Document:

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                                                                   EXHIBIT 10.16

                       COLLABORATION AND LICENSE AGREEMENT

      THIS COLLABORATION AND LICENSE AGREEMENT (the "Agreement") is made as of
June 29, 2001 (the "Effective Date") by and between AURORA BIOSCIENCES
CORPORATION, a Delaware corporation ("Aurora"), and HYSEQ, INC., a Nevada
corporation ("Hyseq").

                                    RECITALS

      WHEREAS, Aurora and Hyseq wish to enter into a collaboration to (i) screen
proteins within Hyseq's orphan secreted protein ("OSP") collection using
Aurora's proprietary CellSensor(TM) panel (the "CellSensor Panel") to identify
OSPs of interest as potential therapeutics, (ii) generate information that
enhances the utility of Hyseq's cDNA collection and database, and (iii) develop
assays for and screen, potentially novel drug targets selected from Hyseq's cDNA
collection with small molecule compounds of interest; and

      WHEREAS, Aurora wishes to grant to Hyseq, and Hyseq wishes to obtain from
Aurora, a non-exclusive license under the Aurora Patents and Stanford Patents
(both defined below) on the terms and subject to the conditions set forth
herein.

      NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties hereby agree as follows:

                                    AGREEMENT

                                    ARTICLE 1

                                   DEFINITIONS

      1.1   "ACTIVE CLONING POOL" means up to [***] cDNA sequences selected by
Aurora from the Hyseq Gene Sequences which are being cloned and sequenced by
Hyseq for Aurora at any given time under the Target Program.

      1.2   "AFFILIATE" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which owns,
is owned by or is under common ownership with, a party. For the purposes of this
definition only, the term "owns" (including, with correlative meanings, the
terms "owned by" and "under common ownership with") as used with respect to any
party, will mean the possession (directly or indirectly) of more than 50% of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity.

      1.3   "AURORA ASSAY" means any assay that is developed and validated by
Aurora under the Collaboration and that incorporates one or more Hyseq Targets.

      1.4   "AURORA COMPOUND LIBRARY" means the collection of compounds owned
by, or licensed to Aurora during the Term, and analogs and/or derivatives
thereof.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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      1.5   "AURORA MUTANT GFP" means any mutant Aequorea Victoria fluorescent
protein, or any polynucleotide encoding any mutant Aequorea Victoria fluorescent
protein, which is covered by the Aurora Patents or the Stanford Patents, and
which is (i) supplied by Aurora, (ii) supplied by a bona fide licensee of Aurora
licensed under the Aurora Patents or the Stanford Patents to sell Aurora Mutant
GFP, or (iii) internally developed by Hyseq.

      1.6   "AURORA PATENTS" means the patents and patent applications listed on
Exhibit A, which is attached hereto and incorporated herein by reference, and
any continuations, divisions, reissues, extensions or continuations-in-part with
respect thereto, and all United States patents issuing therefrom.

      1.7   "AURORA PRODUCT" means (i) any small molecule compound, or analog or
derivative thereof, which is identified, developed or discovered by Aurora as
active against a Hyseq Target using an Aurora Assay, and pursued and developed
for that Hyseq Target, or (ii) any small molecule compound, or analog or
derivative thereof, that is determined by Aurora using Confidential Information
of Hyseq disclosed to Aurora under the Collaboration to affect the activity of
(1) an OSP Receptor, or (2) an OSP/OSP Receptor pair.

      1.8   "AURORA TECHNOLOGY" means any of the polynucleotides listed on
Exhibit C, which is attached hereto and incorporated herein by reference, and
Aurora's proprietary technical manual for use of the same.

      1.9   "BLA" means a Biologics License Application filed pursuant to the
requirements of the FDA, or the equivalent application in any other country or
jurisdiction.

      1.10  "COLLABORATION" means the activities of the parties carried out in
performance of, and the relationship between the parties established by, this
Agreement.

      1.11  "COLLABORATION PERIOD" means the period beginning on the Effective
Date and ending upon the later of: (i) two years thereafter, or (ii) 6 months
following (1) receipt by Aurora of the final batch of OSPs for screening, (2)
Hyseq's selection of the final OSP for creation of a Data Package, or (3)
Aurora's receipt of the final Hyseq Target, or (iii) such other period
established by mutual written agreement of the parties.

      1.12  "COMMERCIALLY REASONABLE AND DILIGENT EFFORTS" means, unless the
parties agree otherwise in writing, those efforts consistent with the exercise
of prudent scientific and business judgment, as applied to other products and
projects of similar scientific and commercial potential within the relevant
product lines of the parties.

      1.13  "CONFIDENTIAL INFORMATION" means any proprietary, confidential or
trade secret information of a party disclosed during the Term and identified as
Confidential, including, without limitation, the terms of this Agreement and
information relating to any use, process, method, compound, research project,
work in process, future development, scientific, engineering, manufacturing,
marketing, business plan, financial or personnel matter relating to the
disclosing party, its present or future products, sales, suppliers, customers,
employees, investors or business, whether in oral, written, graphic or
electronic form. The Hyseq Gene Sequences, the Hyseq Targets and Hyseq's
proprietary OSP collection will be considered

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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Confidential Information of Hyseq under this Agreement, regardless of whether
identified as Confidential. Notwithstanding the foregoing, Confidential
Information will not include any information which the receiving party can prove
by contemporaneous evidence:

            (a)   is now, or hereafter becomes, through no act or failure to act
on the part of the receiving party, generally known or available to Third
Parties;

            (b)   is known by the receiving party at the time of receiving such
information, as evidenced by its records;

            (c)   is hereafter furnished to the receiving party by a Third
Party, as a matter of right and without restriction on disclosure;

            (d)   is independently developed by the receiving party, as
evidenced by its records, without knowledge of, and without the aid, application
or use of, the disclosing party's Confidential Information; or

            (e)   is the subject of a written permission to disclose provided by
the disclosing party.

      1.14  "CONTROL" means possession of the ability of either party to grant a
license or sublicense to the other party as provided for herein without
violating the terms of any agreement or other arrangement with any Third Party.

      1.15  "DATA PACKAGE" means all data and results obtained by Aurora from
screening an OSP, including, without limitation, information described on
Exhibit D, which is attached hereto and incorporated herein by reference,
relating to [***].

      1.16  "EXCLUDED FIELD" means any activities outside the Field, including,
but not limited to: (i) providing services to Third Parties; (ii) the use of
[***]; (iii) transfer to a Third Party of any product, process, method,
composition of matter and/or biological material covered under the Aurora
Patents or the Stanford Patents or incorporating the Aurora Technology; (iv) any
non-pharmaceutical research; (v) [***] of chemicals (e.g. proteins or small
molecules); (vi) [***] of chemicals (e.g. proteins or small molecules); (vii)
diagnostics; (viii) use of [***]; (ix) use in or with [***] (including [***]
cells); or (x) detection of [***]. In addition, the Stanford Patents may not be
practiced in the field of [***].

      1.17  "EXCLUSIVITY PERIOD" means, for each Hyseq Target, the period
beginning on receipt by Aurora of such Hyseq Target, and ending [***]
thereafter, unless extended in accordance with Section 5.4 (a).

      1.18  "FDA" means the United States Food and Drug Administration.

      1.19  "FIELD" means internal use of Aurora Mutant GFP (i) to perform
[***], and (ii) to create [***] for basic research (e.g., [***]).

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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      1.20  "FIRST COMMERCIAL SALE" means the first sale for use or consumption
of a Product. Sale to a sublicensee will not constitute a First Commercial Sale
unless the sublicensee is the end user of such Product.

      1.21  "GFP MATERIALS" means Materials that contain Aurora Mutant GFP.

      1.22  "HYSEQ GENE SEQUENCES" mean [***] gene sequences from Hyseq's cDNA
database, which are identified using criteria determined jointly by Aurora and
Hyseq scientists, and which are provided by Hyseq to Aurora under the
Collaboration. [***]

      1.23  "HYSEQ PATENTS" means all patents or patent applications, and any
continuations, continuations-in-part, divisions, reissues, substitutes, renewals
or extensions thereof, and all patents issuing therefrom, which claim any Hyseq
Targets, OSPs or OSP Receptors and which are under the Control of Hyseq during
the Term.

      1.24  "HYSEQ PRODUCT" means (i) any of the OSPs provided to Aurora by
Hyseq and screened under the Collaboration by Aurora and active in Aurora's
CellSensor Panel, as disclosed to Hyseq hereunder, or any mutation, fragment,
analog or derivative of such OSPs, (ii) any other product identified, discovered
or developed by Hyseq using Confidential Information generated by Aurora and
disclosed to Hyseq under the OSP Program, such as antibodies, antisense
molecules, ribozymes, or gene therapy products, but excluding small molecule
compounds, or (iii) any biological product identified, discovered or developed
by Hyseq using Confidential Information generated by Aurora and disclosed to
Hyseq under the Target Program, such as antibodies, antisense molecules,
ribozymes, or gene therapy products, but excluding small molecule compounds.

      1.25  "HYSEQ TARGET" means an isolated, active protein or cloned and
sequence verified full-length cDNA, which is selected by Aurora from the Active
Cloning Pool and provided to Aurora by Hyseq.

      1.26  "IMPROVEMENTS" means modifications to the fluorescent protein coding
regions of an Aurora Mutant GFP that improves and/or modifies its spectral or
biochemical properties.

      1.27  "JOINT INVENTIONS" has the meaning set forth in Article 7.

      1.28  "JOINT RESEARCH AND DEVELOPMENT COMMITTEE" or "JRDC" means the
committee established pursuant to Section 2.1.

      1.29  "LICENSE PERIOD" means the period beginning on the Effective Date
and ending three years thereafter, unless extended by mutual written agreement.

      1.30  "MATERIALS" means any reagents, promoters, enhancers, vectors,
plasmids, genes, polynucleotides, cells, proteins and fragments thereof,
peptides, antigens, antibodies, antagonists, agonists, inhibitors and chemicals.

      1.31  "NDA" means a New Drug Application filed pursuant to the
requirements of the FDA, or the equivalent application in any other country or
jurisdiction.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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      1.32  "NET SALES" means, with respect to any Product, the gross amount
invoiced by either party or any of its sublicensees on sales or other transfers
of such Product, less (i) allowances (actually paid and limited to rejections,
returns, rebates, chargebacks and prompt payment and volume discounts granted to
customers of such Product, whether in cash or products in lieu of cash), (ii)
freight, transport, packing and insurance charges associated with transportation
of such Product, and (iii) taxes, tariffs or import/export duties based on sales
of such Product when included in gross sales, but not value-added taxes or taxes
assessed on income derived from such sales. If either party distributes a
Product to any of its sublicensees for end use by such sublicensee, then such
distribution will be considered a sale at list price normally charged to an
independent Third Party and the other party will be entitled to collect a
royalty on such sale in accordance with Section 5.1(g) or Section 5.2(f), as
applicable, so long as no royalty is applied to future resales. Such amounts
will be determined from the books and records of the party distributing such
Product and/or its sublicensees, such books and records being maintained in
accordance with GAAP.

      1.33  "OSPs" means any gene sequence, including its signal sequence,
predicted to encode a protein or peptide likely to be expressed in either
membrane-bound or secreted form that is provided to Aurora by Hyseq for
screening and evaluation under the Collaboration.

      1.34  "OSP PROGRAM" has the meaning set forth in Section 3.2.

      1.35  "OSP RECEPTORS" mean a receptor of an OSP, identified under the
Collaboration.

      1.36  "PHASE I" means that portion of the clinical development program
which generally provides for the first introduction into humans of a Product
with the primary purpose of determining safety, metabolism, pharmacokinetic
properties and clinical pharmacology of the Product, as more specifically
defined by the rules and regulations of the FDA and corresponding rules and
regulations in other countries or jurisdictions.

      1.37  "PHASE III" means that portion of the clinical development program
which provides for the continued trials of a Product on sufficient numbers of
patients to establish the safety and efficacy of a Product for the desired
claims and indications, as more specifically defined by the rules and
regulations of the FDA and corresponding rules and regulations in other
countries or jurisdictions.

      1.38  "PRIMARY SCREENING" means use of an Aurora Assay to determine
potential therapeutic or pharmaceutical activity or efficacy of compounds in the
Aurora Compound Library.

      1.39  "PRODUCT" means an Aurora Product or a Hyseq Product, as applicable.

      1.40  "RESEARCH PROGRAMS" means the OSP Program and the Target Program.

      1.41  "ROYALTY TERM" means, for the convenience of the parties, the period
of time commencing on the First Commercial Sale of a Product in any country and
ending upon the later of (i) 15 years from the First Commercial Sale of such
Product in such country, or (ii) the expiration of the last to expire patent
covering such Product in such country.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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      1.42  "SECONDARY SCREENING" means the (i) retest of compounds identified
as active in Primary Screening and/or (ii) the screening of compounds identified
as active in Primary Screening against a closely related Hyseq Target to
determine selectivity.

      1.43  "STANFORD AGREEMENT" means that certain exclusive license agreement
between Aurora and The Board of Trustees of the Leland Stanford Junior
University ("Stanford") dated April 25, 1998.

      1.44  "STANFORD LICENSED PRODUCT" means any product or process, or part
thereof, in the Field, or whose manufacture, use or sale is covered by a valid
claim of an issued, unexpired Stanford Patent and will be presumed to be valid
unless and until it has been held to be invalid by a final judgment of a court
of competent jurisdiction from which no appeal can be or has been taken.

      1.45  "STANFORD PATENTS" means the U.S. patents and applications listed on
Exhibit B, attached hereto and incorporated herein by reference, and
continuations, divisions, reissues, extensions or continuations-in-part with
respect thereto, and all United States patents issuing therefrom.

      1.46  "TARGET PROGRAM" has the meaning set forth in Section 3.3.

      1.47  "TERRITORY" means the United States.

      1.48  "TERM" has the meaning set forth in Section 10.1.

      1.49  "THIRD PARTY" means any entity other than Aurora or Hyseq.

                                    ARTICLE 2

                    JOINT RESEARCH AND DEVELOPMENT COMMITTEE

      2.1   FORMATION. Within 30 days after the Effective Date, the parties will
establish a joint research and development committee (the "JRDC"). The JRDC will
consist of two senior scientists and one business representative designated by
Aurora and two senior scientists and one business representative designated by
Hyseq. Either party may appoint substitute or replacement members of the JRDC to
serve as their representatives upon notice to the other party. The JRDC will
have the responsibility and authority to (a) manage the Research Programs, (b)
assign tasks and responsibilities under the Research Programs consistent with
the terms of this Agreement to Aurora and Hyseq, respectively, and (c) review
and modify the Research Programs, as it deems appropriate to achieve the
parties' objectives under this Agreement.

