Document:

<PAGE>

                                               TEXT OMITTED AND FILED SEPARATELY
                                               "CONFIDENTIAL TREATMENT REQUESTED
                                           UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
                                                           200.83 AND 240.24B-2"

                [*] RESEARCH COLLABORATION AND LICENSE AGREEMENT

                                 BY AND BETWEEN

                          AGOURON PHARMACEUTICALS, INC.

                                       AND

                               IBIS THERAPEUTICS,

                    A DIVISION OF ISIS PHARMACEUTICALS, INC.

                                  JUNE 9, 2000

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                  <C>
ARTICLE 1..............................................................................................2
DEFINITIONS............................................................................................2
ARTICLE II.............................................................................................9
RESEARCH PROGRAM.......................................................................................9
      2.1    GENERAL PURPOSE...........................................................................9
      2.2    GENERAL RESEARCH PROGRAM ACTIVITIES.......................................................9
      2.3    CONDUCT OF RESEARCH PROGRAM...............................................................9
      2.4    RESEARCH WORK SITES.......................................................................9
      2.5    JOINT RESEARCH COMMITTEE..................................................................9
      2.6    PROJECT TEAM.............................................................................11
      2.7    RECORDS AND REPORTS......................................................................11
      2.8    RESEARCH PROGRAM STAFFING LEVELS.........................................................12
      2.9    RESEARCH PROGRAM TERM....................................................................12
      2.10   POST RESEARCH PROGRAM ACTIVITIES.........................................................13
      2.11   EXCLUSIVE EFFORTS........................................................................14
ARTICLE III...........................................................................................14
CERTAIN RESEARCH PROGRAM; DEVELOPMENT AND.............................................................14
COMMERCIALIZATION ACTIVITIES..........................................................................14
      3.1    SUPPLY OF AGOURON SCREENING COMPOUNDS; SELECTED COMPOUNDS; CONFIDENTIALITY...............14
      3.2    REPORTING ON SCREENING ACTIVITIES........................................................15
      3.3    PROCESS OF ELECTION OF RNA TARGETS FOR MEDICINAL CHEMISTRY STAGE.........................16
      3.4    SELECTION OF COLLABORATION COMPOUNDS FOR ACTIVE DEVELOPMENT/COMMERCIALZATION PROGRAMS....16
      3.5    COMMERCIALLY REASONABLE EFFORTS..........................................................16
ARTICLE IV............................................................................................16
LICENSE GRANTS........................................................................................16
      4.1    RESEARCH AND DEVELOPMENT.................................................................16
      4.2    DEVELOPMENT AND COMMERCIALIZATION........................................................17
ARTICLE V.............................................................................................17
PAYMENTS, ROYALTIES AND REPORTS.......................................................................17
      5.1    LICENSE FEE..............................................................................17
      5.2    RESEARCH PROGRAM FUNDING.................................................................17
      5.3    MILESTONE PAYMENTS.......................................................................17
      5.4    ROYALTIES................................................................................18
      5.5    THIRD-PARTY TECHNOLOGY...................................................................20
      5.6    REPORTS; PAYMENT OF ROYALTY..............................................................20
      5.7    AUDITS...................................................................................20
      5.8    PAYMENT EXCHANGE RATE....................................................................21
      5.9    FOREIGN CURRENCY.........................................................................21
      5.10   INCOME TAX WITHHOLDING...................................................................22
ARTICLE VI............................................................................................22
REPRESENTATIONS AND WARRANTIES........................................................................22
      6.1    IBIS REPRESENTATIONS AND WARRANTIES......................................................22
      6.2    AGOURON REPRESENTATIONS AND WARRANTIES...................................................22
ARTICLE VII...........................................................................................23
PATENT MATTERS........................................................................................23
      7.1    [*]......................................................................................23
      7.3    REPORTING AND COOPERATION................................................................23
      7.4    FILING, PROSECUTION AND MAINTENANCE OF PATENTS...........................................23
      7.5    PATENT ENFORCEMENT AGAINST THIRD-PARTY INFRINGERS........................................23
      7.6    INFRINGEMENT OF THIRD-PARTY PATENT RIGHTS................................................24
ARTICLE VIII..........................................................................................24
[*]   ................................................................................................24
      8.1    [*]......................................................................................24
      8.2    [*]......................................................................................24
      8.3    [*]......................................................................................24
      8.4    [*]......................................................................................24

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      8.5    [*]......................................................................................25
      8.6    [*]......................................................................................25
ARTICLE IX............................................................................................25
TERM AND TERMINATION..................................................................................25
      9.1    AGREEMENT TERM AND EXPIRATION............................................................25
      9.2    TERMINATION..............................................................................25
      9.3.   DISPOSITION OF INVENTORY.................................................................27
      9.4.   EFFECT OF EXPIRATION OR TERMINATION......................................................27
ARTICLE X.............................................................................................27
CONFIDENTIALITY, PUBLICATION AND PUBLICITY............................................................27
      10.1   NON-DISCLOSURE AND NON-USE OBLIGATIONS...................................................27
      10.2   PERMITTED DISCLOSURE OF PROPRIETARY INFORMATION..........................................28
      10.3   NO WRITTEN PUBLICATION AND ORAL DISCLOSURES..............................................28
      10.4   PUBLIC DISCLOSURE OF AGREEMENT...........................................................28
ARTICLE XI............................................................................................28
MISCELLANEOUS.........................................................................................28
      11.1   FORCE MAJEURE............................................................................28
      11.2   ASSIGNMENT...............................................................................29
      11.3   SEVERABILITY.............................................................................29
      11.4   NOTICES..................................................................................29
      11.5   APPLICABLE LAW...........................................................................30
      11.6   DISPUTE RESOLUTION.......................................................................30
      11.7   REGULATORY APPROVALS.....................................................................31
      11.8   ENTIRE AGREEMENT.........................................................................31
      11.9   HEADINGS.................................................................................31
      11.10  INDEPENDENT CONTRACTORS..................................................................31
      11.11  WAIVER...................................................................................32
      11.12  COUNTERPARTS.............................................................................32

</TABLE>

EXHIBITS

Exhibit A - Research Plan

Exhibit B - [*]

                                      1
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                [*] RESEARCH COLLABORATION AND LICENSE AGREEMENT

This [*] Research Collaboration and License Agreement ("Agreement"), dated
June 9, 2000, is between Agouron Pharmaceuticals, Inc., a corporation
organized and existing under the laws of California and a wholly owned
subsidiary of the Warner-Lambert Company, having a principal place of
business at 10350 North Torrey Pines Road, La Jolla, CA 92037-1022
("Agouron"), and Isis Pharmaceuticals, Inc., a corporation organized and
existing under the laws of Delaware, on behalf of its Ibis Therapeutics
division, having a principal place of business at 2292 Faraday Avenue,
Carlsbad, CA 92008 (because Isis will be conducting the work hereunder
through its Ibis Therapeutics division, Isis will hereafter be referred to as
"Ibis"; however all references to "Ibis" are intended to refer both to Isis
and Ibis, unless otherwise indicated). Agouron and Ibis may each be referred
to as a "Party" or together be referred to as the "Parties."

WHEREAS, Ibis has proprietary technology and experience in identifying
therapeutically attractive drug targets in structural RNA and in designing
and optimizing drug leads to bind to such targets;

WHEREAS, Agouron has proprietary technology and experience in discovering,
developing and commercializing drug products for human therapeutic use; and

WHEREAS, Agouron and Ibis desire to enter into a research collaboration to
discover new treatments for [*] infection using selected RNA targets [*] upon
the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Parties agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

For purpose of this Agreement, the following capitalized terms, whether used
in the singular or plural, will have the following meanings:

1.1      "ACTIVE DEVELOPMENT/COMMERCIALIZATION PROGRAM" means an ongoing program
         for developing and commercializing a Collaboration Compound or a
         Collaboration Product, including preclinical and clinical development
         activities aimed at obtaining Registration for marketing, and marketing
         and selling activities, for the Collaboration Product.

1.2      "ADDITIONAL IDENTIFIED COMPOUNDS" has the meaning specified in Section
         3.1.3.

1.3      "AFFILIATE" of a Party means any person, organization, corporation, or
         other business entity that is controlling, controlled by or under
         common control with such Party. The term "control" (including, with
         correlative meaning, the terms "controlled by" and "under common
         control with") as used with respect to any person, organization,
         corporation or other business entity, means the possession, directly or
         indirectly, of the power to direct, or cause the direction of, the
         management and policies of such person, organization, corporation or
         entity, whether through the ownership of voting securities or by
         contract or court order or otherwise. For purposes of this definition,
         an entity will be deemed to

                                      2
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         control another entity if it owns or controls, directly or
         indirectly, at least fifty percent (50%) of the outstanding stock or
         other voting rights entitled to elect directors or their equivalent.

1.4      "AGOURON FIELD" means uses resulting from the mediation or inhibition
         of [*] through interaction with an RNA Target, including therapeutic,
         prophylactic, diagnostic and classification uses.

1.5      "AGOURON SCREENING COMPOUNDS" means compounds from proprietary
         libraries or collections of chemical compounds [*].

1.6      "ANNUAL EXTENSION PERIOD" has the meaning specified in Section 2.9.2.

1.7      "CALENDAR YEAR" means a period of 12 months commencing on January 1 and
         ending on December 31.

1.8      "COLLABORATION COMPOUND(S)" means Program Compound(s) and/or Derived
         Compound(s).

1.9      "COLLABORATION PATENT RIGHTS" means Patent Rights, Controlled by either
         Party or both Parties, filed anywhere in the world after the Effective
         Date, having any claims covering any of the following: (a)
         Collaboration Compounds; (b) Collaboration Products; or (c) any
         Collaboration Technology that is conceived or reduced to practice by
         either Party or both Parties during the Research Program Term.

1.10     "COLLABORATION PRODUCT" means any preparation in final form (e.g.,
         final-dosage form for sale by prescription, over-the-counter or another
         method) containing at least one Collaboration Compound, for use in the
         Agouron Field, including for use in treating or preventing infections
         caused by [*] or for diagnosing or classifying [*] infection. If a
         Collaboration Product containing a specific Collaboration Compound is
         useful in the Agouron Field and a preparation in final form containing
         such Collaboration Compound is also useful in treating, preventing,
         diagnosing or classifying any human diseases or conditions other than
         [*], such preparation in final form containing such Collaboration
         Compound for such other use outside the Agouron Field will also be
         deemed a Collaboration Product.

1.11     "COLLABORATION TECHNOLOGY" means Technology, other than Collaboration
         Compounds and Collaboration Products, Controlled by either Party or
         both Parties that is necessary or useful to make, have made, use,
         import or sell Collaboration Compounds or Collaboration Products,
         including processes of making Collaboration Compounds or Collaboration
         Products, or methods for using Collaboration Compounds or Collaboration
         Products. Collaboration Technology will exclude [*].

1.12     "COMBINATION PRODUCT" means any Collaboration Product in any final form
         that contains, in addition to a Collaboration Compound, one or more
         other active ingredients having [*] activity.

