Document:

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                                                                   EXHIBIT 10.40

                          STRATEGIC ALLIANCE AGREEMENT

                                     BETWEEN

                    RHONE-POULENC RORER PHARMACEUTICALS INC.

                                       AND

                                      IRORI

                            DATED AS OF JUNE 15, 1998

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                                TABLE OF CONTENTS

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<S>      <C>                                                                                                 <C>
1.       DEFINITIONS.........................................................................................  1
         1.1      "Acceptance Date"..........................................................................  1
         1.2      "Affiliate"................................................................................  2
         1.3      "RPR Resins"...............................................................................  2
         1.4      "Development Committee"....................................................................  2
         1.5      "Development Milestone"....................................................................  2
         1.6      "Effective Date"...........................................................................  2
         1.7      "Enhancement"..............................................................................  2
         1.8      "Enhancement Specifications"...............................................................  2
         1.9      "Facility".................................................................................  2
         1.10     "Initial Delivery Deadline"................................................................  2
         1.11     "NanoKan"..................................................................................  2
         1.12     "NanoKan Specifications"...................................................................  2
         1.13     "Party"....................................................................................  3
         1.14     "Purchase Price"...........................................................................  3
         1.15     "RPR"......................................................................................  3
         1.16     "Right and License"........................................................................  3
         1.17     "Software".................................................................................  3
         1.18     "System"...................................................................................  3
         1.19     "System Specifications"....................................................................  3
         1.20     "Third Party"..............................................................................  3
         1.21     "Update"...................................................................................  3

2.       MANUFACTURE; DELIVERY; OPTION.......................................................................  3
         2.1      Generally..................................................................................  3
         2.2      Satisfaction of Development Milestones, etc.; Acceptance; Rejection........................  4
         2.3      Delivery; Installation.....................................................................  5
         2.4      Identification; Passage of Title...........................................................  6
         2.5      Option to Purchase Additional System.......................................................  6

3.       DEVELOPMENT COMMITTEE...............................................................................  9
         3.1      Members....................................................................................  9
         3.2      Responsibilities...........................................................................  9
         3.3      Meetings...................................................................................  9
         3.4      Decisions.................................................................................. 10
         3.5      Term....................................................................................... 10
         3.6      Expenses................................................................................... 10

4.       INITIAL SYSTEM PURCHASE PRICE; PAYMENT.............................................................. 10
         4.1      Initial System Purchase Price.............................................................. 10
         4.2      Payment Schedule........................................................................... 11
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<S>      <C>                                                                                                 <C>
         4.3      Mode of Payment; Taxes..................................................................... 11

5.       INTELLECTUAL PROPERTY; UPDATES...................................................................... 11
         5.1      Invention Ownership........................................................................ 11
         5.2      Title Does Not Pass; Right and License..................................................... 11
         5.3      Updates.................................................................................... 11
         5.4      Enhancements............................................................................... 12
         5.5      Installation............................................................................... 13
         5.6      Source Code................................................................................ 13

6.       SUPPORT; TRAINING................................................................................... 14
         6.1      Support and Maintenance.................................................................... 14
         6.2      Training................................................................................... 14

7.       SUPPLY AND PURCHASE................................................................................. 15
         7.1      Initial Obligations........................................................................ 15
         7.2      Requirements............................................................................... 15
         7.3      Orders..................................................................................... 15
         7.4      Delivery................................................................................... 15
         7.5      Quality Control............................................................................ 16
         7.6      Acceptance; Rejection...................................................................... 16
         7.7      Interim Replacement........................................................................ 16
         7.8      Invoicing; Payment......................................................................... 17
         7.9      Allocation................................................................................. 17
         7.10     Right to Manufacture....................................................................... 17
         7.11     RPR's Right to Manufacture................................................................. 18

8.       REPRESENTATIONS AND WARRANTIES; COVENANTS........................................................... 18
         8.1      Representations and Warranties of Both Parties............................................. 18
         8.2      Representations and Warranties of IRORI.................................................... 18
         8.3      Limited Right of Repair.................................................................... 19
         8.4      Disclaimer of Warranty..................................................................... 19
         8.5      Covenants of RPR........................................................................... 20

9.       THIRD PARTIES....................................................................................... 20
         9.1      Semi-Exclusivity........................................................................... 20
         9.2      Most Favored Nation........................................................................ 20
         9.3      Audit Request.............................................................................. 21

10.      INDEMNIFICATION..................................................................................... 21
         10.1     Obligation to Indemnify.................................................................... 21
         10.2     Notice..................................................................................... 21
         10.3     Complete Indemnification................................................................... 22
         10.4     Insurance.................................................................................. 22
         10.5     Partial Limitation on IRORI Indemnity...................................................... 22
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<S>      <C>                                                                                                 <C>
11.      CONFIDENTIALITY..................................................................................... 22
         11.1     Confidential Information................................................................... 22
         11.2     Permitted Disclosures...................................................................... 23
         11.3     Remedies................................................................................... 23

12.      TERM; TERMINATION................................................................................... 23
         12.1     Term....................................................................................... 23
         12.2     Termination by RPR......................................................................... 23
         12.3     Breach..................................................................................... 24
         12.4     Effect of Termination...................................................................... 25
         12.5     Accrued Rights, Surviving Obligations...................................................... 26

13.      FORCE MAJEURE....................................................................................... 26
         13.1     Events of Force Majeure.................................................................... 26

14.      MISCELLANEOUS....................................................................................... 26
         14.1     Non-Solicitation........................................................................... 26
         14.2     Relationship of Parties.................................................................... 27
         14.3     Assignment................................................................................. 27
         14.4     Binding Effect............................................................................. 27
         14.5     Further Actions............................................................................ 27
         14.6     Costs and Expenses......................................................................... 27
         14.7     Inconsistency.............................................................................. 28
         14.8     Notice..................................................................................... 28
         14.9     Use of Name................................................................................ 28
         14.10    Public Announcements....................................................................... 28
         14.11    Waiver..................................................................................... 29
         14.12    Severability............................................................................... 29
         14.13    Amendment.................................................................................. 29
         14.14    Governing Law.............................................................................. 29
         14.15    Arbitration and Choice of Venue............................................................ 29
         14.16    Limitation on Liability.................................................................... 30
         14.17    Entire Agreement........................................................................... 30
         14.18    Counterparts............................................................................... 30
         14.19    Descriptive Headings....................................................................... 30

15.      SECURITY INTEREST................................................................................... 30
         15.1     Security Interest.......................................................................... 30
         15.2     Further Assurances......................................................................... 31
         15.3     Remedies................................................................................... 31
         15.4     Right and License in the Event of Breach................................................... 31
         15.5     Termination of Security Interest and Rights................................................ 32
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EXHIBITS

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        EXHIBIT A              SYSTEM AND NANOKAN SPECIFICATIONS AND MILESTONES

        EXHIBIT B              PROGRESS PAYMENT SCHEDULE

        EXHIBIT C              DESCRIPTION OF INSURANCE COVERAGE
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                          STRATEGIC ALLIANCE AGREEMENT

        THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") dated as of June
15, 1998 by and between Rhone-Poulenc Rorer Pharmaceuticals Inc., a corporation
duly organized and existing under the laws of Pennsylvania, having offices at
500 Arcola Road, Collegeville, Pennsylvania 19426, for and on behalf of itself
and its Affiliates ("RPR"), and IRORI, a corporation duly organized and existing
under the laws of the State of California, having offices at 11149 North Torrey
Pines Road, La Jolla, California 92037-1030 ("IRORI" or the "Company").

                             PRELIMINARY STATEMENTS

        A. RPR is a pharmaceutical company that engages in the discovery and
development of new drug products.

        B. IRORI has developed directed sorting combinatorial chemistry systems
that use microreactors and miniature electronic tags.

        C. RPR wishes to purchase from IRORI and secure a license from IRORI
with respect to, and IRORI wishes to manufacture and sell to RPR and grant a
license to RPR with respect to, a System, upon the terms and conditions set
forth in this Agreement.

        D. In addition, RPR wishes to purchase from IRORI, and IRORI wishes to
sell to RPR, a quantity of NanoKans, also upon the terms and conditions set
forth in this Agreement.

        E. In conjunction with the execution of this Agreement, the Parties are
entering into that certain Series D Preferred Stock Purchase Agreement, dated as
of the Effective Date (the "Stock Purchase Agreement"), and such other
agreements as are contemplated thereby.

        NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and the mutual covenants and agreements of the Parties contained in this
Agreement, the Parties agree as follows:

1. DEFINITIONS.

        As used in this Agreement, the following terms will have those meanings
set forth in this Section 1 unless the context dictates otherwise.

        1.1 "Acceptance Date" shall mean, with respect to a System or an
Enhancement, the date on which RPR accepts such System or Enhancement in
accordance with Section 2.3, 2.5(e) or 5.4, as the case may be; provided that if
before such date IRORI has notified RPR that the System or Enhancement has been
installed at the Facility and that it conforms to the System/Enhancement
Specifications, and the System/Enhancement is later determined to (or deemed to)
conform to those Specifications as of the date of such notice, then the
Acceptance Date shall be the date of such notice even if the date of actual
acceptance is later.

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        1.2 "Affiliate", with respect to any Party, shall mean any entity
controlling, controlled by, or under common control with, such Party (but only
so long as such control relationship exists). For these purposes, "control"
shall refer to (i) the possession, directly or indirectly, of the power to
direct the management or policies of an entity, whether through the ownership of
voting securities, by contract or otherwise or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity.

        1.3 "RPR Resins" shall mean the resins used by RPR in the NanoKans.

        1.4 "Development Committee" shall have the meaning assigned thereto in
Section 3.1.

        1.5 "Development Milestone" shall mean each of the milestones set forth
on Exhibit A attached.

        1.6 "Effective Date" shall mean the date first written above.

        1.7 "Enhancement" shall mean any upgrade or improvement to the System
that materially improves its utility, efficiency or efficacy and that is not
primarily intended to correct or avoid errors, malfunctions or defects in the
System.

        1.8 "Enhancement Specifications" shall mean, with respect to any
Enhancement, written specifications that set forth with specificity the quality
and degree of improvement to the System that such Enhancement provides.

        1.9 "Facility" shall mean a facility in the continental United States
with respect to the Initial System or any facility with respect to the Second
System, selected by RPR at its sole discretion pursuant to Section 2.3.

        1.10 "Initial Delivery Deadline" shall mean *** .

        1.11 "NanoKan" shall mean IRORI's proprietary microreactor for solid
phase synthesis that conforms to the NanoKan Specifications.

        1.12 "NanoKan Specifications" shall mean the specifications set forth on
Exhibit A attached which relate to NanoKans, as may be amended by the
Development Committee from time to time.