      2.2   MEETINGS. The JRDC will meet at least once per quarter at locations
and times to be determined by the JRDC, with the intent of meeting at
alternating locations in San Diego, California and Sunnyvale, California or by
tele- or video-conference. Each party will bear all travel and related costs for
its representatives. On an alternating basis, a party will promptly prepare and
deliver to the members of the JRDC minutes of such meetings for review and
approval of the parties.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      2.3   DECISION-MAKING PROCESS. Each party will have [***] on the JRDC, and
decisions by the JRDC will be made [***]. [***] disagreement [***] will be
resolved within the JRDC based on the efficient achievement of the objectives of
this Agreement. Any disagreement, which cannot be resolved by the JRDC, will be
referred to the appropriate chief executive officers of Aurora and Hyseq for
resolution. It is the intent of the parties to resolve issues through the JRDC
whenever possible and to refer issues to the officers of Aurora and Hyseq only
when resolution through the JRDC cannot be achieved, however, this shall not in
any event limit or waive any other rights or remedies otherwise available to the
parties.

                                    ARTICLE 3

           SCOPE OF COLLABORATION; ACTIVITIES UNDER THE COLLABORATION

      3.1   OBJECTIVES; LIMITATIONS. During the Collaboration Period, Aurora
will have [***] for the activities described in Sections 3.2(a) and 3.3(a), and
Hyseq will have [***] for the activities described in Section 3.2(b) and 3.3(b).
Except as specifically provided herein, all activities of the parties outside of
the Collaboration are outside of the scope of this Agreement, and nothing
contained herein is intended to limit either party from using any intellectual
property Controlled by such party for other purposes.

      3.2   OSP PROGRAM. During the Collaboration Period, Aurora and Hyseq will
conduct research and development of Hyseq Products pursuant to a detailed
research and development program (the "OSP Program"), a copy of which is
attached hereto and incorporated herein by reference as Exhibit D. Any
inconsistency between the provisions in this Agreement and Exhibit D will be
resolved in favor of the main body of this Agreement.

            (a)   AURORA CONTRIBUTIONS. Aurora will (i) use its CellSensor Panel
to screen a minimum of [***] OSPs during each year of the Collaboration Period
(but no more than a total of [***] OSPs during the Collaboration Period), (ii)
provide all such initial screening data to Hyseq within [***] after delivery of
such OSPs to Aurora, and (iii) provide to Hyseq a Data Package for each OSP
selected by Hyseq based on such initial screening data, within [***] following
receipt of written notice from Hyseq of its desire to receive a Data Package for
such OSP.

            (b)   HYSEQ CONTRIBUTIONS. During the Collaboration Period, Hyseq
(i) will provide to Aurora between [***] and [***] full-length cDNAs from its
OSP collection of [***] gene sequences for screening using Aurora's CellSensor
Panel, delivered in an initial block of [***] OSPs and minimum blocks of [***]
OSPs thereafter, and (ii) upon review of the initial screening data, will select
a minimum of [***] OSPs during the Collaboration Period for which Hyseq desires
to receive Data Packages from Aurora and will provide Aurora written notice of
such selection. Hyseq will own the Data Packages and they will be Confidential
Information of Hyseq hereunder, regardless of whether they have been identified
as such.

      3.3   TARGET PROGRAM. During the Collaboration Period, Aurora and Hyseq
will conduct research and development of Aurora Products pursuant to a detailed
research and development program (the "Target Program"), a copy of which is
attached hereto and incorporated herein by reference as Exhibit E. Any
inconsistency between the provisions in this Agreement and Exhibit E will be
resolved in favor of the main body of this Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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            (a)   AURORA CONTRIBUTIONS. Aurora will (i) develop between [***]
and [***] Aurora Assays during each year of the Collaboration Period using up to
[***] Hyseq Targets chosen by Aurora, (ii) screen the Aurora Assays during the
Collaboration Period against [***] compounds from the Aurora Compound Library,
and (iii) provide to the JRDC, all data and results generated by Aurora during
the Collaboration Period (other than [***]) and, (iv) if reasonably requested by
Hyseq, the [***] of compounds identified by Aurora in Primary Screening and
confirmed in Secondary Screening [***], or as agreed to by the parties
hereunder. Aurora will provide to the JRDC any additional data or results which
identify or correct inaccuracies in or conflicts between previous data and
results provided by Aurora to the JRDC under this Section 3.3(a). Aurora will
own all data and results generated by Aurora under the Target Program and hereby
grants to Hyseq the non-exclusive, non-transferable right to use the same to
support the prosecution of patent applications on Hyseq Targets. Such data and
results will be considered Confidential Information of Aurora hereunder,
regardless of whether it has been identified as Confidential Information,
however Hyseq is entitled to use such Confidential Information in accordance
with the terms of this Agreement. Aurora will notify Hyseq in writing [***]
after which Hyseq will have the right to use such information to support the
prosecution of patent applications on Hyseq Targets. Notwithstanding the
foregoing, Aurora retains the right to file patent applications covering the
[***].

            (b)   HYSEQ CONTRIBUTIONS. Hyseq (i) will provide Aurora access to
the Hyseq Gene Sequences from which Aurora, with Hyseq's support and assistance,
will during the Collaboration Period, select and prioritize members of the
Active Cloning Pool, from which Hyseq will clone Hyseq Targets for the Target
Program, (ii) will deliver to Aurora from the Active Cloning Pool full-length,
sequence-verified cDNAs for between [***] and [***] Hyseq Targets during each
year of the Collaboration Period, for a total of at least [***] and up to [***]
Hyseq Targets during the Collaboration Period; provided, however, that Hyseq
will be required to provide no more than [***] Hyseq Targets to Aurora in any
given month, and (iii) will regularly provide Aurora and the JRDC, access to
[***], as well as any other relevant and unrestricted biological data in Hyseq's
Control all of which is Confidential Information of Hyseq, regardless of whether
it is identified as such, during the Collaboration Period, unless otherwise
extended for up to two additional years pursuant to Section 5.4(b) for use in
Aurora's selection of Hyseq Targets and the development of Aurora Products. Any
Hyseq Target delivered to Aurora under Section 3.3(b)(ii) above will be removed
from the Active Cloning Pool and may be replaced at Aurora's election in the
Active Cloning Pool with another gene sequence from the Hyseq Gene Sequences
selected by Aurora.

      3.4   COMMERCIALLY REASONABLE AND DILIGENT EFFORTS. Each party will use
Commercially Reasonable and Diligent Efforts to perform its responsibilities
under the Research Programs.

      3.5   AVAILABILITY OF RESOURCES; COOPERATION. Each party will maintain
laboratories, offices and/or other facilities reasonably necessary to carry out
the activities to be performed by such party pursuant to the Research Programs.
Unless otherwise agreed to in writing by Hyseq, Aurora will perform all of its
obligations under the OSP Program and the Target Program at [***]. Upon
reasonable advance notice, each party agrees to make its employees, agents and
consultants reasonably available at their respective places of employment to
consult with the

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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other party during the Collaboration Period on issues arising during the
Collaboration and in connection with any request from any regulatory agency,
including, without limitation, regulatory, scientific, technical and clinical
testing issues

      3.6   DISCLOSURE; REPORTS. During the Collaboration Period, each party
will share all research data and results with the other party relating to the
Research Programs promptly after such data and results become available. During
the Collaboration Period, the parties will exchange, at a minimum, [***] written
reports presenting a meaningful summary of the activities performed and the
results obtained by such party pursuant to the Research Programs. In addition,
on reasonable request by either party, the other party will [***] to inform such
party of the details of the work performed under this Agreement. Information
disclosed by either party to the other party pursuant hereto may include
Confidential Information of the disclosing party and, whether Confidential
Information or not, may be used only in accordance with the rights granted under
Article 4 and Article 5 of this Agreement.

                                    ARTICLE 4

                                GRANT OF LICENSES

      4.1   NON-EXCLUSIVE LICENSE UNDER THE AURORA PATENTS. Subject to the terms
and conditions of this Agreement, Aurora hereby grants to Hyseq a non-exclusive,
non-transferable license under the Aurora Patents to make, use and import Aurora
Mutant GFP and Improvements made by Aurora during the License Period in the
Territory for use in the Field during the License Period.

      4.2   NON-EXCLUSIVE LICENSE UNDER THE STANFORD PATENTS. Subject to the
terms and conditions of this Agreement, Aurora hereby grants to Hyseq a
non-exclusive, non-transferable license under the Stanford Patents to make, use
and import Aurora Mutant GFP and Improvements made by Aurora during the License
Period in the Territory for use in the Field during the License Period.

      4.3   NON-EXCLUSIVE LICENSE TO AURORA TECHNOLOGY. Subject to the terms and
conditions of this Agreement, Aurora hereby grants to Hyseq a non-exclusive,
non-transferable license to make, use and import the Aurora Technology and
Improvements made by Aurora during the License Period in the Territory for use
in the Field during the License Period.

      4.4   LIMITATIONS. Except as otherwise expressly provided in this
Agreement, nothing in this Agreement is intended to convey or transfer ownership
by either party to the other party of any rights, title or interest in any
Confidential Information, patent rights, copyrights, trade secrets or other
intellectual property rights owned or Controlled by such party. Except as
expressly provided for in this Agreement, nothing in this Agreement will be
construed as a license or sublicense by either party to the other party of any
patent rights, copyrights, trade secrets or other intellectual property rights
owned or Controlled by such party. Aurora retains all rights that are not
expressly licensed by Aurora to Hyseq hereunder, including without limitation,
right to any Improvements made by Aurora during the License Period. Hyseq
retains all rights that are not expressly licensed by Hyseq to Aurora hereunder,
including, without limitation, rights to any Improvement made by Hyseq during
the License Period, and any products resulting from Hyseq's activities with
Aurora Mutant GFP and Improvements. Notwithstanding anything

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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contained herein to the contrary, the license rights granted to Hyseq in
Sections 4.1, 4.2 and 4.3 do not include (a) the right to grant sublicenses, (b)
the right to conduct any activities outside the Field or outside the Territory
under the Aurora Patents or the Stanford Patents or with the Aurora Technology,
(c) the right to transfer any Material containing Aurora Technology (or any
portion thereof) to any Third Party, other than to an Affiliate of Hyseq, or (d)
the right to conduct activities within the Excluded Fields under the Aurora
Patents or the Stanford Patents or with the Aurora Technology.

      4.5   IMPROVEMENTS. Hyseq hereby grants to Aurora a worldwide, fully paid,
perpetual, non-exclusive license, including the right to grant sublicenses, to
make, have made, use, offer for sale, sell and import any Improvements made by
Hyseq during the License Period. Each party will promptly notify the other party
of the reduction to practice of such Improvements. Each party, to the extent it
has Control, will provide to the other party any tangible Materials related to
Improvements made by such party during the License Period. For clarity, Aurora
is [***] Improvements to Hyseq that were made by Aurora in activities directed
towards [***], such as [***] and other patented applications of, or know-how
related to, [***].

      4.6   SERVICE. Aurora will prepare, aliquot and deliver the Aurora
Technology to Hyseq within 30 days after the Effective Date in the quantities
described on Exhibit C, and will offer Hyseq technical support in the use of
Aurora Technology through its help line. In the event of [***].

      4.7   LICENSE FOR TARGETS. Hyseq owns the Hyseq Targets and subject to the
terms and conditions of this Agreement, Hyseq hereby grants to Aurora a
worldwide license, including the right to grant sublicenses as set forth below,
under the Hyseq Patents to use the Hyseq Targets to identify, discover, develop,
make, have made, use, offer for sale, sell and import Aurora Products. With
respect to each Hyseq Target, such license will be exclusive during the
Exclusivity Period and will become non-exclusive thereafter; provided, however,
unless extended pursuant to Section 5.4(a), if Aurora (a) fails to develop an
Aurora Assay within [***] after receipt of the cDNA for a Hyseq Target, the
exclusive license for such Hyseq Target will terminate, or (b) fails to complete
Primary Screening and Secondary Screening of a Hyseq Target within [***] after
receipt of the cDNA for such Hyseq Target, then the exclusive license for such
Hyseq Target becomes a non-exclusive license for the Term of this Agreement;
provided further that, Aurora will not have the right to grant sublicenses under
a non-exclusive license until [***]. In no event does Aurora have the right to
license the Hyseq Targets on a stand-alone basis, independently from Aurora
technology or an Aurora Product. Aurora [***], and will notify Hyseq of each
sublicensee granted a license within (30) days after execution of each
sublicense agreement hereunder.

      4.8   RIGHTS TO OSPs. Hyseq owns and will own all right, title and
interest in and to any and all OSPs, provided by Hyseq to Aurora under the OSP
Program, including all rights to any data generated by Aurora from screening
such OSPs under the OSP Program, including, without limitation, the Data
Packages.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      4.9   RIGHTS TO OSP RECEPTORS. Aurora will notify Hyseq in writing of its
desire to clone any OSP Receptor. Within [***] following receipt of such notice,
Hyseq will notify Aurora in writing of (i) the exercise of its option under
Section 5.3(c) to have Aurora clone such OSP Receptors, or (ii) that it is or
plans to clone such OSP Receptor on its own or with a Third Party. If Hyseq
provides written notice that it is exercising its option under Section 5.3(c)
within such [***] period, then Hyseq will own all right, title and interest in
and to any such OSP Receptor. If Hyseq notifies Aurora that it is or will clone
such OSP Receptor on its own, or with a Third Party, then Aurora will not
attempt to clone the OSP Receptor with an OSP provided by Hyseq. If Hyseq
notifies Aurora in writing that it does not wish to exercise its option or is
not or does not plan to clone such OSP Receptors and gives Aurora permission to
clone such OSP Receptor, or if Hyseq fails to notify Aurora in writing of the
exercise of the option or that it is or will clone such OSP Receptor within such
[***] period, then, Aurora will have the right to attempt to clone such OSP
Receptor and will own all right, title and interest in and to such OSP Receptors
cloned. Subject to the terms and conditions of this Agreement, Aurora hereby
grants to Hyseq a worldwide, non-exclusive, non-transferable license to use any
such cloned OSP Receptor to identify, discover, develop, and commercialize Hyseq
Products. Subject to the terms and conditions of this Agreement, Hyseq hereby
grants to Aurora a worldwide, non-exclusive, non-transferable license, during
the Term, under the Hyseq Patents to use the specific OSP necessary to clone a
corresponding OSP Receptor as indicated herein and to use such OSP that forms
the OSP/OSP Receptor pair with any cloned OSP Receptor owned by Aurora hereunder
pursuant to 4.9(b) to, during the Term, (i) develop such cloned OSP Receptor
into assays and (ii) screen such OSP Receptor to identify, develop and
commercialize Aurora Products.

                                    ARTICLE 5

                          PAYMENT OBLIGATIONS; OPTIONS

      5.1   PAYMENTS TO AURORA.

            (a)   LICENSE FEE. In consideration for the licenses granted to
Hyseq under Section 4.1, 4.2 and 4.3, Hyseq will pay to Aurora a non-creditable,
non-refundable license fee of [***] payable as follows: [***] within 10 days
after the Effective Date and [***] upon [***] of the Effective Date.