1.13     "CONTROLLED" OR "CONTROLLING" means possession, now or in the future,
         of the ability to grant a license or sublicense of rights as provided
         for herein without violating the terms or any agreement or arrangement
         with, or the rights of, any Third Party.

                                      3
<PAGE>

1.14     "DERIVED COMPOUND" means any chemical compound having [*].

1.15     "DESIGNATED [*]" means A [*] potential RNA Target(s) suitable for the
         Research Program.

1.16     "EARLY TERMINATION" has the meaning specified in Section 2.9.1.

1.17     "EC APPROVAL" means the approval of a Collaboration Product for
         marketing in the European Union by the European Commission ("EC"), or
         any future equivalent approval process.

1.18     "EFFECTIVE DATE" means July 1, 2000.

1.19     "ELECTED RNA TARGET" has the meaning specified in Section 2.10.

1.20     "ELECTED RNA TARGET LIST" has the meaning specified in Section 2.10(b).

1.21     "EMEA FILING" means filing an application with the European Medicines
         Evaluation Agency ("EMEA"), or any successor agency having
         substantially the same regulatory functions, to obtain EC Approval.

1.22     "ENFORCEABLE CLAIM" means a claim included in an issued and unexpired
         patent that has not been: (i) abandoned or disclaimed; (ii) declared
         invalid or unenforceable by a decision of a court or other governmental
         agency of competent jurisdiction, which decision is unappealable or
         unappealed within the time allowed for appeal; or (iii) admitted by the
         Party owning or Controlling such patent to be invalid.

1.23     "FDA" means the United States Food and Drug Administration, or any
         successor agency having substantially the same regulatory functions.

1.24     "FTE RATE" means the compensatory rate to be paid per full-time
         equivalent ("FTE") scientist.

1.25     "FIRST COMMERCIAL SALE" means the initial transfer in title of a
         quantity of Collaboration Product to a Third Party purchaser by
         Agouron, its Affiliates or Sublicensees for consideration, or the
         initial use of a Collaboration Product by a Third Party in a country,
         following governmental approval in such country for such transfer or
         use, whichever occurs first. First Commercial Sale will not include
         transfer of reasonable quantities of any free samples Collaboration
         Product and/or the reasonable quantities transferred for development
         purposes, such as for use in experimental studies or clinical trials.

1.26     "IBIS EXISTING TECHNOLOGY" means all Technology, Controlled by Ibis as
         of the Effective Date, that is necessary or useful for the conduct of
         the Research Program, [*]; (b) genetic databases; and (c) biological
         materials and chemical compounds. Ibis Existing Technology will exclude
         [*].

1.27     "IBIS EXISTING TECHNOLOGY PATENT RIGHTS" means any Patent Rights
         Controlled by Ibis, filed anywhere in the world, containing any claims
         covering any Ibis Existing Technology. Ibis Existing Technology Patent
         Rights will exclude [*].

1.28     "INITIAL OPTION LICENSE FEE" means the license fee for the [*].

                                      4
<PAGE>

1.29     "INITIAL RESEARCH TERM" has the meaning set forth in Section 2.9.

1.30     "JAPANESE APPROVAL" means the approval of a Collaboration Product for
         marketing in Japan by the Japanese Ministry of Health and Welfare, or
         any future equivalent approval process.

1.31     "JAPANESE REGISTRATION FILING" means filing an application with the
         Japanese Ministry of Health and Welfare, or any successor agency having
         substantially the same regulatory functions, to obtain Japanese
         Approval.

1.32     "JOINT RESEARCH COMMITTEE" or "JRC" means the committee described in
         Section 2.5.

1.33     [*].

1.34     [*] means: (a) the patents and patent applications identified in
         Exhibit B hereto, and all patents and patent applications based on,
         corresponding to, or claiming the priority date(s) of any of the
         foregoing, and any reissues, term extensions (or other governmental
         actions which provide exclusive rights to the patent holder in the
         patented subject matter beyond the original patent expiration date),
         substitutions, confirmations, registrations, validations,
         re-examinations, additions, continuations, continued prosecutions,
         continuations-in-part, or divisions of or to any of the foregoing; and
         (b) any other Patent Rights Controlled by Ibis directed to Technology
         necessary or relating to the practice of [*].

1.35     [*] means Technology: (a) Controlled by Ibis during the Research
         Program Term that is necessary or relates to the performance of
         multi-target affinity specificity screening ("MASS"); or [*].

1.36     "MEDICINAL CHEMISTRY STAGE" means [*]

1.37     "MEDICINAL CHEMISTRY STAGE LIST" has the meaning specified in Section
         2.10(c).

1.38     "NDA APPROVAL" means the approval of a Collaboration Product for
         marketing in the United States by the FDA, or any future equivalent
         approval process.

1.39     "NDA FILING" means the filing of a new drug application or other
         application ("NDA") with the FDA, to obtain NDA Approval.

1.40     "NET SALES REVENUE" means the total invoiced amount of all worldwide
         sales of Collaboration Product(s) by Agouron, its Affiliates or
         Sublicensees, to a Third Party, less (a) customary trade, quantity, or
         cash discounts and commissions allowed and taken by brokers or agents,
         (b) amounts repaid or credited by reason of rejection or returns, as
         well as rebates, chargebacks, retroactive price reductions and
         allowances, (c) sales, use and/or other taxes, import and/or export
         customs duties, and other similar governmental charges paid, but not
         including income taxes, and (d) to the extent separately stated on
         purchase orders, invoices, or other documents of sale, insurance costs
         and outbound transportation charges prepaid or allowed related to
         shipment of Collaboration Product(s). Net Sales Revenue excludes: (a)
         the transfer of reasonable and customary quantities of free samples of
         Collaboration Product(s), (b) the transfer of Collaboration Product(s)
         as clinical trial materials, other than for subsequent resale; and (c)
         use by Agouron, its

                                      5
<PAGE>

         Affiliates or Sublicensees of Collaboration Product for any purpose
         connected with the securing of regulatory approval or validating of
         a manufacturing process or the obtaining of other necessary
         marketing approvals for Collaboration Product (unless such
         Collaboration Product is subsequently sold).

1.41     [*]

1.42     [*].

1.43     "PATENT RIGHTS" means: (a) patent applications (including applications
         for certificates of invention); (b) any patents issuing from such
         patent applications (including certificates of invention); (c) all
         patents and patent applications based on, corresponding to, or claiming
         the priority date(s) of any of the foregoing; and (d) any reissues,
         term extensions (or other governmental actions which provide exclusive
         rights to the patent holder in the patented subject matter beyond the
         original patent expiration date), substitutions, confirmations,
         registrations, validations, re-examinations, additions, continuations,
         continued prosecutions, continuations-in-part, or divisions of or to
         any of the foregoing.

1.44     "PHASE I CLINICAL STUDY" means the initial testing of a Collaboration
         Product in humans, whether the primary endpoint is safety,
         pharmacokinetics or any combination thereof.

1.45     "PHASE II STUDY COMPLETION" means completion of the first human
         clinical study in patients [*]. Initiation of a Pivotal Quality
         Clinical Study will be deemed to be a Phase II Study Completion,
         whether or not a Phase II Study is ongoing.

1.46     "PIVOTAL QUALITY CLINICAL STUDY" means a human clinical trial of a
         Collaboration Compound or Collaboration Product designed to demonstrate
         statistically significant treatment effect so as to achieve
         Registration. Initiation of a Phase III clinical study will be deemed
         to be initiation of a Pivotal Quality Clinical Study.

1.47     "POST RESEARCH PROGRAM TERM"

         (a)      Reserved RNA Target: The Post Research Program Term for a
                  Reserved RNA Target means the [*] following the end of the
                  Research Program Term.

         (b)      Elected RNA Target:

                  (i)      The Post Research Program Term for an Elected RNA
                           Target on the Elected Target List means the [*]
                           period after the end of the Research Program Term; if
                           such Elected RNA Target enters Medicinal Chemistry
                           Stage on or before the [*] anniversary of the end of
                           the Research Program Term, then its Post-Research
                           Term will continue until a date which is [*] after
                           the date upon which such Elected RNA Target entered
                           Medicinal Chemistry Stage; provided further that if
                           an Elected RNA Target continues in a Medicinal
                           Chemistry Stage pursuant to Subsection 2.10(d)(ii),
                           then the Post Research Program Term will continue
                           until such Elected RNA Target completes the Medicinal
                           Chemistry Stage.

                  (ii)     Notwithstanding the foregoing, the Post Research
                           Program Term for any Elected RNA Target will
                           automatically end when such Elected RNA

                                      6
<PAGE>

                           Target ceases to be an Elected RNA Target pursuant
                           to the provisions of Section 2.10.

1.48     "PROGRAM COMPOUND" means any Selected Compound having Threshold
         Activity against an Elected RNA Target, [*].

1.49     "PROPRIETARY INFORMATION" means any and all proprietary or confidential
         scientific, clinical, regulatory, marketing, financial and commercial
         information or data, whether communicated in writing, orally or by any
         other means, provided by one Party to the other Party in connection
         with this Agreement. Proprietary Information will not include
         information, as documented by written records, that:

         (a)  is known by the receiving Party at the time of its receipt, and
              not through a prior disclosure by the disclosing Party;

         (b)  is in the public domain without the fault of the receiving Party
              or its Affiliates or agents;

         (c)  is subsequently disclosed to a receiving Party by a Third Party
              who may lawfully do so and is not under an obligation of
              confidentiality to the disclosing Party; or

         (d)  is developed by the receiving Party independently of Proprietary
              Information received from the other Party.

1.50     "REGISTRATION" means the official approval by the government or health
         authority in a country (or supra-national organization, such as the
         European Commission) that is required for a product to be offered for
         sale in such country, including approval of a marketing application
         such as an NDA, and such other authorizations as may be required for
         the production, importation, pricing, reimbursement and sale of such
         product, and for subsequent regulatory filings, including filings for
         line extensions and/or additional indications of such product.

1.51     "RESEARCH PLAN" means the plan of goals and activities for the Research
         Program agreed to by the Parties and attached as Exhibit A, as may be
         amended from time-to-time in accordance with the terms of this
         Agreement.

1.52     "RESEARCH PROGRAM" means the research activities of the Parties to
         discover and develop RNA Targets and identify and discover
         Collaboration Compounds, which activities are outlined in Article II
         and in the Research Plan attached as Exhibit A. While the primary
         purpose of the Research Program is to discover RNA Targets for use in
         conducting drug discovery in the Agouron Field and to discover
         Collaboration Compounds against such RNA Targets for use in treating
         [*], the Parties acknowledge that Collaboration Compounds may also have
         use [*], and that activities aimed at developing Collaboration
         Compounds for such [*] use are within the scope of the Research
         Program.