        1.13 "Party" shall mean RPR or IRORI and, when used in the plural, shall
mean RPR and IRORI.

        1.14 "Purchase Price" shall mean the Initial System Purchase Price (as
such term is defined in Section 4.1), the Second System Purchase Price (as such
term is defined in Section 2.5) and the Enhancement Purchase Price(s) (as such
term is defined in Section 5.4), either individually or collectively, as context
dictates.

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        1.15 "RPR" shall mean Rhone-Poulenc Rorer Pharmaceuticals Inc. together
with its Affiliates.

        1.16 "Right and License" shall have the meaning assigned thereto in
Section 5.2.

        1.17 "Software" shall mean all of the software adapted or incorporated
into the System from time to time.

        1.18 "System" shall mean IRORI's proprietary NanoKan Reactor System,
including all hardware, equipment, Software and other components and any Updates
or Enhancements provided to RPR pursuant to Section 5.3 or 5.4. Except to the
extent context dictates otherwise, "System" shall include both the Initial
System (as defined in Section 2.1) and the Second System (as defined in Section
2.5).

        1.19 "System Specifications" shall mean the specifications set forth on
Exhibit A attached relating to the System, as may be amended by the Development
Committee from time to time.

        1.20 "Third Party" shall mean any Person who or which is neither a Party
nor an Affiliate of a Party.

        1.21 "Update" shall mean with any update, upgrade or improvement to the
System other than Enhancements.

2. MANUFACTURE; DELIVERY; OPTION.

        2.1 Generally. On or before the Initial Delivery Deadline, IRORI shall
manufacture, and promptly thereafter in accordance with the terms of this
Agreement shall deliver and install at the Facility, in accordance with the
System Specifications and the terms of this Agreement, one System (the "Initial
System"). During the period between the Effective Date and the date on which the
Initial System is delivered to the Facility, IRORI shall use its best commercial
efforts to diligently fulfill its obligations under this Agreement and to
satisfy each Development Milestone in a timely and expeditious manner and by the
target completion date set forth on Exhibit A with respect to such Development
Milestone.

        2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection.

                (a) (i) IRORI shall give RPR notice promptly after IRORI
believes that it has satisfied each Development Milestone with respect to the
Initial System. For a period of *** (a "Testing Period") after the date of each
such notice, RPR shall have the right to test the Initial System, as it then
exists, at IRORI's site to verify that such Development Milestone has been
satisfied (using the Development Milestone Criteria). RPR shall use reasonable
efforts to expedite the performance of such testing.

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                        (ii) If, upon the expiration of any Testing Period, RPR
has failed to notify IRORI that such Development Milestone has not been
satisfied, then such Development Milestone shall be deemed to have been
satisfied.

                        (iii) If such testing indicates that such Development
Milestone has not been satisfied, then prior to the expiration of the Testing
Period, RPR shall notify IRORI of such non-satisfaction in sufficient detail to
allow IRORI to attempt to remedy it. During the *** period following receipt of
any such notice, IRORI shall use its best commercial efforts to satisfy such
Development Milestone. If RPR reasonably determines, within *** after such ***
period, that such Development Milestone still has not been satisfied, then RPR
shall be excused temporarily from its obligation to make the payment of the
Initial System Purchase Price that pertains to such Development Milestone under
Section 4.2, until such Development Milestone has been achieved. If RPR has
failed to notify IRORI that such Development Milestone has not been satisfied
prior to the expiration of such *** period, then such Development Milestone
shall be deemed to have been satisfied.

                (b) (i) On or before the Initial Delivery Deadline, IRORI shall
manufacture the Initial System and have it ready at IRORI's factory for testing
pursuant to this Section 2.2(b). IRORI shall give RPR notice (a "Readiness
Notice") promptly after IRORI believes that the Initial System has been
completed and is ready for delivery. RPR shall have the right, as promptly as
possible after the date of each Readiness Notice, and in any event not more than
*** after the date of such notice, to test the Initial System to verify that the
Initial System conforms to the System Specifications (using testing protocols
developed by the Development Committee).

                        (ii) If, prior to the expiration of such *** period, RPR
has failed to notify IRORI that the Initial System does not conform to the
System Specifications, then the Initial System shall be prepared for delivery
pursuant to Section 2.3.

                        (iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be prepared for delivery pursuant to Section 2.3.

                (c) Notwithstanding Section 14.15, any dispute arising between
the Parties as to whether a Development Milestone has been satisfied or the
Initial System or the Second System (as defined below) conforms to the System
Specifications shall be determined in accordance with Section 3.4.

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        2.3 Delivery; Installation.

                (a) Before *** , RPR shall notify IRORI of the location of the
Facility and of any special delivery instructions. The Parties shall cooperate
in coordinating the delivery and installation of the Initial System at the
Facility. IRORI shall install the Initial System at the Facility in accordance
with RPR's reasonable instructions and the System Specifications.

                (b) (i) RPR shall have the right, as promptly as possible after
installation of the Initial System but in any event not more than *** after
IRORI's installation of the Initial System at the Facility, to verify that the
Initial System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Initial System into such conformity.

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Initial System does not continue to conform to
the System Specifications, then the Initial System shall be deemed to continue
to conform to the System Specifications, and RPR shall be deemed to have
accepted the Initial System.

                        (iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be deemed to conform to the System Specifications, and RPR shall be deemed
to have accepted the Initial System.

        2.4 Identification; Passage of Title. The Initial System shall be
identified to this Agreement as of the Effective Date. IRORI shall bear the risk
of any loss, deterioration or damage until the Initial System has been delivered
and installed at the Facility in accordance with the terms of this Agreement.
Except as provided in Section 5.2, title to the Initial System shall pass to RPR
on the date of actual or deemed acceptance thereof pursuant to Section 2.3.

        2.5 Option to Purchase Additional System.

                (a) At any time prior to ***  *** , RPR shall have an option to
purchase a second System (the "Second System"). The total purchase price (the
"Second System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Second System by IRORI, and the
Right and License with respect to the Second System that will be effective upon
the Acceptance Date with respect thereto, shall be *** ; provided, however,

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that if the Acceptance Date with respect to the Second System is delayed more
than *** (such period, as may be extended as provided below, the "Grace Period")
after the Second Delivery Deadline (as defined herein), the Second System
Purchase Price shall be reduced by *** (calculated without regard to any
previous reductions) for each *** period (or portion thereof) that such
Acceptance Date is delayed beyond the Grace Period, except to the extent that
RPR causes any such delay. The Parties acknowledge and agree that RPR's testing
of the Second System in accordance with Section 2.5(c) and (e) shall not
constitute delay. If the Grace Period has not expired at the time IRORI sends a
Readiness Notice with respect to the Second System, then the Grace Period shall
be extended (or, as the case may be, any period of delay of the Acceptance Date
with respect to the Second System beyond the expiration of the Grace Period
shall be tolled), day-for-day, for each day that elapses between RPR's receipt
of any Readiness Notice and completion of RPR's inspection of the Second System
pursuant to Section 2.5(c), and then for each day of a reasonable period for
delivery and installation of the Second System at the applicable Facility, and
then for each day that elapses between IRORI's notice to RPR that the Second
System has been installed at the Facility and that it conforms to the System
Specifications and completion of RPR's inspection of the Second System pursuant
to Section 2.5(e). RPR shall notify IRORI promptly of the completion of any such
inspections.

                (b) RPR may exercise such option by delivering a notice (the
"Option Exercise Notice") to IRORI. The Option Exercise Notice shall set forth
the date on which RPR expects IRORI to deliver the Second System (the "Second
Delivery Deadline"), which shall not be sooner than ***
                                                    ***

        Following receipt of an Option Exercise Notice, IRORI shall use its best
commercial efforts to diligently manufacture, deliver and install the Second
System in a timely and expeditious manner.

                (c) (i) IRORI shall manufacture the Second System and, before
the Second Delivery Deadline, have it ready at IRORI's factory for testing
pursuant to this Section 2.5(c). IRORI shall give RPR a Readiness Notice
promptly after IRORI believes that the Second System has been completed and is
ready for delivery. RPR shall have the right, as promptly as possible after the
date of each Readiness Notice, and in any event not more than *** after the date
of such notice, to test the Second System to verify that the Second System
conforms to the System Specifications (using testing protocols developed by the
Development Committee).

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not conform to the System
Specifications, then the Second System shall be prepared for delivery pursuant
to Section 2.5(d).

                        (iii) If such testing indicates that the Second System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Second System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Second System
still does not conform to the System Specifications, then RPR shall be entitled
to reject

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the Second System by notice to IRORI, in addition to any other rights RPR may
have under this Agreement, at law or in equity. If RPR has failed to notify
IRORI that the Second System does not conform to the System Specifications upon
the expiration of such *** period, then the Second System shall be prepared for
delivery pursuant to Section 2.5(d).

                (d) Simultaneous with delivery of the Option Exercise Notice,
RPR shall notify IRORI of the location of the Facility and of any special
delivery instructions for the Second System. The Parties shall cooperate in
coordinating the delivery and installation of the Second System at the Facility.
IRORI shall install the Second System at the Facility in accordance with RPR's
reasonable instructions and the System Specifications.

                (e) (i) RPR shall have the right, as promptly as possible after
installation of the Second System but in any event not more than *** after
IRORI's installation of the Second System at the Facility, to verify that the
Second System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Second System into such conformity.

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not continue to conform to
the System Specifications, then the Second System shall be deemed to continue to
conform to the System Specifications, and RPR shall be deemed to have accepted
the Second System.

                        (iii) If such testing indicates that the Second System
does not continue to conform to the System Specifications, then prior to the
expiration of such *** period, RPR shall notify IRORI of such non-conformity in
sufficient detail to allow IRORI to attempt to remedy it. During the *** period
following receipt of any such notice, IRORI shall use its best commercial
efforts to bring the Second System into conformity with the System
Specifications. If RPR reasonably determines, within *** after such *** period,
that the Second System still does not conform to the System Specifications, then
RPR shall be entitled to reject the Second System by notice to IRORI, in
addition to any other rights RPR may have under this Agreement, at law or in
equity. If RPR has failed to notify IRORI that the Second System does not
conform to the System Specifications upon the expiration of such *** period,
then the Second System shall be deemed to conform to the System Specifications,
and RPR shall be deemed to have accepted the Second System.

                (f) The Second System shall be identified to this Agreement as
of the date of the Option Exercise Notice. IRORI shall bear the risk of any
loss, deterioration or damage until the Second System has been delivered and
installed at the Facility in accordance with the terms of this Agreement. Except
as provided in Section 5.2, title to the Second System shall pass to RPR upon
the date of actual or deemed acceptance thereof pursuant to Section 2.5(e).