            (b)   TECHNOLOGY ACCESS FEE. In consideration for the service of the
preparation and delivery of the Aurora Technology to Hyseq under Section 4.6,
Hyseq will pay to Aurora a non-creditable, non-refundable technology access fee
of [***] within [***] after delivery of the Aurora Technology to Hyseq.

            (c)   SCREENING OF OSPs. In consideration for screening OSPs under
the Collaboration, Hyseq will pay to Aurora a non-creditable, non-refundable
payment of [***] for each OSP screened by Aurora under the Collaboration. Such
payments will be calculated and reported for each calendar quarter during the
Collaboration Period. All payments due under this Section 5.1(c) will be paid
within [***] after the end of each calendar quarter.

            (d)   DATA PACKAGES. In consideration for providing Data Packages to
Hyseq under the Collaboration, Hyseq will pay to Aurora a non-creditable,
non-refundable payment of [***] within [***] after delivery of each Data Package
to Hyseq. Notwithstanding the foregoing,

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

Hyseq will pay to Aurora a minimum of [***] during the Collaboration Period
under this Section 5.1(d).

            (e)   PERFORMANCE MILESTONE. Hyseq will pay to Aurora (i) a
one-time, non-creditable, non-refundable milestone payment of [***] within [***]
after Aurora completes screening of the first [***] OSPs using [***] approaches
thus demonstrating the feasibility of such approach (ii) a one-time,
non-creditable, non-refundable milestone payment of [***] within [***] after
Aurora completes screening of [***] OSPs provided by Hyseq to Aurora under the
Collaboration.

            (f)   CLINICAL MILESTONES. Hyseq will pay to Aurora the following
non-creditable, non-refundable milestone payments for the first, and only the
first, Hyseq Product within [***] following achievement of each of the following
milestone events:

                  Milestone                     Payment
                  ---------                     -------

      [***]

            (g)   ROYALTIES. Hyseq will pay to Aurora a royalty equal to [***]
of Net Sales of each Hyseq Product sold by Hyseq or its sublicensees. Royalties
for sales of a Hyseq Product in any given country will be paid for a period
equal to the Royalty Term for such Hyseq Product in such country.

      5.2   PAYMENTS TO HYSEQ.

            (a)   DATABASE ACCESS FEE. In consideration for access to Hyseq's
cDNA database under Section 3.3(b), Aurora will pay to Hyseq a non-creditable,
non-refundable payment of $250,000 within 10 days after the Effective Date.

            (b)   LICENSE FEE. In consideration for the license granted to
Aurora under Section 4.7, Aurora will pay to Hyseq a non-creditable,
non-refundable license fee of $250,000 within 10 days after the Effective Date.

            (c)   HYSEQ TARGETS SELECTED FOR SCREENING. Aurora will pay to Hyseq
a non-creditable, non-refundable payment of [***] for each Hyseq Target for
which Aurora develops an Aurora Assay during the Collaboration Period. Such
payments will be calculated and reported for each calendar quarter during the
Collaboration Period. All payments due under this Section 5.2(c) will be paid
within [***] after the end of each calendar quarter. Notwithstanding the
foregoing, Aurora will pay to Hyseq a minimum of [***] during the Collaboration
Period under this Section 5.2(c).

            (d)   PERFORMANCE MILESTONE. If, during the Collaboration Period,
Aurora identifies chemical entities for at least [***] of the Hyseq Targets
screened by Aurora under the Target Program which demonstrate at least a [***]
over related public domain targets (as defined in the Target Program), then
Aurora will pay to Hyseq a one-time, non-creditable, non-refundable milestone
payment of [***] within [***] after the final report for the Target Program has
been received by Hyseq from Aurora.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

            (e)   CLINICAL MILESTONES. For each Hyseq Target, Aurora will pay to
Hyseq the following non-creditable, non-refundable milestone payments for the
first, and only the first, Aurora Product to achieve such milestone. This
payment will be made within [***] following achievement of each of the following
milestone events:

                  Milestone                     Payment
                  ---------                     -------

      [***]

            (f)   ROYALTIES. Aurora will pay to Hyseq a royalty equal to [***]
of Net Sales for each Aurora Product sold by Aurora or its sublicensees.
Royalties for sales of an Aurora Product in any given country will be paid for a
period equal to the Royalty Term for such Aurora Product in such country.

      5.3   GRANT OF OPTIONS TO HYSEQ. Aurora hereby grants to Hyseq
non-transferable options exercisable by Hyseq during the Collaboration Period,
or as extended in Section 5.3(c):

            (a)   to receive a non-exclusive, non-transferable, worldwide
license to any cell-based assay used by Aurora in the performance of the
Collaboration for internal use by Hyseq to optimize, develop and commercialize
Hyseq Products for [***] per cell line;

            (b)   to purchase from Aurora single mg quantities of up to [***] of
Hyseq's OSPs, synthesized by a third party, for internal use (non-GMP) to
optimize, develop and commercialize Hyseq Products at [***]

            (c)   for a period of [***] following the Collaboration Period, to
have Aurora clone OSP Receptors [***] for Hyseq for [***] per OSP Receptor,
payable as follows: an upfront, non-refundable, non-creditable payment of [***],
and [***] upon delivery; and/or

            (d)   to have Aurora use its CellSensor Panel to screen up to [***]
additional OSPs (over and above the [***] OSPs set forth in Section 3.2(a))
during the Collaboration Period for [***] per OSP.

      5.4   GRANT OF OPTIONS TO AURORA. Hyseq hereby grants to Aurora
non-transferable options exercisable by Aurora during the Collaboration Period,
except as set forth in Section 5.4(b):

            (a)   to extend the Exclusivity Period, the time to complete assay
development under Section 4.7, and the time to complete Primary Screening and
Secondary Screening under Section 4.7 on a Hyseq Target-by-Hyseq Target basis by
[***] for [***] per Hyseq Target;

            (b)   for a period of [***] following the Collaboration Period, to
have Hyseq perform bioinformatics efforts utilizing Hyseq informatics tools and
database to support the Target Program [***] on Aurora's behalf on a [***] basis
in an amount equal to [***] per FTE per year prorated on a per hour worked
basis; and/or

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

            (c)   to obtain additional Hyseq Targets (over and above the [***]
Hyseq Targets set forth in Section 3.3(b)) for assay development and screening
under the same terms and conditions as set forth in this Agreement, for [***]
per Hyseq Target.

      5.5   RIGHT OF FIRST NEGOTIATION. During the Exclusivity Period for any
Hyseq Target, Hyseq will provide written notice to Aurora of its intention to
license such Hyseq Target for [***] applications. During the [***] period
following such written notice from Hyseq, Aurora will have the first right to
negotiate an exclusive license to such Hyseq Target for [***] applications that
are [***] used in clinical applications of Aurora Products related to such Hyseq
Target upon [***] terms [***].

                                    ARTICLE 6

                            PAYMENTS; RECORDS; AUDITS

      6.1   PAYMENT; REPORTS. Royalty payments will be calculated and reported
for each calendar quarter. All royalty payments due under this Agreement will be
paid within [***] after the end of each calendar quarter, unless otherwise
specifically provided herein. Each payment of royalties will be accompanied by a
report in sufficient detail to permit confirmation of the accuracy of the
royalty payment made, including, without limitation, Net Sales, the royalties
payable in United States dollars, the method used to calculate the royalty and
the exchange rates used.

      6.2   EXCHANGE RATE; MANNER AND PLACE OF PAYMENT. All payments hereunder
will be payable in United States dollars. With respect to each quarter, for
countries other than the United States, whenever conversion of payments from any
foreign currency will be required, such conversion will be made at the rate of
exchange reported in The Wall Street Journal on the last business day of the
applicable reporting period. Any payment due under this Agreement will be made
by wire transfer to a bank account designated by the party receiving such
payment, unless otherwise specified in writing by such party.

      6.3   LATE PAYMENTS. In the event that any payment, including royalty
payments, due hereunder is not made when due, the payment will accrue interest
from that date due at the rate of [***] per month; provided however, that in no
event will such rate exceed the maximum legal annual interest rate for the state
in which the party is located. The payment of such interest will not limit the
party receiving such payment from exercising any other rights it may have as a
consequence of the lateness of any payment.

      6.4   RECORDS AND AUDITS. During the Royalty Term and for a period of
[***] thereafter, each party will keep complete and accurate records in
sufficient detail to permit the other party to confirm the accuracy of all
royalty payments due to the other party hereunder. A party due royalty payments
will have the right to cause an independent, certified public accountant
reasonably acceptable to the other party to audit such records to confirm
royalty payments due under this Agreement. Such audits may be exercised during
normal business hours no more than [***] in any 12-month period upon at least
[***] prior written notice to the other party. The party exercising such audit
right will bear the full cost of such audit, unless such audit discloses an
underpayment by more than [***] of the amount due under this Agreement. In

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

such case, the other party will bear the full cost of such audit. In all events,
the other party will pay any underpayment with interest in accordance with
Section 6.3.

      6.5   TAXES. All taxes levied on account of the royalties and other
payments accruing to each party under this Agreement shall be paid by the party
receiving such royalty or other payment for its own account, including taxes
levied thereon as income to the receiving party. If provision is made in law or
regulation for withholding, such tax shall be deducted from the royalty or other
payment made by the party making such payment to the proper taxing authority and
a receipt of payment of the tax secured and promptly delivered to the party
entitled to the royalty. Each party agrees to assist the other party in claiming
exemption from such deductions or withholdings under any double taxation or
similar agreement or treaty from time to time in force.

      6.6   PROHIBITED PAYMENTS. Notwithstanding any other provision of this
Agreement, if either party is prevented from paying any royalty due hereunder by
virtue of the statutes, laws, codes or governmental regulations of the country
from which the payment is to be made, then such royalty may be paid by
depositing funds in the currency in which accrued to the other party's account
in a bank acceptable to the other party in the country whose currency is
involved.

                                    ARTICLE 7

                             OWNERSHIP OF INVENTIONS

      Ownership of patentable subject matter conceived of or reduced to practice
in performance of the Collaboration will be determined in accordance with the
rules of inventorship under United States patent laws. Subject to Article 4,
Aurora will own all inventions conceived and reduced to practice during
performance of the Collaboration solely by its employees and agents, and all
patent applications and patents claiming such inventions. Subject to Article 4,
Hyseq will own all inventions conceived and reduced to practice during
performance of the Collaboration solely by its employees and agents, and all
patent applications and patents claiming such inventions. The parties agree to
promptly exert all reasonable efforts, including the execution and delivery of
any and all papers, instruments or affidavits necessary to effectuate the
ownership rights stated in Article 4. Subject to Article 4, all inventions
conceived and reduced to practice during performance of the Collaboration
jointly by employees or agents of Aurora and employees or agents of Hyseq, and
all patent applications and patents claiming such inventions, will be owned
jointly by Aurora and Hyseq ("Joint Inventions"). The parties will determine via
the JRDC which party will be responsible for the filing, prosecution and
maintenance of jointly owned patent applications and patents. Each party (a)
will [***] regarding the filing, prosecution and maintenance of patent
applications claiming Joint Inventions, and (b) will keep the other party
advised of the status of such filing, prosecution and maintenance. Each party
agrees to cooperate fully in the preparation, filing and prosecution of patent
applications claiming Joint Inventions, including, without limitation, (i)
executing all papers and instruments, or requiring its employees or agents, to
execute such papers and instruments, so as to enable the other party to apply
for and to prosecute patent applications claiming Joint Inventions in any
country, and (ii) promptly informing the other party of any matters coming to
such party's attention that may affect the preparation, filing or prosecution of
an such patent applications.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    ARTICLE 8

                          CONFIDENTIALITY; PUBLICATIONS

      8.1   NONDISCLOSURE. During the Term and for a period of [***] thereafter,
each party will maintain all Confidential Information of the other party as
confidential and will not disclose any such Confidential Information or any
summary or part thereof, to any Third Party or use, or enable any Third Party to
use, any such Confidential Information for any purpose, except (a) as expressly
authorized by this Agreement, or (b) to the extent such use or disclosure is
reasonably necessary in filing or prosecuting patent applications, [***],
complying with applicable law, governmental regulation or court order,
submitting information to tax or other governmental authorities, making a
permitted sublicense or otherwise exercising its rights hereunder; provided,
however, that if a party is required to make any such disclosure of the other
party's Confidential Information, other than pursuant to a confidentiality
agreement, it will give reasonable advance written notice to the other party of
such disclosure, and will use [***] efforts to secure confidential treatment of
such information prior to its disclosure (whether through protective orders or
otherwise). Each party may disclose Confidential Information of the other party
to its sublicensees, employees, agents, consultants and other representatives to
the extent required to accomplish the purposes of this Agreement, so long as
such persons are under an obligation of confidentiality no less stringent than
as set forth herein. Each party will use at least the same standard of care as
it uses to protect its own Confidential Information and will remain liable in
the event any sublicensees, employees, agents, consultants and other
representatives make any unauthorized use or disclosure of the other party's
Confidential Information. Each party will promptly notify the other party upon
discovery of any unauthorized use or disclosure of the other party's
Confidential Information.

      8.2   PUBLICATIONS. Each party recognizes that the publication of papers
regarding results of the research and development activities performed under the
Collaboration, including oral presentations and abstracts, may be beneficial to
both parties provided such publications are subject to reasonable controls to
protect Confidential Information. In particular, it is the intent of the parties
to maintain the confidentiality of any Confidential Information included in any
foreign patent application until such foreign patent application has been
published. Accordingly, each party will have the right to review and approve any
paper proposed for publication by the other party, including oral presentations
and abstracts, which utilizes data generated from the Collaboration and/or
includes Confidential Information of the other party. Before any such paper is
submitted for publication, the party proposing publication will deliver a
complete copy to the other party at least [***] prior to submitting the paper to
a publisher. The receiving party will review any such paper and give its
comments to the publishing party within [***] of the delivery of such paper to
the receiving party. With respect to oral presentation materials and abstracts,
the parties will make reasonable efforts to expedite review of such materials
and abstracts, and will return such items as soon as practicable to the
publishing party with appropriate comments, if any, but in no event later than
[***] from the date of delivery to the receiving party. The publishing party
will comply with the other party's request to delete references to such other
party's Confidential Information in any such paper and agrees to withhold
publication of such paper for an additional [***] to permit the parties to
obtain patent protection, if either party deem it necessary, in accordance with
the terms of this Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    ARTICLE 9

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

      9.1   CORPORATE POWER. Each party hereby represents and warrants that such
party is duly organized and validly existing under the laws of the state of its
incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.

      9.2   DUE AUTHORIZATION. Each party hereby represents and warrants that
such party is duly authorized to execute and deliver this Agreement and to
perform its obligations hereunder. Each party represents and warrants to the
other party that it has the necessary authority to grant the licenses to the
other party contained herein.

      9.3   BINDING OBLIGATION. Each party hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, or, to its knowledge, violate any law or regulation
of any court, governmental body or administrative or other agency having
authority over it.

      9.4   COVENANT NOT TO OPPOSE PATENTS. Neither party will assist any Third
Party to oppose the grant or dispute the validity of any patent rights of the
other related to this Agreement.

