator in its sole discretion.

<PAGE>

         (d)       Rights as a  Shareholder.  Once the Stock  Purchase  Right is
                   exercised, the purchaser will have rights equivalent to those
                   of a shareholder  and will be a  shareholder  when his or her
                   purchase  is  entered on the  records of the duly  authorized
                   transfer agent of the Company. No adjustment will be made for
                   a dividend  or other right for which the record date is prior
                   to the date the Stock Purchase Right is exercised,  except as
                   provided in Section 12 of the Plan.

12. Adjustments On Changes in Capitalization, Merger or Asset Sale.

          (a)  Changes in Capitalization.  Subject to any required action by the
               stockholders of the Company, the number of shares of Common Stock
               covered by each  outstanding  Option or Stock Purchase Right, and
               the number of shares of Common  Stock which have been  authorized
               for  issuance  under the Plan but as to which no Options or Stock
               Purchase Rights have yet been granted or which have been returned
               to the Plan on  cancellation  or expiration of an Option or Stock
               Purchase  Right,  as well as the price per share of Common  Stock
               covered by each outstanding  Option or Stock Purchase Right, will
               be  proportionately  adjusted for any increase or decrease in the
               number of issued  shares of Common Stock  resulting  from a stock
               split,  reverse  stock  split,  stock  dividend,  combination  or
               reclassification  of the Common Stock,  or any other  increase or
               decrease in the number of issued shares of Common Stock  effected
               without receipt of consideration  by the Company.  The conversion
               of  any  convertible  securities  of  the  Company  will  not  be
               considered   to  have   been   "effected   without   receipt   of
               consideration."  The adjustment will be made by the Board,  whose
               determination  in  that  respect  will  be  final,   binding  and
               conclusive.  Except  as  expressly  provided  in  this  Plan,  no
               issuance  by the  Company  of  shares of stock of any  class,  or
               securities  convertible  into shares of stock of any class,  will
               affect, and no adjustment will be made to, the number or price of
               shares of Common  Stock  subject  to an Option or Stock  Purchase
               Right.

          (b)  Dissolution  or  Liquidation.   In  the  event  of  the  proposed
               dissolution or liquidation of the Company, the Administrator will
               notify the  Optionee not less than fifteen (15) days prior to the
               proposed  action.  To the  extent  it  has  not  been  previously
               exercised,  the Option or Stock  Purchase  Right  will  terminate
               immediately prior to the consummation of the proposed action.

          (c)  Merger.  In the event of a merger,  sale or reorganization of the
               Company with or into any other  corporation or  corporations or a
               sale of all or  substantially  all of the  assets or  outstanding
               stock  of  the  Company,   in  which  transaction  the  Company's
               stockholders immediately prior to the transaction own immediately
               after the transaction  less than 50% of the equity  securities of
               the surviving  corporation  or its parent,  all Options that have
               not been  terminated  under the Stock Option  Agreement that will
               become vested within 18 months of the closing date of the merger,
               sale or  reorganization  will be  accelerated.  In the event of a
               merger of the  Company  with or into  another  corporation,  each
               outstanding  Option or Stock  Purchase Right may be assumed or an
               equivalent  option or right may be  substituted  by the successor
               corporation   or  a  parent  or   subsidiary   of  the  successor
               corporation.  If, in the event, an Option or Stock Purchase Right
               is not assumed or substituted, the Option or Stock Purchase Right
               will  terminate as of the date of the closing of the merger.  For
               the  purposes  of this  paragraph,  the Option or Stock  Purchase
               Right will be considered  assumed if,  following the merger,  the
               Option or Stock  Purchase  Right confers the right to purchase or
               receive,  for each Share of Optioned  Stock subject to the Option
               or Stock  Purchase  Right  immediately  prior to the merger,  the
               consideration  (whether  stock,  cash,  or  other  securities  or
               property)  received in the merger by holders of Common  Stock for
               each Share held on the effective date of the transaction  (and if
               the holders are  offered a choice of  consideration,  the type of
               consideration  chosen  by  the  holders  of  a  majority  of  the
               outstanding Shares). If the consideration  received in the merger
               is not solely  common stock of the successor  corporation  or its
               Parent,  the Administrator may, with the consent of the successor
               corporation,  provide for the consideration to be received on the
               exercise of the Option or Stock Purchase Right, for each Share of
               Optioned Stock subject to the Option or Stock Purchase  Right, to
               be solely common stock of the successor corporation or its Parent
               equal  in  fair  market  value  to the  per  share  consideration
               received   by   holders   of   Common   Stock   in  the   merger.

<PAGE>

13.  Non-Transferability of Options and Stock Purchase Rights. Unless determined
otherwise by the  Administrator,  an Option or Stock  Purchase  Right may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other  than  by  will  or by the  laws of  descent  or  distribution  and may be
exercised,  during the lifetime of the Optionee,  only by the  Optionee.  If the
Administrator makes an Option or Stock Purchase Right  transferable,  the Option
or Stock Purchase Right will contain all additional  terms and conditions as the
Administrator considers appropriate.

14. Time of Granting Options and Stock Purchase Rights.  The date of grant of an
Option or Stock Purchase Right will, for all purposes,  be the date on which the
Administrator  makes the  determination  granting  the Option or Stock  Purchase
Right,  or any other date as is determined by the  Administrator.  Notice of the
determination  will be given to each Service Provider to whom an Option or Stock
Purchase  Right is so  granted  within a  reasonable  time after the date of the
grant.

15. Amendment and Termination of the Plan.

          (a)  Amendment  and  Termination.  The  Board  may at any time  amend,
               alter, suspend or terminate the Plan.

          (b)  Shareholder Approval.  The Board will obtain shareholder approval
               of any Plan  amendment to the extent  necessary  and desirable to
               comply with Applicable Laws.

          (c)  Effect of Amendment or  Termination.  No  amendment,  alteration,
               suspension or  termination  of the Plan will impair the rights of
               any  Optionee,  unless  mutually  agreed  otherwise  between  the
               Optionee  and  the  Administrator,  which  agreement  must  be in
               writing and signed by the Optionee  and the Company.  Termination
               of the Plan  will  not  affect  the  Administrator's  ability  to
               exercise the powers granted to it with respect to Options granted
               under the Plan prior to the date of termination.

16.  Conditions On Issuance of Shares.

          (a)  Legal  Compliance.  Shares  will not be  issued  pursuant  to the
               exercise of an Option  unless the  exercise of the Option and the
               issuance and  delivery of the Shares will comply with  Applicable
               Laws and will be further  subject to the  approval of counsel for
               the Company with respect to such compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               Option,  the  Administrator may require the person exercising the
               Option to represent  and warrant at the time of exercise that the
               Shares are being  purchased  only for  investment and without any
               present  intention  to sell or  distribute  the Shares if, in the
               opinion of counsel  for the  Company,  such a  representation  is
               required.

17.  Inability  to Obtain  Authority.  The  inability  of the  Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
considered by the Company's  counsel to be necessary to the lawful  issuance and
sale of any Shares the Plan,  will  relieve  the  Company  of any  liability  in
respect of the  failure  to issue or sell the  Shares as to which the  requisite
authority may not have been obtained.

18.  Reservation of Shares.  The Company,  during the term of this Plan, will at
all times  reserve and keep  available a sufficient  number of Shares to satisfy
the requirements of the Plan.

19.  Shareholder  Approval.  The  Plan  will  be  subject  to  approval  by  the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Shareholder approval must be obtained in the degree and manner required
under Applicable Laws.

<PAGE>

                      PHAGE THERAPEUTICS INTERNATIONAL INC.

                                 2000 STOCK PLAN

                             STOCK OPTION AGREEMENT

Unless otherwise  defined in this Stock Option  Agreement,  the terms defined in
the 2000 Stock Plan will have the same  defined  meanings  in this Stock  Option
Agreement.

1.  Notice of Stock Option Grant.

         Name:                               "Optionee"
                  --------------------------
The Optionee has been granted an Option to purchase Common Stock of the Company,
subject to the terms and  conditions of the Plan and this Option  Agreement,  as
follows:

         Date of Grant:
                        --------------------------------

         Vesting Commencement Date:                                     "VCD"
                                     -----------------------------------

         Exercise Price per Share:
                                    ----------------------

         Total Number of Shares Granted:                        Number of shares
                                         -----------------------
         Total Exercise Price:                                    Total Price
                              ------------------------------------
         Type of Option:                    X            Incentive Stock Option
                               -------------------------
                                                      Non-statutory Stock Option
                               ----------------------

         Term/Expiration Date:
                                ------------------------------------
         Vesting Schedule:

         The vesting  schedule will be determined  by the  Administrator  in its
sole discretion.

         Termination Period:

         This Option will be exercisable  for one month after Optionee ceases to
         be a Service Provider.  On Optionee's death or Disability,  this Option
         may be  exercised  for one year after  Optionee  ceases to be a Service
         Provider.  In no event may  Optionee  exercise  this  Option  after the
         Term/Expiration Date as provided above.

2.  Agreement.

1)   Grant of  Option.  The Plan  Administrator  of the  Company  grants  to the
     Optionee  named in the Notice of Grant  (the  "Optionee"),  an option  (the
     "Option")  to  purchase  the  number of Shares  set forth in the  Notice of
     Grant,  at the  exercise  price per Share set forth in the  Notice of Grant
     (the  "Exercise  Price"),  and subject to the terms and  conditions  of the
     Plan,  which is incorporated by reference.  Subject to Section 14(c) of the
     Plan,  in the event of a conflict  between the terms and  conditions of the
     Plan and this Option  Agreement,  the terms and conditions of the Plan will
     prevail.

     If designated in the Notice of Grant as an Incentive  Stock Option ("ISO"),
     this Option is intended to qualify as an Incentive  Stock Option as defined
     in Section 422 of the Code. Nevertheless, to the extent that it exceeds the
     $100,000  rule of Code  Section  422(d),  this  Option will be treated as a
     Non-statutory Stock Option ("NSO").

<PAGE>

2)      Exercise of Option.

     (i)  Right to  Exercise.  This Option will be  exercisable  during its term
          under the Vesting Schedule set out in the Notice of Grant and with the
          applicable provisions of the Plan and this Option Agreement.

     (ii) Method of Exercise.  This Option will be exercisable by delivery of an
          exercise  notice in the form  attached  as  Exhibit  A (the  "Exercise
          Notice")  which will state the  election to exercise  the Option,  the
          number of Shares with respect to which the Option is being  exercised,
          and any other representations and agreements as may be required by the
          Company.  The Exercise  Notice will be  accompanied  by payment of the
          aggregate Exercise Price as to all Exercised Shares.  This Option will
          be  considered  to be  exercised  on receipt by the Company of a fully
          executed Exercise Notice accompanied by the aggregate Exercise Price.

          No Shares will be issued  pursuant to the exercise of an Option unless
     the  issuance  and  exercise   complies  with  Applicable  Laws.   Assuming
     compliance,   for  income  tax  purposes  the  Shares  will  be  considered
     transferred  to the  Optionee on the date on which the Option is  exercised
     with respect to the Shares.

3. Optionee's Representations.  In the event the Shares have not been registered
under  the  Securities  Act of 1933,  as  amended,  at the time  this  Option is
exercised, the Optionee will, if required by the Company,  concurrently with the
exercise of all or any portion of this Option, deliver to the Company his or her
Investment Representation Statement in the form attached hereto as Exhibit B.

4. Lock-Up  Period.  Optionee hereby agrees that, if so requested by the Company
or any  representative  of the  underwriters  (the  "Managing  Underwriter")  in
connection  with any  registration  of the  offering  of any  securities  of the
Company under the Securities Act,  Optionee will not sell or otherwise  transfer
any Shares or other securities of the Company during the 180-day period (or such
other  period as may be requested  in writing by the  Managing  Underwriter  and
agreed to in writing by the Company) (the "Market  Standoff  Period")  following
the effective  date of a  registration  statement of the Company filed under the
Securities  Act.  Such  restriction  will apply  only to the first  registration
statement  of the  Company to become  effective  under the  Securities  Act that
includes  securities  to be sold on behalf of the  Company  to the  public in an
underwritten  public  offering under the Securities  Act. The Company may impose
stop-transfer  instructions with respect to securities  subject to the foregoing
restrictions until the end of such Market Standoff Period.

5. Method of Payment.  Payment of the aggregate Exercise Price will be by any of
the  following,  or a  combination  of the  following,  at the  election  of the
Optionee:

     (a)  cash or check;

     (b)  consideration received by the Company under a formal cashless exercise
          program adopted by the Company in connection with the Plan; or

     (c)  surrender of other Shares which:

          (i)  in the case of Shares  acquired on  exercise  of an option,  have
               been  owned by the  Optionee  for more than six (6) months on the
               date of surrender, and

          (ii) have a Fair Market  Value on the date of  surrender  equal to the
               aggregate Exercise Price of the Exercised Shares.

6. Restrictions on Exercise. This Option may not be exercised until such time as
the  Plan  has been  approved  by the  shareholders  of the  Company,  or if the
issuance of the Shares on the exercise or the method of payment of consideration
for the shares would constitute a violation of any Applicable Law.

7.  Non-Transferability  of Option.  This Option may not be  transferred  in any
manner  otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee.  The terms of the
Plan and this Option Agreement will be binding on the executors, administrators,
heirs, successors and assigns of the Optionee.

8. Term of Option.  This Option may be exercised only within the term set out in
the Notice of Grant,  and may be  exercised  during the term only under the Plan
and the terms of this Option.