                (g) RPR shall pay the Second System Purchase Price according to
the following schedule:

                        (i) *** shall be paid in conjunction with delivery of
the Option Exercise Notice;

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                        (ii) *** shall be paid within 45 days after the Second
System is prepared for delivery pursuant to Section 2.5(c)(ii) or (iii); and

                        (iii) *** shall be paid within 45 days after the
Acceptance Date of the Second System.

In the event that RPR rejects the Second System pursuant to Section 2.5(c) or
(e), RPR shall be excused from making any further payment of the Second System
Purchase Price. Such rejection shall not be exclusive of any right to terminate
this Agreement.

3. DEVELOPMENT COMMITTEE.

        3.1 Members. The Parties shall establish the Development Committee (the
"Development Committee"), which shall be comprised of six members, three
representatives designated by each Party. Members of the Development Committee
may be represented at any meeting by a designee appointed by such member for
such meeting. The chairperson of the Development Committee shall be designated
annually on an alternating basis between the Parties. The initial chairperson
shall be selected by RPR. The Party not designating the chairperson shall
designate one of its representative members as secretary to the Development
Committee for such year. Each Party shall be free to change its representative
members, on notice to the other Party.

        3.2 Responsibilities. The Development Committee shall be responsible
for:

                (a) developing, reviewing and modifying, from time to time,
testing protocols for all Systems and Enhancements;

                (b) reviewing and modifying, from time to time, the System
Specifications, Enhancement Specifications and NanoKan Specifications;

                (c) developing, reviewing and modifying, from time to time,
criteria (the "Development Milestone Criteria") for determining whether each of
the Development Milestones has been satisfied; and

                (d) overseeing the testing of all Systems prior to the delivery
thereof.

The Development Committee shall use its best efforts to develop the testing
protocols for the Initial System and the Development Milestone Criteria not
later than 90 days after the Effective Date.

        3.3 Meetings. The Development Committee shall meet at such times and in
such places as the Parties shall agree. Meetings may also be called by either
Party, on 10 days' written notice to the other unless such notice is waived by
the Parties. The meetings shall alternate between the offices of the Parties
unless the Parties otherwise agree. The chairperson shall be responsible for
sending notices of meetings to all members. The Development Committee may also
convene or be polled or consulted from time to time by means of
telecommunications, video conferences or

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correspondence, as deemed necessary or appropriate, so long as any decisions are
reduced to writing and signed by two representatives of each Party.

        3.4 Decisions.

                (a) All decisions of the Development Committee shall be made by
unanimous agreement of the members (or their designees) present in person or by
telephone at any meeting, provided that at least one representative of each
Party is present at such meeting.

                (b) In the event that unanimity cannot be reached by the
Development Committee with respect to a matter that is subject to its
decision-making authority, then the matter shall be referred for further review
and resolution to the Senior Vice President-Research of RPR, or such other
similar position designated by RPR from time to time, and the Vice President,
Business Development, at IRORI, or such other similar position designated by
IRORI from time to time. Such designated officers of each Party shall use
reasonable efforts to resolve the matter within 30 days after the matter is
referred to them. If they cannot resolve the matter within 30 days, then the
matter shall be decided by the Senior Vice President-Research of RPR, or such
other similar position designated by RPR from time to time, in good faith,
giving appropriate consideration to the reasonable business, scientific and
technical feasibility concerns of IRORI.

                (c) All decisions of the Development Committee or the designated
officer(s) of the Party(ies) made in accordance with the procedures set forth in
this Section 3.4 shall be final and binding upon the Parties and shall only be
appealable by either of the Parties if not made in good faith or, to the extent
applicable, with appropriate consideration of reasonable business, scientific
and technical feasibility concerns.

        3.5 Term. The Development Committee shall exist for such period as
necessary to perform the responsibilities assigned to it under this Agreement.

        3.6 Expenses. Each Party shall be responsible for all travel and related
costs for its representatives to attend meetings of, and otherwise participate
on, the Development Committee.

4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT.

        4.1 Initial System Purchase Price. The total purchase price (the
"Initial System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Initial System by IRORI, and the
Right and License with respect thereto that will be effective upon the
Acceptance Date with respect to the Initial System, shall be $4,000,000.
Notwithstanding any other provision of this Agreement, IRORI shall not be
entitled to receive any consideration beyond the amount of the Initial System
Purchase Price in connection with such manufacture, delivery and installation,
except pursuant to Section 5.4.

        4.2 Payment Schedule. RPR shall pay the Initial System Purchase Price
upon the occurrence of the events set forth on Exhibit A (each such event, a
"Development Milestone") and in accordance with the progress payment schedule
set forth on Exhibit B attached. Each progress

<PAGE>   15

payment shall be made within 30 days after the satisfaction of the relevant
Development Milestone as provided in Section 2.2, upon IRORI's submission of an
invoice therefor to RPR.

        4.3 Mode of Payment; Taxes. RPR shall make all payments required under
this Agreement as directed by IRORI from time to time in U.S. Dollars. RPR shall
pay all federal, state and local sales, use, property, excise or other taxes
imposed on or with respect to the manufacture, delivery and installation of the
Systems, except taxes levied on IRORI's net income.

5. INTELLECTUAL PROPERTY; UPDATES.

        5.1 Invention Ownership. IRORI shall own all inventions, processes,
improvements, works of authorship, technology, ideas, data and know-how, whether
or not entitled to patent or copyright protection, that arise from IRORI's
performance of its obligation to manufacture the System (collectively,
"Inventions"). The Parties agree that any Inventions shall not constitute "works
made for hire" under U.S. copyright law.

        5.2 Title Does Not Pass; Right and License. Notwithstanding any other
provision of this Agreement, title to any Software, Inventions and other
proprietary intellectual property of IRORI adapted or incorporated into the
System, Updates (as such term is defined herein) or Enhancements (collectively,
the "IRORI Intellectual Property") shall not pass to RPR. Instead, to the extent
necessary, IRORI hereby grants RPR (effective upon the Acceptance Date with
respect to each System) a non-exclusive, paid-up worldwide right and license
during the term of this Agreement under the IRORI Intellectual Property to
operate each respective System purchased pursuant to this Agreement and exercise
its rights under this Agreement (collectively, the "Right and License"). RPR
shall not have the right to sublicense the Right and License without the prior
written consent of IRORI. RPR shall not have the right to assign the Right and
License except in connection with an assignment of all of RPR's rights and
obligations under this Agreement pursuant to, and in compliance with, Section
14.3.

        5.3 Updates. For a period of *** following the Acceptance Date with
respect to each System and at no cost to RPR, IRORI shall provide and
incorporate into such System, or grant RPR a Right and License to use, as the
case may be, all Updates to such System that are developed during such period.
Following such *** period, RPR shall have the right to purchase, or to be
granted a Right and License to use, as the case may be, such Updates at IRORI's
standard commercial rates therefor. Title to all Updates that are not IRORI
Intellectual Property shall pass to RPR upon their incorporation into the
System.

        5.4 Enhancements.

                (a) During the term of this Agreement, IRORI shall notify RPR
promptly after the development of any Enhancement not developed for RPR pursuant
to Section 5.4(b). Any such notice shall include a copy of the applicable
Enhancement Specifications. RPR shall have the right to purchase, or to obtain a
Right and License to use, as the case may be, any or all such Enhancements. In
the event that RPR wishes to purchase any such Enhancement or such Right and
License, RPR shall notify IRORI, and IRORI shall quote RPR a price therefor (the
"Enhancement Purchase Price"). ***

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<PAGE>   16

                                        ***
                *** . RPR may purchase such Enhancement or a Right and License
to use same, as the case may be, by submitting a purchase order which is in a
form mutually acceptable to the parties, to the extent that such form is not
inconsistent with the terms of this Agreement, within *** .

                (b) In addition, RPR shall have the right to request, from time
to time, that IRORI develop Enhancements to meet Enhancement Specifications
proposed by RPR. IRORI shall not unreasonably refuse to develop any such
Enhancements. Promptly after any such request by RPR, the Development Committee
shall develop the Enhancement Specifications for the Enhancement. Promptly after
the Enhancement Specifications have been finalized, IRORI shall quote RPR the
Enhancement Purchase Price for the development and incorporation of such
Enhancement into the System (and, to the extent necessary a Right and License to
use same), *** , and shall provide a good faith estimate of the time IRORI will
require to develop such Enhancement. RPR may purchase such Enhancement or a
Right and License to use same, as the case may be, by submitting a purchase
order which is in a form mutually acceptable to the parties, to the extent that
such form is not inconsistent with the terms of this Agreement, within *** .
Following receipt of any such purchase order, IRORI shall use its best
commercial efforts to deliver and incorporate into the System such Enhancement
within the estimated development period.

                (c) For a period of *** after IRORI's incorporation of any
Enhancement into the System, RPR shall have the right to test the System to
verify that the Enhancement conforms to the applicable Enhancement
Specifications (using the testing protocol developed by the Development
Committee). If RPR has failed to notify IRORI that the Enhancement does not
conform to the applicable Enhancement Specifications prior to the end of such
*** period, then the Enhancement shall be deemed so to conform, and RPR shall be
deemed to have accepted it.

                (d) If such testing indicates that the Enhancement does not
conform to the Enhancement Specifications, then prior to the expiration of such
*** period referred to in Section 5.4(c), RPR shall notify IRORI of such
non-conformity in sufficient detail to allow IRORI to attempt to bring the
Enhancement into conformity with the applicable Enhancement Specifications.
During the 30-day period following receipt of any such notice, IRORI shall use
its best commercial efforts to bring the Enhancement into conformity with the
applicable Enhancement Specifications, and RPR shall allow IRORI's
representatives reasonable access to the System(s), during normal business
hours, for such purpose. If RPR reasonably determines, within 15 days after such
30-day period, that the Enhancement does not conform to the applicable
Enhancement Specifications, then RPR shall be entitled to reject the Enhancement
by notice to IRORI. In the event of any such rejection, IRORI shall promptly
un-install the Enhancement and refund to RPR the entire amount of price
previously paid by RPR with respect thereto. If RPR has failed to notify IRORI
that the Enhancement does not conform to the applicable Enhancement
Specifications prior to the end of such 15-day period, then the Enhancement
shall be deemed so to conform, and RPR shall be deemed to have accepted it.

                (e) Title to all Enhancements (i.e., to RPR's physical copies
thereof) that are not IRORI Intellectual Property shall pass to RPR upon RPR's
acceptance thereof.

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<PAGE>   17

                (f) IRORI shall submit an invoice for the Enhancement Purchase
Price to RPR upon delivery and installation of an Enhancement into the System.
All invoices shall be sent to the address specified on the RPR purchase order.
Payment of such invoices shall made within 45 days after receipt of an invoice
for such payment.