      9.5   AURORA TECHNOLOGY. Except as expressly licensed herein, Hyseq hereby
covenants not to make or use the Aurora Technology or Materials covered by valid
and enforceable claims of the Aurora Patents or the Stanford Patents prior to
the expiration of the last to expire of the applicable patents.

      9.6   LIMITATION ON WARRANTIES. Except as expressly set forth in this
Agreement, nothing herein will be construed as a representation or warranty by
either party that use of any intellectual property transferred, licensed or
otherwise made available hereunder does not infringe any intellectual property
right of any Third Party. Neither party makes any warranties, express or
implied, concerning the success of the Research Programs or the commercial
utility of any Product. [***].

      9.7   DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

      9.8   LIMITATION OF LIABILITY. NEITHER PARTY WILL BE ENTITLED TO RECOVER
FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      9.9   MUTUAL INDEMNIFICATION. Each party hereby agrees to save, defend,
indemnify and hold harmless the other party and its officers, directors,
employees, consultants and agents from and against any and all losses, damages,
liabilities, expenses and costs, including reasonable legal expense and
attorneys' fees ("Losses"), to which the indemnified party may become subject as
a result of any claim, demand, action or other proceeding by any Third Party to
the extent such Losses arise directly or indirectly out of (a) the practice by
such indemnified party of any license granted by the indemnifying party
hereunder, or (b) the development, manufacture, use, handling, storage, sale or
other disposition of any Product by such indemnified party or sublicensees,
except to the extent such Losses result from the gross negligence or willful
misconduct of the party claiming a right of indemnification under this Section
9.9. In the event either party seeks indemnification under this Section 9.9, it
will inform the other party of a claim as soon as reasonably practicable after
it receives notice of the claim, will permit the other party to assume direction
and control of the defense of the claim (including the right to settle the claim
solely for monetary consideration), and will cooperate as requested (at the
expense of the other party) in the defense of the claim.

                                   ARTICLE 10

                              TERM AND TERMINATION

      10.1  TERM. This Agreement will commence on the Effective Date and will
continue until (i) the expiration of the last to expire of the Aurora Patents,
the Stanford Patents or the Hyseq Patents, or (ii) the last royalty obligation
due hereunder is paid, whichever is later, unless terminated earlier as provided
herein (the "Term").

      10.2  TERMINATION FOR CAUSE. Either party may terminate this Agreement
prior to the expiration of the Term upon the occurrence of any of the following:

            (a)   Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or

            (b)   Upon or after the breach of any material provision of this
Agreement by the other party if the breaching party has not cured such breach
within 60 days after written notice thereof by the non-breaching party.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      10.3  TERMINATION OF OSP PROGRAM BY AURORA. If Aurora is unable to use
co-culturing or supernatant approaches to screen OSPs under the OSP Program,
then Aurora may terminate the OSP Program upon: (i) providing a written summary
to the JRDC by Aurora which sets forth the efforts undertaken and all results
obtained by Aurora in attempting to develop and use the co-culture and
supernatant approaches to screen OSPs, (ii) providing 30 days written notice to
Hyseq, and (iii) paying to Hyseq $250,000. Upon payment of such amount to Hyseq,
Aurora will have no further obligations to Hyseq under Section 3.2(a) regarding
the OSP Program, other than the obligations of confidentiality set forth in this
Agreement. All other rights and obligations of the parties under this Agreement
will survive the termination of the OSP Program pursuant to this Section 10.3.

      10.4  EFFECT OF TERMINATION.

            (a)   Upon termination of this Agreement by Aurora under Section
10.2, (i) the licenses granted by Aurora to Hyseq under Article 4 will
terminate, and (ii) the licenses granted by Hyseq to Aurora under Article 4 will
remain in full force and effect for so long as Aurora is not in breach of its
obligations to Hyseq under this Agreement. Upon termination of this Agreement by
Hyseq under Section 10.2, (i) the licenses granted by Hyseq to Aurora under
Article 4 will terminate, and (ii) the licenses granted by Aurora to Hyseq under
Article 4 will remain in full force and affect for so long as Hyseq is not in
breach of its obligations to Aurora under this Agreement.

            (b)   Expiration or termination of this Agreement will not relieve
the parties of any obligation accruing prior to such expiration or termination.
Except as set forth below or elsewhere in this Agreement, the obligations and
rights of the parties under Sections 3.3(a) 4.4, 4.8, 6.4, 9.7, 9.8, 9.9, 10.3
and 10.4 and Articles 1, 7, 8 and 11 will survive the expiration or termination
of this Agreement.

            (c)   Within 30 days following the expiration or termination of this
Agreement (except to the extent either party retains a license as contemplated
by Section 10.2(a) or 10.2(b) above), each party will return to the other party,
or destroy, upon the written request of the other party, any and all
Confidential Information and Materials of the other party in its possession,
provided, however, that each party may keep one copy of such Confidential
Information for the sole purpose of complying with its obligations hereunder.

                                   ARTICLE 11

                                  MISCELLANEOUS

      11.1  ASSIGNMENT. Except as expressly provided hereunder, neither this
Agreement nor any rights or obligations hereunder may be assigned or otherwise
transferred by either party without the prior written consent of the other party
(which consent will not be unreasonably withheld); provided, however, that
during the Collaboration Period Aurora may assign this Agreement and the rights
and obligations hereunder to Vertex Pharmaceuticals Incorporated ("Vertex")
without Hyseq's consent in connection with the merger of Aurora with Vertex as
required by operational law, contract or otherwise; provided further, that
following the expiration of the Collaboration Period, either party may assign
this Agreement and its rights and obligations hereunder without the other
party's consent (a) in connection with the transfer or sale of all or

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

substantially all of the business of such party to which this Agreement relates
to a Third Party, whether by merger, sale of stock, sale of assets or otherwise,
or (b) to an Affiliate, provided that any such assignment to an Affiliate will
not relieve the assigning party of its responsibilities for performance of its
obligations under this Agreement. The rights and obligations of the parties
under this Agreement will be binding upon and inure to the benefit of the
successors and permitted assigns of the parties. Any assignment not in
accordance with this Agreement is null and void.

      11.2  FORCE MAJEURE. Neither party will be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement
(other than non-payment) if (a) such failure or delay is caused by or results
from causes beyond the reasonable control of the affected party, including, but
not limited to, fire, floods, el nino, la nina, embargoes, war, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other party, and (b) the
affected party has exerted all reasonable efforts to avoid or remedy such force
majeure event; provided, however, that in no event will either party be required
to settle any labor dispute or disturbance.

      11.3  GOVERNING LAW. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of California, as such laws
apply to agreements between California residents performed entirely within the
State of California, except that questions affecting the construction and effect
of any patent will be determined by the law of the country in which such patent
is issued.

      11.4  NOTICES. All notices and other communications provided for hereunder
will be in writing and will be mailed by first-class, registered or certified
mail, postage paid, or delivered personally, by overnight delivery service or by
facsimile, computer mail or other electronic means, with confirmation of
receipt, addressed as follows:

      IF TO AURORA:             AURORA BIOSCIENCES CORPORATION
                                11010 Torreyana Road
                                San Diego, CA 92121
                                Fax: (858) 404-6713
                                Attn:  President

      IF TO HYSEQ:              HYSEQ, INC.
                                670 Almanor Ave.
                                Sunnyvale, CA 94085
                                Fax: (408) 524-8145
                                Attn: Legal Department

      Either party may by like notice specify or change an address to which
notices and communications will thereafter be sent. Notices sent by facsimile,
computer mail or other electronic means will be effective upon confirmation of
receipt, notices sent by mail or overnight delivery service will be effective
upon receipt, and notices given personally will be effective when delivered.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      11.5  WAIVER. Except as specifically provided for herein, the waiver from
time to time by either party of any right or failure to exercise any remedy will
not operate or be construed as a continuing waiver of the same right or remedy
or of any other of such party's rights or remedies provided in this Agreement.

      11.6  SEVERABILITY. If any provision of this Agreement is or becomes
invalid, is ruled illegal by a court of competent jurisdiction or is deemed
unenforceable under the current applicable law from time to time in effect
during the Term, the remainder of this Agreement will not be affected or
impaired thereby and will continue to be construed to the maximum extent
permitted by law. In lieu of any provision which is invalid, illegal or
unenforceable, there will be substituted or added as part of this Agreement by
mutual written agreement of the parties or arbitration, a provision which is (a)
as similar as possible in economic and business objectives as intended by the
parties to such invalid, illegal or unenforceable provision, and (b) valid,
legal and enforceable.

      11.7  INDEPENDENT CONTRACTORS. It is expressly agreed that Aurora and
Hyseq will be independent contractors and that the relationship between the
parties will not constitute a partnership or agency of any kind. Neither Aurora
nor Hyseq will have the authority to make any statements, representations or
commitments of any kind, or to take any action, which will be binding on the
other party, without the prior written consent of the other party.

      11.8  ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the exhibits
attached hereto) sets forth all of the agreements and understandings between the
parties with respect to the subject matter hereof and supersedes and terminates
all prior agreements and understandings between the parties. There are no
agreements or understandings, either oral or written, between the parties other
than as set forth herein. Notwithstanding the foregoing, any disclosure made by
either party pursuant to the Mutual Non-Disclosure Agreement between the parties
dated December 15, 2000 will continue to be governed by the terms and conditions
of such agreement. No subsequent modification, amendment, change or addition to
this Agreement will be binding upon the parties, unless reduced to writing and
signed by the respective authorized officers of the parties.

      11.9  HEADINGS AND PLURALITY. The captions and plurality of defined terms
contained in this Agreement are not substantively a part of this Agreement, but
are merely guides or labels to assist in locating and reading the several
articles hereof.

      11.10 USE OF TRADEMARKS. Neither party will use the names, trademarks, or
any adaptation thereof of the other in any advertising, promotional or sales
activities without the prior written consent obtained, except that the parties
may state that they are licensed under one or more of the patents and/or
applications granted hereunder.

      11.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Counterparts may be signed
and delivered by facsimile, each of which will be binding when sent.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

      IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the Effective Date.

AURORA BIOSCIENCES CORPORATION            HYSEQ, INC.

By: /s/ Michael J. Dunn                   By: /s/ Ted W. Love
   -----------------------------------       -----------------------------------

Name:   Michael J. Dunn                   Name:   Ted W. Love
     ---------------------------------         ---------------------------------

Title:  Vice President, Business          Title:  President & CEO
        Development                             --------------------------------
      --------------------------------

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    EXHIBIT A

                                 AURORA PATENTS
<TABLE>
<CAPTION>
-------------------------  ------------------  ----------------  ---------------
Title                      Patent Number       Serial Number     Filing Date
-------------------------  ------------------  ----------------  ---------------
<S>                        <C>                 <C>               <C>
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
</TABLE>

Hyseq Indemnification for Products or Services Arising from License Granted
Herein. With respect to rights licensed to Aurora by the Howard Hughes Medical
Institute ("HHMI") or by The Regents of the University of California ("UC"),
Hyseq hereby agrees to indemnify, defend and hold harmless HHMI or UC, as
appropriate, and their respective officers, directors, employees, sponsors and
agents from and against all damages or other amounts payable to a Third Party
(including product liability) resulting or arising from Hyseq's use of the
rights granted herein to the extent that such indemnification by Hyseq is
required by HHMI or UC pursuant to agreements between HHMI and Aurora or between
UC and Aurora.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    EXHIBIT B

                                STANFORD PATENTS
<TABLE>
<CAPTION>
-------------------------  ------------------  ----------------  ---------------
Title                      Patent Number       Serial Number     Filing Date
-------------------------  ------------------  ----------------  ---------------
<S>                        <C>                 <C>               <C>
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
[***]                      [***]               [***]             [***]
-------------------------  ------------------  ----------------  ---------------
</TABLE>

Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
PURSUANT TO THE STANFORD AGREEMENT, STANFORD MAKES NO REPRESENTATIONS AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR THAT THE USE OF THE STANFORD LICENSED PRODUCTS OR SERVICES WILL NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK\ OR OTHER RIGHTS OR ANY OTHER EXPRESS
OR IMPLIED WARRANTIES. Pursuant to the Stanford Agreement, nothing is this
Agreement is or will be construed as:

      (a)   A warranty or representation by Stanford as to [***];

      (b)   A warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement [***];

      (c)   An obligation to [***], except to the extent and in the
circumstances described in Article 11 of the Stanford Agreement;

      (d)   Granting by implication, estoppel or otherwise any licenses or
rights under patents or other rights of Stanford or other persons other than the
Stanford Patents, regardless of whether such patents or other rights are [***]
to any of the Stanford Patents; or

      (e)   An obligation to furnish any technology or technological information
other than the technology as set forth herein.

Stanford Names and Marks. Pursuant to the Stanford Agreement, Aurora and Hyseq
agree that Hyseq will not identify Stanford in any promotional advertising or
other promotional materials to be disseminated to the public or any portion
thereof or to use the name of any Stanford faculty member, employee or student
or any trademark, service mark, trade name or symbol of Stanford or the Stanford
University Hospital, or that is associated with either of them, without
Stanford's prior written consent. Stanford gives consent to Hyseq to identify
Herzenberg and Nolan as authors of their respective papers and to identify the
Stanford Patents.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

Indemnification. Pursuant to the Stanford Agreement, Hyseq will indemnify, hold
harmless and defend Stanford and Stanford University Hospital and their
respective trustees, officers, employees, students and agents ("Indemnitees")
against any and all claims for death, illness, personal injury, property damage
and improper business practice arising out of the manufacture, use, sale or
other disposition of the Stanford Patents or Stanford Licensed Product(s) by
Hyseq or its customers, except to the extent any such claims or losses are
caused by the intentional misconduct, gross negligence or breach of the
representations and warranties made under the Stanford Agreement by Indemnitee;
and provided further that in the event of any such claim, Indemnitee will give
prompt written notice to Hyseq and Hyseq will manage and control, at its sole
expense, the defense and settlement of such claim, provided, however, that Hyseq
will not settle any suit involving the rights of such Indemnitee without
obtaining its prior written consent, which consent will not be unreasonably
withheld, and provided further that such Indemnitee will fully cooperate with
Hyseq.

Limitation of Liability. Pursuant to the Stanford Agreement, Stanford will not
be liable for any indirect, special, consequential or other damages whatsoever,
whether grounded in tort (including negligence), strict liability, contract or
otherwise. Stanford will not have any responsibilities or liabilities whatsoever
with respect to Stanford Licensed Product(s).

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    EXHIBIT C

                                AURORA TECHNOLOGY

[***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>

                                    EXHIBIT D

                                   OSP PROGRAM

HYSEQ:

-  Over the course of the first year of the collaboration, Hyseq will select
   [***] and up to [***].

-  Sequence-verified [***] will be [***]. A decision on the standard [***] will
   be made [***].

-  Up to [***] of each [***] will be purified and supplied as a [***].
   Purification will be verified by [***].