<PAGE>

9. Tax  Consequences.  Set forth below is a brief summary as of the date of this
Option of some of the  federal tax  consequences  of exercise of this Option and
disposition of the Shares. THIS SUMMARY IS NECESSARILY  INCOMPLETE,  AND THE TAX
LAWS AND  REGULATIONS  ARE SUBJECT TO CHANGE.  THE OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

     (a)  Exercise of NSO.  There may be a regular  federal income tax liability
          on the  exercise  of an NSO.  The  Optionee  will be treated as having
          received  compensation  income  (taxable at ordinary income tax rates)
          equal to the excess, if any, of the Fair Market Value of the Shares on
          the date of  exercise  over the  Exercise  Price.  If  Optionee  is an
          Employee  or a  former  Employee,  the  Company  will be  required  to
          withhold from Optionee's compensation or collect from Optionee and pay
          to the  applicable  taxing  authorities  an amount in cash  equal to a
          percentage of this  compensation  income at the time of exercise,  and
          may refuse to honor the exercise  and refuse to deliver  Shares if the
          withholding amounts are not delivered at the time of exercise.

     (b)  Exercise of ISO. If this Option  qualifies as an ISO, there will be no
          regular  federal  income tax  liability on the exercise of the Option,
          although the excess, if any, of the Fair Market Value of the Shares on
          the date of  exercise  over the  Exercise  Price will be treated as an
          adjustment to the alternative minimum tax for federal tax purposes and
          may subject the Optionee to the alternative minimum tax in the year of
          exercise.

     (c)  Disposition  of Shares.  In the case of an NSO, if Shares are held for
          not less than one year, any gain realized on disposition of the Shares
          will be treated  as  long-term  capital  gain for  federal  income tax
          purposes. In the case of an ISO, if Shares transferred pursuant to the
          Option are held for not less than one year after  exercise  and of not
          less than two years  after the Date of  Grant,  any gain  realized  on
          disposition  of the Shares will also be treated as  long-term  capital
          gain for federal income tax purposes. If Shares purchased under an ISO
          are disposed of within one year after  exercise or two years after the
          Date of Grant,  any gain realized on such  disposition will be treated
          as  compensation  income  (taxable  at ordinary  income  rates) to the
          extent of the difference between the Exercise Price and the lesser of:

               (i)  the Fair Market Value of the Shares on the date of exercise,
                    or

               (ii) the sale price of the Shares.  Any  additional  gain will be
                    taxed as capital gain,  short-term or long-term depending on
                    the period that the ISO Shares were held.

     (d)  Notice of  Disqualifying  Disposition  of ISO  Shares.  If the  Option
          granted to Optionee  is an ISO,  and if  Optionee  sells or  otherwise
          disposes  of any of the  Shares  acquired  pursuant  to the  ISO on or
          before the later of:

               (i)  the date two years after the Date of Grant, or

               (ii) the date one year after the date of  exercise,  the Optionee
                    will  immediately  notify  the  Company  in  writing of such
                    disposition.

               Optionee  agrees  that  Optionee  may be  subject  to income  tax
               withholding by the Company on the compensation  income recognized
               by the Optionee.

10. Entire Agreement;  Governing Law. The Plan is incorporated by reference. The
Plan and this Option  Agreement  constitute the entire  agreement of the parties
and supersede in their  entirety all prior  undertakings  and  agreements of the
Company and Optionee with respect to Options and Stock Purchase Rights,  and may
not be  modified  adversely  to the  Optionee's  interest  except  by means of a
writing  signed by the Company and Optionee.  This  agreement is governed by the
internal substantive laws but not the choice of law rules of Florida.

11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE APPLICABLE  VESTING SCHEDULE IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT
OF BEING  HIRED,  BEING  GRANTED  THIS OPTION OR  ACQUIRING  SHARES  HEREUNDER).
OPTIONEE FURTHER  ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,  THE TRANSACTIONS
CONTEMPLATED  HEREUNDER AND THE ATTACHED  VESTING  SCHEDULE DO NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE
VESTING  PERIOD,  FOR ANY PERIOD,  OR AT ALL, AND WILL NOT  INTERFERE IN ANY WAY
WITH  OPTIONEE'S   RIGHT  OR  THE  COMPANY'S   RIGHT  TO  TERMINATE   OPTIONEE'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

<PAGE>

Optionee  acknowledges  receipt of a copy of the Plan and represents  that he or
she is familiar  with the terms and  provisions  of the Plan,  and accepts  this
Option  subject to all of the terms and  provisions  of the Plan.  Optionee  has
reviewed the Plan and this Option in their  entirety,  has had an opportunity to
obtain  the  advice  of  counsel  prior  to  executing  this  Option  and  fully
understands all provisions of the Option.  Optionee agrees to accept as binding,
conclusive and final all decisions or  interpretations  of the  Administrator on
any questions arising under the Plan or this Option.  Optionee further agrees to
notify the Company on any change in the residence address indicated below.

OPTIONEE:                                  PHAGE THERAPEUTICS INTERNATIONAL INC.

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

Signature                                 By: _____________________

------------------------                   ----------------------------------
Print Name                                 Title

-----------------------
Social Security Number

Residential Address:

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

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

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

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

                                CONSENT OF SPOUSE

The  undersigned  spouse  of  Optionee  has  read and  approves  the  terms  and
conditions  of the Plan and  this  Option  Agreement.  In  consideration  of the
Company's  granting his or her spouse the right to purchase  Shares as set forth
in the Plan and this Option Agreement,  the undersigned agrees to be irrevocably
bound by the terms and  conditions  of the Plan and this  Option  Agreement  and
further agrees that any community property interest will be similarly bound. The
undersigned  appoints  the  undersigned's  spouse  as  attorney-in-fact  for the
undersigned  with respect to any  amendment or exercise of rights under the Plan
or this Option Agreement.

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

Spouse of Optionee

<PAGE>

                                    EXHIBIT A

                                 2000 STOCK PLAN

                                 EXERCISE NOTICE

Phage Therapeutics International, Inc.

22116 23rd Drive S.E.

Bothwll, Washington 98201

     1.  Exercise  of Option.  Effective  as of today,  ___________,  20__,  the
undersigned  ("Optionee")  elects to  exercise  Optionee's  option  to  purchase
_________  shares of the  Common  Stock  (the  "Shares")  of Phage  Therapeutics
Interntational  Inc. (the  "Company")  under and pursuant to the 2000 stock plan
(the "Plan") and the stock option  agreement dated  ________,  20__ (the "Option
Agreement"). The purchase price for the Shares will be $________, as required by
the Option Agreement.

     2.  Delivery of Payment.  Purchaser  has  delivered to the Company the full
purchase price of the Shares.

     3.  Representations  of Optionee.  Optionee  acknowledges that Optionee has
received,  read and understood  the Plan and the Option  Agreement and agrees to
abide by and be bound by their terms and conditions.

     4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
the  appropriate  entry on the  books  of the  Company  or of a duly  authorized
transfer  agent of the  Company),  no right to vote or receive  dividends or any
other rights as a  shareholder  will exist with  respect to the Optioned  Stock,
notwithstanding  the  exercise of the  Option.  The Shares will be issued to the
Optionee as soon as  practicable  after the Option is  exercised.  No adjustment
will be made for a dividend or other right for which the record date is prior to
the date of issuance except as provided in Section 12 of the Plan.

     5. Tax Consultation.  Optionee understands that Optionee may suffer adverse
tax  consequences  as a result of  Optionee's  purchase  or  disposition  of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee  considers  advisable in connection with the purchase or disposition of
the Shares and that Optionee is not relying on the Company for any tax advice.

     6. Restrictive Legends and Stop-Transfer Orders.

     (a)  Legends.  Optionee  understands and agrees that the Company will cause
          the  legends  set  forth  below or  legends  substantially  equivalent
          thereto,  to be placed on any certificate(s)  evidencing  ownership of
          the Shares together with any other legends that may be required by the
          Company or by state or federal securities laws:

               THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
               THE  SECURITIES  ACT OF 1933 (THE  "ACT") AND MAY NOT BE OFFERED,
               SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
               UNTIL  REGISTERED  UNDER THE ACT OR, IN THE  OPINION  OF  COMPANY
               COUNSEL  SATISFACTORY  TO THE  ISSUER OF THESE  SECURITIES,  SUCH
               OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
               THEREWITH.

     (b)  Stop-Transfer  Notices.  Optionee  agrees  that,  in order  to  ensure
          compliance with the restrictions  referred to herein,  the Company may
          issue appropriate "stop transfer"  instructions to its transfer agent,
          if any, and that, if the Company transfers its own securities,  it may
          make appropriate notations to the same effect in its own records.

     (c)  Refusal to Transfer. The Company will not be required:

<PAGE>

          (i)  to  transfer  on its  books  any  Shares  that  have been sold or
               otherwise  transferred  in violation of any of the  provisions of
               this Exercise Notice or

          (ii) to treat as owner of such  Shares or to accord  the right to vote
               or pay  dividends to any  purchaser or other  transferee  to whom
               such Shares will have been so transferred.

     8.  Successors and Assigns.  The Company may assign any of its rights under
this Exercise Notice to single or multiple  assignees,  and this Exercise Notice
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth,  this Exercise Notice shall be
binding on Optionee and his or her heirs, executors, administrators,  successors
and assigns.

     9.  Interpretation.  Any  dispute  regarding  the  interpretation  of  this
Exercise  Notice will be submitted by Optionee or by the Company  immediately to
the Administrator which will review the dispute at its next regular meeting. The
resolution  of a dispute by the  Administrator  will be final and binding on all
parties.

     10.  Entire  Agreement/Governing  Law.  The Plan and Option  Agreement  are
incorporated by reference.  This Exercise Notice, the Plan, the Option Agreement
and the Investment  Representation  Statement constitute the entire agreement of
the parties  concerning Options and Stock Purchase Rights and supersede in their
entirety  all prior  undertakings  and  agreements  of the Company and  Optionee
concerning  Options and Stock Purchase Rights, and may not be modified adversely
to the  Optionee's  interest  except by means of a writing signed by the Company
and Optionee.  This Exercise Notice is governed by the internal substantive laws
but not the choice of law rules, of Florida.

Submitted By:                           Accepted By:

OPTIONEE:                               PHAGE THERAPEUTICS INTERNATIONAL INC.

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

Signature                               By:
                                           -------------------------------

---------------------------------       ---------------------------------------
Print Name                              Title

---------------------------------
Social Security Number

                                        Date Received:
                                                      -------------------------

<PAGE>

                                    EXHIBIT B
                       INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:
             --------------------------------------

COMPANY:     Phage Therapeutics International Inc.
             --------------------------------------

SECURITY:    Common Stock
             --------------------------------------

AMOUNT:
             --------------------------------------

DATE:        --------------------------------------

In connection with the purchase of the above-listed Securities,  the undersigned
Optionee represents to the Company the following:

1.   Possesses  Knowledge  About  Company.  Optionee  is aware of the  Company's
     business  affairs  and  financial  condition  and has  acquired  sufficient
     information  about  the  Company  to reach an  informed  and  knowledgeable
     decision to acquire the Securities.

2.   Investment  Purpose.  Optionee is acquiring these Securities for investment
     for  Optionee's  own account  only and not with a view to, or for resale in
     connection  with,  any  "distribution"  thereof  within the  meaning of the
     Securities Act of 1933, as amended (the "Securities Act").

3.   Restricted  Securities.  Optionee  acknowledges  and  understands  that the
     Securities constitute "restricted  securities" under the Securities Act and
     have not been registered under the Securities Act in reliance on a specific
     exemption  therefrom,  which exemption depends on, among other things,  the
     bona fide nature of Optionee's  investment  intent as expressed  herein. In
     this connection,  Optionee  understands that, in the view of the Securities
     and Exchange  Commission,  the  statutory  basis for such  exemption may be
     unavailable if Optionee's representation was predicated solely on a present
     intention to hold these  Securities  for the minimum  capital  gains period
     specified under tax statutes, for a deferred sale, for or until an increase
     or decrease in the market price of the  Securities,  or for a period of one
     year or any other fixed period in the future.

4.   Securities  May be Subject to  Indefinite  Hold  Period.  Optionee  further
     understands that the Securities must be held  indefinitely  unless they are
     subsequently  registered under the Securities Act or an exemption from such
     registration is available.  Optionee  further  acknowledges and understands
     that the  Company  is under  no  obligation  to  register  the  Securities.
     Optionee understands that the certificate evidencing the Securities will be
     imprinted  with a legend which  prohibits  the  transfer of the  Securities
     unless they are  registered  or such  registration  is not  required in the
     opinion of counsel  satisfactory to the Company, a legend prohibiting their
     transfer as required under applicable state securities laws.