        5.5 Installation. The Parties shall cooperate in coordinating the
delivery and installation of any Updates or Enhancements.

        5.6 Source Code.

                (a) Within 180 days after the Effective Date and within 10 days
after the first day of each calendar quarter thereafter until the Source Code
Release Date (as herein defined), IRORI shall deposit with Data Securities
International (the "Escrow Agent") a copy of the most current source code and
any documentation (including drawings, blueprints and other technical
information) of and for the Software or otherwise necessary or useful for the
development, manufacture or operation of the System, all pursuant to an escrow
agreement (the "Escrow Agreement") the terms and conditions of which are
acceptable to RPR. The Escrow Agreement shall provide, among other things, that
RPR shall have access to such source code and other materials, subject to the
Right and License and the other terms and conditions of this Agreement
(including Sections 11 and 15), if RPR delivers to the Escrow Agent a Collateral
Acquisition Notice (as defined below) or if IRORI or any of its Affiliates
becomes the subject of any voluntary or involuntary proceeding, under state or
federal law, in the nature of bankruptcy, receivership or assignment for the
benefit of creditors which is not dismissed within 60 days after the
institution, initiation or filing of such proceeding.

                                       ***
                                       ***
                                       ***
                                       ***
                                       ***

                                       ***
                                       ***

                Notwithstanding any other provision of this Agreement, RPR's
rights under this Section 5.6(b) shall terminate upon any assignment of its
rights and obligations under this Agreement to a Third Party.

6. SUPPORT; TRAINING.

        6.1 Support and Maintenance. During the *** period following the
Acceptance Date with respect to each System, IRORI shall provide RPR with
customer and technical support in connection with RPR's use of such System, and
maintenance of such System, at no additional cost to RPR. After such *** period
and during the remainder of the term of this Agreement, IRORI shall provide RPR
with customer and technical support in connection with RPR's use of such

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<PAGE>   18

System, and maintenance of such System, at IRORI's published commercial rates
therefor. Such support and maintenance shall include critical bug fixes,
reasonable assistance via telephone and fax, dial in via modem assistance,
receipt of any newsletter or other customer publications put out by IRORI and
on-site support.

        6.2 Training. For a period of *** after the Acceptance Date with respect
to each System, and for a period of *** following the installation of any major
Update or RPR's acceptance of any Enhancement, IRORI shall provide training in
the operation and maintenance thereof to RPR's employees at the Facility, at no
additional cost to RPR. RPR shall be responsible for all per diem expenses
incurred by its employees in connection with any such training. The Parties
shall cooperate in the scheduling of all such training.

7. SUPPLY AND PURCHASE.

        7.1 Initial Obligations.

                (a) On the Acceptance Date with respect to the Initial System,
RPR automatically shall be deemed to have ordered from IRORI an aggregate of ***
NanoKans, at a price of *** each, and IRORI shall be entitled to submit to RPR
an invoice therefor, in accordance with Section 7.8(a).

                (b) Between the Acceptance Date with respect to the Initial
System and the second Anniversary of such Acceptance Date, RPR shall order from
IRORI an aggregate of *** additional NanoKans, at a price of *** each. This is a
take-or-pay.

        7.2 Requirements.

                (a) After RPR has ordered an aggregate of *** NanoKans pursuant
to Section 7.1, RPR shall purchase from IRORI, and IRORI shall supply to RPR,
NanoKans representing 100% of RPR's requirements for microreactors for solid
phase synthesis for use with the Systems. ***

                                          ***
                                          ***

***. If IRORI has not supplied NanoKans to any Third Party within such 12-month
period, then such price shall be $1.00 per NanoKan, subject to adjustment
commencing on January 1, 2001 (and on each January 1 thereafter) to reflect the
aggregate change, if any, in the Consumer Price Index (All Consumers, All Urban
Areas), published by the U.S. Department of Labor, during the period commencing
on the immediately preceding January 1.

                (b) At any time following the seventh anniversary of the
Acceptance Date with respect to the Initial System, RPR shall have the right to
terminate its obligations under Section 7.2(a), or from time to time to reduce
the percentage of RPR's requirements for NanoKans that it is obligated to
purchase thereunder, by giving 180 days' prior notice to IRORI.

        7.3 Orders. Except as set forth in Section 7.1(a), RPR shall place
orders for NanoKans with IRORI, setting forth trade units, delivery dates and
shipping instructions with respect to each

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<PAGE>   19

shipment, from time to time. IRORI shall accept such orders from RPR. RPR's
orders shall be made pursuant to a purchase order which is in a form mutually
acceptable to the parties, to the extent that such form is not inconsistent with
the terms of this Agreement.

        7.4 Delivery. IRORI shall deliver all NanoKans ordered by RPR pursuant
to Section 7.1(b), 7.3 or 7.7 within *** of IRORI's receipt of RPR's purchase
order. All NanoKans delivered pursuant to this Agreement shall be suitably
packed for shipment by IRORI and marked for shipment to the destination point
indicated in RPR's purchase order. All NanoKans will be delivered F.O.B. the
shipping point designated by IRORI. The shipping packaging shall be in
accordance with good commercial practice with respect to protection of the
NanoKans during transportation. All shipping and insurance costs, as well as any
special packaging expenses, shall be paid by RPR.

        7.5 Quality Control. IRORI shall conduct quality control testing of the
NanoKans prior to shipment in accordance with its customary quality control
procedures. IRORI shall retain records pertaining to such testing.

        7.6 Acceptance; Rejection.

                (a) RPR may test or cause to be tested the NanoKans supplied by
IRORI, using a random sampling methodology and otherwise in accordance with
RPR's customary procedures, within *** of receipt thereof by RPR or its
designee. RPR or its designee shall have the right to reject any shipment of
NanoKans made to it under this Agreement which does not meet the NanoKan
Specifications when received by RPR. All claims by RPR of non-conforming
NanoKans shall be deemed waived unless made by RPR in writing and received by
IRORI within such *** period. At IRORI's request and expense, RPR shall return
to IRORI or destroy, in accordance with IRORI's instructions, any rejected
shipment of NanoKans.

                (b) In the event that the parties are unable to agree as to
whether a shipment of NanoKans supplied by IRORI hereunder meet the NanoKan
Specifications, such question shall be submitted to an independent quality
control laboratory as the Parties may mutually agree upon. The findings of such
independent laboratory shall be binding upon the Parties, absent manifest error.
The cost of the independent quality control laboratory shall be borne by the
Party whose results are shown by such laboratory to have been incorrect.

                (c) In the event that IRORI concedes or the independent quality
control laboratory finds that a shipment of NanoKans does not comply with the
NanoKan Specifications, IRORI will promptly, to the extent such shipment has not
been replaced pursuant to Section 7.7, re-manufacture and deliver to RPR the
same quantity of NanoKans as contained in the shipment in question.

        7.7 Interim Replacement. During the pendency of any dispute concerning
the conformity of a shipment of NanoKans to the NanoKan Specifications, IRORI
shall promptly replace the shipment under dispute, at the request of RPR. Such
replacement NanoKans shall be ordered in accordance with Section 7.3 and shall
be invoiced by IRORI and paid for by RPR at the same price as the rejected
shipment of NanoKans was invoiced.

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<PAGE>   20

        7.8 Invoicing; Payment.

                (a) IRORI shall submit an invoice to RPR upon shipment of
NanoKans ordered by RPR hereunder, whether pursuant to Section 7.1, 7.3 or 7.7.
All invoices shall be sent to the address specified on the RPR purchase order,
and each such invoice shall include any insurance, taxes or other costs incident
to the purchase or shipment initially paid by IRORI but to be borne by RPR
hereunder.

                (b) Payment of such invoices shall made within 45 days after
receipt of an invoice for such payment; provided, however, that RPR shall not be
required to pay any invoice with respect to any shipment of NanoKans that fails
to meet the NanoKan Specifications, but RPR shall be obligated to pay in full
for any rejected shipment of NanoKans that is subsequently determined to meet
the NanoKan Specifications; and provided, further, that the running of such
45-day period shall be tolled during the pendency of any dispute concerning the
conformity of a shipment of NanoKans to the NanoKan Specifications. In the event
that RPR pays for a shipment of NanoKans and subsequently rejects such shipment
in accordance with the terms of this Agreement, RPR shall be entitled to a
refund or credit equal to the amount paid with respect to such rejected
shipment.

        7.9 Allocation.

                (a) Subject to Section 7.9(b), in the event that IRORI is unable
to supply all of RPR's requirements for NanoKans in accordance with Section 7.4,
due to force majeure or otherwise, IRORI shall allocate *** of its available
NanoKans to RPR until IRORI has supplied all such NanoKans.

                (b) The Parties acknowledge and agree that IRORI has entered
into a relationship with another strategic partner (the "Other Partner"). If, at
any time when IRORI is unable to supply all of RPR's requirements for NanoKans,
IRORI's relationship with the Other Partner is in effect, then IRORI shall
allocate *** of its available NanoKans between RPR and the Other Partner, in
proportion to the quantity of NanoKans for which each of them has orders pending
at such time. IRORI shall promptly disclose to RPR the identity of the Other
Partner, if RPR so requests, but in that case IRORI shall have the right to
disclose to the Other Partner the existence (but not the specific financial
terms) of RPR's relationship with IRORI under this Agreement. In any event, in
connection with any allocation under this Section 7.9(b), IRORI shall notify RPR
promptly of the identity of the Other Partner, if IRORI has not already done so.

        7.10 Right to Manufacture.

                (a) In the event of an Inability to Supply, RPR may elect
either: (i) to manufacture (or have manufactured) pursuant to Section 7.11 such
quantity of NanoKans that IRORI fails so to supply; or (ii) to assume full
responsibility for the supply of all of RPR's requirements for NanoKans under
this Agreement. For purposes of this Section 7, an "Inability to Supply" shall
mean: (X) with respect to any 60-day period, more than *** of the NanoKans to be
delivered during such period were delivered more than 30 days after the
respective delivery dates

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<PAGE>   21

therefor; or (Y) with respect to any six-month period, more than *** of the
NanoKans to be delivered during such period were delivered after the respective
delivery dates therefor, provided, in each case, that not more than *** nor
fewer than *** NanoKans were to be delivered during any 30-day period.

                (b) The remedy provided in this Section 7.10 shall be in
addition to any other remedies available to RPR under this Agreement, at law or
in equity. RPR's rights under this Section 7.10 shall not be affected in any way
by its waiver or failure to take action with respect to any previous event
giving rise to such right.