-  A [***] with associated annotation will accompany each shipment and will be
   provided in flat file format.

-  In addition, the JRDC will nominate up to [***] in the same [***]. These will
   be included in the [***] and will be used to [***].

AURORA:

-  Upon receipt of a [***] from Hyseq, Aurora will initiate [***] will be
   assessed by [***], will be screened against the [***]. Recent results from
   [***] have shown that [***]; Hyseq will supply to Aurora [***]. Validation of
   the [***], will be complete once Aurora shows that [***].

-  Option: Aurora will [***], for delivery of [***], with the understanding by
   all parties that inability to subsequently remove such a tag may alter the
   biological activity of the OSP. Aurora will then use [***] in dose-response
   tests against [***].

-  Aurora will provide to Hyseq a [***]. Aurora will also provide to Hyseq the
   [***] (if that option is undertaken). A copy of a [***] that Aurora typically
   submits to a partnering company is being provided to Hyseq.

APPENDIX I- CELLSENSOR ASSAYS RELEVANT FOR OSP SCREENING

<TABLE>
<CAPTION>
-----------------------------  --------------------  ---------------------------
          CELL LINE              PATHWAY MEASURED        REFERENCE STIMULUS
-----------------------------  --------------------  ---------------------------
<S>                            <C>                   <C>
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
</TABLE>

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>
<TABLE>
<CAPTION>
<S>                            <C>                   <C>
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
[***]                          [***]                 [***]
-----------------------------  --------------------  ---------------------------
</TABLE>

[***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>

                                    EXHIBIT E

                                 TARGET PROGRAM

HYSEQ:

-  Hyseq will provide full information for up to [***]. These gene sequences
   will follow the broad categorization of [***] including [***].

-  In concert with Aurora personnel, Hyseq will review pertinent annotation for
   these sequences, including the following:

[***]

-  Hyseq will provide to Aurora a [***].

-  Hyseq will provide over the [***]. It is anticipated that [***] will be
   delivered to Aurora by Hyseq, in monthly batches.

-  [***] will be provided to Aurora as a [***] and will be verified as in (1.)
   above.

AURORA:

-  In concert with Hyseq personnel, Aurora will [***]. The timing for target
   selection will be phased, in [***] intervals. At the time of the first JRDC
   meeting, Aurora will inform Hyseq of the [***] after this date, Aurora will
   [***], and provide to Hyseq (at the next JRDC meeting) a newly prioritized
   target list. This process will [***], during the term of the contact, until
   at least [***].

-  In addition, Aurora can select [***].

-  Upon receipt of the [***], Aurora will deploy these [***].

-  [***].

-  Aurora will consider a [***]. This set of [***] It is expected that a [***].
   Two reasons for this are: (1) Aurora will [***], and (2) the scope of the
   current [***]

-  [***], Aurora will provide to Hyseq update reports on the activities
   identified using the [***]. These reports will contain data for each selected
   target on (1) development of a [***].

APPENDIX II  -  ASSAY VALIDATION.

[***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.<PAGE>
                                                                   EXHIBIT 10.17

                             COLLABORATION AGREEMENT

        THIS COLLABORATION AGREEMENT (this "AGREEMENT") is made effective as of
the 11th day of August 2001 (the "EFFECTIVE DATE") by and between Hyseq, Inc., a
corporation organized under the laws of Delaware, having offices at 670 Almanor
Avenue, Sunnyvale, California 94085 USA ("HYSEQ"), and Kirin Brewery Company,
Ltd., a corporation organized under the laws of Japan, having offices at 10-1,
Shinkawa 2-chome, Chuo-ku, Tokyo 104-8288, Japan, ("KIRIN"). Hyseq and Kirin are
sometimes referred to herein individually as a "PARTY" and collectively as the
"PARTIES."

                                    RECITALS

        1. Hyseq owns or has rights under certain patents, patent applications,
technology, know-how and other intellectual property relating to gene and
protein discovery and expression, and may develop or acquire additional such
rights.

        2. Kirin owns or has rights under certain patents, patent applications,
technology, know-how and other intellectual property relating to gene and
protein discovery and expression, and may develop or acquire additional such
rights.

        3. The Parties wish to collaborate in the research and development of
new protein, antibody and macromolecular therapeutics directed to human
diseases, including, but not limited to, hematopoietic and inflammatory
diseases, in accordance with the terms and conditions set forth herein.

        4. The Parties may also collaborate in the marketing and sale of certain
products resulting from such research and development efforts in accordance with
the terms and conditions set forth herein.

        In consideration of the premises and of the mutual covenants and
obligations set forth herein, the Parties hereby agree as set out below.

                                    ARTICLE 1

                                   DEFINITIONS

        The following capitalized terms shall have the following meanings:

        1.1 "ADDITIONAL TECHNOLOGY" shall have the meaning set forth in Section
3.5.1.

        1.2 "AFFILIATE" means any individual, corporation, association or other
business entity which directly or indirectly controls, is controlled by or is
under common control with the Party in question. As used in this definition of
"Affiliate" only, the term "control" means the direct or indirect ownership of
more than fifty percent (50%) of the stock having the right to vote for
directors thereof or the ability to otherwise control the management of the
corporation or other business entity whether through the ownership of voting
securities, by contract, resolution, regulation or otherwise; provided that, if
local law requires a minimum percentage of local

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>
ownership, control will be established by direct or indirect beneficial
ownership of one hundred percent (100%) of the maximum ownership percentage that
may, under such local law, be owned by foreign interests.

        1.3 "APPLICABLE LAWS" means all laws, statutes, ordinances, codes, rules
and regulations which have been enacted by a governmental authority and are in
force as of the Effective Date or come into force during the term of this
Agreement, in each case to the extent that the same are applicable to the
performance by the Parties of their respective obligations under this Agreement.

        1.4" APPROVAL APPLICATION" means any application necessary or
appropriate to obtain a Regulatory Approval, together with all required
documents, data and information concerning the New Product which is the subject
of such application.

        1.5 "AUDITED PARTY" shall have the meaning set forth in Section 3.4.3.

        1.6 "AUDITING PARTY" shall have the meaning set forth in Section 3.4.3.

        1.7 "BANKRUPTCY CODE" shall have the meaning set forth in Section 11.10.

        1.8 "BENCH SCIENTIST" means, as to a Party, an employee of such Party
having both an advanced scientific degree and the qualifications, skill and
experience adequate for the tasks assigned to such employee by such Party in
performance of the R&D Plan.

        1.9 "CHANGE OF CONTROL," as to a Party, means a change in Control of
such Party by merger or reorganization, sale or other transfer of business and
assets, sale or other transfer of capital stock, or similar transaction, whether
in a single transaction or series of related transactions, as a result of which
any Person (or any group of related Persons) that did not directly or indirectly
Control such Party prior to the transaction (or series of transactions)
thereafter directly or indirectly Controls such Party.

        1.10 "CONTROL" (including "Controlled," "Controls" and other forms)
shall mean (except with respect to the definition of Affiliate), as to a Person:
(a) ownership or control, directly or indirectly, of more than fifty percent
(50%) of the voting securities of the Person or, in the case of a noncorporate
Person, equivalent interests or (b) the right or power to designate more than
fifty percent (50%) of the governing authority (e.g., board of directors) of the
Person (whether through management contract, voting rights agreement or similar
means).

        1.11 "DEVELOPMENT CANDIDATE" means a specific molecule, such as a
protein, antibody, or other macromolecule, selected and approved by the JRDC for
R&D Work under the R&D Plan in accordance with the terms and conditions of this
Agreement.

        1.12 "DEVELOPMENT FUNDING" shall have the meaning set forth in Section
3.2.

        1.13 "DEVELOPMENT WORK" shall have the meaning set forth in Section
2.1.1.

        1.14 "DISCLOSING PARTY" shall have the meaning set forth in Section 7.1.

        1.15 "DISPUTE" shall have the meaning set forth in Section 10.2.

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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AMENDED.

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        1.16 "EFFECTIVE DATE" shall have the meaning set forth in the first
paragraph of this Agreement.

        1.17 "ENFORCING PARTY" shall have the meaning set forth in Section
5.5.4.

        1.18 "FIRST PARTY" shall have the meaning set forth in Section 5.1.6.

        1.19 "FTE" means the full time equivalent effort, for one calendar year,
of one individual participating directly and substantially in R&D Work on behalf
of a Party, or, in the case of less than a full-time dedicated scientific
person, a full-time, equivalent scientific person year, based upon a total of
fifty-two (52) weeks (i.e., two thousand eighty (2,080) hours) per year of such
R&D Work on behalf of a Party. The Parties shall agree upon standard cost
accounting procedures to determine FTE contributions properly allocable to the
R&D Work.

         1.20 "FTE RATE" means Two Hundred Fifty Thousand Dollars ($250,000) per
FTE, which rate shall apply to a Bench Scientist and remain fixed and in effect
for the duration of the term of this Agreement, unless otherwise agreed upon by
the Parties.

        1.21 "HYSEQ CLAIMS" shall have the meaning set forth in Section 9.2.

        1.22 "HYSEQ IMPROVEMENTS" means any improvements to or modifications of
the Hyseq Technology, excluding Joint Inventions, by any Party or its
Affiliates, either jointly or solely.

        1.23 "HYSEQ INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 9.2.

        1.24 "HYSEQ TECHNOLOGY" means: all Patent Rights, all copyrights, trade
secrets and all other intellectual property rights and interests of every nature
(specifically including, but not limited to, unpatented inventions, ideas, data,
know-how, methods, processes, biological material, reagents, software and trade
secrets of any kind, and any other rights or interests in any Inventions) that
are: (i) owned by Hyseq or any its Affiliates (to the greatest extent that Hyseq
or its Affiliates has the right and authority to grant licenses as of the
Effective Date) or, if not so owned, as to which Hyseq or any of its Affiliates
otherwise has the right to grant licenses or sublicenses as of the Effective
Date (subject to any limitations imposed by a Third Party license); (ii)
necessary or useful to perform the R&D Work or to make, have made, use, sell,
offer for sale and/or import Development Candidates or New Products; and (iii)
as directed by the JRDC.

        1.25 "HYSEQ TERRITORY" means the countries and multinational
jurisdictions listed in Exhibit A.

        1.26 "INDEMNIFIED PARTY" shall have the meaning set forth in Section
9.3.

        1.27 "INDEMNIFYING PARTY" shall have the meaning set forth in Section
9.3.

        1.28 "INFRINGEMENT" shall have the meaning set forth in Section 5.5.1.

        1.29 "INVENTIONS" means any and all creations, materials and
information, in any tangible or intangible form whatsoever and whether or not
patentable, relevant to or resulting from the research, discovery, development,
manufacture or commercialization of protein or antibody

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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therapeutics or diagnostics, including, without limitation, ideas, discoveries,
inventions, practices, methods, techniques, specifications, formulations,
formulas, knowledge, trade secrets, know-how, skill, experience, test data
(including pharmacological, biological, chemical, biochemical, toxicological and
clinical test data), analytical and quality control data, stability data,
results of studies, databases, technical drawings, software, works of authorship
and other related subject matter.

        1.30 "JOINT INVENTION" means any Invention (a) made in the course of
performance of the R&D Work or commercialization of a New Product, (b) by one or
more employees, agents or contractors of Hyseq or its Affiliates and/or Kirin or
its Affiliates, and (c) which comprises, or which is required to make, use,
sell, offer for sale or import, a Development Candidate or a New Product.

        1.31 "JOINT PATENTS" means, subject to Section 5.1.6, all Patent Rights
that claim, cover or are directed to Joint Inventions and Other Joint
Inventions.

        1.32 "JRDC" shall have the meaning set forth in Section 2.1.2.

        1.33 "KIRIN CLAIMS" shall have the meaning set forth in Section 9.1.

        1.34 "KIRIN IMPROVEMENTS" means any improvements to or modifications of
the Kirin Technology, excluding Joint Inventions, by any Party or its
Affiliates, either jointly or solely.

        1.35 "KIRIN INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 9.1.

        1.36 "KIRIN TECHNOLOGY" means: all Patent Rights, copyrights, trade
secrets and all other intellectual property rights and interests of every nature
(specifically including, but not limited to, unpatented inventions, ideas, data,
know-how, methods, processes, biological material, reagents, software and trade
secrets of any kind, and any other rights or interests in any Inventions) that
are: (i) owned by Kirin or any its Affiliates (to the greatest extent that Kirin
or its Affiliates has the right and authority to grant licenses as of the
Effective Date) or, if not so owned, as to which Kirin or any of its Affiliates
otherwise has the right to grant licenses or sublicenses as of the Effective
Date (subject to any limitations imposed by a Third Party license); (ii)
necessary or useful to perform the R&D Work or to make, have made, use, sell,
offer for sale and/or import New Products and (iii) as directed by the JRDC.

        1.37 "KIRIN TERRITORY" means the countries and multinational
jurisdictions listed in Exhibit B.

        1.38 "NET SALES" means the gross amount billed or invoiced by a Party or
its Affiliates or any of their Sublicensees for the sale or other disposition of
a New Product, less the following deductions: (a) discounts, chargebacks,
allowances for bad debts or uncollectible amounts (other than as described in
(d) below) and other allowances actually taken, (b) sales, use, value added and
excise taxes, import and customs duties, tariffs, and any other similar taxes,
duties or tariffs, to the extent actually paid by the selling party, (c)
freight, insurance, packaging costs and other transportation charges to the
extent added to the sales price, and (d) amounts repaid or credits taken by
reason of rejections, defects or returns or because of retroactive price
reductions or due to recalls or government laws or regulations requiring
rebates. "Net Sales" does not include amounts for any

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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New Product furnished to a Third Party for which payment is not intended to be
received in good faith, including, but not limited to, New Products used in
clinical trials and New Products distributed as promotional and free goods.
Furthermore, "Net Sales" excludes amounts from sales or other dispositions of
New Products between a Party and any of its Affiliates or between a Party (or
any of its Affiliates) and its Sublicensees, solely to the extent that such
entity purchasing the New Product resells such New Products to a Third Party.

        1.39 "NEW PRODUCT" means any protein, antibody, or macromolecular
therapeutic or diagnostic product directly resulting from the Development Work
hereunder, including, without limitation, any Development Work performed with
respect to a Development Candidate.

        1.40 "OTHER JOINT INVENTION" means any Invention made in the course of
performance of the R&D Work or commercialization of New Products by the
employees, agents or contractors of Hyseq or its Affiliates and/or Kirin or its
Affiliates but excluding Joint Inventions, Hyseq Improvements, and Kirin
Improvements.

        1.41 "OTHER TERRITORY" means all countries of the world excluding those
countries in the Hyseq Territory or the Kirin Territory.

        1.42 "PATENT COSTS" means all preparation, filing, prosecution and
maintenance out-of-pocket fees and expenses (including attorneys' fees),
actually and reasonably incurred in connection with the establishment and
maintenance of Patent Rights.