5.   Rule 701 and Rule 144. Optionee is familiar with the provisions of Rule 701
     and Rule  144,  each  promulgated  under  the  Securities  Act,  which,  in
     substance,   permit  limited  public  resale  of  "restricted   securities"
     acquired,  directly or indirectly from the issuer thereof,  in a non-public
     offering  subject  to the  satisfaction  of  certain  conditions.  Rule 701
     provides  that if the  issuer  qualifies  under Rule 701 at the time of the
     grant of the  Option to the  Optionee,  the  exercise  will be exempt  from
     registration  under the  Securities  Act. In the event the Company  becomes
     subject  to the  reporting  requirements  of  Section  13 or  15(d)  of the
     Securities  Exchange  Act of 1934,  ninety  (90) days  thereafter  (or such
     longer period as any market stand-off agreement may require) the Securities
     exempt under Rule 701 may be resold, subject to the satisfaction of certain
     of the conditions specified by Rule 144, including:

     (a)  the resale  being made  through a broker in an  unsolicited  "broker's
          transaction" or in transactions  directly with a market maker (as said
          term is defined under the  Securities  Exchange Act of 1934);  and, in
          the case of an affiliate,

     (b)  the availability of certain public information about the Company,

     (c)  the amount of Securities  being sold during any three month period not
          exceeding the limitations specified in Rule 144(e), and

     (d)  the timely filing of a Form 144, if applicable.

<PAGE>

     In the event that the Company  does not qualify  under Rule 701 at the time
     of grant of the  Option,  then the  Securities  may be  resold  in  certain
     limited circumstances subject to the provisions of Rule 144, which requires
     the  resale to occur not less than one year after the later of the date the
     Securities were sold by the Company or the date the Securities were sold by
     an affiliate of the  Company,  within the meaning of Rule 144;  and, in the
     case  of  acquisition   of  the  Securities  by  an  affiliate,   or  by  a
     non-affiliate  who  subsequently  holds the Securities less than two years,
     the  satisfaction of the conditions set forth in sections (a), (b), (c) and
     (d) of the paragraph immediately above.

6.   Other Registration Exemption Not Assured. Optionee further understands that
     in the event all of the applicable  requirements of Rule 701 or 144 are not
     satisfied,   registration   under  the  Securities  Act,   compliance  with
     Regulation A, or some other  registration  exemption will be required;  and
     that,  notwithstanding  the fact that Rules 144 and 701 are not  exclusive,
     the Staff of the  Securities  and Exchange  Commission  has  expressed  its
     opinion that persons proposing to sell private  placement  securities other
     than in a registered  offering and otherwise  than pursuant to Rules 144 or
     701  will  have a  substantial  burden  of proof  in  establishing  that an
     exemption from registration is available for such offers or sales, and that
     such  persons  and  their  respective   brokers  who  participate  in  such
     transactions  do so  at  their  own  risk.  Optionee  understands  that  no
     assurances can be given that any such other registration  exemption will be
     available in such event.

OPTIONEE:

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

Signature

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

Print Name

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

Social Security NumberEXHIBIT 10.8

                          SECURITIES PURCHASE AGREEMENT

                                   DATED AS OF

                                OCTOBER 23, 2000

                                 BY AND BETWEEN

                      PHAGE THERAPEUTICS INTERNATIONAL INC.

                                 AS THE ISSUER,

                                       AND

                                 THE PURCHASERS

                                  (as defined)

<PAGE>

<TABLE>
<CAPTION>

                                                  TABLE OF CONTENTS

<S>                                                                                                                     <C>
ARTICLE I: DEFINITIONS..................................................................................................... 1

1.1 Definitions............................................................................................................ 1

         1.2 Accounting Terms and Determinations........................................................................... 4

ARTICLE II. PURCHASE AND SALE OF SECURITIES................................................................................ 4

         2.1 Purchase and Sale of Units.................................................................................... 4

         2.2 Closing and Mechanics of Payment.............................................................................. 4

ARTICLE III. REPRESENTATIONS AND WARRANTIES................................................................................ 4

         3.1 Organization and Qualification................................................................................ 4

         3.2 Authorization and Execution................................................................................... 4

         3.3 Capitalization................................................................................................ 5

         3.4 Governmental Authorization.................................................................................... 5

         3.5 Issuance of Shares............................................................................................ 5

         3.6 No Conflicts.................................................................................................. 5

         3.7 Financial Information......................................................................................... 6

         3.8 Litigation.................................................................................................... 6

         3.9 Employees..................................................................................................... 6

         3.10 Environmental Matters........................................................................................ 6

         3.11 Taxes........................................................................................................ 6

         3.12 Not an Investment Company.................................................................................... 6

         3.13 Full Disclosure.............................................................................................. 6

         3.14 No Solicitation; No Integration with Other Offerings......................................................... 7

         3.15 Permits...................................................................................................... 7

         3.16 Title........................................................................................................ 7

         3.17 Intellectual Property Rights................................................................................. 7

         3.18 Internal Accounting Controls................................................................................. 7

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............................................................... 7

         4.1 Investment Purpose............................................................................................ 7

         4.2 Accredited Purchaser Status................................................................................... 8

         4.3 Reliance on Exemptions........................................................................................ 8

         4.4 Information................................................................................................... 8

         4.5 No Governmental Review........................................................................................ 8

         4.6 Transfer or Resale............................................................................................ 8

         4.7 Legends....................................................................................................... 9

         4.8 Authorization, Enforcement.................................................................................... 9

         4.9 Receipt of Documents.......................................................................................... 9

         4.10 Due Formation of Corporate and Other Purchasers.............................................................. 9

         4.11 Due Authorization of Fiduciary Purchasers.................................................................... 9

         4.12 Further Representations by Foreign Purchasers............................................................... 10

         4.13 No Legal Advice From Phage.................................................................................. 10

ARTICLE V. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES................................................................. 10

         5.1 Conditions Precedent to Purchaser's Obligations to Purchase.................................................. 10

         5.2 Conditions to Phage's Obligations............................................................................ 11

ARTICLE VI AFFIRMATIVE COVENANTS.......................................................................................... 11

         6.1 Information.................................................................................................. 11

         6.2 Payment of Obligations....................................................................................... 11

         6.3 Maintenance of Existence..................................................................................... 12

         6.4 Compliance with Laws......................................................................................... 12

         6.5 Inspection of Property, Books and Records.................................................................... 12

         6.6 Investment Company Act....................................................................................... 12

         6.7 Use of Proceeds.............................................................................................. 12

         6.8 Compliance with Terms and Conditions of Material Contracts................................................... 12

         6.9 Reserved Shares and Listings................................................................................. 12

         6.10 Transfer Agent Instructions................................................................................. 13

<PAGE>

         6.11 Maintenance of Reporting Status; Supplemental Information................................................... 13

         6.12 Form D; Blue Sky Laws....................................................................................... 13

         6.13 Election of Directors....................................................................................... 13

         6.14 Sales by the Purchasers..................................................................................... 13

         6.15 Unit Offering............................................................................................... 13

         6.16 Form 10SB-12g............................................................................................... 13

ARTICLE VII. RESTRICTIVE LEGENDS.......................................................................................... 13

         7.1 Restrictions on Transfer..................................................................................... 13

         7.2 Notice of Proposed Transfers................................................................................. 14

ARTICLE VIII. ADDITIONAL AGREEMENTS AMONG THE PARTIES..................................................................... 14

         8.1 Registration Rights.......................................................................................... 14

         8.2 Due Diligence Expenses....................................................................................... 14

ARTICLE IX. PURCHASERS' RIGHT OF FIRST REFUSAL............................................................................ 14

         9.1  Right of First Refusal...................................................................................... 14

ARTICLE X. MISCELLANEOUS.................................................................................................. 15

         10.1 Notices..................................................................................................... 15

         10.2 No Waivers; Amendments...................................................................................... 15

         10.3 Indemnification............................................................................................. 16

         10.4 Expenses.................................................................................................... 17

         10.5 Payment..................................................................................................... 17

         10.6 Successors and Assigns...................................................................................... 17

         10.7 Florida Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Agent......................... 17

         10.8 Entire Agreement............................................................................................ 18

         10.9 Survival; Severability...................................................................................... 18

         10.10 Title and Subtitles........................................................................................ 18

         10.11 Publicity.................................................................................................. 18

</TABLE>

<PAGE>

                                LIST OF SCHEDULES
                                -----------------

Schedule I        List of Purchasers

Schedule 3.3      List of Outstanding Stock Options and Warrants

                                LIST OF EXHIBITS
                                ----------------

Exhibit A         Form of Registration Rights Agreement

Exhibit B         Form of Common Stock Purchase Warrant

<PAGE>

                          SECURITIES PURCHASE AGREEMENT
                          -----------------------------

         AGREEMENT,  dated as of October 23, 2000,  between  Phage  Therapeutics
International Inc. ("Phage") a Florida  Corporation and the persons and entities
listed on  Schedule  I  "Schedule  of  Purchasers"  attached  to this  Agreement
(individually the "Purchaser" collectively the "Purchasers").

                                R E C I T A L S:

         WHEREAS:

     A. Phage desires to sell and issue to the  Purchasers,  and the  Purchasers
desire to purchase from Phage,  2,142,857 units for an aggregate  purchase price
of $1,500,000;

     B. Each "Unit" will consist of one share of Phage's common stock with a par
value of $0.001 per share (the  "Common  Stock") and one Common  Stock  purchase
warrant  (the  "Warrant").  For every one and a half  Warrants  the holder  will
entitle the holder to acquire one additional  share of Commons Stock of Phage at
an exercise price of $0.70 per share;

     C. The  Purchasers  have agreed to invest an  additional  One Million  Five
Hundred Thousand Dollars ($1,500,000) in equity into Phage within seven (7) days
from the date Phage  files a Form  10SB-12g  with the  Securities  and  Exchange
Commission. In consideration of this investment Phage has agreed to issue to the
Purchasers an additional 2,142,857 Units ("Second Investment");

     D. Phage will deliver the Form  10SB-12g to Mr.  Robert Miller at least two
(2) business  days prior to filing the Form  10SB-12g  with the  Securities  and
Exchange Commission; and

     E.  Purchasers will have certain  registration  rights with respect to such
shares of Common Stock  issuable as interest under the Units (the "Unit Shares")
and on exercise of the Warrants (the "Warrant Shares,")( the Unit Shares and the
Warrant  Shares being  collectively  referred to herein as the  "Shares") as set
forth in the  Registration  Rights  Agreement  in the form  attached  hereto  as
Exhibit A;

     NOW,  THEREFORE,  in  consideration  of  the  foregoing  premises  and  the
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

                             ARTICLE I: DEFINITIONS

     1.1  Definitions.  The following terms, as used herein,  have the following
          meanings:

         "Affiliate"  means, with respect to any Person (the "Subject  Person"),
         (i) any  other  Person  (a  "Controlling  Person")  that  directly,  or
         indirectly  through one or more  intermediaries,  Controls  the Subject
         Person or (ii) any other  Person  (other than the  Subject  Person or a
         Consolidated  Subsidiary of the Subject  Person) which is Controlled by
         or is under common Control with a Controlling Person.

         "Agreement"  means this  Securities  Purchase  Agreement,  as  amended,
         supplemented or otherwise modified from time to time in accordance with
         its terms.

<PAGE>

          "Business Day" means any day except a Saturday, Sunday or other day on
          which  commercial  banks  in the City of  Seattle  are  authorized  or
          required by law to close.

          "Closing  Bid Price" will mean for any  security  as of any date,  the
          lowest closing bid price as reported by Bloomberg,  L.P. ("Bloomberg")
          on the  principal  securities  exchange or trading  market  where such
          security is listed or traded or, if the foregoing does not apply,  the
          lowest  closing  bid price of such  security  in the  over-the-counter
          market on the electronic  bulletin board for such security as reported
          by  Bloomberg,  or, if no lowest  trading  price is reported  for such
          security  by  Bloomberg,  then the  average  of the bid  prices of any
          market makers for such  securities as reported in the "Pink Sheets" by
          the National  Quotation  Bureau,  Inc. If the lowest closing bid price
          cannot  be  calculated  for such  security  on such date on any of the
          foregoing bases, the lowest closing bid price of such security on such
          date  will be the fair  market  value as  mutually  determined  by The
          Purchasers  and Phage for which the  calculation  of the  closing  bid
          price requires,  and in the absence of such mutual  determination,  as
          determined by the Board of Directors of Phage in good faith.

          "Commission"  means the  Securities  and  Exchange  Commission  or any
          entity succeeding to all of its material functions.

          "Common Stock" means the common stock,  $0.001 par value per share, of
          Phage.

          "Company  Corporate  Documents" means the articles of organization and
          bylaws of Phage.

          "Consolidated Subsidiary" means at any date with respect to any Person
          or Subsidiary,  any Person the accounts of which would be consolidated
          with those of such Person or Subsidiary in its consolidated  financial
          statements if such statements were prepared as of such date.

          "Control"   (including,   with   correlative   meanings,   the   terms
          "Controlling,"  "Controlled by" and under "common  Control with"),  as
          used with  respect to any Person,  means the  possession,  directly or
          indirectly,  of the  power to direct  or cause  the  direction  of the
          management and policies of that Person,  whether through the ownership
          of voting securities, by contract or otherwise.

          "Debt" of any Person means at any date, without  duplication,  (i) all
          obligations of such Person for borrowed money, (ii) all obligations of
          such Person  evidenced by bonds,  debentures,  notes, or other similar
          instruments  issued  by such  Person,  (iii) all  obligations  of such
          Person as lessee which (y) are  capitalized in accordance with GAAP or
          (z)  arise   pursuant  to   sale-leaseback   transactions,   (iv)  all
          reimbursement  obligations  of such  Person in  respect  of letters of
          credit or other similar instruments, (v) all Debt of others secured by
          a Lien on any  asset  of such  Person,  whether  or not  such  Debt is
          otherwise  an  obligation  of such  Person and (vi) all Debt of others
          Guaranteed by such Person.