        7.11 RPR's Right to Manufacture. IRORI hereby grants to RPR, and RPR
hereby accepts, a license (the "Manufacturing License") under all necessary
IRORI patents and know-how to make or have made NanoKans for such of RPR's
requirements as RPR has elected pursuant to Section 7.10(a)(i) or (ii). Such
Manufacturing License shall be subject to all other terms and conditions of this
Agreement. In addition, RPR agrees not to exercise any of its rights under the
Manufacturing License except to the extent expressly permitted in Section
7.10(a). In such event: (i) IRORI shall provide to RPR (or its designee) copies
of all documentation within IRORI's control that is reasonably necessary for RPR
to manufacture (or have manufactured) NanoKans; (ii) IRORI shall provide such
technical assistance to RPR (or its designee) as is reasonably necessary to
enable RPR (or such of its Affiliates, Third Parties or designees as it may
designate) to manufacture NanoKans pursuant to the NanoKan Specifications; (iii)
RPR shall be relieved of its obligation to purchase such quantities of NanoKans
from IRORI, to the extent that RPR has the right to exercise the Manufacturing
License; and (iv) IRORI shall reasonably cooperate with RPR to establish an
alternative supply, including sources of materials. In the event that RPR has
NanoKans manufactured by a Third Party, such Third Party shall enter into a
confidentiality agreement with IRORI to protect against the unauthorized use and
disclosure of IRORI's Confidential Information.

8. REPRESENTATIONS AND WARRANTIES; COVENANTS.

        8.1 Representations and Warranties of Both Parties. Each Party
represents and warrants to the other Party that: (i) it is free to enter into
this Agreement; (ii) in so doing, it will not violate any other agreement to
which it is a party; and (iii) it has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement.

        8.2 Representations and Warranties of IRORI. IRORI represents and
warrants to RPR that:

                (a) IRORI shall adhere to all governmental laws and regulations
applicable to the performance of its obligations under this Agreement.

                (b) IRORI shall have secured in a timely manner all permits or
licenses required in connection with the performance of its obligations under
this Agreement.

                (c) Neither IRORI's manufacture, delivery, installation and sale
of the System, nor its manufacture and sale of NanoKans, nor RPR's use of the
System or NanoKans for any legal

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<PAGE>   22

purpose, shall infringe upon any U.S. or foreign patent of any Third Party and
shall not violate, conflict with or infringe upon any other rights of any Third
Party.

                (d) No action, suit or claim has been initiated, or threatened
in writing, against IRORI with respect to the intellectual property necessary
for it to perform its obligations under this Agreement (including, without
limitation, the IRORI Intellectual Property in existence as of the Effective
Date), or its right to enter into and perform its obligations under this
Agreement.

                (e) Each System and Enhancement shall be free from defects in
material and workmanship under normal use and service and, if operated and
maintained in accordance with IRORI's reasonable written instructions, shall
perform in accordance with the System Specifications or applicable Enhancement
Specifications, as the case may be, for a period of ***
  *** .

                (f) IRORI has not previously entered into or agreed to enter
into any agreements with any Third Parties, except for the Other Partner, with
respect to the manufacture, delivery and installation of any Systems or the
manufacture and supply of NanoKans.

        8.3 Limited Right of Repair. In connection with any breach of the
representations and warranties of IRORI set forth in Section 8.2(e) arising
after RPR's acceptance of a System or an Enhancement, as the case may be, IRORI
shall be entitled, at its sole cost and expense, to attempt to rectify, via
repair, replacement or Update, any such breach during a reasonable period of
time (but in no event greater than 60 days) after RPR provides IRORI notice of
such breach. During any such period when IRORI is diligently attempting to
rectify any such breach (or, if IRORI succeeds in so rectifying, thereafter),
RPR shall not pursue any remedy under this Agreement or otherwise at law or in
equity with respect to such breach. The Parties acknowledge and agree that any
forbearance by RPR pursuant to the preceding sentence shall not constitute a
waiver of any of RPR's rights in connection with such breach.

        8.4 Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN SECTIONS
8.1 AND 8.2, IRORI DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY EXPRESS OR IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF DESIGN, MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE PRACTICE, WITH RESPECT TO ANY SYSTEM OR NANOKANS PURCHASED BY RPR
UNDER THIS AGREEMENT.

        8.5 Covenants of RPR. Except as expressly permitted by Sections 7.10 and
7.11, RPR covenants to IRORI that RPR shall not create, or attempt to create, by
decompilation, reverse engineering or otherwise, the System or any of its
components, including without limitation the Software, or NanoKans.

9. THIRD PARTIES.

        9.1 Semi-Exclusivity. During the period commencing on the Effective Date
and ending on the first anniversary of the Acceptance Date with respect to the
Initial System, IRORI shall not

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<PAGE>   23
sell, license, lease or otherwise transfer any interest in a System (or any
functionally equivalent system) to or for, or operate a System (or any
functionally equivalent system) for the benefit of, any Third Party other than
the Other Party.

        9.2 Most Favored Nation.

                (a) If, during the period commencing on the Effective Date and
ending on the ***  with respect to the Initial System (the "Protected Period"),
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the Initial System Purchase Price (a "Below-Price Sale"), then the Initial
System Purchase Price shall be adjusted, whether prospectively or retroactively,
to such lower price. IRORI shall promptly notify RPR of any Below-Price Sale. If
a Below-Price Sale occurs prior to RPR's payment in full of the Initial System
Purchase Price, then RPR's remaining payments against the Initial System
Purchase Price shall be adjusted accordingly. To the extent that the amount of
such remaining payments is insufficient to realize the full adjustment to be
made pursuant to this Section 9.2, or if a Below-Price Sale occurs after RPR's
payment in full of the Initial System Purchase Price, IRORI shall refund the
difference or the amount of such adjustment, as the case may be, to RPR within
30 days after the date of IRORI's notice of such Below-Price Sale.

                (b) During the Protected Period, following any adjustment of the
Initial System Purchase Price pursuant to Section 9.2(a), if and as often as
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the price to which the Initial System Purchase Price previously has been
adjusted, then the Initial System Purchase Price shall be further adjusted to
such lower price, in accordance with Section 9.2(a).

                (c) Notwithstanding the other provisions of this Section 9.2,
the Parties acknowledge and agree that if any Third Party purchases a System for
not less than *** and subsequently purchases a second System for not less than
*** the purchase and sale of such second System shall not constitute a
Below-Price Sale.

        9.3 Audit Request.

                (a) Commencing on the Effective Date and until the sixth
anniversary of the Acceptance Date with respect to the Initial System, at the
request of RPR, IRORI and its Affiliates shall permit an independent certified
public accountant appointed by RPR, at reasonable times and upon reasonable
notice, to examine all relevant records and all other documents in the
possession or control of IRORI or its Affiliates as may be necessary: (i) to
verify IRORI's satisfaction of its obligations under Sections 9.1 and 9.2; or
(ii) to verify that IRORI is not in breach of its representation and warranty
under Section 8.2(f).

                (b) During the term of this Agreement and for a period of three
years thereafter, at the request of RPR, IRORI and its Affiliates shall permit
an independent certified public accountant appointed by RPR, at reasonable times
and upon reasonable notice, to examine all relevant records and all other
documents in the possession or control of IRORI or its Affiliates as may be
necessary: (i) to verify IRORI's satisfaction of its obligations under Section
7.9; or (ii) in

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   24

connection with any assignment pursuant to Section 14.3(b), to verify the
correctness of any Assignment Fee charged by IRORI.

                (c) Said accountant shall not disclose to RPR the identity of
any Third Party with which IRORI has a relationship. The results of any such
examination shall be made available to both Parties. RPR shall bear the full
cost of the performance of any such audit unless the results of such audit
indicate that IRORI is in default with respect to its obligations identified in
Section 9.3(a) or (b), in which event IRORI shall bear such cost.

10. INDEMNIFICATION.

        10.1 Obligation to Indemnify. Subject to Section 8.3, IRORI shall
defend, indemnify and hold RPR and its Affiliates, and each of their respective
directors, officers and employees (each, an "Indemnitee"), harmless from and
against any and all claims, suits or demands for liability, damages, losses,
costs and expenses (including the costs and expenses of attorneys and other
professionals) arising out of Third Party claims or suits resulting from a
breach of IRORI's representations and warranties set forth in Section 8.2
(including those relating to intellectual property), or from any tort claims of
personal injury (including death) or property damage relating to or arising out
of RPR's use of the System and/or NanoKans in accordance with the System
Specifications and/or the NanoKan Specifications, as the case may be, and
IRORI's written instructions.

        10.2 Notice. In the event that any Indemnitee is seeking indemnification
under Section 10.1, such Indemnitee shall inform IRORI of a claim as soon as
reasonably practicable after it receives notice of the claim, shall permit IRORI
to assume direction and control of the defense of the claim (including the sole
right to settle the claim at IRORI's sole discretion, provided that such
settlement does not materially adversely affect any rights of, or impose any
obligation on, the Indemnitee) with legal counsel selected by IRORI and
reasonably acceptable to RPR, and shall cooperate as requested (at the expense
of the IRORI) in the defense of the claim.

        10.3 Complete Indemnification. All costs and expenses incurred by an
Indemnitee in connection with enforcement of this Section 10 shall also be
reimbursed by IRORI.

        10.4 Insurance. During the term of this Agreement and for a period of 10
years thereafter, IRORI shall maintain basic comprehensive general liability and
products liability insurance (including contractual liability coverage on
IRORI's indemnification obligations under this Agreement) with respect to the
work it performs and the products it manufactures and sells under this Agreement
substantially consistent with the insurance coverage described on Exhibit C,
which insurance shall designate RPR as an additional insured and shall pay the
premiums due thereunder. The terms and conditions of such insurance policy and
any and all amendments thereto, as well as the amount insured, shall be
submitted for reasonable approval to RPR, and RPR shall receive a copy of any
such policy and amendments thereto.

        10.5 Partial Limitation on IRORI Indemnity. In no event shall IRORI's
liability under this Section 10 with respect to Third Party claims or suits
resulting from a breach of IRORI's representations and warranties set forth in
Section 8.2 exceed the total Purchase Price paid by RPR under this Agreement.

<PAGE>   25

11. CONFIDENTIALITY.

        11.1 Confidential Information. Except as expressly provided herein, the
Parties agree that, during the term of this Agreement and for eight years
thereafter, the receiving Party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other Party
pursuant to this Agreement which, if disclosed in tangible form, is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or, if disclosed orally, is indicated as confidential or
proprietary in writing by the disclosing Party within a reasonable time after
such disclosure (collectively, "Confidential Information"). Notwithstanding the
foregoing, Confidential Information shall not include information that, in each
case as demonstrated by written documentation:

                (a) was already known to the receiving Party, other than under
an obligation of confidentiality, at the time of disclosure;

                (b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party;

                (c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or

                (d) was subsequently lawfully disclosed to the receiving Party
by a Third Party or developed by the receiving Party without reference to any
information or materials disclosed by the disclosing Party.