        1.43 "PATENT RIGHTS" means (a) all issued patents and inventor's
certificates, and all patent applications throughout the world, including any
renewal, division, continuation, continued prosecution application or
continuation-in-part of any of such patents, certificates and applications, and
any and all patents issuing in respect thereof; (b) any and all reissues,
extensions, substitutions, confirmations, registrations, revalidations,
revisions, renewals, reexaminations, foreign counterparts of and additions to
any of the foregoing; and (c) all intellectual property rights and other
proprietary rights in, to and under the foregoing.

        1.44 "PERSON" means any individual or legal entity.

        1.45 "PRIOR ART INVENTION" shall have the meaning assigned to it in
Section 5.1.6.

        1.46 "PROJECT YEAR" means a twelve (12) month period in which one or
both Parties shall perform specific R&D Work approved by the JRDC under the R&D
Plan. Each Project Year shall commence as of its applicable Project Year
Commencement Date. For purposes of clarification, more than one Project Year may
be in progress at any time, and no two Project Years shall necessarily have the
same Project Year Commencement Date.

        1.47 "PROJECT YEAR COMMENCEMENT DATE," as to a Project Year, means the
date specified by the JRDC in the R&D Plan for such Project Year.

        1.48 "R&D PLAN" shall have the meaning set forth in Section 2.1.1.

        1.49 "R&D WORK" shall have the meaning set forth in Section 2.1.1.

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        1.50 "RECEIVING PARTY" shall have the meaning set forth in Section 7.1.

        1.51 "REGULATORY APPROVAL" means, with respect to a nation or, where
applicable, a multinational jurisdiction, any approvals, licenses, registrations
or authorizations necessary for the manufacture, marketing and sale of a New
Product in such nation or jurisdiction.

        1.52 "RESEARCH FUNDING" shall have the meaning set forth in Section
3.1.1.

        1.53 "RESEARCH WORK" shall have the meaning set forth in Section 2.1.1.

        1.54 "RESPONSIBLE EXECUTIVE" shall have the meaning set forth in Section
10.2.

        1.55 "RIGHT" shall have the meaning set forth in Section 11.7.

        1.56 "SECOND PARTY" shall have the meaning set forth in Section 5.1.6.

        1.57 "SUBLICENSEE" means an authorized or permitted licensee or
sublicensee of a Party or any of its Affiliates.

        1.58 "THIRD PARTY" means any Person other than Hyseq or Kirin or their
respective Affiliates.

                                    ARTICLE 2

                            RESEARCH AND DEVELOPMENT

        2.1 JOINT RESEARCH AND DEVELOPMENT COMMITTEE.

               2.1.1 In accordance with the terms and conditions set forth
below, the Parties shall conduct the research and development of Development
Candidates ("R&D WORK") pursuant to a mutually agreed plan approved (and as
amended from time to time) in accordance with this Article 2, including, at a
minimum and without limitation, the subject matter set forth in Exhibit C (the
"R&D PLAN"). The R&D Work shall consist of the two phases: (a) the discovery or
optimization of potential Development Candidates (the "RESEARCH WORK"), and (b)
the development of select Development Candidates into New Products (the
"DEVELOPMENT WORK").

               2.1.2 Within ten (10) days after the Effective Date, each Party
shall appoint three (3) individuals to serve as its representatives on a joint
research and development committee (the "JRDC"). The JRDC shall formulate and
approve the initial R&D Plan and, from time to time, any modifications or
amendments thereto. The initial R&D Plan shall include, at a minimum and without
limitation, the subject matter set forth in Exhibit C. The R&D Plan shall
specify the R&D Work to be performed by the Parties and the Project Year
Commencement Date therefor. Each Party shall have the right to change any or all
of its representatives on the JRDC upon written notice to the other Party,
provided that each Party shall appoint and maintain for the duration of the term
of this Agreement at least one senior management representative on the JRDC.

               2.1.3 The JRDC shall have authority over the design, management
and conduct of the R&D Work and, if applicable, the commercialization of New
Products. The JRDC may appoint

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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individuals to serve as representatives on subcommittees to assist the JRDC with
respect to any particular subject matter of the R&D Plan and, if applicable, the
commercialization of New Products, including, for example, product
manufacturing, quality control and assurance, preclinical studies design,
implementation and evaluation, clinical protocols design, implementation and
evaluation, and regulatory affairs. Without limiting the generality of the
foregoing, the JRDC shall have the sole authority to:

               (a)    Develop and implement the R&D Plan, including, without
                      limitation, go/no-go criteria, timelines and
                      responsibilities with respect to the discovery,
                      optimization and development of Development Candidates,
                      which responsibilities may include [***];

               (b)    Develop and implement the budget for the Research Funding
                      and Development Funding;

               (c)    Monitor and make recommendations regarding compliance of
                      the Parties with the R&D Plan and the conduct of the R&D
                      Work;

               (d)    Develop and implement amendments and modifications to the
                      R&D Plan;

               (e)    Set priorities with respect to allocation of resources
                      under the R&D Plan;

               (f)    Review any and all proposed publications relating to the
                      R&D Plan or activities with respect to a Development
                      Candidate and the results therefrom, and any and all
                      proposed filings of patent applications in connection
                      therewith;

               (g)    List on Exhibit D all Patent Rights identified by each
                      Party that claim a Development Candidate or New Product,
                      provided that any and all Patent Rights that claim a Joint
                      Invention shall be deemed to be listed on Exhibit D;

               (h)    Direct prosecution of Joint Patents as provided in Section
                      5.4;

               (i)    Determine and direct the licensing and/or disposition of
                      any Joint Patents that claim Other Joint Inventions;

               (j)    Select Development Candidates for Development Work and
                      determine how such Development Work should occur;

               (k)    Monitor and review pre-clinical and clinical trials of
                      Development Candidates and Approval Applications for New
                      Products;

               (l)    Determine on an annual basis whether to continue or
                      discontinue performance of the R&D Plan or any R&D Work
                      thereunder;

               (m)    Coordinate each Party's activities with respect to the
                      commercialization of New Products, if applicable, and
                      establish each Party's rights and obligations

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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AMENDED.

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                      with respect to the launch, promotion, marketing and sale
                      of New Products in the Other Territory; and

               (n)    Decide which Party or Parties shall manufacture each New
                      Product, subject to a separate manufacturing agreement to
                      be negotiated in good faith by each Party.

               2.1.4 During the term of this Agreement, and thereafter as set
forth in Section 8.4.2, if applicable, the JRDC shall meet, in person or by
telephone conference call, on an "as needed" basis (as determined by the JRDC)
to review progress of the R&D Plan. The JRDC shall hold regular meetings, in
person or by telephone conference call, as necessary, to discuss the progress of
the R&D Work and any all Inventions resulting therefrom; provided that the JRDC
shall meet at least one (1) time each quarter and shall hold at least two (2)
in-person meetings per year, with at least one (1) in-person meeting being held
at the offices of each Party each year. All decisions made or actions taken by
the JRDC shall be made in writing, signed by a JRDC representative of each
Party, and require the [***] of the Parties, with each Party entitled to [***]
vote. Any decision of or action by the JRDC without the [***] of the Parties
shall be null and void. A quorum of the JRDC shall consist of two members,
provided that at least one member appointed by each Party is present. The JRDC
shall keep meeting minutes and prepare a quarterly report for internal senior
management review by the Parties. The host Party at each in-person meeting shall
prepare the minutes for that meeting and the Parties will alternate preparing
minutes for each meeting held via telephone or video conference. All
disagreements arising out of the R&D Plan, R&D Work or prosecution of Patent
Rights during the term of this Agreement shall be referred to the JRDC. If the
JRDC is unable to resolve such disagreement within thirty (30) days, the matter
shall be resolved in accordance with the procedures set forth in Article 10.

        2.2 RESPONSIBILITIES OF THE PARTIES.

               2.2.1 Each Party shall be solely responsible for all R&D Work
assigned to such Party under the R&D Plan. If the R&D Plan fails to allocate
responsibility for any R&D Work to a particular party, the JRDC shall promptly
designate the responsible Party for such R&D Work. Each Party shall use [***]
efforts to perform the R&D Work for which it is responsible. Without limiting
the generality of the foregoing, each Party shall use [***] efforts to: (a)
commit sufficient internal resources to perform the R&D Work, (b) make available
to the other Party sufficient quantities of materials, as required under the R&D
Plan, for such Party to perform the R&D Work, (c) commit sufficient resources to
deliver and disclose technology (including trade secrets and know-how) required
to be so delivered and disclosed to the other Party in accordance with the R&D
Plan, (d) report all Inventions to the JRDC pursuant to Section 2.2.3, (e) carry
out its responsibilities with respect to prosecution of Joint Patents as
directed by the JRDC, and (f) cooperate, consult and share information with
respect to the establishment and progress of pre-clinical and clinical trials
and filings for Regulatory Approval.

               2.2.2 Each Party shall be solely responsible for the promotion,
marketing and sales of New Products (including all Regulatory Approval relating
thereto), and all costs associated with the foregoing, in the Hyseq Territory or
Kirin Territory, as applicable, and, as directed by the JRDC, the Other
Territory. Each Party shall use [***] efforts to promote, market and sell New
Products in

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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the Hyseq Territory and Kirin Territory, as applicable, and, as directed by the
JRDC, the Other Territory.

               2.2.3 Each Party shall prepare and maintain detailed records of,
and regularly disclose to the JRDC and the other Party, any and all Inventions
and other related information created by or for such Party in connection with
the R&D Work. Such disclosure shall be made as provided for in the R&D Plan, but
in no event less than once per calendar quarter. Without limiting the generality
of the foregoing, each Party shall regularly provide the JRDC with information
sufficient to enable the JRDC to perform its obligations pursuant to Section
2.1, including, without limitation, reasonably detailed descriptions of the R&D
Work performed, the scheduling of ongoing or future R&D Work, resources
anticipated to accomplish the R&D Work, and any additional reasonable reporting
information required by the JRDC.

        2.3 RIGHT TO NEGOTIATE NEW AGREEMENT. At any time after any Development
Candidate approved by the JRDC for Development Work hereunder [***], either
Party may request the other Party to discuss alternative approaches and
contractual arrangements, to be memorialized in a separate agreement with
respect to the development, manufacturing and commercialization of New Products.
The other Party shall make appropriate representatives reasonably available to
confer with such Party regarding the terms and conditions of such separate
agreement for a period of [***], provided that nothing in this Agreement shall
be construed to require or obligate such other Party to enter into any such
separate agreement.

                                    ARTICLE 3

                               FUNDING; ROYALTIES

        3.1 RESEARCH FUNDING.

               3.1.1 The JRDC shall formulate and approve a budget to cover the
FTE contributions of Hyseq, and [***] costs and expenses actually incurred by
Hyseq, subject to [***], that are [***], in performance of the Research Work
during each Project Year (such approved budget referred to herein as the
"RESEARCH FUNDING"). Such [***] costs and expenses include, for example and
without limitation, approved outside services, contract manufacturing, contract
studies or consulting services, but exclude [***] costs and expenses incurred in
performance of the Research Work. Kirin shall be solely responsible for payment
of the Research Funding in accordance with Section 3.1.2. Within [***] after the
close of each quarter of any Project Year, Hyseq shall submit to Kirin a
detailed and accurate invoice, based on Hyseq's actual FTE contributions and the
FTE Rate, and any approved [***] expenses incurred, for Research Work conducted
by Hyseq during such quarter. Each such invoice shall identify each individual
performing Research Work by or on behalf of Hyseq together with a reasonably
detailed description of the Research Work performed by such individual, and the
time spent (on a monthly basis) by such individual performing such Research
Work. Kirin shall not be responsible for expenses incurred in any Project Year
by Hyseq with respect to Research Work that was not approved by the JRDC or to
the extent that such expenses exceed the budgeted amounts therefor.

               3.1.2 For each Project Year, Kirin shall pay the budgeted
Research Funding payments for Research Work conducted by Hyseq during each
quarter of the Project Year (based

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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AMENDED.

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upon budgeted Research Funding for such quarter of the Project Year as approved
by the JRDC) within [***] after receipt of Hyseq's invoice therefor, as
submitted pursuant to Section 3.1.1; provided, however, that, upon receipt of
such invoice by Kirin, the Parties shall review the amount of expenses submitted
by Hyseq in such quarter and, in the event that Hyseq's actual expenses are less
than the budgeted Research Funding payment for such quarter, Kirin shall only be
required to pay the amount of actual expenses incurred by Hyseq. Kirin shall not
be obligated to make any payment to Hyseq hereunder before the initial Project
Year Commencement Date.

               3.1.3 As provided under Sections 3.1.1 and 3.1.2, the Research
Work for which Kirin shall pay, and the associated Research Funding therefor,
for each Project Year shall be approved by the JRDC not later than ninety (90)
days prior to the start of each such Project Year. In the event that the
Research Funding for any Project Year has not been agreed upon in advance of the
start of such Project Year, the Responsible Executives of the Parties shall
meet, in person or by conference telephone call, to resolve the matter. Pending
such resolution, however, Kirin, at its sole discretion, may elect to fund the
FTE contributions of Hyseq for any upcoming Project Year, on a quarterly basis,
in amounts sufficient to continue any Research Work (or portions thereof) from
the corresponding just-ended Project Year, and Hyseq shall continue to perform
such ongoing Research Work (or portions thereof).

               3.1.4 Except as expressly provided in this Section 3.1, Hyseq
shall bear all costs and expenses incurred by Hyseq in performance of Research
Work under the R&D Plan.

               3.1.5 Upon Kirin's request, the JRDC shall provide to Kirin, on
or before October 1 of any calendar year, an estimated budget for all Research
Work to be performed by Hyseq during the subsequent calendar year.

        3.2 DEVELOPMENT FUNDING. The JRDC shall agree upon a budget to cover
both Parties' FTE contributions in performance of the Development Work during
each Project Year (such approved budget referred to herein as the "DEVELOPMENT
FUNDING"). The Parties shall share responsibility equally (i.e., on a 50/50
basis) for payment of the Development Funding, based on each Party's actual FTE
contributions to the Development Work and the FTE Rate. Within [***] after the
close of each quarter of a Project Year, each Party shall submit detailed and
accurate reports of its actual FTE contributions at the FTE Rate to the other
Party, and the Party reporting lower costs for such quarter shall reimburse the
other Party for one-half the difference between each Party's individual costs
within [***] after both parties submit their reports, provided that neither
Party shall be responsible for expenses incurred in a Project Year by the other
Party with respect to Development Work that was not approved by the JRDC or to
the extent that such expenses exceed such Party's allocated portion of the
budgeted amounts therefor. Unless otherwise provided by the JRDC in writing, any
other costs for the R&D Plan (e.g., third-party licenses and costs relating to
third-party contractors) shall be borne solely by the Party which incurred such
costs.

        3.3 NET SALES ROYALTY.

               3.3.1 Hyseq shall pay Kirin a royalty equal to [***] of Net Sales
billed or invoiced by Hyseq or its Affiliates or Sublicensees in the Hyseq
Territory.

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HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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AMENDED.