1.53     "RESEARCH PROGRAM TECHNOLOGY" means any Technology (a) Controlled by
         Ibis and/or Agouron, (b) specifically concerning [*], RNA Targets or
         other research tools or procedures for discovering, identifying,
         selecting, and validating RNA Targets or for screening or assaying
         compounds, (c) developed or acquired by or on behalf of Ibis and/or
         Agouron after the Effective Date during the Research Program Term, and
         (d)

                                      7
<PAGE>

         necessary or useful for the conduct of the Research Program. The
         Research Program Technology will exclude any chemical compounds,
         including Agouron Screening Compounds and Collaboration Compounds.
         Research Program Technology will also exclude Ibis Existing Technology,
         Collaboration Technology, and Mass Spectrometry Screening Technology.

1.54     "RESEARCH PROGRAM TECHNOLOGY PATENT RIGHTS" means any Patent Rights
         Controlled by Ibis and/or Agouron filed anywhere in the world after the
         Effective Date, containing any claims covering any Research Program
         Technology conceived or reduced to practice in the Research Program by
         either Party or both Parties during the Research Program Term. Research
         Program Technology Patent Rights will exclude Collaboration Patent
         Rights, Mass Spectrometry Screening Patent Rights, and Ibis Existing
         Patent Rights.

1.55     "RESEARCH PROGRAM TERM" means the term of the Research Program, as set
         forth in Section 2.9.

1.56     "RESERVED RNA TARGET" has the meaning specified in Section 2.10(a).

1.57     "RNA TARGET" means a specific site within a [*], the binding to which
         mediates or inhibits [*].

1.58     "SELECTED COMPOUND" means any Agouron Screening Compound, or any
         proprietary compound of either Party supplied for screening in the
         Research Program against an RNA Target, and determined to have
         Threshold Activity against an RNA Target, and for which compound
         Agouron has provided the structural information to Ibis pursuant to
         Section 3.1.3.

1.59     "SUBLICENSEE" means any Third Party to which Agouron grants a
         sublicense in connection with the development, manufacture, or
         commercialization of a Collaboration Compound or a Collaboration
         Product, as the case may be. A Third Party who is given only the right
         to sell a Collaboration Product (such as a wholesaler or a distributor)
         will not be considered a Sublicensee.

1.60     "TECHNOLOGY" means inventions (whether or not patentable), know-how,
         trade secrets, research tools, materials, and technical information,
         including but not limited to information in the form of research data,
         databases, experimental procedures, designs, formulas, process
         information, and expert opinions.

1.61     "TERRITORY" means the world.

1.62     "THIRD PARTY" means any party other than Ibis or Agouron and their
         respective Affiliates.

1.63     "THRESHOLD ACTIVITY" means an [*], which may be adjusted by the JRC as
         appropriate to meet the goals of the Research Program, considering the
         threshold [*] value deemed necessary for a compound to have potential
         utility in the Research Program and the percentage of compounds
         screened found to meet such threshold value.

1.64     "UNITED STATES" or "U.S." means the United States of America and its
         territories, possessions, and protectorates (including Puerto Rico) and
         the District of Columbia.

                                      8
<PAGE>
                                   ARTICLE II
                                RESEARCH PROGRAM

2.1      GENERAL PURPOSE.

         During the Research Program Term, Ibis and Agouron will cooperate
         exclusively to use the Mass Spectrometry Screening Technology, Ibis
         Existing Technology and Research Program Technology to discover and
         develop RNA Targets and to conduct activities to discover Collaboration
         Compounds in the Agouron Field, upon the terms and conditions set forth
         in this Agreement. The specific activities to be undertaken in the
         course of the Research Program are set forth in this Article II and in
         the Research Plan (Exhibit A), which may be amended from time to time
         as mutually agreed in writing by the Parties.

2.2      GENERAL RESEARCH PROGRAM ACTIVITIES.

         During the Research Program Term, the Parties will use Mass
         Spectrometry Screening Technology, Ibis Existing Technology and
         Research Program Technology as necessary or useful to achieve the
         overall purpose and goals of the Research Program and to conduct their
         respective activities according to the Research Plan. Such activities
         are contemplated by the Parties to include, but not be limited to, the
         following: [*].

2.3      CONDUCT OF RESEARCH PROGRAM.

         Ibis and Agouron each will conduct its activities in the Research
         Program in compliance in all material respects with all requirements of
         applicable laws, rules and regulations and all applicable standard
         laboratory practices, and attempt to achieve their objectives
         efficiently and expeditiously. Ibis and Agouron each will proceed
         diligently with the work set out in the Research Plan, using their
         respective good faith efforts.

2.4      RESEARCH WORK SITES.

         Each Party will provide appropriate work sites for carrying out its
         respective activities pursuant to the Research Plan.

2.5      JOINT RESEARCH COMMITTEE.

         The Parties hereby establish a JRC to direct and monitor the Research
         Program as follows:

         2.5.1    COMPOSITION OF THE COMMITTEE.

                  The Research Program will be conducted under the direction of
                  the Joint Research Committee, which will be comprised of three
                  representatives of Agouron and three representatives of Ibis.
                  Each Party will provide the other with a written list of its
                  representatives within thirty (30) days of the Effective Date.
                  Agouron and Ibis may change one or more of its representatives
                  upon written notice to the other Party of such change. Each
                  Party's representatives should have appropriate technical
                  credentials and experience and ongoing familiarity with the
                  activities in the Research Program.

                                      9
<PAGE>

         2.5.2    MEETINGS AND DECISIONS.

                  (a)      The Joint Research Committee will meet quarterly
                           during the Research Program Term at locations
                           determined by the Joint Research Committee, with the
                           first such meeting to be held within 45 days of the
                           Effective Date. Each Party will bear its own expenses
                           related to attendance of such meetings by its
                           representatives. The Joint Research Committee may
                           meet by means of teleconference, videoconference or
                           other similar communications equipment. Additional
                           employees of Ibis or Agouron (or its Affiliates) may,
                           by mutual consent of the Parties, be invited to
                           attend Joint Research Committee meetings.

                  (b)      The chairmanship of the JRC will alternate on a
                           quarterly basis between the representatives of the
                           Parties, with an Agouron representative chairing the
                           first quarter. The chairperson will chair the
                           meetings and will be responsible for preparing agenda
                           and circulating agenda to the other JRC members prior
                           to the meetings.

                  (c)      The Joint Research Committee will confer and make
                           decisions regarding oversight of the Research Program
                           and the activities of the Parties in carrying out the
                           Research Plan and will also advise the Parties on
                           issues arising during the Research Program Term
                           regarding any technical, budgetary or economic
                           matters relating to the Research Program. After the
                           expiration of the Research Program Term, the Parties
                           will appoint a successor committee which will
                           function for so long as is necessary to perform the
                           responsibilities assigned to the JRC under the terms
                           of this Agreement.

                  (d)      Each Party will have one vote on the JRC regardless
                           of the number of representatives of each Party on the
                           JRC. All of the decisions of the JRC regarding the
                           Research Plan must be unanimous in order for a JRC
                           matter to be resolved. In the event of a deadlocked
                           vote on an issue, Ibis and Agouron will each appoint
                           a designee to discuss such issue in good faith and
                           use their best efforts to find a resolution to the
                           deadlock. If, after good faith efforts, no resolution
                           is found within thirty (30) days, or such longer
                           period of time as agreed upon by the JRC, then such
                           issue will be resolved pursuant to Section 11.6.

         2.5.3    RESPONSIBILITIES.

                  The responsibilities of the JRC will be, among others, to: (i)
                  approve and implement the Research Plan and any modifications
                  or amendments thereof, consistent with the terms of this
                  Agreement; (ii) advise the Parties regarding the overall
                  strategy, status and direction of the Research Program; (iii)
                  review and monitor all results of the work performed under the
                  Research Plan, and provide oversight and direction regarding
                  such work in accordance with the Research Plan; (iv) prepare
                  and circulate progress reports to the Parties; (v) decide
                  whether to designate [*]; (vi) review and monitor the RNA
                  Target advancement process, and maintain a list of RNA
                  Targets, including Elected RNA Targets; and (vii)

                                      10
<PAGE>

                  perform any additional functions as specified in this
                  Agreement. The Parties acknowledge that decisions
                  pertaining to matters beyond the scope of the Research
                  Program are not the responsibility of the JRC, and that
                  Agouron will have the sole discretion to make decisions
                  such as: (i) which RNA Targets will become Elected RNA
                  Targets, and when and if those Elected RNA Targets will be
                  entered into [*]; (ii) which Collaboration Compounds, if
                  any, will be entered by Agouron into an Active
                  Development/Commercialization Program; and (iii) which
                  Collaboration Products will be commercialized by Agouron or
                  its Affiliates.

         2.5.4    JRC RECORDS.

                  The JRC will maintain accurate records to document the
                  discussions and decisions at each meeting. Meeting minutes or
                  summaries will be prepared by its chairperson in accordance
                  with procedures established by the JRC at its first meeting
                  and will be distributed to all members of the JRC after
                  approval of drafts by the designated representatives of the
                  Parties.

2.6      PROJECT TEAM.

         2.6.1    RESPONSIBILITIES.

                  The Project Team will conduct research activities as necessary
                  to achieve the objectives of the Research Program in
                  accordance with the Research Plan, as such Research Plan may
                  be modified by the JRC. The Project Team will provide written
                  reports of its activities to the JRC.

         2.6.2    COMPOSITION.

                  The Project Team will include representatives from both Ibis
                  and Agouron as necessary for the proper conduct of the
                  Research Program in accordance with the Research Plan, with
                  such representatives to be designated at the sole discretion
                  of each Party, provided that the designated representatives
                  are qualified to carry out their respective activities in the
                  Research Program and are generally familiar with the Research
                  Program activities being conducted at their site.

         2.6.3    MEETINGS.

                  The Project Team will meet monthly, in person or by telephone
                  or videoconference, unless the JRC directs a different meeting
                  schedule. Project Team meetings will alternate between the
                  sites of the Parties. Expenses of a Party's representatives
                  attending Project Team meetings will be borne by such Party.

2.7      RECORDS AND REPORTS.

         2.7.1    RECORDS.

                                      11
<PAGE>

                  Ibis and Agouron will each maintain its records in sufficient
                  detail and in good scientific manner appropriate for patent
                  and regulatory purposes, which records will be complete and
                  accurate and will fully and properly reflect all work done and
                  results achieved by it in the performance of the Research
                  Program.

         2.7.2    COPIES AND INSPECTION OF RECORDS.

                  Agouron will have the right, during normal business hours and
                  upon reasonable notice, to inspect and copy all such records
                  of Ibis referred to in Section 2.7.1. Agouron will maintain
                  such records and the information disclosed therein in
                  confidence in accordance with Sections 10.1 and 10.2. Agouron
                  will have the right to arrange for its employees, agents and
                  outside consultants, and the employees, agents and outside
                  consultants of its Affiliates, to visit Ibis at its offices
                  and laboratories during normal business hours and upon
                  reasonable notice, and to discuss the Research Program and its
                  results in detail with the technical personnel of Ibis.