        11.2 Permitted Disclosures. Notwithstanding the provisions of Section
11.1, each Party may disclose the other Party's Confidential Information to the
extent such disclosure is reasonably necessary to exercise the rights granted to
it under this Agreement or to comply with applicable laws and regulations,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, to the extent it may legally do so, it will
give reasonable advance notice to the latter Party of such disclosure and will
use its reasonable efforts to limit the scope of such disclosure to only that
information which it is necessary to disclose and to secure confidential
treatment of such information prior to its disclosure. If the Party whose
Confidential Information is to be disclosed has not filed a patent application
with respect to such Confidential Information, it may require the other Party to
delay the proposed disclosure (to the extent the disclosing Party may legally do
so) for up to 90 days, to allow for the filing of such an application.

        11.3 Remedies. Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to temporary, preliminary and
permanent injunctions, without the posting of any bond or other security,
enjoining or restraining the other Party and its Affiliates from any violation
or threatened violation of this Section 11.

12. TERM; TERMINATION.

<PAGE>   26

        12.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall expire upon the termination, pursuant to Section 7.2(b), of RPR's
obligation to purchase NanoKans from IRORI, unless sooner terminated in
accordance with this Section 12.

        12.2 Termination by RPR. RPR shall have the right to terminate this
Agreement at any time prior to the Acceptance Date with respect to the Initial
System, upon notice to IRORI, without further obligation to IRORI except as
provided in this Section 12.2 and in Section 12.4(b). In conjunction with RPR's
giving of any such notice, RPR shall pay the next payment of the Initial System
Purchase Price that would have accrued under Section 4.2 if RPR had not
terminated this Agreement. In addition, following any such termination, IRORI
shall be entitled to retain all payments of the Initial System Purchase Price
that RPR shall have made prior to the date of any such notice, and RPR shall
remain liable to IRORI for all payments of the Initial System Purchase Price
that shall have accrued but shall not have been paid prior to the date of any
such notice.

        12.3 Breach.

                (a) Subject to Section 12.3(b), failure by either Party to
comply with any of the material obligations contained in this Agreement shall
entitle the other Party to give to the Party in default notice specifying the
nature of the default and requiring it to cure such default. If such default is
not cured within 30 days after the receipt of such notice (or, if such default
reasonably cannot be cured within such 30-day period, if the Party in default
does not commence and diligently continue actions to cure such default), the
notifying Party shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement and in addition to any other remedies
available to it at law or in equity, to terminate this Agreement by giving
further written notice, to take effect immediately upon delivery thereof. The
right of either Party to terminate this Agreement, as provided in this Section
12.3(a), shall not be affected in any way by its waiver or failure to take
action with respect to any previous default.

                (b) Notwithstanding Section 12.3(a), RPR shall not have the
right to terminate this Agreement with respect to:

                        (i) Any failure of IRORI to satisfy a Development
Milestone or any failure of a System to conform to the System Specifications
until IRORI has been given an opportunity to rectify such failure, as
specifically provided in Section 2.2, 2.3 or 2.5, as the case may be, and has
failed to rectify it within the period as specifically provided in Section 2.2,
2.3 or 2.5, as the case may be -- but thereafter this Section 12.3(b)(i) shall
not prevent termination under Section 12.3(a) or other remedies under Section
12.3(c);

                        (ii) Any failure of an Enhancement to conform to the
applicable Enhancement Specifications;

                        (iii) Any alleged failure of NanoKans supplied hereunder
to conform to the NanoKan Specifications;

                        (iv) Any Inability to Supply;

<PAGE>   27

                        (v) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) arising after RPR's acceptance of a System
unless IRORI has been given an opportunity to rectify such breach, as
specifically provided in Section 8.3, and has failed to rectify it within the
period as specifically provided in Section 8.3 -- but thereafter this Section
12.3(b)(v) shall not prevent termination under Section 12.3(a) or other remedies
under Section 12.3(c); or

                        (vi) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) with respect to any Enhancement.

                (c) Section 12.3(b) shall not limit any remedy available to RPR
at law or in equity, other than termination, for the occurrence (if not cured
during the relevant cure periods) of the matters described in Section 12.3(b).

        12.4 Effect of Termination.

                (a) Following the expiration of the term of this Agreement
pursuant to Section 12.1 due to the termination, pursuant to Section 7.2(b), of
RPR's obligation to purchase NanoKans from IRORI, the Right and License shall
become perpetual.

                (b) Following the termination of this Agreement by RPR pursuant
to Section 12.2, RPR shall return to IRORI the Initial System, or any components
thereof, to the extent that same shall have been delivered to RPR prior to the
effective date of such termination, at RPR's sole cost and expense. Neither
Party thereafter shall have any obligation to the other, except under Section 11
and RPR's obligation to make payment of any portion of the Initial System
Purchase Price that shall have accrued as of the date of such termination, and
each Party shall return to the other all Confidential Information disclosed to
such Party by the other Party (and all copies, analyses, derivatives,
reflections and physical manifestations thereof); provided that each Party shall
have the right to retain one copy for archival purposes only.

                (c) Following the termination of this Agreement by IRORI
pursuant to Section 12.3: (i) RPR shall return to IRORI all Systems and
Enhancements which it has not accepted prior to the effective date of any such
termination, at RPR's sole cost and expense; (ii) RPR shall be entitled to
retain all Systems and Enhancements which it has accepted and paid the Purchase
Price for prior to the effective date of any such termination; (iii) the Right
and License with respect to the Systems and Enhancements referred to in clause
(ii) shall become perpetual; and (iv) IRORI shall be entitled to retain all
payments of Purchase Price made by RPR prior to the effective date of such
termination.

                (d) Following the termination of this Agreement by RPR pursuant
to Section 12.3: (i) RPR shall be entitled to retain all Systems and
Enhancements which have been delivered to it prior to the effective date of any
such termination, to the extent that RPR subsequently accepts and pays for same
(including by offsetting any such payment obligations against RPR's claims
against IRORI for damages); (ii) RPR shall be entitled to return to IRORI all
Systems and Enhancements which have been delivered to RPR prior to the effective
date of any such termination that RPR subsequently rejects, and IRORI shall
refund in full all payments made by RPR in respect thereof; (iii) the Right and
License with respect to the Systems and Enhancements referred to in clause (i)
shall become perpetual; and (iv) the Manufacturing License shall become
perpetual.

<PAGE>   28

        12.5 Accrued Rights, Surviving Obligations.

                (a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights which shall have accrued
to the benefit of either Party prior to such termination, relinquishment or
expiration. Such termination, relinquishment or expiration shall not relieve
either Party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.

                (b) Except as provided in Section 12.4(b), all of the Parties'
rights and obligations under Sections 2.4, 2.5(f), 4.3, 5.1, 5.2, 5.4(e), the
last sentence of Section 7.1(b), 7.6, 7.7, 8, 9.3, 10, 11, 12.4, 14.1, 14.3,
14.9, 14.14, 14.15, 14.16 and 15 shall survive expiration, termination or
relinquishment of this Agreement.

13. FORCE MAJEURE.

        13.1 Events of Force Majeure. Neither Party shall be held liable or
responsible to the other Party or be deemed to be in default under or in breach
of any provision of this Agreement (other than any obligation to pay money) for
failure or delay in fulfilling or performing any obligation of this Agreement
when such failure or delay is due to force majeure, and without the fault or
negligence of the Party so failing or delaying. For purposes of this Agreement,
force majeure shall be defined as causes beyond the control of the Party,
including, without limitation, acts of God; acts, regulations, or laws of any
government; war; civil commotion; destruction of production facilities or
materials by fire, flood, earthquake, explosion or storm; labor disturbances;
epidemic; and failure of public utilities or common carriers. In such event RPR
or IRORI, as the case may be, shall immediately notify the other Party of such
inability and of the period for which such inability is expected to continue.
The Party giving such notice shall thereupon be excused from such of its
obligations under this Agreement (other than any obligation to pay money) as it
is thereby disabled from performing for so long as it is so disabled and the 30
days thereafter. However, the Party giving such notice shall use all reasonable
efforts to remedy such inability as soon as reasonably possible or seek an
alternative arrangement during the period of such inability.

14. MISCELLANEOUS.

        14.1 Non-Solicitation. During the period commencing on the Effective
Date and ending on the 18-month anniversary of the Acceptance Date with respect
to the Initial System (or, if RPR has ordered a Second System by such Acceptance
Date and subsequently accepts the Second System, the 18-month anniversary of the
Acceptance Date with respect to the Second System), neither Party shall solicit,
induce, encourage or attempt to induce or encourage any employee of the other
Party to terminate his or her employment with such other Party or to breach any
other obligation to such other Party.

        14.2 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties. No Party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.

<PAGE>   29

        14.3 Assignment.

                (a) This Agreement may not be assigned, in whole or in part, by
IRORI without the prior written consent of RPR.

                (b) RPR may assign its rights and obligations under this
Agreement to a Third Party provided that: (i) such assignment is of all of such
rights and obligations; (ii) such Third Party agrees in writing to be bound by
the terms of this Agreement as if it were a party hereto; and (iii) IRORI is
paid the applicable Assignment Fee in connection with such assignment. For
purposes of this Section 14.3(b), "Assignment Fee" shall mean: (X) *** if, on
the effective date of such assignment, IRORI has sold, licensed, leased or
otherwise disposed of any interest in a System (or any functionally equivalent
system) to or for, or operated a System (or any functionally equivalent system)
for the benefit of, *** or fewer Third Parties, and (Y) *** if, on such date,
IRORI has sold, licensed, leased or otherwise disposed of any interest in a
System (or any functionally equivalent system) to or for, or operated a System
(or any functionally equivalent system) for the benefit of, more than *** Third
Parties.

                (c) Notwithstanding Sections 14.3(a) and (b), either Party may
assign its respective rights and transfer its respective duties hereunder,
without the consent of the other Party, to any assignee of all or substantially
all of its respective business or in the event of its respective merger,
consolidation or similar transaction.

                (d) Any assignment not in accordance with this Section 14.3
shall be void.

        14.4 Binding Effect. This Agreement shall be binding upon the successors
and permitted assigns of the Parties, and the name of a Party appearing herein
shall be deemed to include the names of such Party's successors and permitted
assigns to the extent necessary to carry out the intent of this Agreement.

        14.5 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

        14.6 Costs and Expenses. Except as otherwise expressly provided in this
Agreement, each Party shall bear all costs and expenses associated with the
performance of such Party's obligations under this Agreement.

        14.7 Inconsistency. If there is any inconsistency between the provisions
of this Agreement and any other document passing between the Parties, the
provisions of this Agreement shall control and be determinative.