          "Default" means any event or condition  which  constitutes an Event of
          Default  or which  with the  giving of notice or lapse of time or both
          would, unless cured or waived, become an Event of Default.

          "Directors"  means  the  individuals  then  serving  on the  Board  of
          Directors or similar such management council of Phage.

<PAGE>

          "Environmental  Laws"  means  any and all  federal,  state,  local and
          foreign statutes,  laws,  regulations,  ordinances,  rules, judgments,
          orders, decrees, permits, concessions,  grants, franchises,  licenses,
          agreements  or  other  governmental   restrictions   relating  to  the
          environment  or to emissions,  discharges  or releases of  pollutants,
          contaminants,   petroleum   or   petroleum   products,   chemicals  or
          industrial,   toxic  or  hazardous   substances  or  wastes  into  the
          environment,  including,  without  limitation,  ambient  air,  surface
          water,   ground  water,   or  land,  or  otherwise   relating  to  the
          manufacture,   processing,   distribution,  use,  treatment,  storage,
          disposal, transport or handling of pollutants, contaminants, petroleum
          or petroleum  products,  chemicals or  industrial,  toxic or hazardous
          substances or wastes or the cleanup or other remediation.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "GAAP" has the meaning set forth in Section 1.2.

          "Initial  Closing  Date"  means  the  date  of  this  Agreement  or as
          otherwise agreed to by the parties.

          "Intellectual Property" has the meaning set forth in Section 3.17.

          "Lien" means any lien,  mechanic's lien,  materialmen's  lien,  lease,
          easement, charge, encumbrance,  mortgage,  conditional sale agreement,
          title retention agreement, agreement to sell or convey, option, claim,
          title  imperfection,  encroachment  or other  survey  defect,  pledge,
          restriction, security interest or other adverse claim, whether arising
          by contract or under law or otherwise (including,  without limitation,
          any financing lease having  substantially  the same economic effect as
          any of the foregoing,  and the filing of any financing statement under
          the Uniform  Commercial Code or comparable law of any  jurisdiction in
          respect of any of the foregoing).

          "Listing Applications" has the meaning set forth in Section 3.4.

          "Nasdaq  Market"  means the  Nasdaq  Stock  Market's  National  Market
          System.

          "National  Market"  means the  Nasdaq  Market,  the  Nasdaq  Small Cap
          Market,  the New York  Stock  Exchange,  Inc.  or the  American  Stock
          Exchange, Inc.

          "Notice of  Exercise"  means the form to be delivered by a holder of a
          Warrant on exercise of all or a portion to Phage  substantially in the
          form of Exhibit A to the Warrant.

          "OTC  Bulletin  Board"  means  the  over-the-counter   bulletin  board
          operated by the NASD.

          "Permits" means all domestic and foreign licenses, franchises, grants,
          authorizations,  permits, easements, variances,  exemptions, consents,
          certificates, orders and approvals necessary to own, lease and operate
          the  properties  of,  and to carry on the  business  of Phage  and its
          Subsidiary.

<PAGE>

          "Person"  means  an  individual,   corporation,   partnership,  trust,
          incorporated or unincorporated association, joint venture, joint stock
          company,  government (or any agency or political subdivision) or other
          entity of any kind.

          "Phage"  means  Phage  Therapeutics   International  Inc.,  a  Florida
          corporation, and its successors.

          "Purchase Price" means the purchase price for the Securities set forth
          in Section 2.2 of this Agreement.

          "Purchasers"  means the  persons  and  entities  listed on  Schedule I
          "Schedule of Purchasers" attached to this Agreement.

          "Registrable Securities" has the meaning set forth in Section 8.1.

          "Registration  Rights Agreement" means the agreement between Phage and
          The Purchasers  dated the date of this Agreement  substantially in the
          form set forth in Exhibit A attached hereto.

          "Reserved Amount" has the meaning set forth in Section 6.9(a).

          "Second  Closing Date" means the seventh  (7th)  Business Day from the
          date Phage files a Form 10SB-12g with the Commission.

          "Securities" means the Units, the Warrants and, the Shares.

          "Securities Act" means the Securities Act of 1933, as amended.

          "Shares" has the meaning set forth in the Recitals.

          "Subsidiary"   means,   Phage   Therapeutics,   Inc.,   a   Washington
          corporation, and its successors.

          "Subsidiary   Corporate   Documents"   means   the   certificates   of
          incorporation and bylaws of Phage's Subsidiary.

          "Transaction  Agreements"  means  this  Agreement,  the  Warrants  and
          Warrant Agreement, and the Registration Rights Agreement.

<PAGE>

          "Transfer"  means any  disposition  of Securities  whether or not such
          disposition would constitute a sale under the Securities Act.

          "Warrant" means the Common Stock Purchase Warrant substantially in the
          form set forth in Exhibit B hereto.

     1.2 Accounting Terms and Determinations. Unless otherwise specified herein,
all  accounting   terms  used  herein  will  be   interpreted,   all  accounting
determinations  hereunder will be made, and all financial statements required to
be delivered  hereunder will be prepared,  in accordance with generally accepted
accounting  principles  as in effect from time to time,  applied on a consistent
basis with Phage's prior practice (except for interim  financial  statements and
for changes concurred in by Phage's  independent public  accountants)  ("GAAP").
All  references  to  "dollars,"  "Dollars" or "$" are to United  States  dollars
unless otherwise indicated.

                   ARTICLE II. PURCHASE AND SALE OF SECURITIES

         2.1 Purchase and Sale of Units. Subject to the satisfaction (or waiver)
of the terms and conditions of this Agreement,  each Purchaser agrees, severally
and not  jointly,  to  purchase  and  Phage  agrees  to sell  and  issue to each
Purchaser, severally and not jointly:

(1)               at the Initial Closing,  Units in amounts  corresponding  with
                  the subscription amount set out opposite each Purchaser's name
                  on  Schedule  I  attached  to this  Agreement.  The  aggregate
                  principal  amount of all  Units  being  issued at the  Initial
                  Closing pursuant to this Agreement is One Million Five Hundred
                  Thousand Dollars ($1,500,000); and

(2)               at the Second Closing,  Units in the amount corresponding with
                  the subscription amount set out opposite each Purchaser's name
                  on  Schedule  I  attached  to this  Agreement.  The  aggregate
                  principal  amount of all  Units  being  issued  at the  Second
                  Closing pursuant to this Agreement is One Million Five Hundred
                  Thousand Dollars ($1,500,000).

     2.2 Closing and Mechanics of Payment.

         (a)       The Purchase  Price will be paid on each  respective  Closing
                   date by wire transfer of immediately  available funds.  Phage
                   acknowledges having received the funds due in connection with
                   the Initial Closing under this Agreement.

2)                Phage will issue the  underlying  Shares and Warrants  forming
                  the Units  within  five  business  days of the  receipt of the
                  requisite funds on each respective Closing date.

<PAGE>

                   ARTICLE III. REPRESENTATIONS AND WARRANTIES

         Phage  represents  and  warrants to the  Purchasers,  as of October 23,
2000, the following:

     3.1  Organization  and  Qualification.  Phage  and  each  Subsidiary  is  a
corporation (or other legal entity) duly organized, validly existing and in good
standing under the laws of its  jurisdiction of  incorporation,  with full power
and authority to own, lease,  use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted.  Phage is
qualified to conduct  business as a foreign  corporation and is in good standing
in every  jurisdiction in which the nature of the business conducted by it makes
such  qualification  necessary,  except  where  such  failure  would  not have a
Material Adverse Effect. A "Material  Adverse Effect" means any material adverse
effect on the operations, results of operations, properties, assets or condition
(financial or otherwise) of Phage and its  Subsidiary,  taken as a whole,  or on
the  transactions  contemplated  under this  Agreement or by the  agreements  or
instruments to be entered into in connection with this Agreement.

     3.2 Authorization and Execution.

         (a)       Phage has all  requisite  corporate  power and  authority  to
                   enter into and  perform  each  Transaction  Agreement  and to
                   consummate the transactions contemplated under this Agreement
                   and to issue the  Securities in accordance  with the terms of
                   this Agreement.

         (b)       The  execution,  delivery  and  performance  by Phage of each
                   Transaction  Agreement  and  the  issuance  by  Phage  of the
                   Securities have been duly and validly authorized by the Board
                   of Directors of Phage and no further consent or authorization
                   of  Phage,  its Board of  Directors  or its  shareholders  is
                   required.

         (c)      This Agreement has been duly executed and delivered by Phage.

         (d)       This Agreement constitutes,  and on execution and delivery by
                   Phage, each of the Transaction Agreements will constitute,  a
                   valid  and  binding   agreement   of  Phage,   in  each  case
                   enforceable  against Phage in accordance  with its respective
                   terms subject to:

               (i)  applicable bankruptcy,  insolvency or similar laws affecting
                    the enforceability of creditors rights generally; and

               (ii) equitable principals of general applicability.

<PAGE>

     3.3  Capitalization.  The  authorized  capital  stock of Phage  consists of
50,000,000  shares of common  stock with a par value of $0.001 per share.  As of
October  23,  2000,  Phage  had  8,566,873  shares of common  stock  issued  and
outstanding. All of such outstanding shares of capital stock are validly issued,
fully paid and nonassessable. No shares of capital stock of Phage are subject to
preemptive rights or similar rights of the shareholders of Phage or any liens or
encumbrances  imposed through the actions or failure to act of Phage. Other than
as set forth on Schedule 3.3 hereto, as of the date of this Agreement, (i) there
are no  outstanding  options,  warrants,  scrip,  rights to subscribe for, puts,
calls,  rights of first  refusal,  agreements,  understandings,  claims or other
commitments or rights of any character  whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of Phage
or its  Subsidiary,  or  arrangements by which Phage or its Subsidiary is or may
become  bound  to  issue  additional  shares  of  capital  stock of Phage or its
Subsidiary,  and (ii) there are no agreements or arrangements  under which Phage
or its  Subsidiary  are  obligated  to register  the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration  Rights
Agreement) and (iii) there are no anti-dilution  or price adjustment  provisions
contained in any security issued by Phage (or in any agreement  providing rights
to security  holders)  that will be  triggered  by the  issuance of the Units or
Shares. Phage has furnished to the Purchasers true and correct copies of Phage's
Corporate  Documents,  and  the  terms  of all  securities  convertible  into or
exercisable for Common Stock.

         3.4 Governmental Authorization.  The execution and delivery by Phage of
the Transaction Agreements does not and will not, the issuance and sale by Phage
of  the  Securities  does  not  and  will  not,  and  the  consummation  of  the
transactions  contemplated  under this  Agreement  and by the other  Transaction
Agreements will not, require any action by or in respect of, or filing with, any
governmental body, agency or governmental official except:

     (a)  such actions or filings that have been undertaken or made prior to the
          date of this  Agreement  and that will be in full force and effect (or
          as to which all applicable  waiting periods have expired) on and as of
          the date of this Agreement or which are not required to be filed on or
          prior to the Initial Closing Date;

     (b)  such actions or filings that,  if not obtained,  would not result in a
          Material Adverse Effect;

     (c)  listing  applications  ("Listing  Applications")  to be filed with the
          Pink Sheets or the OTC Bulletin Board or the National  Market relating
          to the Shares, if applicable; and

     (d)  the filing of a "Form D" as  described  in Section  6.12 below and the
          filing of any requisite  documents under state securities ("Blue Sky")
          laws.

     3.5 Issuance of Shares.  On issuance of the Unit Shares and exercise of the
Warrants, the Shares will be duly and validly issued and outstanding, fully paid
and  nonassessable,  free and  clear of any Liens  and  charges  and will not be
subject to  preemptive  rights or similar  rights of any other  shareholders  of
Phage.  Assuming the representations and warranties of the Purchasers herein are
true and correct in all material respects, each of the Securities will have been
issued  in  material  compliance  with all  applicable  U.S.  federal  and state
securities laws. Phage  understands and acknowledges that the issuance of Shares
will  dilute the  ownership  interests  of other  shareholders  of Phage.  Phage
further  acknowledges  that its  obligation to issue Shares as part of the Units
and  exercise of the Warrants is absolute and  unconditional  regardless  of the
dilutive effect that such issuance may have on the ownership  interests of other
shareholders of Phage.

     3.6 No Conflicts.  The  execution and delivery by Phage of the  Transaction
Agreements to which it is a party did not and will not, the issuance and sale by
Phage  of the  Securities  did not and  will  not  and the  consummation  of the
transactions  contemplated  under this  Agreement  and by the other  Transaction
Agreements will not, contravene or constitute a default under or violation of:

     (a)  any  provision of applicable  law or  regulation  known by Phage to be
          applicable to it;

     (b)  Phage Corporate Documents;

<PAGE>

     (c)  any material agreement,  judgment,  injunction, order, decree or other
          instrument  binding  on  Phage  or any  Subsidiary  or  any  of  their
          respective  assets,  or result in the  creation or  imposition  of any
          material Lien on any asset of Phage or any Subsidiary.

To its knowledge,  Phage and each  Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations,  orders, restrictions and
all other  legal  requirements  of any  domestic  or foreign  government  or any
instrumentality  having  jurisdiction  over the conduct of its businesses or the
ownership of its properties, except where such failure would not have a Material
Adverse Effect.