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               3.3.2 Kirin shall pay Hyseq a royalty equal to [***] of Net Sales
billed or invoiced by Kirin or its Affiliates or Sublicensees in the Kirin
Territory.

        3.4 ROYALTY PAYMENT TERMS.

               3.4.1 All royalty payments due and payable pursuant to Section
3.3 shall be made within [***] after the close of the calendar quarter in which
the applicable Net Sales were billed or invoiced. Each payment shall be
accompanied by a written statement setting forth in reasonable detail the Net
Sales in each country for each New Product, the rates of exchange (if
applicable), and the royalty calculation.

               3.4.2 All royalty payments due and payable pursuant to Section
3.3 shall be made in United States Dollars. Each payment shall be made by wire
transfer to such financial institutions and account numbers as the other Party
may designate in writing. In the event that a Party (or its Affiliates or
Sublicensees) sells New Products in foreign currencies other than United States
Dollars, the royalties owed shall be calculated by such Party (or its Affiliates
or Sublicensees) in the foreign currency (and otherwise in accordance with such
Party's or its Affiliates' or Sublicensees' standard accounting procedures) by
converting the total amount of each foreign-currency royalty owed for the
applicable reporting period to United States Dollars at the exchange rate in the
United States (calculated by reference to the "United States Dollar noon buying
rates," or its equivalent, as published in the Wall Street Journal) in effect on
the last business day of the applicable reporting period.

               3.4.3 Each Party shall keep and maintain accurate books and
records to verify the number of units of New Products sold or otherwise disposed
of during a reporting period by such Party, its Affiliates and its Sublicensees,
and such other information as may be reasonably required to confirm the amounts
payable hereunder with respect to such reporting period. Each Party shall
preserve such books and records for a period of [***] after the end of the
period covered by such books and records, which obligation shall survive for
[***] after expiration or termination of this Agreement. Each Party (the
"AUDITING PARTY") shall have the right, on [***] advance written notice and not
more than [***] in any twelve (12) month period, to have an independent
accounting firm reasonably acceptable to the other Party (the "AUDITED PARTY")
examine such books, records and accounts of the Audited Party during the Audited
Party's normal business hours solely to verify the accuracy of the royalty
reports and the amount of payments made by the Audited Party hereunder during
the preceding [***] quarterly reporting periods. The accounting firm shall not
be paid on a contingency or other basis related to the outcome of the audit, and
shall execute a confidentiality agreement with the Audited Party in a form
mutually acceptable to the Parties that prohibits the accounting firm from
disclosing or using information obtained in connection with the audit other than
the disclosure to the Auditing Party of the amount of any underpayment or
overpayment. Any such audit shall be conducted during the Audited Party's
regular business hours, in such a manner so as not to interfere with the Audited
Party's normal business activities, and shall be at the Auditing Party's
expense, provided that if such audit reveals an underpayment of more than [***]
during any reporting period, the Audited Party shall pay the costs of the audit.

               3.4.4 Any deduction, withholding or similar taxes that a Party is
required by statute to withhold with respect to any royalty payment payable
hereunder shall be deducted from such payment; provided that the deducting Party
shall provide the other Party with a copy of the

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certificate or other documentation demonstrating the payment to applicable tax
authorities of the deducted, withheld or taxed amount. Late payments shall be
subject to interest at a rate equal to [***] per annum or the maximum rate
allowed by law, whichever is less.

        3.5 ADDITIONAL TECHNOLOGY.

               3.5.1 During the term of this Agreement, if either Party becomes
aware of technology or related intellectual property rights relating to a New
Product that is held or otherwise controlled by a Third Party, and such Party
believes such technology and/or intellectual property rights are required to
make, use, sell, offer for sale or import such New Product ("ADDITIONAL
TECHNOLOGY") in any country within the Hyseq Territory, Kirin Territory or Other
Territory, as applicable, such Party may present a description of such
technology, along with an analysis of the purported need for such technology, to
the JRDC. Such Party shall have the burden of proving to the JRDC that the
technology qualifies as Additional Technology. Upon the written approval of the
JRDC, which approval shall not be unreasonably withheld, such Party shall have
the right to deduct one-half of any resulting running royalties paid as
consideration for the Additional Technology from the royalty otherwise payable
on Net Sales of the applicable New Product in such country (in accordance with
Section 3.3)], provided that in no event will such royalty be reduced by more
than one-half of the royalty that would be otherwise due but for this Section
3.5.1.

               3.5.2 Notwithstanding anything to the contrary in this Section
3.5, this section shall not limit or otherwise restrict either Party in
procuring technology or intellectual property rights.

                                    ARTICLE 4

                               GRANTS OF LICENSES

        4.1 GRANT OF LICENSES BY HYSEQ TO KIRIN.

               4.1.1 Subject to the terms and conditions of this Agreement,
Hyseq hereby grants to Kirin and its Affiliates a non-exclusive right and
license, without a right to grant sublicenses, under the Hyseq Technology and
Hyseq Improvements, as follows: (a) worldwide, solely to conduct Kirin's
obligations to perform the R&D Work in accordance with the R&D Plan; (b) in the
Kirin Territory to make, use, sell, offer for sale and import New Products in
the Kirin Territory; and (c) in the Other Territory to make, use, sell, offer
for sale and import New Products in the Other Territory solely as directed by
the JRDC pursuant to Article 2.

               4.1.2 Subject to the terms and conditions of this Agreement and
upon designation of a Development Candidate by the JRDC, Hyseq grants to Kirin
and its Affiliates, on a Development Candidate-by-Development Candidate basis, a
worldwide co-exclusive right and license (i.e., exclusive except for Hyseq's
retention of all such rights for itself and its Affiliates and its
Sublicensees), under all Patent Rights of Hyseq that claim each Development
Candidate and are listed on Exhibit D, including without limitation, the Prior
Art Inventions, to make, use and import (and to have such rights exercised on
its or their behalf) Development Candidates for the limited purpose of
conducting the R&D Work in accordance with the R&D Plan, as directed by the JRDC
pursuant to Article 2. Kirin and its Affiliates shall have the right to grant
sublicenses under the

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foregoing license only upon the prior written consent of Hyseq, which shall not
be unreasonably withheld or delayed.

               4.1.3 Subject to the terms and conditions of this Agreement ,
Hyseq grants to Kirin and its Affiliates, on a New Product-by-New Product basis,
an exclusive right and license, under all Patent Rights of Hyseq that claim each
New Product and are listed on Exhibit D, to make, use, sell, offer for sale and
import New Products in the Kirin Territory and, solely as directed by the JRDC
pursuant to Article 2, in the Other Territory. Kirin and its Affiliates shall
have the right to grant sublicenses under the foregoing license only upon the
prior written consent of Hyseq, which shall not be unreasonably withheld or
delayed.

        4.2 GRANT OF LICENSES BY KIRIN TO HYSEQ.

               4.2.1 Subject to the terms and conditions of this Agreement,
Kirin hereby grants to Hyseq and its Affiliates a non-exclusive right and
license, without a right to grant sublicenses, under the Kirin Technology and
Kirin Improvements, as follows: (a) worldwide, solely to conduct Hyseq's
obligations to perform the R&D Work in accordance with the R&D Plan; (b) in the
Hyseq Territory to make, use, sell, offer for sale and import New Products in
the Hyseq Territory; and (c) in the Other Territory to make, use, sell, offer
for sale and import New Products in the Other Territory solely as directed by
the JRDC pursuant to Article 2.

               4.2.2 Subject to the terms and conditions of this Agreement and
upon designation of a Development Candidate by the JRDC, Kirin grants to Hyseq
and its Affiliates, on a Development Candidate-by-Development Candidate basis, a
worldwide co-exclusive right and license (i.e., exclusive except for Kirin's
retention of all such rights for itself and its Affiliates and its
Sublicensees), under all Patent Rights of Kirin that claim each Development
Candidate and are listed on Exhibit D, including without limitation, the Prior
Art Inventions, to make, use and import (and to have such rights exercised on
its or their behalf) Development Candidates for the limited purpose of
conducting the R&D Work in accordance with the R&D Plan, as directed by the JRDC
pursuant to Article 2. Hyseq and its Affiliates shall have the right to grant
sublicenses under the foregoing license only upon the prior written consent of
Kirin, which shall not be unreasonably withheld or delayed.

               4.2.3 Subject to the terms and conditions of this Agreement Kirin
grants to Hyseq and its Affiliates, on a New Product-by-New Product basis, an
exclusive right and license, under all Patent Rights of Kirin that claim each
New Product and are listed on Exhibit D, to make, use, sell, offer for sale and
import New Products in the Hyseq Territory and, solely as directed by the JRDC
pursuant to Article 2, in the Other Territory. Hyseq and its Affiliates shall
have the right to grant sublicenses under the foregoing license only upon the
prior written consent of Kirin, which shall not be unreasonably withheld or
delayed.

        4.3 NO OTHER RIGHTS. This Agreement confers no right, license or
interest by implication, estoppel or otherwise under any patents, patent
applications, know-how or other intellectual property rights of either Party
except as expressly set forth in this Article 4 and in Articles 5 and 8. Each
Party hereby expressly reserves all rights and interests with respect to
patents, patent applications, know-how or other intellectual property rights not
expressly granted to the other Party hereunder.

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                                    ARTICLE 5

                          INTELLECTUAL PROPERTY MATTERS

        5.1 OWNERSHIP OF INTELLECTUAL PROPERTY.

               5.1.1 JOINT INVENTIONS; JOINT PATENTS; OTHER JOINT INVENTIONS.
Subject to the provisions of Section 5.1.6, the Parties shall jointly own all
Joint Inventions, Joint Patents and Other Joint Inventions. Unless otherwise
explicitly provided herein, neither Party shall have any right or obligation of
consent, accounting or payment of royalties or other consideration with respect
to such Party's commercialization or exploitation of any Joint Invention, Joint
Patent or Other Joint Inventions.

               5.1.2 ASSIGNMENT BY HYSEQ. In order to effect the joint ownership
provisions of Section 5.1.1, and subject to Section 5.1.6, Hyseq hereby assigns
and agrees to assign to Kirin a one-half undivided interest (and thereby retains
an equal one-half undivided interest) in, to and under: (a) any Joint Invention
or Other Joint Invention made solely by the employees, agents or contractors of
Hyseq and its Affiliates; and (b) all Patent Rights claiming such Joint
Invention or Other Joint Inventions.

               5.1.3 ASSIGNMENT BY KIRIN. In order to effect the joint ownership
provisions of Section 5.1.1, and subject to Section 5.1.6, Kirin hereby assigns
and agrees to assign to Hyseq a one-half undivided interest (and thereby retains
an equal one-half undivided interest) in, to and under: (a) any Joint Invention
or Other Joint Invention made solely by the employees, agents or contractors of
Kirin and its Affiliates; and (b) all Patent Rights claiming such Joint
Invention or Other Joint Invention.

               5.1.4 HYSEQ TECHNOLOGY; HYSEQ IMPROVEMENT. As between the
Parties, subject only to the licenses set forth in Article 4 and Article 8, and
the provisions of Section 5.1.6, Hyseq shall (a) retain all right, title and
interest in and to the Hyseq Technology, and (b) solely own (i) any Hyseq
Improvements (whether or not such Hyseq Improvements are invented, developed or
made solely by or with the contribution of the employees, agents or contractors
of Kirin) and (ii) all Patent Rights claiming, covering or directed to any such
Hyseq Improvements. To the extent necessary to implement the foregoing, Kirin
hereby assigns and agrees to assign to Hyseq all of Kirin's right, title and
interest in, to and under the Hyseq Improvements.

               5.1.5 KIRIN TECHNOLOGY; KIRIN IMPROVEMENT. As between the
Parties, subject only to the licenses set forth in Article 4 and Article 8, and
the provisions of Section 5.1.6, Kirin shall (a) retain all right, title and
interest in and to the Kirin Technology, and (b) solely own (i) any Kirin
Improvements (whether or not such Kirin Improvements are invented, developed or
made solely by or with the contribution of the employees, agents or contractors
of Hyseq) and (ii) all Patent Rights claiming, covering or directed to any such
Kirin Improvements. To the extent necessary to implement the foregoing, Hyseq
hereby assigns and agrees to assign to Kirin all of Hyseq's right, title and
interest in, to and under the Kirin Improvements.

               5.1.6 PRIOR ART INVENTIONS. Notwithstanding anything in this
Section 5.1 to the contrary, if only one Party or its Affiliates (the "FIRST
PARTY") owns subject matter that qualifies as

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prior art (as specifically identified in 35 U.S.C. Section 102(e), (f) or (g))
with respect to any Invention conceived, developed or reduced to practice by the
employees, agents or contractors of the other Party or its Affiliates (the
"SECOND PARTY") or by the Second Party and First Party in the course of
performance of the R&D Work or commercialization of a New Product, then the
First Party shall own all right, title and interest in, to and under such
Invention, and all Patent Rights and other intellectual property rights therein
and thereunder, solely in the United States (thereafter, a "PRIOR ART
INVENTION"); provided, however, that the rights to such Invention outside of the
United States shall be as otherwise set forth in this Agreement and shall be
unaffected by this Section 5.1.6, provided further that the Prior Art Invention
shall not include Kirin Improvements and Hyseq Improvements. In accordance with
the foregoing, if, in the course of making required disclosures of any Invention
pursuant to this Agreement, or preparing a United States patent application
claiming, covering or directed to any Invention, one Party becomes aware of any
subject matter owned by either of the Parties that qualifies as prior art
(pursuant to 35 U.S.C. Section 102(e), (f) or (g)) with respect to such
Invention, such Party shall provide a detailed written notice thereof to the
other Party, and, following the other Party's receipt of such notice, the
Parties shall cooperate to execute all instruments required to document the
assignment of the Prior Art Invention required by this Section 5.1.6. The Second
Party hereby agrees to transfer and assign to the First Party all of its right,
title and interest in, to and under any such Prior Art Invention, and all Patent
Rights therein, thereto, and thereunder, solely in the United States, provided,
however that such Prior Art Invention, and all Patent Rights therein, thereto,
and thereunder, outside the United States shall be jointly owned as otherwise
set forth in this Agreement and shall be unaffected by this Section 5.1.6. The
prosecution and maintenance of any Patent Rights in, to and under any Prior Art
Inventions owned by the First Party pursuant to this Section 5.1.6 shall be
governed in accordance with the provisions of Section 5.3.

               5.1.7 Each Party shall execute or cause to be executed any
assignments or other instruments and documents and provide such other reasonable
assistance and cooperation as may be reasonably necessary or appropriate to
implement the provisions of this Section 5.1 and the assignments hereunder,
including, without limitation, by executing agreements with each Party's
employees, agents and contractors sufficient to convey to such Party the rights
transferred in this Section 5.1.