2.8      RESEARCH PROGRAM STAFFING LEVELS.

         Ibis and Agouron will conduct the research activities necessary to
         maintain progress on the objectives of the Research Program as set
         forth in the Research Plan. To achieve these goals, Ibis will designate
         and assign qualified FTEs based upon the Research Plan staffing
         schedule set by and subject to approval by the JRC. Ibis will dedicate
         the efforts of at least [*] FTEs during the first year, and [*] FTEs
         during each of the second and third years, of the Research Program
         Term. During each year of the Research Program, Agouron will dedicate
         the efforts of the number of FTEs that it determines in its sole
         discretion is appropriate to perform its responsibilities under the
         Research Program as set forth in the Research Plan. The JRC will have
         the discretion to increase or decrease the minimum level of FTE support
         at Ibis to that level deemed reasonably necessary to implement the
         Research Plan.

2.9      RESEARCH PROGRAM TERM.

         The Research Program Term will include the Initial Research Term and
         any Annual Extension Periods thereof pursuant to Section 2.9 below. The
         Initial Research Term will commence upon the Effective Date and
         continue for a period of [*] years, unless the Research Program Term is
         terminated prior thereto in accordance with the Early Termination
         provisions set forth below.

         2.9.1    EARLY TERMINATION.

                  If Agouron determines that sufficient scientific progress has
                  not been made during the Initial Research Term, Agouron may
                  terminate the Research Program Term upon written notice given
                  at least [*] months prior to the completion of the [*] year of
                  the Research Program Term ("Early Termination"). Such Early
                  Termination will be effective immediately prior to the [*]
                  anniversary of the Effective Date. In such event: (i) Agouron
                  will be liable for funding of the

                                      12
<PAGE>

                  Research Program under Section 5.2.1 until such [*]
                  anniversary date, but any other payment obligations not due
                  and owing as of the Early Termination date will terminate;
                  and (ii) Agouron will have no further rights with respect
                  to [*] Ibis Existing Technology.

         2.9.2    ANNUAL EXTENSION PERIOD.

                  If Agouron agrees to continue to fund FTE support and Core
                  Research Support for Ibis a level agreed upon by the JRC, then
                  Agouron may extend the Research Program Term beyond the
                  Initial Research Term on a year-to-year basis ("Annual
                  Extension Period"). The Research Program will continue to
                  operate under the terms and conditions of the Agreement,
                  provided, however, [*].

2.10     POST RESEARCH PROGRAM TERM ACTIVITIES.

         The Parties acknowledge that, in order to maximize the chances that a
         commercializable Collaboration Compound arises out of the
         collaboration, Agouron will need to continue certain activities
         following the end of the Research Program Term and during the
         Post-Research Program Term. To facilitate such activities, the Parties
         have agreed to the following procedures:

         (a)      [*].

         (b)      [*]

         (c)      [*]

         (d)      [*]

         (e)      [*]

         (f)      [*]

                  i.       [*];

                  ii.      [*];

                  iii.     [*];

                  iv.      [*]

                  v.       [*].

         [*].

         g)       If a Collaboration Compound is determined to actively bind to
                  an RNA Target in addition to the Elected RNA Target to which
                  it was previously determined to bind, and such RNA Target is
                  not, at that time, an Elected RNA Target, Agouron

                                      13
<PAGE>

                  may cause such RNA Target to become an Elected RNA Target
                  by written notice to Ibis, as long as Ibis has not
                  independently previously initiated a drug discovery
                  program, aimed at such RNA Target, of the same scope and
                  magnitude as Ibis's efforts during the course of the
                  Research Program. Upon receipt of Agouron's written notice
                  that it desires to cause such RNA Target to become an
                  Elected RNA Target, Isis will respond within 10 days in
                  writing with either a confirmation that such RNA Target can
                  become an Elected RNA Target (with no independent
                  requirement to enter such Elected RNA Target into Medicinal
                  Chemistry Stage) or with a certification that Ibis has
                  independently, prior to the date of receipt of such notice,
                  initiated a drug discovery program aimed at such RNA Target
                  as described above, in which case such RNA Target will not
                  become an "Elected RNA Target." If Ibis fails to timely
                  respond to Agouron's written notice, then such RNA Target
                  can become an Elected RNA Target.

2.11     EXCLUSIVE EFFORTS.

         2.11.1   DURING THE RESEARCH PROGRAM TERM.

                  During the Research Program Term, Ibis will work exclusively
                  in collaboration with Agouron to discover and develop products
                  useful in the Agouron Field.

         2.11.2   AFTER THE RESEARCH PROGRAM TERM.

                  After the end of the Research Program Term, Ibis will not
                  collaborate with any other party to discover and develop
                  products that bind to any Reserved RNA Target or an Elected
                  RNA Target during the Post-Research Program Term for any
                  Reserved RNA Target or Elected RNA Target.

         2.11.3   IBIS RETAINED RIGHTS.

                  Notwithstanding the foregoing, Ibis retains the right to:

                  (a)      [*]

                  (b)      [*]

                  (c)      [*]

                                   ARTICLE III
                    CERTAIN RESEARCH PROGRAM; DEVELOPMENT AND
                          COMMERCIALIZATION ACTIVITIES

3.1      SUPPLY OF AGOURON SCREENING COMPOUNDS; SELECTED COMPOUNDS;
         CONFIDENTIALITY.

         3.1.1    SUPPLY OF AGOURON SCREENING COMPOUNDS.

                  [*]

                                      14
<PAGE>

         3.1.2    SCREENING OF AGOURON SCREENING COMPOUNDS.

                  [*]

         3.1.3    IDENTIFICATION OF AGOURON SCREENING COMPOUNDS.

                  [*]

         3.1.4    CONFIDENTIALITY OF IDENTITY.

                  Ibis agrees and warrants that it will not attempt to
                  characterize or determine the chemical identity or structure
                  of any Agouron Screening Compound, including Additional
                  Identified Compounds, or Selected Compound, except as
                  expressly authorized by this Agreement. Ibis further agrees
                  that it will not distribute, or provide any Ibis employee with
                  access to any Agouron Screening Compound, including Additional
                  Identified Compounds, or Selected Compounds, except on a
                  "need-to-know" basis in connection with the performance of the
                  Research Program. Further, Ibis will not provide Agouron
                  Screening Compounds, including Additional Identified
                  Compounds, or Selected Compounds to employees of any other
                  division of Isis Pharmaceuticals, any Isis Affiliate, or any
                  Third Party. At the end of the Research Program Term, Ibis
                  will return to Agouron all samples of Agouron Screening
                  Compounds, if requested to do so by Agouron.

         3.1.5    NO OWNERSHIP BY IBIS.

                  Ibis acknowledges that it will have no ownership or other
                  rights in any Agouron Screening Compound, including Additional
                  Identified Compounds, or any Selected Compound, except as
                  expressly provided in this Agreement, and is expressly
                  prohibited from incorporating information pertaining to any
                  Agouron Screening Compound, including Additional Identified
                  Compounds, in any database of Ibis or any Affiliate or Third
                  Party. Ibis further acknowledges that Agouron will retain at
                  all times the right to research, develop, and commercialize
                  any Agouron Screening Compounds for applications outside the
                  Agouron Field, including the [*] by means other than through
                  interaction with RNA Targets, or for any human or animal
                  therapeutic, diagnostic, prophylactic or classification
                  application, except as expressly provided herein.

3.2      REPORTING ON SCREENING ACTIVITIES.

         On a regular basis (not less than once per month), Ibis will provide
         Agouron with an updated report on its RNA Target screening activities
         on all compounds screened in the Research Program. Such report will
         identify each compound by chemical structure, if available to Ibis, its
         proprietary designation, and summarize the screening activities for
         each such compound, including a description of the results of any
         screening activities against any RNA Targets. Prior to each JRC
         meeting, the Project Team will provide the

                                      15
<PAGE>

         JRC with a list of Selected Compounds for which it has conducted such
         screening activities, and a written summary of the results thereof.

3.3      PROCESS OF ELECTION OF RNA TARGETS FOR MEDICINAL CHEMISTRY STAGE.

         3.3.1    PERMITTED PRE-ELECTION MEDICINAL CHEMISTRY STAGE ACTIVITIES.

                  [*]

         3.3.2    ELECTED RNA TARGETS.

                  [*]

3.4      SELECTION OF COLLABORATION COMPOUNDS FOR ACTIVE
         DEVELOPMENT/COMMERCIALZATION PROGRAMS.

         Following the end of the Research Program Term, Agouron will provide
         Ibis annually with a written list of all Collaboration Compounds or
         Collaboration Products that are the subject of any Active
         Development/Commercialization Programs, as well as the Elected RNA
         Targets for such Collaboration Compounds or Collaboration Products, a
         written summary of the nature of each Active
         Development/Commercialization Program, the progress made in the prior
         year, and an estimate of planned progress. Whether or not there is an
         Active Development/Commercialization Program for a specific
         Collaboration Compound or Collaboration Product will be reasonably
         determined by Agouron, based on the level of resources applied to the
         program compared the level of resources applied to other programs with
         a similar likelihood of success and similar stage of development.

3.5      COMMERCIALLY REASONABLE EFFORTS.

         For each Active Development/Commercialization Program, Agouron will use
         reasonable efforts, consistent with the usual practice followed by
         Agouron in pursuing the commercialization and marketing of
         pharmaceutical products, to develop and commercialize Collaboration
         Product(s) on a commercially reasonable basis in such countries in the
         Territory where it is commercially viable to do so.

                                   ARTICLE IV
                                 LICENSE GRANTS

4.1      RESEARCH AND DEVELOPMENT.

         [*]

         Agouron hereby grants to Ibis a non-exclusive license, without the
         right to sublicense, under the Research Program Technology Patent
         Rights Controlled by Agouron to use the Research Program Technology,
         during the Research Program Term, to conduct activities to the extent
         necessary or useful for Ibis to perform its obligations in the Research
         Program throughout the Territory.

                                      16
<PAGE>

4.2      DEVELOPMENT AND COMMERCIALIZATION.

         Ibis hereby grants to Agouron and its Affiliates an exclusive license
         (even as to Ibis), with the right to sublicense, under Collaboration
         Patent Rights and to use Collaboration Technology Controlled by Ibis,
         to develop, make, have made, use, offer for sale, sell, and import
         Collaboration Compounds and Collaboration Products.

                                    ARTICLE V
                         PAYMENTS, ROYALTIES AND REPORTS

5.1      LICENSE FEE.

         In consideration for Ibis's commitment to perform its obligations under
         the Research Program and for [*] and Ibis Existing Technology under the
         licenses granted hereunder, Agouron will pay to Ibis a non-refundable
         license fee totaling [*] within [*] of the Effective Date.