     3.7 Financial  Information.  Since June 30, 2000 (the "Balance Sheet Date")
there has been (x) no material  adverse change in the assets or liabilities,  or
in the  business or  condition,  financial  or  otherwise,  or in the results of
operations or prospects,  of Phage and its Subsidiary taken as a whole,  whether
as a result of any legislative or regulatory  change,  revocation of any license
or rights to do business,  fire, explosion,  accident,  casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no  material,  adverse  change in the assets or  liabilities,  or in the
business or condition,  financial or otherwise,  or in the results of operations
or  prospects,  of Phage and its  Subsidiary  except in the  ordinary  course of
business;  and to the knowledge of Phage no fact or condition exists which might
cause such a change in the future. The unaudited  consolidated balance sheets of
Phage and its Subsidiary for the periods ending  December 31, 1999, and June 30,
2000, respectively, and the related unaudited consolidated statements of income,
changes in  shareholders'  equity and changes in cash flows for the periods then
ended,  including  the  footnotes  thereto,  except as  indicated  therein,  (i)
complied in all material  respects with applicable  accounting  requirements and
(ii) have been prepared in accordance with GAAP consistently  applied throughout
the periods  indicated,  except that the unaudited  financial  statements do not
contain notes and may be subject to normal audit  adjustments  and normal annual
adjustments. Such financial statements fairly present the financial condition of
Phage and its Subsidiary at the dates indicated and the consolidated  results of
their  operations  and cash flows for the  periods  then  ended  and,  except as
indicated  therein,  reflect all claims against and all Debts and liabilities of
Phage and its Subsidiary,  fixed or contingency required to be reflected therein
in accordance with GAAP.

     3.8 Litigation.  There is no action,  suit or proceeding pending or, to the
knowledge of Phage, threatened against Phage or any Subsidiary, before any court
or arbitrator or any governmental  body,  agency or official in which there is a
reasonable possibility of an adverse decision which could be reasonably expected
to have a  Material  Adverse  Effect or which  challenges  the  validity  of any
Transaction Agreements.

     3.9  Employees.  Neither Phage nor its  Subsidiary is involved in any labor
dispute nor, to the  knowledge of Phage or its  Subsidiary,  is any such dispute
threatened.  None of Phage's or its Subsidiary' employees is a member of a union
and Phage and its Subsidiary  believe that their  relations with their employees
are good.  Phage  does not have any  employee  benefit  plan as  defined  by the
Employee Retirement Income Security Act of 1974, as amended.

     3.10  Environmental   Matters.   Phage  and  its  Subsidiary  conducts  its
businesses  in  compliance  in  all  material   respects  with  all   applicable
Environmental Laws.

         3.11 Taxes.  All United States federal,  state,  county,  municipality,
local  or  foreign  income  tax  returns  and all  other  material  tax  returns
(including  foreign tax returns)  which are required to be filed by or on behalf
of Phage and each  Subsidiary  have been or will be filed and all material taxes
due and payable pursuant to such returns or pursuant to any assessment  received
by Phage  and each  Subsidiary  have  been or will be paid  except  those  being
disputed in good faith and for which  adequate  reserves have been  established.
The charges,  accruals and reserves on the books of Phage and each Subsidiary in
respect  of taxes and  other  governmental  charges  have  been  established  in
accordance with GAAP.

<PAGE>

     3.12 Not an  Investment  Company.  Neither  Phage nor any  Subsidiary is an
"Investment  Company"  within the meaning of Investment  Company Act of 1940, as
amended.

     3.13 Full Disclosure.  The information heretofore furnished by Phage to the
Purchasers  for  purposes  of  or in  connection  with  this  Agreement  or  any
transaction contemplated by this Agreement does not contain any untrue statement
of a material fact.

     3.14 No  Solicitation;  No  Integration  with Other  Offerings.  No form of
general  solicitation  or  general  advertising  was  used by Phage  or,  to its
knowledge,  any other Person acting on behalf of Phage,  in connection  with the
offer and sale of the  Securities.  Neither Phage,  nor, to its  knowledge,  any
Person acting on behalf of Phage,  has, either  directly or indirectly,  sold or
offered for sale to any Person (other than the Purchasers) any of the Securities
or, within the six months prior to the date of this Agreement, any other similar
security of Phage except as contemplated by this Agreement, and Phage represents
that neither itself nor any Person  authorized to act on its behalf (except that
Phage makes no  representation  as to the Purchasers and their  Affiliates) will
sell or offer for sale any such  security  to, or solicit  any offers to buy any
such  security  from, or otherwise  approach or negotiate in respect  with,  any
Person or  Persons so as  thereby  to cause the  issuance  or sale of any of the
Securities  to be in  violation  of any of the  provisions  of  section 5 of the
Securities  Act. The issuance of the  Securities to the  Purchasers  will not be
integrated  with any other  issuance  of Phage's  securities  (past,  current or
future).

     3.15  Permits.  To the best of  Phage's  knowledge,  Phage  and each of its
Subsidiary  has, or is in the process of  obtaining,  all  franchises,  permits,
licenses and any similar authority  necessary for the conduct of its business as
now being  conducted  by it, the lack of which could  materially  and  adversely
affect its  business,  properties  or  financial  condition  and believes it can
obtain,  without undue burden or expense,  any similar authority for the conduct
of its business as planned to be conducted.  Neither Phage nor any Subsidiary is
in  default  in any  material  respect  under any of such  franchises,  permits,
licenses or other similar authority.

     3.16 Title.  Phage does not own any real  property.  Any real  property and
facilities  held under lease by Phage and its  Subsidiary are held by them under
valid,  subsisting  and  enforceable  leases  with  such  exceptions  as are not
material and do not interfere  with the use made and proposed to be made of such
property and buildings by Phage and its Subsidiary.

     3.17 Intellectual  Property Rights.  Each of Phage and its Subsidiary owns,
or is licensed  under,  and has the rights to use, all material to the knowledge
of Phage, patents, trademarks, trade names, copyrights, technology, know-how and
processes (collectively,  "Intellectual Property") used in, or necessary for the
conduct of its  business;  no claims have been asserted by any Person to the use
of any such Intellectual  Property or challenging or questioning the validity or
effectiveness of any license or agreement  related  thereto.  To Phage's and its
Subsidiary' knowledge, there is no valid basis for any such claim and the use of
such Intellectual  Property by Phage and its Subsidiary will not infringe on the
rights of any Person.

     3.18  Internal  Accounting  Controls.  Phage  and  each  of its  Subsidiary
maintain a system of internal accounting controls sufficient, in the judgment of
Phage's Board of Directors, to provide reasonable assurance that:

     (1)  transactions are executed in accordance with  managements'  general or
          specific authorizations;

     (2)  transactions  are  recorded  as  necessary  to permit  preparation  of
          financial  statements  in conformity  with GAAP and to maintain  asset
          accountability;

     (3)  access to assets is permitted  only in  accordance  with  management's
          general or specific authorization; and

<PAGE>

     (4)  the recorded  accountability  for assets is compared with the existing
          assets at reasonable  intervals and  appropriate  action is taken with
          respect to any differences.

          ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

         Each  Purchaser  represents  and  warrants,  severally and not jointly,
that:

         4.1 Investment  Purpose.  Each Purchaser is acquiring the Units and the
underlying  Warrants and Shares, for its own account for investment only and not
with a view  towards,  or for resale in  connection  with,  the  public  sale or
distribution thereof,  except pursuant to sales registered or exempted under the
1933 Act; provided,  however,  that by making the  representations  herein, such
Purchaser reserves the right to dispose of Shares at any time in accordance with
or pursuant to an effective  registration  statement  covering such Shares or an
available exemption under the 1933 Act.

     4.2  Accredited   Purchaser  Status.   Each  Purchaser  is  an  "accredited
Purchaser" as that term is defined in Rule 501(a)(3) of Regulation D.

         4.3 Reliance on Exemptions.  Each Purchaser  understands that the Units
and the  underlying  Warrants  and  Shares are being  offered  and sold to it in
reliance on specific  exemptions  from the  registration  requirements of United
States Federal and state  securities laws and that Phage is relying in part upon
the  truth  and  accuracy  of,  and  such   Purchaser's   compliance  with,  the
representations,  warranties, agreements,  acknowledgments and understandings of
such Purchaser set forth herein in order to determine the  availability  of such
exemptions and the eligibility of such Purchaser to acquire such securities.

         4.4  Information.  Such  Purchaser  and its  advisors  (and his or, its
counsel),  if any,  have  been  furnished  with all  materials  relating  to the
business, finances and operations of Phage and information he deemed material to
making an informed  investment  decision regarding his purchase of the Units and
the underlying Warrants and Shares, which have been requested by such Purchaser.
Such Purchaser and its advisors,  if any, have been afforded the  opportunity to
ask questions of Phage and its management.  Neither such inquiries nor any other
due diligence  investigations  conducted by such  Purchaser or its advisors,  if
any, or its representatives shall modify, amend or affect such Purchaser's right
to rely on Phage's  representations and warranties  contained in this Agreement.
Such Purchaser  understands  that its investment in the Units and the underlying
Warrants and Shares  involves a high degree of risk.  Purchaser is in a position
regarding Phage,  which, based upon employment,  family relationship or economic
bargaining power, enabled and enables Purchaser to obtain information from Phage
in order to evaluate the merits and risks of this investment. Such Purchaser has
sought such accounting,  legal and tax advice, as it has considered necessary to
make an informed  investment  decision  with respect to its  acquisition  of the
Units and the underlying Warrants and Shares.

     4.5 No  Governmental  Review.  Such  Purchaser  understands  that no United
States Federal or state agency or any other  government or  governmental  agency
has  passed on or made any  recommendation  or  endorsement  of the Units or the
underlying Warrants and Shares, or the fairness or suitability of the investment
in the Units or the underlying  Warrants and Shares,  nor have such  authorities
passed  upon  or  endorsed  the  merits  of the  offering  of the  Units  or the
underlying Warrants and Shares.

     4.6 Transfer or Resale. Such Purchaser  understands that except as provided
in the Registration Rights
Agreement:

<PAGE>

         (a)       the Units and the  underlying  Warrants  and Shares  have not
                   been and are not being  registered  under the 1933 Act or any
                   state securities laws, and may not be offered for sale, sold,
                   assigned or transferred unless:

                  (i)      subsequently registered there under; or

                  (ii)      such  Purchaser  shall  have  delivered  to Phage an
                            opinion of counsel, in a generally  acceptable form,
                            to the  effect  that  such  securities  to be  sold,
                            assigned  or  transferred  may be sold,  assigned or
                            transferred  pursuant  to  an  exemption  from  such
                            registration requirements;

         (b)       any  sale of such  securities  made in  reliance  on Rule 144
                   under the 1933 Act (or a successor rule thereto) ("Rule 144")
                   may be made only in accordance with the terms of Rule 144 and
                   further,  if Rule 144 is not  applicable,  any resale of such
                   securities  under  circumstances  in which the seller (or the
                   person  through whom the sale is made) may be deemed to be an
                   underwriter  (as that  term is  defined  in the 1933 Act) may
                   require  compliance  with some other exemption under the 1933
                   Act or the rules and regulations of the SEC there under; and

         (c)       neither Phage nor any other person is under any obligation to
                   register  such  securities  under  the 1933 Act or any  state
                   securities laws or to comply with the terms and conditions of
                   any exemption there under.  Phage reserves the right to place
                   stop   transfer   instructions   against   the   shares   and
                   certificates for the Warrants and Shares.

         4.7 Legends.  Such Purchaser understands that the certificates or other
instruments  representing the stock  certificates  representing the Warrants and
Shares shall bear a restrictive  legend in substantially the following form (and
a  stop  transfer   order  may  be  placed   against   transfer  of  such  stock
certificates):

          THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
          STATE  SECURITIES  LAWS. THE SECURITIES  HAVE BEEN ACQUIRED SOLELY FOR
          INVESTMENT  PURPOSES AND NOT WITH A VIEW TOWARD  RESALE AND MAY NOT BE
          OFFERED FOR SALE,  SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
          EFFECTIVE   REGISTRATION   STATEMENT  FOR  THE  SECURITIES  UNDER  THE
          SECURITIES  ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE  SECURITIES
          LAWS, OR AN OPINION OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT
          REGISTRATION  IS NOT  REQUIRED  UNDER  SAID  ACT OR  APPLICABLE  STATE
          SECURITIES LAWS.

         The legend set forth  above  shall be removed  and Phage  shall issue a
         certificate  without such legend to the holder of the Shares upon which
         it is stamped, if, unless otherwise required by state securities laws:

          (a)  in connection  with a sale  transaction,  provided the Shares are
               registered under the 1933 Act; or

          (b)  in connection with a sale transaction, such holder provides Phage
               with an opinion of counsel,  in form  acceptable to Phage and its
               counsel, to the effect that a public sale, assignment or transfer
               of the Shares  may be made  without  registration  under the 1933
               Act.

<PAGE>

     4.8  Authorization,  Enforcement.  This Agreement has been duly and validly
authorized,  executed and  delivered on behalf of such  Purchaser and is a valid
and binding  agreement of such  Purchaser  enforceable  in  accordance  with its
terms,  except as such  enforceability  may be limited by general  principles of
equity and to applicable  bankruptcy,  insolvency,  reorganization,  moratorium,
liquidation  and other  similar laws  relating to, or affecting  generally,  the
enforcement of applicable creditors' rights and remedies.