        14.8 Notice. Any notice, request or other communication required or
permitted to be given under or in connection with this Agreement shall be deemed
to have been sufficiently given if in writing and personally delivered or sent
by registered or certified mail, postage prepaid (return receipt requested),
facsimile transmission (receipt verified) or express courier service (signature

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   30

required), to the Party for which such notice is intended, at the address set
forth for such Party below:

        (a) In the case of RPR, to:

            500 Arcola Road
            Collegeville, PA  19426
            Attention: General Counsel
            Facsimile No.:  (610) 454-3808

        (b) In the case of IRORI, to:

            IRORI
            11149 North Torrey Pines Road
            La Jolla, CA  92037-1030
            Attention: President
            Facsimile No.:  (619) 546-3083

or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof. If sent by facsimile transmission or
express courier service, the date of mailing or transmission shall be deemed to
be the date on which such notice or request was given. If sent by registered or
certified mail, the third business day after the date of mailing shall be deemed
to be the date on which such notice or request was given.

        14.9 Use of Name. Except as otherwise provided herein, neither Party
shall have any right, express or implied, to use in any manner the name or other
designation of the other Party or any other trade name or trademark of the other
Party for any purpose.

        14.10 Public Announcements. Neither Party shall make any public
announcement concerning this Agreement or the subject matter hereof without the
prior written consent of the other, which shall not be unreasonably withheld. In
the event of a required public announcement, the Party making such announcement
shall provide the other Party with a copy of the proposed text prior to such
announcement sufficiently in advance of the scheduled release of such
announcement to afford such other Party a reasonable opportunity to review and
comment upon the proposed text.

        14.11 Waiver. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.

        14.12 Severability. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be

<PAGE>   31

ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement. In such event, the Parties agree
to substitute a valid and enforceable provision therefor which, as nearly as
possible, achieves the desired economic effect and mutual understanding of the
Parties under this Agreement.

        14.13 Amendment. No amendment, modification or supplement of any
provisions of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.

        14.14 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, without regard to its
choice of law principles.

        14.15 Arbitration and Choice of Venue.

                (a) Section 14.15(b) below shall apply only in the situation
where a similar dispute between IRORI and the Other Partner is being so
arbitrated and the two arbitrations can be joined to help ensure a consistent
result.

                (b) Except as otherwise provided in this Agreement, any dispute
arising out of or relating to any provisions of this Agreement shall be finally
settled by arbitration to be held in San Diego, California, under the auspices
and then current commercial arbitration rules of the American Arbitration
Association. Such arbitration shall be conducted by three arbitrators appointed
according to said rules. The Parties shall instruct such arbitrators to render a
determination of any such dispute within 30 days after their appointment.
Judgment upon any award rendered may be entered in any court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.

                (c) Section 14.15(b) shall not prohibit a Party from seeking
injunctive relief from a court of competent jurisdiction in the event of a
breach or prospective breach of this Agreement by the other Party which would
cause irreparable harm to the first Party or under Section 11.

                (d) For all disputes not described by Section 14.15(a), the
Parties agree that such dispute shall be subject to the exclusive jurisdiction
of the California State Courts in and for San Diego County, California or, in
the event of federal jurisdiction, the United States District Court for the
Southern District of California sitting in San Diego County, California; and
each Party hereby agrees to submit to the personal and exclusive jurisdiction
and venue of such courts and not to seek the transfer of any case or proceeding
out of such courts.

        14.16 Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL IRORI BE LIABLE UNDER THIS
AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR EXCEPTIONAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUES).

        14.17 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Parties as to the subject matter hereof and merges
all prior discussions

<PAGE>   32

and negotiations between them, and neither of the Parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the Party to be bound
thereby.

        14.18 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.

        14.19 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

15. SECURITY INTEREST.

        15.1 Security Interest. As collateral security for the prompt and
complete payment and performance when due of all the obligations of IRORI to RPR
under this Agreement, including but not limited to the obligations contained in
Section 2 hereof, and in order to induce RPR to enter into this Agreement, IRORI
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to RPR,
and hereby grants to RPR, a security interest in all of IRORI's right, title and
interest in, to and under the following collateral:

        (a) the Initial System (as a work in process), and any raw materials and
            inventory held by IRORI which are or which were acquired for the
            purpose of or which are necessary for the completion of the Initial
            System, all subject to Section 5.2 hereof;

        (b) from and after RPR's delivery of the Option Exercise Notice, the
            Second System (as a work in process), and any raw materials and
            inventory held by IRORI which are or which were acquired for the
            purpose of or which are necessary for the completion of the Second
            System, all subject to Section 5.2 hereof; and

        (c) all proceeds of each of the foregoing and all accessions to,
            substitutions and replacements for, and rents, profits, and products
            of each of the foregoing.

        15.2 Further Assurances. At any time and from time to time, upon the
written request of RPR; and at the sole expense of IRORI, IRORI shall promptly
and duly execute and deliver any and all such further instruments and documents
and take such further action as RPR may reasonably deem necessary or desirable
to more perfectly evidence or perfect this security interest, including, without
limitation, facilitating the filing of UCC-1 financing statements in all
applicable jurisdictions.

        15.3 Remedies. Beginning on the date on which and for the duration of
the period within which RPR is entitled to terminate this Agreement pursuant to
Section 12.3, RPR may exercise, in addition to all other rights and remedies
granted to it under this Agreement, all rights and remedies of a secured party
under the California Uniform Commercial Code. Except during any such period, RPR
may not exercise any rights or remedies of a secured party under the California
Uniform

<PAGE>   33

Commercial Code. IRORI agrees to pay all fees, costs and expenses of RPR,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies pertaining to
this security interest.

        15.4 Right and License in the Event of Breach. Notwithstanding anything
in this Agreement to the contrary, IRORI hereby grants RPR, effective solely
upon delivery to IRORI by RPR of a notice that RPR has obtained fee title to the
Collateral in accordance with the California Uniform Commercial Code (a
"Collateral Acquisition Notice"), a non-exclusive, paid-up worldwide right and
license during the term of this Agreement and following termination of this
Agreement by RPR pursuant to Section 12.4, to make, have made, develop, and use
the Initial System and exercise its rights under this Agreement under the IRORI
Intellectual Property for the purpose of allowing RPR to have the Initial System
manufactured, installed and used by RPR. RPR shall have the right to sublicense
the rights granted in the preceding sentence only for the purpose of having a
Third Party manufacture, develop and install the Initial System for RPR.
Notwithstanding anything in this Agreement to the contrary, IRORI hereby grants
RPR, effective solely upon delivery to IRORI by RPR of a Collateral Acquisition
Notice, a non-exclusive, paid-up worldwide right and license during the term of
this Agreement and following termination of this Agreement by RPR pursuant to
Section 12.4, to make, have made, develop, and use the Second System and
exercise its rights under this Agreement under the IRORI Intellectual Property
for the purpose of allowing RPR to have the Second System manufactured,
installed and used by RPR. RPR shall have the right to sublicense the rights
granted in the preceding sentence only for the purpose of having a Third Party
manufacture, develop and install the Second System for RPR. However, the rights
granted in this Section 15.4 shall apply to the Second System if, and only if,
prior to the breach of this Agreement by IRORI which led to the Collateral
Acquisition Notice, RPR shall have delivered the Option Exercise Notice pursuant
to Section 2.5(b) and RPR shall have paid the portion of the Second System
Purchase Price set forth in Section 2.5(g)(i). RPR shall not have the right to
assign the Right and License except in connection with an assignment of all of
RPR's rights and obligations under this Agreement pursuant to, and in compliance
with, Section 14.3.

        15.5 Termination of Security Interest and Rights. The security interest
and rights granted in this Section 15 (collectively, the "Post-Breach Rights")
shall terminate upon the occurrence of (i) if the Initial System is accepted (or
deemed accepted) by RPR prior to RPR's delivery of the Option Exercise Notice,
the acceptance (or deemed acceptance) of the Initial System or (ii) if the
Option Exercise Notice is delivered before the acceptance (or deemed acceptance)
of the Initial System, the acceptance (or deemed acceptance) of the Second
System. In either event, the Post-Breach Rights solely with respect to the
Initial System shall terminate upon the Acceptance Date of the Initial System.

<PAGE>   34

        IN WITNESS WHEREOF, each of the Parties has caused this Strategic
Alliance Agreement to be executed by its duly authorized officer as of the day
and year first above written.

                                        RHONE-POULENC RORER PHARMACEUTICALS INC.

                                        By: /s/ John R. Leone
                                           -------------------------------------

                                        Name: John R. Leone
                                             -----------------------------------

                                        Title: Senior Vice President & G.M.
                                              ----------------------------------

                                        IRORI

                                        By: /s/ Riccardo Pigliucci
                                           -------------------------------------

                                        Name: Riccardo Pigliucci
                                             -----------------------------------

                                        Title: Chief Executive Officer
                                              ----------------------------------

<PAGE>   35

                                    EXHIBIT A

                                       ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   36

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   37

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   38

                                    EXHIBIT B

                            PROGRESS PAYMENT SCHEDULE

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   39

                                    EXHIBIT C

                        DESCRIPTION OF INSURANCE COVERAGE

<TABLE>
<CAPTION>
                     Type of Coverage                                Primary Coverage              Umbrella
                     ----------------                                ----------------              --------
<S>                                                                  <C>                      <C>
Comprehensive General Liability (including Contractual                  $2,000,000*              $9,000,000
Liability)
Personal & Advertising Injury                                           $1,000,000             (incl. in above)
Products and Completed Operations                                       $2,000,000*              $9,000,000
</TABLE>

     * $1,000,000 per occurrence and $2,000,000 in the aggregate.<PAGE>   1
                                                                   EXHIBIT 10.42

                                                          [Logo] Basler
                                                                 Kantonalbank
                                                          GARANTIERT SICHER

                                                          Discovery Technologies
                                                          Attn. Dr. H. Zinsli
                                                          Gewerbestrasse 16
                                                          4123 Allschwil

December 22, 1999 K10/TRU
Thomas Ruedin
061 266 27 91

Dear Dr. Zinsli

Following our various discussions we herewith confirm the establishment of a new
credit line which will replace all previous credit agreements between Discovery
Technologies Ltd. and Basler Kantonalbank:

<TABLE>
<CAPTION>
<S>               <C>
BORROWER          Discovery Technologies Ltd., Gewerbestrasse 16, 4123
                  Allschwil, the "Borrower"

LENDER            Basler Kantonalbank, Spiegelgasse 2, 4002 Basel, the "Lender"
                  or "BKB"

AMOUNT            CHF 2'000'000.-- (two million Swiss Francs)

DURATION          until further notice, i.e. under the condition that the
                  pledged assets placed with BKB by the Borrower amount to at
                  least CHF 2'000'000.-- (see section "collateral").