5.2      RESEARCH PROGRAM FUNDING.

         In consideration for Ibis's performance of its obligations under the
         Research Program:

         5.2.1    FTE FUNDING.

                  (a)      [*]

                  (b)      [*]

         5.2.2    CORE PROJECT SUPPORT FEES.

                  [*]

         5.2.3    RESEARCH PROGRAM PROGRESS MILESTONES.

                  Ibis will also be entitled to the following Research Program
                  validation progress milestone payments upon achievement of the
                  indicated milestones:

                   (a)     [*]

                   (b)     [*]

5.3      MILESTONE PAYMENTS.

         Subject to the terms and conditions contained in this Agreement,
         Agouron will pay to Ibis the following non-refundable milestone
         payments for each Collaboration Product:

                  (a)      [*]

                  (b)      [*]

                                      17
<PAGE>

                  (c)      [*]

                  (d)      [*]

                  (e)      [*]

                  (f)      [*]

                  (g)      [*]

                  (h)      [*]

                  (i)      [*]

                  (j)      [*]

         [*]

5.4      ROYALTIES.

         Subject to the terms and conditions of this Agreement, for each
         Collaboration Product, Agouron will pay to Ibis royalties on Net Sales
         Revenue on a worldwide basis as follows:

         5.4.1    ROYALTY RATE.

                  (i)      [*]

                  (ii)     [*]

         5.4.2    ROYALTY SCHEDULE.

        ------------------------------------------------------------------------
         [*]
        ------------------------------------------------------------------------
         5.4.3    ROYALTY PERIOD.

                  Agouron's obligation to pay royalties to Ibis under Section
                  5.4 will begin upon the date of the First Commercial Sale in a
                  country of a Collaboration Product, and will end based upon
                  the following schedule, as appropriate:

                  (a)      [*]

                  (b)      [*]

         5.4.4    METHOD OF CALCULATION.

                  The calculation of the amount of annual royalties due under
                  the provisions of Section 5.4 will be subject to and in
                  accordance with the following provisions:

                                      18
<PAGE>

                  (a)      FREQUENCY. Royalties will be calculated on a
                           Calendar-Year basis. Royalties will be payable only
                           once with respect to a given unit of Collaboration
                           Product, regardless of the number of Enforceable
                           Claims of the Collaboration Patent Rights pertaining
                           to such Collaboration Product.

                  (b)      COMBINATION PRODUCTS. In calculating royalties with
                           respect to any Combination Product, the Parties will
                           enter into good-faith negotiations regarding the
                           percentage of the Net Sales Revenue of such
                           Combination Product to be used in calculating
                           royalties payable with respect to such Combination
                           Product, on a country-by-country basis. If the
                           Parties are unable to agree upon such percentage of
                           Net Sales Revenue for Combination Products, then such
                           percentage will be equal to a fraction whose
                           numerator is Agouron's, its Affiliates' or
                           Sublicensees' published sales price in such country
                           for equivalent dosages of all active ingredients that
                           are Collaboration Compounds contained in a given
                           Combination Product, and whose denominator is
                           Agouron's, its Affiliates' or Sublicensees' published
                           sale price in such country for equivalent dosages of
                           all active ingredients contained therein. If the
                           numerator and denominator cannot be determined in the
                           manner set forth above, then they will be determined
                           reasonably by Agouron based on the relative
                           contributions to the prophylactic or therapeutic
                           effect of the Combination Product of the active
                           ingredients.

                  (c)      [*]

                  (d)      COMPULSORY LICENSES.

                           (i)      [*]

                           (ii)     [*]

                  (e)      Sales to Third Parties. No sales will be deemed to
                           have occurred as the result of sales between and
                           among Agouron, its Affiliates and Sublicensees; it
                           being understood that sales occur when made to
                           Third-Party purchasers. If Agouron, its Affiliates or
                           Sublicensees intend to use a Collaboration Product
                           rather than resell it, the sales price for such
                           Collaboration Product will be calculated based on the
                           average of the sales prices of Collaboration Product
                           to Third Parties during the period in which such
                           Collaboration Product is used by Agouron, its
                           Affiliate or Sublicensee, and included in Net Sales
                           Revenue as if sold to a Third Party at such price
                           during such period.

                  (f)      SALES UPON INVOICING. A sale of a Collaboration
                           Product will be deemed to have occurred upon the
                           invoicing of such Collaboration Product for value to
                           a Third-Party purchaser; or if not invoiced, then
                           when delivered, shipped, or paid for, whichever is
                           first, provided, however, that if a sale of a
                           Collaboration Product occurs in a country (e.g.,
                           Spain or Italy) or to a category of customer (e.g.,
                           hospitals) where the customary payment terms exceed
                           ninety (90) days from the date of invoicing, the sale
                           of a

                                      19
<PAGE>

                           Collaboration Product in such country or to such
                           category of customer will be deemed to have occurred
                           upon the date of receipt of payment for such sale
                           and will be reported as a sale for the calendar
                           quarter in which such date of receipt occurred.

                  (g)      OTHER CONSIDERATION. In the case of a sale or other
                           disposal of a Collaboration Product for value other
                           than in an arm's-length transaction exclusively for
                           money, such as barter or counter-trade, the amount of
                           such sale will be calculated using the fair market
                           value of such Collaboration Product (if higher than
                           the stated sales price) in the country of
                           disposition.

5.5      THIRD-PARTY TECHNOLOGY.

         [*]

5.6      REPORTS; PAYMENT OF ROYALTY.

         Following the First Commercial Sale of a Collaboration Product and
         during the term of the Agreement, Agouron will furnish to Ibis a
         quarterly written report showing all Net Sales Revenue of Collaboration
         Products sold by Agouron, its Affiliates and its Sublicensees in the
         Territory during the reporting period and the royalties payable under
         this Agreement. Reports will be due on the 60th day following the close
         of each quarterly period. Royalties shown to have accrued by each
         royalty report will be due and payable on the date such royalty report
         is due. Agouron will keep complete and accurate records in sufficient
         detail to enable the royalties payable hereunder to be determined.

5.7      AUDITS.

         5.7.1    AUDIT RIGHTS.

                  Upon the written request of Ibis, and not more than once in
                  each Calendar Year, Agouron will permit an independent
                  certified public accounting firm of nationally recognized
                  standing selected by Ibis and reasonably acceptable to
                  Agouron, to have access during normal business hours to such
                  of the records of Agouron as may be reasonably necessary to
                  verify the accuracy of the royalty reports hereunder for any
                  year ending not more than 24 months prior to the date of such
                  request. The accounting firm will disclose to Ibis only
                  whether the royalty reports are correct or incorrect and the
                  specific details concerning any discrepancies. Upon the
                  expiration of 24 months following the end of any year, the
                  calculation of royalties payable with respect to such year
                  will be binding and conclusive upon Ibis, and Agouron, its
                  Affiliates, and its Sublicensees will be released from any
                  liability or accountability with respect to royalties for such
                  year.

         5.7.2    AUDIT FEES.

                  If such accounting firm concludes that additional royalties
                  were owed during such period, Agouron will pay the additional
                  royalties within 30 days of the date Ibis delivers to Agouron
                  such accounting firm's written report. If Agouron disagrees
                  with the report, then the parties will resolve such
                  disagreement pursuant to the provisions of Section 11.6. The
                  fees charged by such accounting firm will be paid

                                      20
<PAGE>

                  by Ibis unless the additional royalties owed by Agouron
                  exceed 5% of the royalties paid for the royalty period subject
                  to the audit, in which case Agouron will pay the reasonable
                  fees of the accounting firm.

         5.7.3    SUBLICENSEE REPORTS.

                  Agouron will include in each sublicense granted by it pursuant
                  to this Agreement a provision requiring the Sublicensee to
                  make reports to Agouron, and to keep and maintain records of
                  sales made pursuant to such sublicense. Ibis's independent
                  accountant will be granted access to such reports as part of
                  the above-referenced audit.

         5.7.4    CONFIDENTIALITY.

                  Ibis will treat all financial information subject to review
                  under this Section 5.7 or under any sublicense agreement in
                  accordance with the confidentiality provisions of this
                  Agreement, and will cause its accounting firm to enter into an
                  acceptable confidentiality agreement with Agouron obligating
                  it to retain all such financial information in confidence
                  pursuant to such confidentiality agreement.

5.8      PAYMENT EXCHANGE RATE.

         All payments to Ibis under this Agreement will be made in United States
         dollars by bank wire transfer in immediately available funds to such
         bank account in the United States designated in writing by Ibis from
         time to time. Any required conversion of Net Sales Revenue to U.S.
         dollars will be made using the monthly average of the rates of exchange
         for each day in the calendar month in which the sale of a Collaboration
         Product occurred. The rate of exchange to be used will be the rate of
         exchange used by Agouron in its worldwide accounting system in the
         quarterly period to which such payments relate. If Agouron has no
         designated rate, the rate quoted in the Los Angeles edition of the WALL
         STREET JOURNAL will be used.

5.9      FOREIGN CURRENCY.

         When royalties or other payments are due for Net Sales Revenue in a
         country where, for reasons of currency, tax or other regulations,
         transfer of foreign currency from such country is prohibited, Agouron
         will have the right to deposit the royalties owed to Ibis in the
         applicable country's currency in a bank account in such country in the
         name of and under the sole control of Ibis; provided, however, that the
         bank selected is reasonably acceptable to Ibis and Agouron promptly
         informs Ibis in writing of the location, account number, amount, and
         currency of the monies deposited therein. After Ibis has been so
         notified, those monies will be considered as royalties duly paid to
         Ibis, and will be completely controlled by Ibis, and Agouron will have
         no further responsibility with respect thereto.

                                      21
<PAGE>

5.10     INCOME TAX WITHHOLDING.

         If laws, rules or regulations require withholding of income taxes or
         other taxes imposed upon payments set forth in this Article V, Agouron
         will make such withholding payments as required and subtract such
         withholding payments from the payments set forth in this Article V.
         Agouron will submit appropriate proof of payment of the withholding
         taxes to Ibis within a reasonable period of time.

                                   ARTICLE VI
                         REPRESENTATIONS AND WARRANTIES

6.1      IBIS REPRESENTATIONS AND WARRANTIES.

         Ibis represents and warrants to Agouron that as of the date of this
         Agreement:

         (a)      it has the full right, power and authority to enter into this
                  Agreement, to perform the Research Plan and to grant the
                  licenses granted under Article IV hereof;

         (b)      to the best of its knowledge, the licenses granted under
                  Article IV hereof will fully enable the performance of the
                  Research Plan by the Parties, and there are no other licenses
                  required from any Third Party, including from any nonprofit
                  institutions, the U.S. Government, or to any agency thereof,
                  including the U.S. Department of Commerce or the U.S.
                  Department of Defense, to enable Parties to perform the
                  Research Plan activities contemplated hereunder without
                  interference;

         (c)      to the best of its knowledge, Ibis has not previously
                  assigned, transferred, conveyed or otherwise encumbered its
                  right, title and interest in the [*], including to any
                  nonprofit institutions, the U.S. Government, or to any agency
                  thereof, including the U.S. Department of Commerce or the U.S.
                  Department of Defense, so as to interfere with Ibis's ability
                  to perform the Research Plan activities or grant the licenses
                  contemplated hereunder, or so as to interfere with Agouron's
                  ability to freely develop, manufacture, or commercialize
                  Collaboration Products; and

         (d)      Ibis has not taken nor will not take any action which would,
                  in Ibis's good faith judgment, interfere with any obligations
                  of Ibis set forth in this Agreement, including but not limited
                  to the obligation to grant Agouron the licenses described in
                  Article IV.