     4.9  Receipt  of  Documents.  Such  Purchaser  and his or its  counsel  has
received and read in their entirety:

          (a)  this Agreement and each representation, warranty and covenant set
               forth in this Agreement and the Registration Rights Agreement;

          (b)  all due diligence and other  information  necessary to verify the
               accuracy and completeness of such representations, warranties and
               covenants;

          (c)  Phage's  unaudited  financial  statements  for the periods ending
               December 31, 1999 and June 30, 2000; and

          (d)  answers  to  all  questions  the  Purchaser  submitted  to  Phage
               regarding an investment in Phage; and the Purchaser has relied on
               the information  contained therein and has not been furnished any
               other documents, literature, memorandum or prospectus.

         4.10  Due  Formation  of  Corporate  and  Other   Purchasers.   If  the
Purchaser(s) is a corporation, trust, partnership or other entity that is not an
individual  person,  it has been  formed  and  validly  exists  and has not been
organized for the specific purpose of purchasing the Units and is not prohibited
from doing so.

         4.11 Due Authorization of Fiduciary Purchasers.  If the Purchaser(s) is
purchasing the in a fiduciary  capacity for another person or entity,  including
without  limitation a corporation,  partnership,  trust or any other entity, the
Purchaser(s)  has been duly  authorized  and empowered to execute this Agreement
and such other person  fulfills all the  requirements  for purchase of the Units
and  agrees to be bound by the  obligations,  representations,  warranties,  and
covenants contained herein. Upon request of Phage, the Purchaser(s) will provide
true,  complete  and  current  copies of all  relevant  documents  creating  the
Purchasers,   authorizing   its  investment  in  Phage  and/or   evidencing  the
satisfaction of the foregoing.

         4.12 Further Representations by Foreign Purchasers.  If Purchaser(s) is
not a U.S. Person (as defined), such Purchaser represents that such Purchaser(s)
is satisfied as to full observance of the laws of such Purchaser's  jurisdiction
in connection  with any invitation to subscribe for the securities or any use of
this Agreement, including:

          (a)  the legal  requirements of such Purchaser's  jurisdiction for the
               purchase of the securities;

          (b)  any foreign exchange restrictions applicable to such purchase;

          (c)  any  governmental or other consents that may need to be obtained;
               and

<PAGE>

          (d)  the income tax and other tax  consequences,  if any, which may be
               relevant to the purchase, holding,  redemption, sale, or transfer
               of the securities.

Such Purchaser's  subscription  and payment for, and such Purchaser's  continued
beneficial  ownership  of,  the  securities  will  not  violate  any  applicable
securities  or other  laws of such  Purchaser's  jurisdiction.  The  term  "U.S.
Person" as used herein shall mean any person who is a citizen or resident of the
United  States  or  Canada,  or any  state,  territory  or  possession  thereof,
including but not limited to any estate of any such person,  or any corporation,
partnership,  trust or other entity  created or existing under the laws thereof,
or any entity controlled or owned by any of the foregoing.

         4.13 No Legal Advice From Phage. The  Purchaser(s)  acknowledge that it
had the opportunity to review this Agreement and the  transactions  contemplated
by this  Agreement  with his or its own legal  counsel  and  investment  and tax
advisors.  The Purchaser is relying  solely on such counsel and advisors and not
on any statements or representations  of Phage or any of its  representatives or
agents for legal, tax or investment advice with respect to this investment,  the
transactions  contemplated  by  this  Agreement  or the  securities  laws of any
jurisdiction.

            ARTICLE V. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES

         5.1 Conditions  Precedent to Purchaser's  Obligations to Purchase.  The
obligation of the  Purchaser(s)  hereunder to purchase the Initial Units and the
Second Units is subject to the  satisfaction,  on or before the Initial  Closing
Date, of each of the following  conditions,  provided that these  conditions are
for  Purchaser's  sole benefit and may be waived by  Purchaser(s) at any time in
its sole discretion:

          (a)  Phage will have duly executed this Agreement and the Registration
               Rights Agreement, and delivered the same to the Purchaser(s);

          (b)  Phage will  having  agreed to deliver  to the  Purchaser(s)  duly
               executed  certificates   representing  the  Shares  and  Warrants
               underlying  the Units in accordance  with section  2.2(b) of this
               Agreement;

          (c)  The  representations  and  warranties of Phage  contained in each
               Transaction  Agreement  will be true and correct in all  material
               respects as of the date when made and as of the  Initial  Closing
               Date as though made at such time (except for  representations and
               warranties that speak as of a specified date) and Phage will have
               performed, satisfied and complied with all covenants,  agreements
               and  conditions  required by such  Transaction  Agreements  to be
               performed,  satisfied  or complied  with by it at or prior to the
               Initial Closing Date;

          (d)  Phage will have  received all  governmental,  Board of Directors,
               shareholders and third party consents and approvals  necessary or
               desirable  in  connection  with  the  issuance  and  sale  of the
               Securities and the consummation of the transactions  contemplated
               by the Transaction Agreements;

          (e)  Phage will have  authorized  and reserved for issuance the Common
               Shares  issuable  as part of the  Units and the  exercise  of all
               Warrants pursuant to this Agreement.

<PAGE>

          (f)  Phage Corporate Documents and the Subsidiary Corporate Documents,
               if any, will be in full force and effect and no term or condition
               will have been amended,  waived or otherwise modified without the
               prior written consent of the Purchasers;

          (g)  There  will  have  occurred  no  material  adverse  change in the
               business,   condition   (financial  or  otherwise),   operations,
               performance,  properties or prospects of Phage or any  Subsidiary
               since June 30, 2000;

          (h)  There will exist no action,  suit,  investigation,  litigation or
               proceeding  pending  or  threatened  in any court or  before  any
               arbitrator or  governmental  instrumentality  that challenges the
               validity of or purports  to affect  this  Agreement  or any other
               Transaction  Agreement,  or other transaction  contemplated under
               this  Agreement  or that could  reasonably  be expected to have a
               Material  Adverse Effect,  or any material  adverse effect on the
               enforceability of the Transaction Agreements or the Securities or
               the rights of the  holders of the  Securities  or the  Purchasers
               hereunder; and

          (i)  with  regard to the Second  Closing  Date  only,  Phage will have
               provided  the  Purchaser(s)  evidence  that  it has  filed a Form
               10SB-12g with the  Commission  seven (7) days prior to the Second
               Investment.

Subsection  5.1(i) is an  obligation  and  condition  to be met on or before the
Second Closing Date only and is not a condition of the Initial Closing Date.

         5.2  Conditions to Phage's  Obligations.  The  obligations  of Phage to
issue and sell the Securities to the  Purchasers  pursuant to this Agreement are
subject to the  satisfaction,  at or prior to the Initial  Closing  Date, of the
following conditions:

          (a)  The  representations  and warranties of the Purchasers  contained
               herein will be true and correct in all  material  respects on the
               Initial Closing Date and the Purchasers will have performed - and
               complied in all material respects with all agreements required by
               this Agreement to be performed or complied with by the Purchasers
               at or prior to the Initial Closing Date;

          (b)  The  issue  and  sale of the  Securities  by  Phage  will  not be
               prohibited by any  applicable  law,  court order or  governmental
               regulation;

          (c)  Receipt by Phage of duly executed  counterparts of this Agreement
               and the Registration Rights Agreement signed by the Purchasers;

          (d)  Phage will have received payment of the Purchase Price; and

<PAGE>

         (e)       There will exist no action, suit,  investigation,  litigation
                   or proceeding pending or threatened m any court or before any
                   arbitrator or  governmental  instrumentality  that challenges
                   the  validity of or purports to effect this  Agreement or any
                   other   Transaction    Agreement,    or   other   transaction
                   contemplated under this Agreement or that could reasonably be
                   expected to have a Material  Adverse Effect,  or any material
                   adverse  effect  on the  enforceability  of  the  Transaction
                   Agreements,  or the Securities,  or the rights of the holders
                   of the Securities or the Purchasers hereunder.

                        ARTICLE VI AFFIRMATIVE COVENANTS

         Phage and the Purchasers  hereby agree that, from and after the date of
this  Agreement for so long as any  Securities  remain  outstanding  and for the
benefit of each other:

         6.1  Information.  Phage will deliver to each holder of the  Securities
promptly on the mailing to the  shareholders of Phage  generally,  copies of all
financial  statements,  reports  and proxy  statements  so mailed  and any other
document generally distributed to shareholders.

         6.2 Payment of Obligations.  Phage will, and will cause each Subsidiary
to, pay and discharge,  at or before  maturity,  all their  respective  material
obligations,  including,  without limitation, tax liabilities,  except where the
same  may be  contested  in good  faith  by  appropriate  proceedings  and  will
maintain,  in accordance with GAAP,  appropriate reserves for the accrual of any
of the same.

         6.3  Maintenance  of  Existence.   Phage  will,  and  will  cause  each
Subsidiary  to,  continue to engage in business of the same  general type as now
conducted by Phage and such  Subsidiary,  and will  preserve,  renew and keep in
full force and effect its respective  corporate  existence and their  respective
material rights,  privileges and franchises necessary or desirable in the normal
conduct of business.

         6.4 Compliance  with Laws.  Phage will, and will cause each  Subsidiary
to, comply, in all material respects, with all federal, state, municipal,  local
or foreign applicable laws, ordinances,  rules, regulations,  municipal by-laws,
codes and  requirements  of  governmental  authorities  except where  compliance
therewith  is  contested  in good  faith  by  appropriate  proceedings  or where
non-compliance  therewith could not reasonably be expected, in the aggregate, to
have  a  Material  Adverse  Effect  on the  business,  condition  (financial  or
otherwise),  operations,  performance,  properties or prospects of Phage or such
Subsidiary.

         6.5  Inspection of Property,  Books and Records.  Phage will,  and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and  correct  entries  will be made of all  dealings  and  transactions  in
relation to their respective businesses and activities;  and will permit, during
normal business hours,  Purchasers'  representative(s)  or an  affiliate(s),  as
representatives of the Purchasers,  to visit and inspect any of their respective
properties,  on reasonable prior notice,  to examine and make abstracts from any
of their respective  books and records and to discuss their respective  affairs,
finances and accounts with their respective  executive  officers and independent
public  accountants  (and by this provision  Phage  authorizes  its  independent
public  accountants  to disclose  and discuss with the  Purchasers  the affairs,
finances  and  accounts  of  Phage  and  its  Subsidiary  in the  presence  of a
representative  of Phage;  provided,  however,  that such  discussions  will not
result in any unreasonable  expense to Phage,  without Company consent),  all at
such reasonable times.

         6.6  Investment  Company  Act.  Phage will not be or become an open-end
investment trust, unit investment trust or face-amount  certificate company that
is or is required to be registered under section 8 of the Investment Company Act
of 1940, as amended.

<PAGE>

         6.7 Use of  Proceeds.  The  proceeds  from the issuance and sale of the
Units by Phage will be used for general corporate purposes. None of the proceeds
from the issuance and sale of the Units by Phage pursuant to this Agreement will
be used directly or indirectly for the purpose, whether immediate, incidental or
ultimate,  of  purchasing  or carrying any "margin  stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.

         6.8 Compliance with Terms and Conditions of Material  Contracts.  Phage
will, and will cause each Subsidiary to, comply, in all material respects,  with
all terms and conditions of all material contracts to which it is subject except
in  particular  circumstances  in which Phage  determines  it to 'be in the best
interests of Phage not to comply.

         6.9 Reserved Shares and Listings.

          (a)  Phage will at all times have  authorized,  and  reserved  for the
               purpose  of  issuance,  a  sufficient  number of shares of Common
               Stock  to  provide  for the full  exercise  of the  Warrants  and
               issuance  of the  Shares  as  part  of the  Units  in the  Second
               Investment  (the  "Reserved  Amount").  Phage will not reduce the
               Reserved   Amount  without  the  prior  written  consent  of  the
               Purchasers.  If at any time the number of shares of Common  Stock
               authorized  and  reserved  for  issuance  is below the  number of
               Shares issued or issuable on purchaser of the Units in the Second
               Investment and exercise of all Warrants, Phage will promptly take
               all  corporate  action  necessary  to  authorize  and  reserve  a
               sufficient  number  of  shares,  including,  without  limitation,
               calling a special meeting of shareholders to authorize additional
               shares,  in the  case of an  insufficient  number  of  authorized
               shares.

          (b)  If required,  Phage will promptly  file the Listing  Applications
               and secure the listing of the Shares on each national  securities
               exchange or automated  quotation  system, if any, on which shares
               of Common  Stock are then listed  (subject to official  notice of
               issuance)  and will  maintain,  so long as any  other  shares  of
               Common  Stock will be so listed,  such listing of all Shares from
               time to time  issuable  on  purchase  of the Units in the  Second
               Investment and Warrants,  respectively.  Phage will comply in all
               respects  with Phage's  reporting,  filing and other  obligations
               under  the  bylaws  or  rules  of  the  National  Association  of
               Securities  Dealers,  Inc.  (the "NASD") and such  exchanges,  as
               applicable.

         6.10 Transfer Agent  Instructions.  On receipt of a Notice of Exercise,
Phage will  immediately  direct Phage's  transfer  agent to issue  certificates,
registered in the name of  Purchaser(s) or their  nominees,  for the Shares,  in
such amounts as specified from time to time by the Purchasers to Phage on proper
exercise of the Warrants.  On exercise of any Warrants in accordance  with their
terms,  Phage will,  and will use its best lawful  efforts to cause its transfer
agent to, issue one or more certificates  representing shares of Common Stock in
such name or names  and in such  denominations  specified  by a  Purchaser  in a
Notice of  Exercise.  Nothing  in this  Section  6.10  will  affect in any way a
Purchaser's  obligation  to comply  with all  securities  laws  applicable  to a
Purchaser on resale of such shares of Common  Stock,  including  any  prospectus
delivery requirements.