UTILIZATION       The Credit Line can be utilized up to a maximum amount of CHF
                  2'000'000.-- on a Current Account basis - as Fixed Term
                  Advances with minimum amounts of CHF 500'000.-- and durations
                  of 3 months up to 12 months

INTEREST RATES    Current Account CHF

                  currently 4.75% per annum, variable + 0.25% per quarter
                  commission on average utilized amount

                  The Lender has the right to change the interest rate at any
                  time in case of changes of the market situation.

                  The interest is payable quarterly in arrear, as per March 31,
                  June 30,
</TABLE>

<PAGE>   2

                                                            [Logo]  Basler
                                                                    Kantonalbank
                                                            GARANTIERT SICHER

Discovery Technologies Ltd.          Seite 2                            22.12.99
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>               <C>
                  September 30 and December 31.

                  Fixed Term Advances

                  Interest rates for Fixed Term Advances will be fixed two
                  banking days prior to the drawdown of the advance based on the
                  LIBOR for the respective duration plus a margin of 0.75% per
                  annum.

                  Interest is payable at maturity of each advance if the
                  duration of the advance does not exceed six months. Interest
                  is payable semi-annually for durations of advances of more
                  than six months. Interest shall be calculated on the basis of
                  the actual number of days elapsed and a 360-days-year.

COLLATERAL        - Pledge of cash accounts and/or time deposits placed with BKB
                    by the Borrower with a value of at least CHF 2'000'000.--
                    (as per enclosed form "Allgemeine Pfandbestellung")

                  - Pledge of Accounts Receivables (as per enclosed form
                    "Generelle Forderungsabtretung")

TERMINATION       This Credit Facility is non-cancelable by the Borrower and the
                  Lender until December 31, 2000. However, an early termination
                  by the Lender is possible a) in case of default through
                  overdue interest or commission payments by the Borrower with
                  more than 30 days or b) if the value of pledged cash accounts
                  and/or time deposits placed with BKB by the Borrower is less
                  than CHF 2'000'000.-- or c) according to the General
                  Conditions of BKB

                  In case of an early termination by the Lender Fixed Term
                  Advances become due at once.

MISCELLANEOUS     During the life time of this Credit Line the Borrower shall
                  provide the Lender with audited annual and unaudited quarterly
                  balance sheets and profit and loss accounts as soon as they
                  become available but not later than 3 months after the
                  respective year end and 1 month after the respective end of
                  the quarter.

                  The enclosed "General Conditions" of Basler Kantonalbank form
                  an integral part of this agreement.

                  This Credit Line will be operative after signing will replace
                  all existing credit agreements between Borrower and Lender.

GOVERNING LAW     The present contract is GOVERNED BY SWISS LAW. Any disputes
                  shall fall within the jurisdiction of the COURT OF THE CANTON
                  BASAL-CITY.
</TABLE>

<PAGE>   3

                                                            [Logo]  Basler
                                                                    Kantonalbank
                                                            GARANTIERT SICHER

Discovery Technologies Ltd.          Seite 3                            22.12.99
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>               <C>
                  It is expressively agreed upon that the Lender shall also be
                  entitled to enforce its rights and to take legal action
                  against the Borrower in other Courts or any other jurisdiction
                  the Lender deems necessary, in which event, Swiss law shall
                  remain applicable.
</TABLE>

Please confirm your consent by signing and returning to us the enclosed

      -  Copy of this Credit Agreement

      -  Form "Allgemeine Pfandbestellung"

      -  Form "Generelle Forderungsabtretung"

as soon as possible but not later than December 30, 1999.

Thank you very much for your confidence. We are looking forward to a pleasant
continuation of the business relationship with your company.

                                          Yours sincerely,

                                          BASLER KANTONALBANK

                                          /s/ Kurt H. Hercher  /s/ Thomas Ruedin
                                          -------------------  -----------------
                                          Kurt H. Hercher      Thomas Ruedin

Enclosure

Agreed and Accepted:

Discovery Technologies Ltd.:      /s/ illegible         /s/ illegible
                                  ---------------------------------------
Date/Place     Jan 10, 2000
               ----------------------------------------------------------

<PAGE>   4

                                                            [Logo] Basler
                                                                   Kantonalbank
                                                            GARANTIERT SICHER

GENERAL BUSINESS CONDITIONS
Edition 1984

1.    PURPOSES AND SCOPE

      Under reserve of special arrangements, the general conditions set forth
      herein govern the business relationship between the customer and the Bank.
      In addition, separate regulations of the Bank and relevant customs and
      usages apply to particular kinds of business.

2.    AUTHORIZED SIGNATURES

      The list of signatures of persons authorized to sign for the customer,
      which has been deposited with the Bank, shall be effective for its
      purposes until written notice of a change shall have been received by the
      Bank, notwithstanding any entries in the Commercial Register for
      publications with contrary effect. A deposit account and/or custody
      account may be opened by several persons. In the absence of contrary
      arrangements, the entitled persons may only jointly dispose of any
      deposits with the Bank.

3.    CUSTOMER'S COMPLAINTS, DELAYS

      Customer's complaints referring to the carrying out of instructions given
      to the Bank must be lodged immediately to facilitate a prompt inquiry; the
      same also applies to objections concerning statements of deposit accounts
      and custody accounts and to other communications or advices. Losses
      resulting from a delay in making a complaint shall be borne by the
      customer.

      In case of delay in carrying out payment transactions, the Bank shall be
      liable solely for payment of interest for the period involved, except in
      cases where its attention has been specifically directed to the danger of
      particular damage.

4.    EXAMINATION OF SIGNATURES AND LAWFUL ENTITLEMENT

      Losses resulting from failure by the Bank to discover forgeries or defects
      with respect to identification shall be borne by the customer unless the
      Bank is guilty of gross negligence.

5.    INCAPACITY TO ACT

      The customer shall bear losses arising from his own incapacity to act or
      the incapacity of third persons unless the fact of his incapacity has been
      published in the KANTONALBANK BASAL-STADT as well as if the incapacity to
      act of his authorized agents and third persons has been notified to the
      Bank in writing.

6.    ERRORS IN TRANSMISSION

      The Bank shall not be responsible for damages arising from the use of the
      postal, telegraph, telephone or telex services or other systems of
      communication, in particular as a result of misunderstandings, loss,
      delay, mutilations or duplications, except where the Bank is guilty of
      gross negligence.

7.    COMMUNICATIONS

      All communications by the Bank shall be deemed to have been validly made
      if sent to the last address given by the customer or otherwise held at his
      disposal in accordance with his instructions.

      The date of the copies or mailing lists in the possession of the Bank
      shall be deemed to be the date of dispatch.

8.    LIEN AND SET-OFF

      The Bank shall have a lien as to all assets which are held at any time for
      the customer at its offices or elsewhere and shall be entitled to set off
      against each other the balances of all accounts of the customer in
      satisfaction of all claims irrespective of the due date and currency
      involved.

      This shall also apply to credits and loans whether or not they are secured
      by specific collateral. In the event of default by the customer, the Bank
      shall be entitled at its discretion to realize the assets by court order
      or in whatever manner it chooses.

9.    CURRENT ACCOUNT TRANSACTIONS

      The usual interest rates or those fixed by the Bank, delay interest since
      the last maturity, commissions, as well as charges, expenses and taxes,
      etc. are credited or debited at the Bank's choice on a quarterly,
      semi-annual or annual basis unless otherwise arranged with the customer.

      The Bank shall be entitled to adjust its interest and commission rates at
      any time, particularly in conformity with charges in money market
      conditions; the customer shall be notified thereof by circular or in any
      other appropriate manner.

      Statements of account which are sent to the customer by the Bank and to
      which no objection has been raised within one month, shall be deemed to
      have been accepted by the customer even if a signed reconciliation
      statement has not been received by the Bank. The explicit or implied
      approval of a statement of account shall be deemed also to include all
      items entered therein and all reservations made by the Bank.

10.   FOREIGN CURRENCY ACCOUNTS

      The assets of the Bank relative to customer's accounts in foreign
      currencies shall be held in the name of the Bank, but for the account and
      risk of the customer, with correspondents considered by the Bank as
      appropriate, inside or outside the currency area in question. The risk of
      legal or governmental restrictions and charges shall be borne by the
      customer.

      The customer is entitled to dispose of foreign currency credit balances by
      selling, drawing a cheque on his own account or buying a banker's cheque
      (cashier's cheque) for debit to his account and by ordering transfers;
      other disposals require the consent of the Bank.

11.   CREDITING OF SUMS IN FOREIGN CURRENCY

      Sums received in foreign currencies shall be credited in Swiss francs at
      the rate of exchange obtained on the day in question unless the customer
      has given instructions to the contrary or has an account in the
      corresponding foreign currency. If the customer's accounts are only in
      currencies other than Swiss francs, the Bank may credit the sum in one of
      these currencies.

12.   REDEBITING OF CHEQUES, DRAFTS, ETC.

      If drafts, cheques and other instruments received for collection or
      discounted, are not paid, or if the proceeds thereof cannot be freely
      disposed of, the Bank shall be entitled to cancel credit advices; all
      claims against any liable person, arising from these instruments, remain
      nevertheless with the Bank until the payment of all indebtedness.

13.   TERMINATION OF A BUSINESS RELATIONSHIP

      The Bank reserves the right to terminate business relationships at
      anytime, especially to cancel agreed upon or granted credit facilities and
      to demand immediate payment of its claims without further notice. This
      applies also to credit facilities and loans with fixed maturities or
      cancellation periods, provided the economic situation of the customer, as
      judged by the Bank, no longer justifies a continuation of existing
      business deals.

14.   HOLIDAYS

      In all business relationships with the Bank, Saturday shall be treated as
      a public holiday.

15.   CHANGES OF GENERAL BUSINESS CONDITIONS

      The Bank reserves the right to change the general business conditions.
      Customers shall be notified of such changes by circular or in another
      appropriate manner. The Bank considers the new conditions as accepted by
      the customer if no notice to the contrary is received within one month.

16.   APPLICABLE LAW, JURISDICTION, PLACE OF PERFORMANCE AND FOR DEBT COLLECTION
      PROCEEDINGS

      All the legal relationships between the customer and the Bank shall be
      governed by Swiss law.

      The place of performance, and in the case of customers domiciled abroad,
      also the place for special proceedings for the collection of debts shall
      be the Bank's place of business in Basel.

      In the case of litigation the courts of Basel City shall have exclusive
      jurisdiction.

      The Bank is also entitled to bring proceedings against the customer at the
      competent court in his domicile or in any other competent jurisdiction.

The german version is decisive in case of differences that may occur in the
interpretation of the german and english version of this document.

                                                             BASLER KANTONALBANK

Basel. lst July 1984

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