6.2      AGOURON REPRESENTATIONS AND WARRANTIES.

         Agouron represents and warrants to Ibis that as of the date of this
         Agreement it has the full right, power and authority to enter into this
         Agreement, to perform the Research Plan and to grant to Ibis the
         licenses described in Article IV.

                                      22
<PAGE>

                                  ARTICLE VII
                                PATENT MATTERS

7.1      [*]

         [*]

7.2      OWNERSHIP OF INVENTIONS.

         [*]

7.3      REPORTING AND COOPERATION.

         [*]

7.4      FILING, PROSECUTION AND MAINTENANCE OF PATENTS.

         7.4.1    [*]

                  (a)      [*]

                  (b)      [*]

         7.4.2    RESEARCH PROGRAM TECHNOLOGY PATENT RIGHTS.

                  (a)      [*]

                  (b)      [*]

         7.4.3    COLLABORATION PATENT RIGHTS.

                  (a)      [*]

                  (b)      [*]

7.5      PATENT ENFORCEMENT AGAINST THIRD-PARTY INFRINGERS.

         7.5.1    IBIS [*] AND IBIS EXISTING PATENT RIGHTS.

                  (a)      [*]

                  (b)      [*]

         7.5.2    RESEARCH PROGRAM TECHNOLOGY PATENT RIGHTS.

                  (a)      [*]

                  (b)      [*]

                                      23
<PAGE>

         7.5.3    COLLABORATION PATENT RIGHTS.

                  (a)      [*]

                  (b)      [*]

         7.5.4    COOPERATION BETWEEN PARTIES.

                  [*]

         7.5.5    [*]

                  (a)      [*]

                           (i)      [*]

                           (ii)     [*]

                  (b)      [*]

                           (i)      [*]

                           (ii)     [*]

         7.5.6    SETTLEMENT.

                  [*]

7.6      INFRINGEMENT OF THIRD-PARTY PATENT RIGHTS.

         [*]

                                  ARTICLE VIII
                                       [*]

8.1      [*]

         [*]

8.2      [*]

         [*]

8.3      [*]

         [*]

8.4      [*]

         [*]

                                      24
<PAGE>

8.5      [*]

         [*]

8.6      [*]

         [*]

         (a)      [*]

         (b)      [*]

         (c)      [*]

         (d)      [*]

                                   ARTICLE IX
                              TERM AND TERMINATION

9.1      AGREEMENT TERM AND EXPIRATION.

         This Agreement will be effective as of the Effective Date and, unless
         terminated earlier pursuant to Section 9.2, the term of this Agreement
         will continue in effect until expiration of all licenses and royalty
         obligations hereunder.

9.2      TERMINATION.

         9.2.1    TERMINATION FOR MATERIAL DEFAULT.

                  (a)      This Agreement will be terminable upon the material
                           default of either Party. In the event of such default
                           by a Party ("Defaulting Party"), the other Party
                           ("Non-Defaulting Party") will give the Defaulting
                           Party written notice of the default and its election
                           to terminate this Agreement at the expiration of a
                           cure period ninety (90) days from the date of the
                           notice. If the Defaulting Party fails to resolve the
                           default during the cure period by: (a) curing the
                           default, (b) providing a written explanation
                           satisfactory to the Non-Defaulting Party that a
                           default has not occurred, or (c) entering into a
                           written agreement with the Non-Defaulting Party for
                           the cure or other resolution of the default, then the
                           Non-Defaulting Party may terminate this Agreement by
                           giving fifteen days prior written notice to the
                           Defaulting Party. The termination will be effective
                           fifteen days after Defaulting Party's receipt of such
                           notice. All termination rights will be in addition to
                           and not in substitution for any other remedies that
                           may be available to the Non-Defaulting Party.
                           Termination pursuant to this section will not relieve
                           the Defaulting Party from liability and damages to
                           the Non-Defaulting Party for default. Waiver by
                           either Party of a single default or a succession of
                           defaults will not deprive such Party of any right to
                           terminate this Agreement arising by reason of any
                           subsequent default.

                                      25
<PAGE>

                  (b)      If Agouron or Ibis terminate this Agreement pursuant
                           to Section 9.2.1(a), all rights and licenses granted
                           hereunder will terminate. However, if there is a
                           material breach of this Agreement by Ibis and such
                           breach is not cured by Ibis during the period
                           stipulated in Section 9.2.1(a), but Agouron
                           nevertheless wishes to retain its rights granted by
                           the terms of this Agreement with respect to
                           Collaboration Compounds or Collaboration Products,
                           then Agouron may elect not to terminate this
                           Agreement but may terminate only the licenses granted
                           to Ibis and will not be obligated to make any
                           payments to Ibis to compensate Ibis for performance
                           that was the subject of the material breach. In
                           addition Agouron may pursue an action for damages or
                           other relief arising as a result of such material
                           breach. If there is a material breach of this
                           Agreement by Agouron and such breach is not cured by
                           Agouron during the period stipulated in Section
                           9.2.1(a), but Ibis nevertheless does not wish to
                           terminate this Agreement, then Ibis will be entitled
                           to pursue an action for damages or other relief
                           arising as a result of such material breach.

         9.2.2    TERMINATION UPON BANKRUPTCY.

                  (a)      Any Party may terminate this Agreement by notice to
                           the other Party upon the filing or institution of
                           bankruptcy, reorganization, liquidation or
                           receivership proceedings, or upon an assignment of a
                           substantial portion of the assets for the benefit of
                           creditors by the other Party; provided, however, in
                           the case of any involuntary bankruptcy proceeding
                           such right to terminate will only become effective if
                           the Party consents to the involuntary bankruptcy or
                           such proceeding is not dismissed within 90 days after
                           the filing thereof.

                  (b)      If Agouron terminates this Agreement under Section
                           9.2.2(a) or this Agreement is otherwise terminated
                           under 9.2.2(a), all rights and licenses granted
                           pursuant to this Agreement are, and will otherwise be
                           deemed to be, for purposes of Section 365(n) of the
                           Bankruptcy Code, licenses of rights to "intellectual
                           property" as defined under Section 101(35A) of the
                           Bankruptcy Code. The Parties agree that Agouron, as a
                           licensee of such rights under this Agreement, will
                           retain and may fully exercise all of its rights and
                           elections under the Bankruptcy Code. The Parties
                           further agree that, in the event of the commencement
                           of a bankruptcy proceeding by or against Ibis under
                           the Bankruptcy Code, Agouron will be entitled to a
                           complete duplicate of (or complete access to, as
                           appropriate) any such intellectual property and all
                           embodiments of such intellectual property upon
                           written request therefor by Agouron. Such
                           intellectual property and all embodiments thereof
                           will be promptly delivered to Agouron (i) upon any
                           such commencement of a bankruptcy proceeding upon
                           written request therefore by Agouron, unless Ibis
                           elects to continue to perform its respective
                           obligations under this Agreement or (it) if not
                           delivered under (i) above, upon the rejection of this
                           Agreement by or on behalf of Ibis, as the case may
                           be, upon written request therefor by Agouron.

                                       26

<PAGE>

         9.2.3    TERMINATION BY AGOURON'S NOTICE.

                  Notwithstanding anything contained herein to the contrary,
                  after expiration of the Research Program Term, Agouron will
                  have the right to terminate this Agreement at any time by
                  giving 90 days advance written notice to Ibis.

9.3.     DISPOSITION OF INVENTORY.

         If any license rights of Agouron are terminated with respect to a
         Collaboration Product that is on the market, then Agouron may sell its
         inventory of such Collaboration Product for up to six months after the
         date of such termination, provided that required royalty payments, if
         any, are made to Ibis in connection therewith.

9.4.     EFFECT OF EXPIRATION OR TERMINATION.

         (a)      Expiration or termination of this Agreement will not relieve
                  the Parties of any obligation accruing prior to such
                  expiration or termination, and Agouron will be obligated to
                  pay and will pay to Ibis, within 30 calendar days of such
                  expiration or termination, all payments and royalties due or
                  accrued pursuant to the terms of Article V herein. The
                  provisions of Article X will survive the expiration or
                  termination of this Agreement and will continue in effect for
                  7 years from the date of expiration or termination. Any other
                  provisions that from their nature are apparently intended to
                  remain in force will also survive the expiration or
                  termination of this Agreement. Any expiration or early
                  termination of this Agreement will be without prejudice to the
                  rights of any Party against the others accrued or accruing
                  under this Agreement prior to termination, including Agouron's
                  obligation to pay royalties to Ibis on Net Sales Revenue for
                  Collaboration Products. If Agouron continues to develop and/or
                  commercialize Collaboration Compounds and/or Collaboration
                  Products after the termination of this Agreement, then such
                  development and/or commercialization will be subject to the
                  provisions of Article V, with the exception of Sections 5.1
                  and 5.2 thereof.

         (b)      [*]

                                    ARTICLE X
                   CONFIDENTIALITY, PUBLICATION AND PUBLICITY

10.1     NON-DISCLOSURE AND NON-USE OBLIGATIONS.

         All Proprietary Information disclosed by one Party to the other Party
         hereunder will be maintained in confidence by the receiving Party and
         will not be disclosed by it to any Third Party or used for any purpose
         (except as expressly permitted herein) without the prior written
         consent of the disclosing Party.

                                       27

<PAGE>

10.2     PERMITTED DISCLOSURE OF PROPRIETARY INFORMATION.

         Notwithstanding Section 10.1, a Party receiving Proprietary Information
         of the other Party may disclose such Proprietary Information:

         (a)      to governmental or other regulatory agencies in order to
                  obtain Patent Rights as provided for in this Agreement, or to
                  gain approval to conduct clinical trials or to market any
                  Collaboration Product pursuant to this Agreement, provided
                  that receiving Party notifies the disclosing Party of its
                  intent to disclose such Proprietary Information and limits the
                  disclosure to only that Proprietary Information reasonably
                  necessary to obtain such Patent Rights or authorizations;

         (b)      by Agouron to its permitted sublicensees, agents, consultants,
                  Affiliates and/or other Third Parties for the research and
                  development, manufacturing and/or marketing of any
                  Collaboration Compounds or Collaboration Products (or for such
                  parties to determine their interest in performing such
                  activities) in accordance with this Agreement on the condition
                  that such Third Parties agree to be bound by the
                  confidentiality obligations contained in this Agreement; or

         (c)      if required to be disclosed by law or court order, provided
                  that advance written notice is delivered to the non-disclosing
                  Party so as to provide such Party a reasonable opportunity to
                  challenge or limit the disclosure obligations.