         6.11 Maintenance of Reporting Status;  Supplemental Information.  Phage
agrees to file a Form 10SB-12g with the Commission within sixty (60) days of the
date of this Agreement in order to become a "Reporting Issuer" as defined in the
Exchange  Act. So long as any of the  Securities  are  outstanding  and Phage is
deemed a Reporting  Issuer,  Phage will  timely file all reports  required to be
filed with the  Commission  pursuant to the Exchange Act. If at anytime Phage is
not  subject to the  requirements  of section 13 or 15(d) of the  Exchange  Act,
Phage will promptly furnish at its expense,  on request,  for the benefit of the
holders  from  time  to  time  of  Securities,  and  prospective  purchasers  of
Securities,  information  satisfying the  information  requirements  of Rule 144
under the Securities Act.

<PAGE>

         6.12  Form D;  Blue  Sky  Laws.  Phage  agrees  to file a "Form D" with
respect to the Securities as required  under  Regulation D of the Securities Act
and to provide a copy to the the Purchasers  promptly  after such filing.  Phage
will,  on or before the  Initial  Closing  Date,  take such action as Phage will
reasonably  determine  is necessary  to qualify the  Securities  for sale to the
Purchasers at the Initial Closing  pursuant to this Agreement  under  applicable
securities  or "blue sky" laws of the states of the United  States (or to obtain
an exemption  from such  qualification),  and will provide  evidence of any such
action so taken to the Purchasers on or prior to the Initial Closing Date.

         6.13 Election of Directors.  The Board of Directors of Phage  currently
consist of Messrs. Darren Pylot, Gaetano Morello, and Richard Honour. On Initial
Closing,  the Board of Directors  will appoint a non-Canadian  resident  nominee
selected by the Purchasers to the Board of Directors of Phage.

         6.14 Sales by the  Purchasers.  Each Purchaser  agrees that it will not
effect or cause any of its affiliates to effect a short sale of Common Stock for
so long as any of the Warrants  remain  outstanding  or the  Purchasers or their
affiliates hold any Securities.

         6.15  Unit  Offering.  Subject  to the  satisfaction  of the  terms and
conditions of this  Agreement,  the  Purchasers  irrevocably  agree to invest an
additional One Million Five Hundred Thousand Dollars ($1,500,000) in equity into
Phage within seven (7) days from the date Phage files a Form  10SB-12g  with the
Commission. Phage in consideration of this investment has agreed to issue to the
Purchasers  2,142,857 units on receipt of these funds.  Each "Initial Unit" will
consist of one share of Phage Common Stock and one common stock purchase warrant
(the "Series One Warrant"). For every one and a half Warrants the holder will be
entitled to acquire one additional share of common stock of Phage at an exercise
price of $0.70 per share.  These  Warrants will be exercisable at any time on or
before  September  15, 2001 and their  right of exercise  will be subject to the
Purchasers having fully exercised the Warrants received at the Initial Closing.

         6.16 Form 10SB-12g.  Phage will deliver the Form 10SB-12g to Mr. Robert
Miller at least two (2) business days prior to filing the Form 10SB-12g with the
Securities and Exchange Commission.

                        ARTICLE VII. RESTRICTIVE LEGENDS

         7.1 Restrictions on Transfer.  From and after their respective dates of
issuance,  none of the Securities will be transferable  except on the conditions
specified in this Article VII and in Subsection 4(1)g concerning Legends,  which
conditions  are  intended  to  ensure  compliance  with  the  provisions  of the
Securities  Act in  respect of the  Transfer  of any of such  Securities  or any
interest  therein.  The  Purchasers  will cause any proposed  transferee  of any
Securities held by it to agree to take and hold such  Securities  subject to the
provisions and on the conditions specified in this Article VII.

         7.2 Notice of Proposed Transfers. Prior to any proposed Transfer of the
Securities  the  holder  will  give  written  notice  to Phage of such  holder's
intention to effect such Transfer, setting forth the manner and circumstances of
the proposed Transfer, which will be accompanied by:

          (a)  an opinion of counsel reasonably acceptable to Phage,  confirming
               that  such  transfer  does not give  rise to a  violation  of the
               Securities Act;

          (b)  representation   letters   in  form  and   substance   reasonably
               satisfactory to Phage to ensure compliance with the provisions of
               the Securities Act; and

<PAGE>

         (c)       letters  in form and  substance  reasonably  satisfactory  to
                   Phage from each such  transferee  stating  such  transferee's
                   agreement to be bound by the terms of this  Agreement and the
                   Registration Rights Agreement.

Such  proposed  Transfer may be effected  only if Phage will have  received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately  preceding  sentence,  whereon the holder of such
Securities  will be entitled to Transfer such  Securities in accordance with the
terms of the notice delivered by the holder to Phage.

              ARTICLE VIII. ADDITIONAL AGREEMENTS AMONG THE PARTIES

     8.1  Registration  Rights.  Phage  will grant the  Purchasers  registration
rights  covering the Shares  (the:  "Registrable  Securities")  on the terms set
forth in the Registration Rights Agreement and this Agreement.

     8.2 Due Diligence Expenses. Phage agrees to offset the expenses incurred by
the Purchasers in conducting  their due diligence of Phage and its subsidiary by
payment of the sum of twenty five thousand dollars  ($25,000) as directed by Mr.
Robert Miller as agent for the Purchasers.

                 ARTICLE IX. PURCHASERS' RIGHT OF FIRST REFUSAL

     9.1 Right of First Refusal. Phage hereby grants to each Purchaser the right
of first  refusal to  purchase  its pro rata share of all or any part of any New
Securities  (as defined in this Section 9.1) which Phage may, from time to time,
propose to sell and issue.  A Purchaser's  pro rata share,  for purposes of this
right of first  refusal,  is the ratio  that the sum of the  Units  held by such
Purchaser  to the sum of the total  number of Units as set out  opposite of each
Purchaser's name on Schedule I attached to this Agreement.

          (a)  Except as set out below, "New Securities" will mean any shares of
               capital  stock of Phage  including  Common  Stock and  Preferred,
               whether now authorized or not, and rights, options or warrants to
               purchase said shares of Common Stock or Preferred, and securities
               of any type whatsoever that are, or may become,  convertible into
               said shares of Common  Stock or  Preferred.  Notwithstanding  the
               foregoing,  "New  Securities" does not include (i) the Shares and
               the  Conversion  Stock,  (ii)  securities  offered  to the public
               generally  pursuant to a  registration  statement  or pursuant to
               Regulation A under the Securities Act, (iii) securities issued in
               the  acquisition  of  another  corporation  by Phage  by  merger,
               purchase   of   substantially   all  of  the   assets   or  other
               reorganization  whereby  Phage or its  shareholders  own not less
               than fifty-one percent (51%) of the voting power of the surviving
               or successor corporation,  (iv) shares of Phage's Common Stock or
               related  options  exercisable  for such  Common  Stock  issued to
               employees, officers and directors of, and consultants, customers,
               and vendors to, Phage,  pursuant to any  arrangement  approved by
               the Board of Directors of Phage, (v) stock issued pursuant to any
               rights or agreements,  including without  limitation  convertible
               securities,  options and  warrants,  provided  that the rights of
               first refusal  established by this Section 9.1 apply with respect
               to the  initial  sale  or  grant  by  Phage  of  such  rights  or
               agreements, (vi) stock issued in connection with any stock split,
               stock dividend or recapitalization by Phage.

<PAGE>

          (b)  In the event  Phage  proposes  to  undertake  an  issuance of New
               Securities,  it will give each  Purchaser  written  notice of its
               intention,  describing the type of New Securities,  and the price
               and terms  upon  which  Phage  proposes  to issue the same.  Each
               Purchaser will have ten (10) days from the date of receipt of any
               such notice to agree to purchase up to the Purchaser's respective
               pro rata share of such New  Securities for the price and upon the
               terms  specified in the notice by giving  written notice to Phage
               and  stating  therein  the  quantity  of  New  Securities  to  be
               purchased.

          (c)  In the event a Purchaser  fails to  exercise  such right of first
               refusal  within said ten (10) day period,  Phage will have ninety
               (90) days thereafter to sell or enter into an agreement (pursuant
               to  which  the sale of New  Securities  covered  thereby  will be
               closed,  if at all,  within sixty (60) days from the date of said
               agreement) to sell the New Securities not elected to be purchased
               by Purchasers  at the price and upon the terms no more  favorable
               to the  purchasers of such  securities  than specified in Phage's
               notice.  In the event  Phage has not sold the New  Securities  or
               entered into an agreement to sell the New Securities  within said
               ninety  (90) day period (or sold and  issued  New  Securities  in
               accordance  with the  foregoing  within  sixty (60) days from the
               date of said agreement),  Phage will not thereafter issue or sell
               any  of  such  New   Securities,   without  first  offering  such
               securities in the manner provided above.

          (d)  The right of first  refusal  granted  under this  Agreement  will
               expire upon the first to occur of the following:  (i) the closing
               of the first public  offering of the Common Stock of Phage to the
               general  public  which is  effected  pursuant  to a  registration
               statement  filed with, and declared  effective by, the Commission
               under the  Securities  Act,  and such right of first  refusal and
               related  right of  notice  will not apply to the offer or sale of
               shares pursuant to such public offering; (ii) September 30, 2001,
               or (iii) as to a Purchaser  if such  Purchaser no longer holds at
               least   2,000,000   shares  of  Common  Stock   and/or   Warrants
               (appropriately adjusted for Recapitalizations).

         (e)       The right of first refusal hereunder is not assignable except
                   by each of such Purchasers to any wholly-owned  subsidiary or
                   constituent  partner  who  acquires at least  500,000  shares
                   (appropriately adjusted for Recapitalizations).

                            ARTICLE X. MISCELLANEOUS

         10.1  Notices.  All notices,  demands and other  communications  to any
party hereunder will be in writing (including telecopier or similar writing) and
will be given to such party at its address set forth on the  signature  pages of
this  Agreement,  or such other address as such party may hereafter  specify for
the  purpose  to  the  other  parties.   Each  such  notice,   demand  or  other
communication will be effective:

          (a)  if given by telecopy,  when such telecopy is  transmitted  to the
               telecopy   number   specified  on  the  signature  page  of  this
               Agreement, the sender has received electronic confirmation of the
               transmission   and  the  sender  has   provided   contemporaneous
               telephonic notice to the recipient of such transmission;

          (b)  if given by mail, four days after such communication is deposited
               in the United  States  mail with  first  class  postage  prepaid,
               addressed as aforesaid; or

          (c)  if  given by any  other  means,  when  delivered  at the  address
               specified in or pursuant to this Section.

For purposes of telephonic  notice to Phage in clause (a) above, such telephonic
notice will be to Darren  Pylot unless Phage  notifies the  Purchasers  of other
individuals to whom telephone notice may be directed.

<PAGE>

10.2 No Waivers; Amendments.

1)   No failure or delay on the part of any party in exercising any right, power
     or  remedy  hereunder  will  operate  as a waiver,  nor will any  single or
     partial  exercise of any such right,  power or remedy preclude any other or
     further exercise or the exercise of any other right, power or remedy.

b)   Any provision of this Agreement may be amended,  supplemented or waived if,
     but only if,  such  amendment,  supplement  or waiver is in writing  and is
     signed by Phage and the Purchasers;  provided,  that without the consent of
     each holder of any Unit affected thereby, an amendment or waiver may not:

     (i)  reduce the  aggregate  principal  amount of Units whose  holders  must
          consent to an amendment or waiver;

     (ii) reduce the rate or extend  the time for  payment  of  interest  on any
          Unit;

     (iii)reduce the  principal  amount of or extend the stated  maturity of any
          Unit; or

     (iv) make any Unit  payable  in money or  property  other than as stated in
          such Unit.

     In  determining  whether the holders of the requisite  principal  amount of
     Units have  concurred in any direction,  consent,  or waiver as provided in
     any  Transaction  Agreement,  Units  which  are owned by Phage or any other
     obligor  on or  guarantor  of  the  Units,  or by any  Person  Controlling,
     Controlled by, or under common  Control with any of the foregoing,  will be
     disregarded  and deemed not to be  outstanding  for the purpose of any such
     determination;  and PROVIDED FURTHER that no such amendment,  supplement or
     waiver  which  affects the rights of the  Purchasers  and their  affiliates
     otherwise  than  solely in their  capacities  as  holders  of Units will be
     effective with respect to them without their prior written consent.