10.3     NO WRITTEN PUBLICATION AND ORAL DISCLOSURES.

         [*]

10.4     PUBLIC DISCLOSURE OF AGREEMENT.

         [*]

                                   ARTICLE XI
                                 MISCELLANEOUS

11.1     FORCE MAJEURE.

         No Party will be held liable or responsible to the other Party nor be
         deemed to have defaulted under or breached the Agreement for failure or
         delay in fulfilling or performing any term of the Agreement (except
         payment obligations) when such failure or delay is caused by or results
         from causes beyond the reasonable control of the affected Party
         including, but not limited to, fire, flood, embargo, war, acts of war
         (whether war be declared or not), insurrection, riot, civil commotion,
         strike, lockout or other labor disturbance, act of God or act, omission
         or delay in acting by any governmental authority or the other Party,
         provided that for the duration of such force majeure the affected Party
         continues to use all reasonable efforts to overcome such force majeure.
         The affected Party will notify the other Party of such force majeure
         circumstances as soon as reasonably practical.

                                       28

<PAGE>

11.2     ASSIGNMENT.

         The Agreement may neither be assigned or otherwise transferred, nor,
         except as expressly provided hereunder, may any right or obligations
         hereunder be assigned or transferred, by a Party without the consent of
         the other Party; provided however, that any Party may, without such
         consent, assign the Agreement and its rights and obligations hereunder
         to (a) an Affiliate; (b) in connection with the transfer or sale of all
         or substantially all of its assets or business, including the
         applicable Patent Rights and Technology and other assets relating to
         the subject matter of this Agreement, or (c) in the event of its merger
         or consolidation or change in control or similar transaction. Any
         permitted assignee will assume all obligations of its assignor under
         this Agreement.

11.3     SEVERABILITY.

         In the event that any of the provisions contained in this Agreement are
         held invalid, illegal or unenforceable in any respect, the validity,
         legality and enforceability of the remaining provisions contained
         herein will not in any way be affected or impaired thereby, unless the
         absence of the invalidated provision(s) adversely affect the
         substantive rights of the Parties. The Parties will replace the
         invalid, illegal or unenforceable provision(s) with valid, legal and
         enforceable provision(s), which, insofar as practical, implement the
         purposes of this Agreement.

11.4     NOTICES.

         All notices or other communications which are required or permitted
         hereunder will be in writing and deemed to be effective (a) on the date
         of delivery if delivered in person and written confirmation of delivery
         is provided, (b) on the date of faxing or other electronic
         transmission, provided such transmission is acknowledged in writing by
         the Party receiving the transmission, (c) on the day following date of
         deposit with an overnight courier if a receipt confirming delivery by
         overnight courier is provided, or (d) three days after mailing if
         mailed by first-class certified mail, postage paid, to the respective
         addresses given below, or to another address as it will designate by
         written notice given to the other Party.

                  if to Ibis, to:      Isis Pharmaceuticals, Inc.
                                       2292 Faraday Avenue
                                       Carlsbad, CA 92008
                                       Attention: Chief Executive Officer
                                       Facsimile No.: 760-931-0265

                  with a copy to:      Attention- CFO
                                       Facsimile No.: 760-931-9639

                  if to Agouron, to:   Agouron Pharmaceuticals, Inc.
                                       10350 North Torrey Pines Road
                                       La Jolla, CA  92037
                                       Attention: Director, Business Development
                                       Facsimile No.: 858-678-8275

                                       29

<PAGE>

                  with a copy to:      Attention: General Counsel
                                       Facsimile No.: 858-622-3297

11.5     APPLICABLE LAW.

         The Agreement will be governed by and construed in accordance with the
         laws of the State of California, as applied to contracts executed and
         performed entirely within the state, without reference to any rules of
         conflict of laws or renvoi, provided, however, that issues concerning
         the validity and construction of patents, trademarks and other
         intellectual property rights will be determined in accordance with the
         laws of the country under which such intellectual property rights were
         granted.

11.6     DISPUTE RESOLUTION.

         (a)      PRE-ARBITRATION EFFORTS. In the event of any controversy or
                  claim arising from or relating to any provision of this
                  Agreement, or any term or condition hereof, or the performance
                  by a Party of its obligations hereunder, or its construction
                  or its actual or alleged breach, the Parties will try to
                  settle their differences amicably between themselves. If the
                  representatives of the Parties are unable to reach agreement
                  on any such issue, the issue will be submitted for
                  consideration, in the case of Agouron, to its Corporate Vice
                  President, Head of Research, or its designee, and in the case
                  of Ibis, to its Managing Director, or its designee. If such
                  representatives are unable to agree within fourteen (14) days,
                  then the issue will be submitted for consideration to, in the
                  case of Agouron, to its President, Global Commercial
                  Operations, and, in the case of Ibis, to its Chief Executive
                  Officer. If such representative are unable to agree within
                  fourteen (14) days, then any disputes remaining unresolved
                  between the Parties, except as otherwise provided in this
                  Agreement, will be finally resolved by binding arbitration, as
                  set forth below.

         (b)      ARBITRATION JURISDICTION. Any dispute or controversy arising
                  out of or relating to this Agreement not able to be resolved
                  between the Parties will be finally decided by arbitration in
                  accordance with the then-current Licensing Agreement
                  Arbitration Rules of the American Arbitration Association;
                  provided, however, that the California Code of Civil Procedure
                  will apply to any such proceeding. Any arbitration proceeding
                  will be conducted in San Diego, California. The Parties agree
                  that any arbitration panel will include members knowledgeable
                  as to evaluation of biopharmaceutical technology.

         (c)      ARBITRATION PROCEDURES. Whenever a Party decides to institute
                  arbitration proceedings, it will give written notice to the
                  other Party. A single arbitrator mutually chosen by the
                  Parties will conduct the arbitration. If the Parties cannot
                  agree upon a single arbitrator within fifteen (15) days after
                  the institution of the arbitration proceeding, then the
                  arbitration will be conducted by a panel of three arbitrators
                  appointed in accordance with applicable AAA rules; provided,
                  however, that each Party will within thirty (30) days after
                  the institution of the arbitration proceedings appoint one
                  arbitrator, with the third arbitrator being chosen by the
                  other two arbitrators. If only one Party appoints an
                  arbitrator, then

                                       30

<PAGE>

        such arbitrator will be entitled to act as the sole arbitrator to
        resolve the controversy. All arbitrator(s) eligible to conduct the
        arbitration must agree to render their opinion(s) within thirty (30)
        days of the final arbitration hearing. The arbitrator(s) will have
        the authority to grant injunctive relief and specific performance,
        and to allocate between the Parties the costs of arbitration in an
        equitable manner; provided, however, that each Party will bear its
        own costs, attorneys fees and witness fees. Notwithstanding the terms
        of this Section, a Party will also have the right to obtain, prior to
        the arbitrator(s) rendering the arbitration decision, provisional
        remedies, including injunctive relief or specific performance, from a
        court having jurisdiction thereof. The arbitrator(s) will, upon the
        request of either Party, issue a written opinion of the findings of
        fact and conclusions of law and will deliver a copy to each of the
        Parties. Decisions of the arbitrator(s) will be final and binding on
        the Parties. Judgment upon the award rendered may be entered in the
        highest court or forum, state or federal, having jurisdiction;
        provided, however, that the provisions of this Section will not apply
        to decisions on the validity of patent claims or to any dispute or
        controversy as to which any treaty or law prohibits such arbitration.
        In no event will a demand for arbitration be made after the date when
        institution of a legal or equitable proceeding based on such claim,
        dispute or other matter in question would be barred by the applicable
        statute of limitations.

11.7     REGULATORY APPROVALS.

         The expenses for all approvals and licenses sought by Agouron for
         importation, marketing and selling of Collaboration Products in any
         country throughout the world will be borne by Agouron. Agouron will
         have sole title to and ownership of any such approvals and licenses it
         obtains.

11.8     ENTIRE AGREEMENT.

         This Agreement contains the entire understanding of the Parties with
         respect to the subject matter hereof. All express or implied agreements
         and understandings, either oral or written, heretofore made are
         expressly merged in and made a part of this Agreement. This Agreement
         may be amended, or any term hereof modified, only by a written
         instrument duly executed by the Parties hereto.

11.9     HEADINGS.

         The captions to the Articles and Sections hereof are not a part of the
         Agreement, but are merely guides or labels to assist in locating and
         reading the several Articles and Sections hereof.

11.10    INDEPENDENT CONTRACTORS.

         It is expressly agreed that the Parties will be independent contractors
         and that the relationship between the Parties will not constitute a
         partnership, joint venture or agency. No Party will have the authority
         to make any statements, representations or commitments

                                       31

<PAGE>

         of any kind, or to take any action, which will be binding on the other
         Party, without the prior consent of such other Party.

11.11    WAIVER.

         The waiver by a Party hereto of any right hereunder or the failure to
         perform or of a breach by another Party will not be deemed a waiver of
         any other right hereunder or of any other breach or failure by said
         other Party whether of a similar nature or otherwise.

11.12    COUNTERPARTS.

         The Agreement may be executed in two or more counterparts, each of
         which will be deemed an original, but all of which together will
         constitute one and the same instrument.

                                       32

<PAGE>

         IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date set forth below.

AGOURON PHARMACEUTICALS, INC.                    ISIS PHARMACEUTICALS, INC.

BY:__________________________                    BY:____________________________

Name: Barry D. Quart, Pharm.D.                   Name: B. Lynne Parshall

Title: President, Agouron Research and           Title: Executive Vice President
         Development

Date:________________________                    Date:__________________________

                                       33

<PAGE>

                                   EXHIBIT A

                                      [*]

[*]

                                       34

<PAGE>

                                   EXHIBIT B

                                      [*]

[*]

[*]

[*]

                                       35<PAGE>

                                                                    Exhibit 10.1

June 28, 2000

Mr. Lawrence E. Hyatt
[address redacted]

Dear Larry:

This letter confirms our offer to you of employment by PSINet Inc. (the
"Company") and sets forth the terms and conditions which shall govern such
employment as outlined below. This offer is subject to ratification by the
Company's Board of Directors (to be considered at the meeting scheduled to take
place on or about July 25, 2000), but otherwise shall remain open until close of
business on July 5, 2000.

1. EMPLOYMENT.

a) The Company agrees to employ you as Executive Vice President and Chief
Financial Officer of the Company, although you may serve in other executive
capacities within the Company and/or its subsidiaries as the Board of Directors
of the Company shall determine is appropriate over time. This is a corporate
officer position and as an officer of the Company you must stand for election by
the Board of Directors each year. You accept the employment and agree to remain
in the employ of the Company, and, except during vacations or periods of
illness, to provide management services to the Company, as determined by and
under the direction of the Chairman of the Company.

         With respect to the provisions of said services, the parties agree to
observe and to abide by the terms and conditions set forth herein.

b) In connection with your employment by the Company, your principal place of
employment shall be the greater Washington, D.C. area and you shall not be
required permanently to relocate to a principal place of business outside the
greater Washington, D.C. area during the term of your employment hereunder.

c) During your employment, you will, except during vacations, periods of
illness, and other absences beyond your reasonable control, devote your best
efforts, skill and attention to the performance of your duties on behalf of the
Company.

2. TERM OF EMPLOYMENT. The term of the employment under this Agreement shall
commence on July 10, 2000 (the "Start Date"), and shall continue for a period of
three (3) years. The Company agrees to notify you 12 months prior to the
expiration of this term regarding its intentions with respect to the renewal of
your employment following the expiration of this term.

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 2

3. COMPENSATION.

a) BASE SALARY. The Company shall pay you a base salary at the rate of $350,000
per annum. Beginning on January 1, 2001 and on January 1st of each succeeding
year during the term of this Agreement, your base salary shall be increased at a
minimum by an amount equal to five percent (5%) of your then current base
salary. Your base salary shall be subject to additional increases at the
discretion of the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee"). Your base salary shall be payable in such
installments as the Company regularly pays its other salaried employees, subject
to such deductions and withholdings as may be required by law or by further
agreement with you.

b) PERFORMANCE BONUS. The Company will pay you a bonus subject to the successful
completion of the objectives established for your performance for the applicable
year. The performance criteria will be issued separately by the Compensation
Committee and may be changed, with mutual fairness, from time to time as
situations develop. The target performance bonus for the year ending December
31, 2000 will be $150,000 (pro-rated as required). The target performance bonus
for subsequent calendar years during the term of this Agreement will be
$150,000, or such greater amount as may be determined by the Compensation
Committee, and shall be payable to you subject to the successful completion of
the objectives established for your performance by the Compensation Committee.

c) INCENTIVE STOCK OPTIONS. On your Start Date, the Company shall grant you
options to purchase 200,000 shares of the Company's common stock (the "Options")
pursuant to its Executive Stock Incentive Plan (the "Plan"). Such Options shall
be evidenced by an option agreement in such form as required by the Plan. Among
other terms and provisions prescribed by the Plan, the option agreement shall
provide that (i) the exercise price of the Options shall be the price per share
of the Company's common stock as reported by the NASDAQ Stock Market at the
close of business on your Start Date, (ii) the Options shall not be exercisable
after the expiration of ten (10) years from the date such Options are granted,
and (iii) the Options shall vest ratably, monthly, over forty-eight (48) months,
provided that, for each month's vesting purposes, you continue to be employed
full time by the Company or one of its subsidiaries during such month.

In addition, on July 10 of each subsequent year of this Agreement, the Company
shall grant you options to purchase an additional 25,000 shares of the Company's
common stock pursuant to the Plan or another option plan of the Company, such
grant being subject to the terms of this Agreement and (1) the achievement of
the performance criteria to be established pursuant to paragraph 3(b) above, (2)
your continued employment at the time of grant, and (3) the options having an
exercise price equal to the closing price per share (as reported by the NASDAQ
Stock Market) of the Company's common stock on the date of grant.

d) VESTING OF STOCK OPTIONS. In the event of a Change in Control, as defined in
Section 8 below, or upon the occasion of your death during the term of this
Agreement while you

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 3

are in compliance with the requirements hereof, the Company shall: (i) vest
immediately all of the unvested stock options you have received during the
period of your employment hereunder, (ii) in the event that your employment
is terminated or continued under conditions not substantially the same as
those called for in this Agreement, the Company shall, subject to shareholder
approval, if required, provide a loan sufficient to exercise all vested stock
options and pay any required taxes to which you may be subjected as a result,
with the terms of the loan to be no less favorable than installment free for
the duration, interest charged at the IRS minimum rate, with a five (5) year
balloon payment for interest and principal.

4. EMPLOYEE BENEFITS. You shall be provided employee benefits, including
(without limitation) 401(k) and related plans, revenue bonus plan participation,
four weeks' paid vacation which can accumulate to a maximum of eight (8) weeks,
and life, health, accident and disability insurance under the Company's standard
plans, policies and programs available to employees in accordance with the
provisions of such plans, policies, and programs.

5. TERMINATION.

a) Your employment with the Company may be terminated by the Company at any time
for "Cause" as defined in Section 5(c) hereof. In the event of a termination for
"Cause", all salary and benefits otherwise payable to you shall cease
immediately upon such termination. Upon such termination, the Company will
provide written notice whether it has elected to use the non-competition
restrictions set forth in Section 6(a) hereof. Termination by the Company or its
successors in interest for any reason other than Cause shall be deemed a breach
hereof. In addition, your employment may be terminated by you at any time for
any reason, provided you shall have given the Company at least thirty (30) days'
prior written notice of such termination. In the event of termination by you,
your salary and benefits shall continue during the thirty (30) day notice period
and shall cease thereafter, subject to the provisions of Section 5(b) hereof. By
the thirtieth (30th) day the Company must notify you in writing whether it has
elected to use the non-Competition restriction. Such decision may not be
rescinded. Failure of the Company to so notify you shall result in the
non-Competition restriction not being in place.

b) Subject to your compliance with your obligations under Section 6 hereof, in
the event that your employment terminates or is terminated by you or the Company
for any reason, and the Company has elected to use the non-Competition
restriction, you shall be entitled, for a period of twenty-four (24) months
after termination of employment, to the following (collectively, the
"Termination Payments"): (i) your then current rate of base salary as provided
in Section 3; (ii) all life insurance and health benefits, disability insurance
and benefits and reimbursement theretofore being provided to you; and (iii)
Company contributions, to the extent permitted by applicable law, to a SEP-IRA,
Keogh or other retirement mechanism selected by you sufficient to provide the
same level of retirement benefits you would have received if you had remained
employed by the Company during such twenty-four (24) month period. The Company
shall make up the difference in cash payments directly to you to the extent that
applicable law would not permit it to make such contributions.

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 4

c) The Company shall have "Cause" for termination of your employment by reason
of any breach of your agreement not to compete pursuant to Section 6 hereof,
your committing an act materially adversely affecting the Company which
constitutes wanton or willful misconduct, your conviction of a felony, your
voluntary resignation without having given the Company at least thirty (30)
days' prior written notice, or any material breach by you of this Agreement.

6. AGREEMENT NOT TO COMPETE.

a) In consideration of your employment pursuant to this Agreement and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, you covenant to and agree with the Company that, so long as you
are employed by the Company under this Agreement and for a period of twenty-four
(24) months following the termination of such employment (but only if the
Company has elected to enforce the restriction), you shall not, without the
prior written consent of the Company, either for yourself or for any other
person, firm or corporation, manage, operate, control, participate in the
management, operation or control of or be employed by any other person or entity
which is engaged in providing Internet-related network or communications
services competitive with the Internet-related network or communication services
offered to customers by the Company as of the date of termination or within six
(6) months thereafter. The foregoing shall in no event restrict you from: (i)
writing or teaching, whether on behalf of for-profit, or not-for-profit
institution(s); (ii) investing (without participating in management or
operation) in the securities of any private or publicly traded corporation or
entity; or (iii) after termination of employment, becoming employed by a
hardware, software or other vendor to the Company, provided that such vendor
does not offer network or communication services that are competitive with the
Internet-related network or communications services offered by the Company as of
the date of termination of employment or within six (6) months thereafter.

b) You may request permission from the Company's Board of Directors to engage in
activities, which would otherwise be prohibited by Section 6(a). The Company
shall respond to such request within thirty (30) days after receipt. The Company
will notify you in writing if it becomes aware of any breach or threatened
breach of any of the provisions in Section 6(a), and you shall have thirty (30)
days after receipt of such notice in which to cure or prevent the breach, to the
extent that you are able to do so. You and the Company acknowledge that any
breach or threatened breach by you of any of the provisions in Section 6(a)
above cannot be remedied by the recovery of damages, and agree that in the event
of any such breach or threatened breach which is not cured with such thirty (30)
day period, the Company may pursue injunctive relief for any such breach or
threatened breach. If a court of competent jurisdiction determines that you
breached any of such provisions, you shall not be entitled to any Termination
Payments from and after date of the breach. In such event, you shall promptly
repay any Termination Payments previously made plus interest thereon from the
date of such payment(s) at twelve percent (12%) per annum. If, however, the
Company has suspended making such Termination Payments and a court of competent
jurisdiction finally determines that you did not breach such provision or
determines such provision to be unenforceable as applied to your conduct, you
shall be entitled to receive any suspended Termination Payment, plus interest
thereon from the date when due at

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 5

twelve percent (12%) per annum. The Company may elect (once) to continue paying
the Termination Payments before a final decision has been made by the court.

7. INTELLECTUAL PROPERTY; OWNERSHIP OF WORK PRODUCT. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by you during the course of performing the Company's work (collectively
the "Work Product") shall belong exclusively to the Company and shall, to the
extent possible, be considered a work made for hire for the Company within the
meaning of Title 17 of the United States Code. You hereby automatically assign,
and shall assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest you may have
in such Work Product, including any copyrights or other intellectual property
rights pertaining thereto. Upon request of the Company, you shall take such
further actions, including execution and delivery of instruments of conveyance,
as may be appropriate to give full and proper effect to such assignment.

8. TRANSFERABILITY.

a) As used in this Agreement, the term "Company" shall include any successor to
all or part of the business or assets of the Company. This Agreement shall inure
to the benefit of and be enforceable by you and your personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees.

b) Except as provided under paragraph (a) of this Section 8, neither this
Agreement nor any of the rights or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the other
party.

c) As used in this Agreement, "Change in Control" shall mean: (i) the
shareholders of the Company approve an agreement for the sale of all or
substantially all of the assets of the Company; or (ii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation (and the Company implements it), other than (1) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent more than eighty
percent (80%) of the combined voting power of the voting securities of the
Company, or such surviving entity, outstanding immediately after such merger or
consolidation, or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as defined below) acquires more than thirty percent (30%) of the combined
voting power of the Company's then-outstanding securities; or (iii) any
"person," as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (other than ((A)) the
Company or ((B)) any corporation owned, directly or indirectly, by the Company
or the shareholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding securities.

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 6

9. SEVERABILITY. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted. If a court of competent jurisdiction determines that any
particular provision of this Agreement is invalid or unenforceable, the court
shall restrict the provision so as to be enforceable. However, if the provisions
of Section 6 shall be restricted, a proportional reduction shall be made in the
payments under Section 5(b).

10. ENTIRE AGREEMENT; WAIVERS. This letter Agreement contains the entire
agreement of the parties concerning the subject matter hereof and supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written. No waiver or modification of any
provision of this Agreement shall be effective unless in writing and signed by
both parties.

11. NOTICES. Any notices, requests, instruction or other document to be given
hereunder shall be in writing and shall be sent certified mail, return receipt
requested, addressed to the party intended to be notified at the address of such
party as set forth at the head of this agreement or such other address as such
party may designate in writing to the other.

12. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE SUBJECT TO, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW.

13. COUNTERPARTS. This letter Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be one and the same instrument.

         Please confirm your agreement with the forgoing by signing and
returning one copy of this letter Agreement to the undersigned, whereupon this
letter agreement shall become a binding agreement between you and the Company.

Sincerely,

PSINet Inc.

By:  /s/William L. Schrader
     WILLIAM L. SCHRADER, CHAIRMAN & CEO

Accepted and Agreed to as of JUNE 28, 2000:

<PAGE>

Mr. Lawrence E. Hyatt
June 28, 2000
Page 7

By:  /s/ Lawrence E. Hyatt
     Lawrence E. Hyatt

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