10.3 Indemnification.

1)   Phage  agrees  to  indemnify  and  hold  harmless  the  Purchaser(s),   its
     Affiliates,  and each Person, if any, who controls Purchaser(s),  or any of
     its  Affiliates,  within the meaning of the  Securities Act or the Exchange
     Act (each, a "Controlling  Person"),  and the respective partners,  agents,
     employees,  officers and Directors of the Purchasers,  their Affiliates and
     any such  Controlling  Person  (each a "Purchaser  Indemnified  Party") and
     collectively,  the "Purchaser Indemnified  Parties"),  from and against any
     and all losses,  claims,  damages,  liabilities  and  expenses  (including,
     without  limitation  and as incurred,  reasonable  costs of  investigating,
     preparing  or defending  any such claim or action,  whether or not such the
     Purchasers  Indemnified Party is a party thereto,  provided that Phage will
     not be obligated to advance  such costs to any the  Purchasers  Indemnified
     Party  other  than the  Purchasers  unless  it has  received  from such the
     Purchasers  Indemnified Party an undertaking to repay to Phage the costs so
     advanced  if it  should  be  determined  by  final  judgment  of a court of
     competent  jurisdiction that such the Purchasers  Indemnified Party was not
     entitled to indemnification hereunder with respect to such costs) which may
     be incurred by such the Purchasers Indemnified Party in connection with any
     investigative,  administrative or judicial proceeding brought or threatened
     that relates to or arises out of, or is in connection  with any  activities
     contemplated by any Transaction Agreement or any other services rendered in
     connection  herewith;  provided that Phage will not be responsible  for any
     claims,  liabilities,  losses,  damages or expenses that are  determined by
     final judgment of a court of competent jurisdiction to result from such the
     Purchasers Indemnified Party's gross negligence,  willful misconduct or bad
     faith.

<PAGE>

2)   The Purchasers agrees to indemnify and hold harmless Phage, its Affiliates,
     and each  Person,  if any, who controls  Phage,  or any of its  Affiliates,
     within the  meaning of the  Securities  Act or the  Exchange  Act (each,  a
     "Controlling Person"), and the respective employees, officers and Directors
     of  Phage  (each a  "Company  Indemnified  Party")  and  collectively,  the
     "Company  Indemnified  Parties"),  from  and  against  any and all  losses,
     claims,  damages,  liabilities and expenses (including,  without limitation
     and as incurred, reasonable costs of investigating,  preparing or defending
     any such claim or action,  whether or not such Company Indemnified Party is
     a party  thereto,  provided  that the  Purchasers  will not be obligated to
     advance such costs to any Company Indemnified Party other than Phage unless
     it has received from such Company Indemnified Party an undertaking to repay
     to the  Purchaser the costs so advanced if it should be determined by final
     judgment of a court of competent jurisdiction that such Company Indemnified
     Party was not entitled to  indemnification  hereunder  with respect to such
     costs)  which  may  be  incurred  by  such  Company  Indemnified  Party  in
     connection with any  investigative,  administrative or judicial  proceeding
     brought or threatened that relates to or arises out of, or is in connection
     with any activities  contemplated by any Transaction Agreement or any other
     services rendered in connection herewith; provided that the Purchasers will
     not be responsible for any claims, liabilities, losses, damages or expenses
     that are determined by final judgment of a court of competent  jurisdiction
     to result from such Company Indemnified  Party's gross negligence,  willful
     misconduct or bad faith.

c)   If any action will be brought against a Purchasers  Indemnified  Party or a
     Company  Indemnified  Party (each an  "Indemnified  Party") with respect to
     which  indemnity may be sought against a party under this  Agreement,  such
     Indemnified  Party will  promptly  notify  the party or  parties  from whom
     indemnification is being claimed (the "Indemnifying  Party") in writing and
     the Indemnifying Party, at its option,  may, assume the defense,  including
     the employment of counsel reasonably satisfactory to such Indemnified Party
     and payment of all reasonable  fees and expenses.  The failure to so notify
     the  Indemnifying  Party will not affect any obligations  the  Indemnifying
     Party may have to such Indemnified  Party under this Agreement or otherwise
     unless the  Indemnifying  Party is  materially  adversely  affected by such
     failure..  Such  Indemnified  Party will have 'the right to employ separate
     counsel in such action and  participate  in the  defense,  but the fees and
     expenses of such counsel will be at the expense of such Indemnified  Party,
     unless

          (i)  the  Indemnifying  Party has  failed to assume  the  defense  and
               employ counsel; or

          (ii) the named  parties to any such action  (including  any  impleaded
               parties)  include  such  Indemnified  Party and the  Indemnifying
               Party,  and such  Indemnified  Party  will have been  advised  by
               counsel that there may be one or more legal defenses available to
               it which conflict with those available to the Indemnifying Party;

     in which case, if such Indemnified Party notifies the Indemnifying Party in
     writing  that it elects to employ  separate  counsel at the  expense of the
     Indemnifying  Party,  the  Indemnifying  Party  will not have the  right to
     assume  the  defense  of  such  action  or  proceeding  on  behalf  of such
     Indemnified Party, PROVIDED, HOWEVER, that the Indemnifying Party will not,
     in  connection  with any one such  action or  proceeding  or  separate  but
     substantially  similar  or  related  actions  or  proceedings  in the  same
     jurisdiction  arising out of the same general allegations or circumstances,
     be responsible  hereunder for the reasonable fees and expenses of more than
     one such firm of separate counsel, in addition to any local counsel,  which
     counsel will be designated by the Indemnified Party. The Indemnifying Party
     will not be liable for any settlement of any such action  effected  without
     the  written  consent  of  the  Indemnifying   Party  (which  will  not  be
     unreasonably  withheld) and the Indemnifying  Party agrees to indemnify and
     hold harmless each Indemnified Party from and against any loss or liability
     by reason of  settlement  of any action  effected  with the  consent of the
     Indemnifying  Party. In addition,  the Indemnifying Party will not, without
     the prior written consent of the Indemnified Party, settle or compromise or
     consent to the entry of any judgment in or otherwise  seek to terminate any
     pending or threatened action, claim, suit or proceeding in respect to which
     indemnification  may be sought  hereunder  (whether or not any  Indemnified
     Party is a party thereto) unless such  settlement,  compromise,  consent or
     termination  includes an express  unconditional  release of the Indemnified
     Party and the other Indemnified Parties, satisfactory in form and substance
     to the Indemnified  Party,  from all liability  arising out of such action,
     claim, suit or proceeding.

(4)              The indemnification and expense reimbursement  obligations set
                  forth  in  this  Section  10.3  will  be in  addition  to  any
                  liability any  Indemnifying  Party may have to any Indemnified
                  Party at common law or otherwise; will survive the termination
                  of this Agreement and the other Transaction Agreements and the
                  payment in full of the Units; and will remain operative and in
                  full force and effect regardless of any investigation  made by
                  or  on  behalf  of  the  Purchasers  or  Phage  or  any  other
                  Indemnified Party.

<PAGE>

     10.4 Expenses. Phage and each Purchaser will bear its own expenses incurred
on its behalf with respect to this Agreement and the  transactions  contemplated
under this Agreement.

     10.5  Payment.  Phage agrees that, so long as the  Purchasers  will own any
Units  purchased  by it from Phage  hereunder,  Phage will make  payments to the
Purchasers of all amounts due thereon by wire transfer by 5:00 P.M. (P.S.T.).

     10.6 Successors and Assigns. This Agreement will be binding on Phage and on
the Purchasers and its respective  successors and assigns.  So long as the Units
remain  outstanding,  Phage will not assign or otherwise  transfer its rights or
obligations  under this  Agreement to any other Person without the prior written
consent of the Purchasers. All provisions hereunder purporting to give rights to
the  Purchasers  and its  affiliates  or to  holders of  Securities  are for the
express benefit of such Persons and their successors and assigns.

     10.7  Florida  Law;  Submission  to  Jurisdiction;  Waiver  of Jury  Trial;
Appointment of Agent.  THIS  AGREEMENT Will BE CONSTRUED IN ACCORDANCE  WITH AND
GOVERNED BY THE LAWS OF THE STATE OF FLORIDA.  EACH PARTY HERETO HEREBY  SUBMITS
TO THE EXCLUSIVE  JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE STATE
OF FLORIDA  AND OF ANY  FEDERAL  DISTRICT  COURT  SITTING IN MIAMI,  FLORIDA FOR
PURPOSES OF ALL LEGAL  PROCEEDINGS  ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS  CONTEMPLATED  HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES,
TO THE  FULLEST  EXTENT  PERMITTED  BY LAW,  ANY  OBJECTION  WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING  BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT  IN AN  INCONVENIENT  FORUM.  EACH PARTY TO THIS  AGREEMENT  IRREVOCABLY
CONSENTS  TO THE  SERVICE OF PROCESS IN ANY SUCH  PROCEEDING  BY THE  MAILING OF
COPIES BY REGISTERED OR CERTIFIED MAIL,  POSTAGE  PREPAID,  TO SUCH PARTY AT ITS
ADDRESS SET FORTH HEREIN.  NOTHING  HEREIN Will AFFECT THE RIGHT OF ANY PARTY TO
SERVE PROCESS IN ANY OTHER MANNER  PERMITTED BY LAW, EACH PARTY WAIVES ITS RIGHT
TO A TRIAL BY JURY.

         10.8 Entire  Agreement.  This  Agreement,  the  Exhibits  or  Schedules
attached, which include, but are not limited to the Warrant and the Registration
Rights  Agreement,  set forth the  entire  agreement  and  understanding  of the
parties  relating to the subject  matter of this  Agreement and  supercedes  all
prior and contemporaneous  agreements,  negotiations and understandings  between
the  parties,  both oral and  written  relating  to the  subject  matter of this
Agreement.  The terms and  conditions  of all  Exhibits  and  Schedules  to this
Agreement are incorporated  herein by this reference and will constitute part of
this Agreement as is fully set forth herein.

         10.9 Survival; Severability. The representations, warranties, covenants
and agreements of the parties hereto will survive the Initial Closing hereunder.
In the event that any  provision of this  Agreement  becomes or is declared by a
court of  competent  jurisdiction  to be illegal,  unenforceable  or void,  this
Agreement  will  continue  in full  force and  effect  without  said  provision;
provided that such severability will be ineffective if it materially changes the
economic benefit of this Agreement to any party.

         10.10  Title and  Subtitles.  The  titles  and  subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

<PAGE>

         10.11 Publicity.  Phage and the Purchasers will consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions  contemplated  hereby and no party will issue any such press
release or otherwise  make any such public  statement  without the prior written
consent of the other parties, which consent will not be unreasonably withheld or
delayed,  except that no prior  consent will be required if such  disclosure  is
required by law, in which such case the disclosing  party will provide the other
parties  with  prior  notice  of  such  public  statement.  Notwithstanding  the
foregoing, Phage will not publicly disclose the name of Purchaser(s) without the
prior  written  consent of Purchaser,  except to the extent  required by law, in
which case Phage will provide Purchaser with prior written notice of such public
disclosure.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly  executed by their  respective  authorized  officers,  as of the date first
above written.

                  PHAGE THERAPEUTICS INTERNATIONAL INC.

                            /s/ Darren Pylot /s/

                           By: Darren Pylot

                           Title:   President

                           Address:     Phage Therapeutics International Inc.

                           22116 23rd Drive SE

                           Bothell, Washington 98201

                           Tel: (425) 482-9511

                           Fax.: (425) 482-0834

/s/ Robert Miller/s/                         /s/ Bolivar Longines SA /s/
-----------------------------------------  -------------------------------------

Name:    Robert Miller                     Name:    Bolivar Longines SA

Address: 1645 South Miami Avenue           Address: Centro Comercial Naraya
         Miami, Florida 33129                       Piso 4 Oficina L-10
                                                    Alta Vista, Puerto Ordaz
                                                    Venezula

/s/ Ricardo Requena /s/                    /s/ Cadaques S.A. /s/
-----------------------------------------  -------------------------------------

Name:    Ricardo Requena                   Name:    Cadaques S.A.

Address: 25 de Mayo 444 Piso 2             Address: Benito Blanco 675, Apt. 401
          11000 Montevideo                           11300 Montevideo
          Urguay                                     Urguay

/s/ Blanca de Longo /s/                    /s/ Stratton S.A. /s/
-----------------------------------------  -------------------------------------

Name:    Blanca de Longo                   Name:    Stratton S.A.

Address: Carace 524, Apt. 701              Address: 25 de Mayo 444 Piso 2
         Montevideo                                 11000 Montevideo
         Urguay                                     Urguay

/s/ GIG Limited /s/
-----------------------------------------

Name:    GIG Limited

Address: 105 Marbel Drive
          Grand Cayman BWI
<PAGE>

                                   SCHEDULE I

                             SCHEDULE OF PURCHASERS
                             ----------------------

Name                     Address/Facsimile Number       $ Amount of Subscription
-----------------------  -----------------------------  ------------------------
Robert Miller            1645 South Miami Avenue        $  130,000
                                                        $  220,000
                         Miami, Florida 33129          ------------
                                                        $  350,000 = Total
------------------------ ------------------------------ ------------------------
Bolivar Longines SA      Centro Comercial Naraya        $    70,000

                         Piso 4 Oficina L-10
                         Alta Vista, Puerto Ordaz
                         Venezula
-----------------------  -----------------------------  ------------------------
Ricardo Requena          25 de Mayo 444 Piso 2          $  140,000
                         11000 Montevideo
                         Urguay
-----------------------  -----------------------------  ------------------------
Cadaques S.A.            Benito Blanco 675, Apt. 401    $  350,000
                         11300 Montevideo
                         Urguay
-----------------------  -----------------------------  ------------------------
Blanca de Longo          Carace 524, Apt. 701           $   70,000
                         Montevideo
                          Urguay
-----------------------  -----------------------------  ------------------------
Stratton S.A.            25 de Mayo 444 Piso 2          $  180,000
                         11000 Montevideo
                         Urguay
-----------------------  -----------------------------  ------------------------
GIG Limited              105 Marbel Drive               $  350,000
                         Grand Cayman BWI
-----------------------  -----------------------------  ------------------------
                                                     TOTAL:  $ 1,510,000

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