        5.2 OWNERSHIP OF APPROVAL APPLICATIONS AND REGULATORY APPROVALS.

               5.2.1 Subject to the rights granted to or owned by Kirin
hereunder, including without limitation, the rights owned by Kirin set forth in
Section 5.2.3, Hyseq shall own all right, title and interest in all Approval
Applications necessary to obtain Regulatory Approvals for New Products, together
with any Regulatory Approvals obtained in connection therewith, filed with or
issued by a governmental authority for a country or territory within the Hyseq
Territory and, as directed by the JRDC pursuant to Section 2.1.3, the Other
Territory. Such Approval Applications, together with any Regulatory Approvals
obtained in connection therewith, shall be filed in Hyseq's name and owned by
Hyseq.

               5.2.2 Subject to the rights granted to or owned by Hyseq
hereunder, including without limitation, the rights owned by Hyseq set forth in
Section 5.2.3, Kirin shall own all right, title and interest in all Approval
Applications necessary to obtain Regulatory Approvals required for manufacture,
marketing and sale of New Products, together with any Regulatory Approval
obtained

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in connection therewith, filed with or issued by a governmental authority for a
country or territory within the Kirin Territory and, as directed by the JRDC
pursuant to Section 2.1.3, the Other Territory. Such Approval Applications,
together with any Regulatory Approvals obtained in connection therewith, shall
be filed in Kirin's name and owned by Kirin.

               5.2.3 Each Party shall provide to the other Party [***] any new
or pending Approval Application. Each Party shall [****], and shall [***]
regarding Approval Application strategy. Each Party shall keep the other Party
informed of the status of an Approval Application to the extent known by each
Party.

        5.3 PROSECUTION AND MAINTENANCE OF SOLELY OWNED PATENTS; ABANDONMENT.

               5.3.1 Each Party shall have the sole right to file, prosecute and
maintain such Party's solely owned Patent Rights claiming, covering or directed
to a Development Candidate or New Product and shall bear all Patent Costs
associated therewith. Such Party (the "PROSECUTING PARTY") shall provide to the
other Party an opportunity to review and comment on the nature and text of new
or pending worldwide applications for such Patent Rights. The Prosecuting Party
shall consider in good faith any comments from the other Party regarding steps
that might be taken to strengthen patent protection with respect to any patent
within such Patent Rights, and shall conduct discussions with the other Party on
a reasonable basis regarding the patent prosecution strategy for such Patent
Rights. The Prosecuting Party agrees to keep the other Party informed of the
course of patent prosecution or other proceedings relating to such Patent Rights
to the extent known by Prosecuting Party.

               5.3.2 Notwithstanding Section 5.3.1, in the event a Prosecuting
Party (as defined in Section 5.3.1) elects, on a country-by-country basis, not
to file or not to continue to prosecute and thereby abandon an application for a
patent, or not to maintain and thereby abandon a patent that it has the first
right to file, prosecute or maintain under Section 5.3.1 and that claims, or
which is required to make, use, sell, offer for sale or import, a Development
Candidate or New Product in such country or jurisdiction, such Party shall
notify the other Party not less than sixty (60) days before any relevant
deadline, and thereafter such other Party shall have the right to pursue, in
such country or jurisdiction, at such other Party's expense and in such other
Party's sole discretion, prosecution of such patent application or maintenance
of such issued patent, provided that with respect to any patent application or
patent licensed to a Party by a Third Party, the other Party shall only have a
right to pursue prosecution or maintenance to the extent permitted in the
applicable agreement with such Third Party. The other Party shall have the right
to deduct any Patent Costs associated with the prosecution or maintenance of
such patent application or patent [***].

        5.4 PROSECUTION AND MAINTENANCE OF JOINT PATENTS; ABANDONMENT. The JRDC
shall determine and implement a patent strategy with respect to all Joint
Inventions and Other Joint Inventions that may be patentable. With respect to
all Joint Inventions and Other Joint Inventions for which the JRDC determines
patent protection should be sought, the JRDC shall direct, and the Parties shall
cooperate in, the preparation, filing and prosecution of Joint Patents, and the
Parties shall discuss and agree on the content and form of relevant patent
applications and any other relevant matters before such applications are made.
Each Party shall consider in good faith any comments from the other regarding
steps to strengthen such Joint Patents.

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               5.4.1 Unless otherwise directed by the JRDC, Hyseq shall be
considered the Lead Party (as further described in Section 5.4.4) for Joint
Patents within the Hyseq Territory.

               5.4.2 Unless otherwise directed by the JRDC, Kirin shall be
considered the Lead Party (as further described in Section 5.4.4) for Joint
Patents within the Kirin Territory.

               5.4.3 The JRDC shall assign either Hyseq or Kirin as the Lead
Party (as further described in Section 5.4.4) for Joint Patents within the Other
Territory (or any jurisdiction therein).

               5.4.4 Unless otherwise directed by the JRDC, the Lead Party shall
have the right to file, prosecute and maintain Joint Patents within the Hyseq
Territory, Kirin Territory and/or Other Territory, as applicable, and shall bear
all Patent Costs associated therewith. In the event that the Lead Party elects
not to prosecute or maintain a patent application or patent with respect to a
particular Joint Invention or particular country or jurisdiction, the Lead Party
shall provide prompt notice thereof and the other Party may elect to prosecute
and maintain such patent application or patent at its sole discretion and
expense, and all rights in such patent application or patent shall be assigned
to such other Party. Either Party may choose at any time not to continue to pay
any such Patent Costs with respect to a particular Joint Patent, and shall
thereafter assign all its rights in such Joint Patent to the other Party if the
other Party pays all such Patent Costs. Such assignment shall take place in a
timely manner to enable the non-assigning Party to meet any external requirement
concerning prosecution matters and paying Patent Costs. In the event that a
Party elects, at any time, not to participate in the preparation, filing and
prosecution of any patent application covering a Joint Invention, such Party
shall provide reasonable assistance to the other Party, at the sole expense of
such other Party, with respect to any activities reasonably determined by such
other Party as necessary to obtain patent protection for such Joint Invention.

        5.5 ENFORCEMENT OF PATENT RIGHTS.

               5.5.1 If any Patent Right within the Joint Patents, or any Patent
Right within either Party's solely owned Patent Rights claiming, covering or
directed to a Development Candidate or New Product that is subject to Section
5.3, is or might reasonably be infringed by a Third Party through the
manufacture, use, sale, offer for sale or importation of any product (an
"INFRINGEMENT"), the Party first having knowledge of such infringement shall
promptly notify the other Party in writing. Such notice shall set forth the
facts of the Infringement in reasonable detail.

               5.5.2 Hyseq shall have the first right, but not an obligation, to
institute, prosecute and control, using counsel of Hyseq's choice, any action or
proceeding with respect to an Infringement of a patent within the Joint Patents,
or its solely owned Patent Rights claiming, covering or directed to a
Development Candidate or New Product, in the Hyseq Territory and such Other
Territory as directed by the JRDC. If Hyseq initiates any such action or
proceeding, Kirin agrees to be joined as a party plaintiff if required by law in
order for Hyseq to initiate and prosecute such action or proceeding, and to
provide Hyseq, at Hyseq's sole cost and expense, reasonable assistance and
authority to initiate and prosecute such action or proceeding. In the event that
Hyseq fails to institute an action or proceeding with respect to such
Infringement within a period of one-hundred-twenty (120) days after notice of
such Infringement, and fails thereafter to prosecute such action or proceeding,
Kirin shall have the right, but not the obligation, to institute and/or
prosecute and control an action or proceeding in its name with respect to such
an Infringement by counsel of

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Kirin's choice. In the event that Kirin institutes any such action or
proceeding, Hyseq agrees to be joined as a party plaintiff if necessary for
Kirin to institute and prosecute such action or proceeding, and to give Kirin
reasonable assistance and authority to institute and prosecute such action or
proceeding.

               5.5.3 Kirin shall have the first right, but not an obligation, to
institute, prosecute and control, using counsel of Kirin's choice, any action or
proceeding with respect to an Infringement, of a patent within the Joint
Patents, or its solely owned Patent Rights claiming, covering or directed to a
Development Candidate or New Product, in the Kirin Territory and such Other
Territory as directed by the JRDC. If Kirin initiates any such action or
proceeding, Hyseq agrees to be joined as a party plaintiff if required by law in
order for Kirin to initiate and prosecute such action or proceeding, and to
provide Kirin, at Kirin's sole cost and expense, reasonable assistance and
authority to initiate and prosecute such action or proceeding. In the event that
Kirin fails to institute and an action or proceeding with respect to such
Infringement within a period of one-hundred-twenty (120) days after notice of
such Infringement, and fails thereafter to prosecute such action or proceeding,
Hyseq shall have the right, but not the obligation, to institute and/or
prosecute and control an action or proceeding in its name with respect to such
an Infringement by counsel of Hyseq's choice. In the event that Hyseq institutes
any such action or proceeding, Kirin agrees to be joined as a party plaintiff if
necessary for Hyseq to institute and prosecute such action or proceeding, and to
give Hyseq reasonable assistance and authority to institute and prosecute such
action or proceeding.

               5.5.4 Any recovery obtained by a Party enforcing one or more
patents, in accordance with this Section 5.5 (the "ENFORCING PARTY"), whether by
judgment, award, decree or settlement, shall be used first to reimburse such
Enforcing Party's out-of-pocket costs and expenses incurred in prosecuting such
action, then to reimburse the other Party's out-of pocket costs and expenses
incurred in connection with such action. Any remainder of the recovery shall be
[allocated between the Parties as follows: seventy-five percent (75%) thereof to
the Enforcing Party, and twenty-five percent (25%) thereof to the other Party.

        5.6 INFRINGEMENT OF THIRD PARTY RIGHTS.

               5.6.1 In the event that a Third Party alleges that intellectual
property rights owned, held or otherwise controlled by such Third Party are
being infringed or have been infringed by one or both Parties in connection with
the manufacture, use, sale, offer for sale or importation of a Development
Candidate or New Product in the Hyseq Territory, Hyseq shall defend or settle,
at Hyseq's expense and in Hyseq's sole discretion, any claim in any legal action
or proceeding arising from such allegation. The Parties shall consult with each
other concerning strategy, approaches and the consequences of approaches that
may be taken under this Section 5.6.1. Kirin shall provide all reasonable
assistance requested by Hyseq in connection with any such action or proceeding,
provided that Hyseq shall reimburse Kirin for out-of-pocket expenses actually
incurred by Kirin in providing such assistance.

               5.6.2 In the event that a Third Party alleges that intellectual
property rights owned, held or otherwise controlled by such Third Party are
being infringed or have been infringed by one or both Parties in connection with
the manufacture, use, sale, offer for sale or importation of a Development
Candidate or New Product in the Kirin Territory, Kirin shall defend or settle,
at

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Kirin's expense and in Kirin's sole discretion, any claim in any legal action or
proceeding arising from such allegation. The Parties shall consult with each
other concerning strategy, approaches and the consequences of approaches that
may be taken under this Section 5.6.2. Hyseq shall provide all reasonable
assistance requested by Kirin in connection with any such action or proceeding,
provided however that Kirin shall reimburse Hyseq for out-of-pocket expenses
actually incurred by Hyseq in providing such assistance.

               5.6.3 In the event that a Third Party alleges that intellectual
property rights owned, held or otherwise controlled by such Third Party are
being infringed or have been infringed by one or both Parties in connection with
the manufacture, use, sale, offer for sale or importation of a Development
Candidate or New Product in the Other Territory, the Parties shall cooperate in
the defense or settlement of any claim in any legal action or proceeding arising
from such allegation. The Parties shall consult with each other concerning
strategy, approaches and the consequences of approaches that may be taken under
this Section 5.6.3. Unless otherwise agreed upon by the Parties, the Parties
shall provide all reasonable assistance requested to each other in connection
with any such action or proceeding. The Parties shall share responsibility
equally (i.e., on a 50/50 basis) for the cost and expense of defending or
settling such action or proceeding.

        5.7 SETTLEMENT WITH A THIRD PARTY. Except as expressly provided herein,
neither Party may settle an action or proceeding under Sections 5.5 or 5.6 with
respect to an Infringement without the written consent of the other Party. Such
consent shall not be unreasonably withheld, but may be withheld if such
settlement would materially and adversely affect the interest of such other
Party.

                                    ARTICLE 6

                         REPRESENTATIONS AND WARRANTIES

        6.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES CONCERNING CORPORATE
AUTHORIZATIONS. Each Party represents and warrants to the other Party that:

               (a)    Such Party is duly organized and validly existing and in
                      good standing under the laws of the jurisdiction of its
                      organization.

               (b)    Such Party has the full corporate power and is duly
                      authorized to enter into, execute and deliver this
                      Agreement, and to carry out and otherwise perform its
                      obligations hereunder.

               (c)    This Agreement has been duly authorized, executed and
                      delivered by such Party and constitutes a legal, valid and
                      binding obligation enforceable against it in accordance
                      with its terms subject, as to enforcement, to bankruptcy,
                      insolvency, reorganization and other laws of general
                      applicability relating to or affecting creditors' rights
                      and to the availability of particular remedies under
                      general equity principles.

               (d)    Such Party's execution, delivery and performance of this
                      Agreement and its compliance with the terms and conditions
                      hereof do not, and will not during the term of this
                      Agreement or any of its surviving provisions conflict,
                      with or result in a breach of any of the terms and
                      conditions of or constitute a default

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                      under (i) any agreement where such conflict, breach or
                      default would impair in any material respect the ability
                      of it to perform its obligations or grant rights
                      hereunder, (ii) the provisions of its charter document or
                      bylaws, or (iii) any material law, rule, regulation or any
                      order, writ, injunction or decree of any court or
                      governmental authority entered against it or by which any
                      of its property is bound.

               (e)    As of the Effective Data, except for those actions, suits
                      and proceedings identified in each Party's publicly
                      available disclosures, including without limitation
                      disclosures required by the securities regulations
                      applicable to each Party, there are no actions, suits or
                      proceedings pending or threatened against it or its
                      Affiliates that may affect its ability to carry out its
                      obligations under this Agreement.

        6.2 RIGHT AND AUTHORITY TO GRANT LICENSES.

               6.2.1 As of the Effective Date, Hyseq represents and warrants to
Kirin that it has the right and authority to grant the rights and licenses
granted to Kirin and its Affiliates hereunder and is the sole and exclusive
owner of, or otherwise has the right to license, all intellectual property and
rights therein and thereto licensed to Kirin and its Affiliates hereunder.

               6.2.2 As of the Effective Date, Kirin represents and warrants to
Hyseq that it has the right and authority to grant the rights and licenses
granted to Hyseq and its Affiliates hereunder and is the sole and exclusive
owner of, or otherwise has the right to license, all intellectual property and
rights therein and thereto licensed to Hyseq and its Affiliates hereunder.

        6.3 EXCLUSIVITY OF RESEARCH WORK. Unless otherwise agreed upon by the
Parties in writing, each Party hereby agrees that it shall not (and shall not
permit any of its Affiliates to), directly or indirectly, participate in or
contribute to any research, development or commercialization activities to the
extent such activities are the subject matter of ongoing Research Work approved
by the JRDC under the R&D Plan.

        6.4 NO PATENT VALIDITY WARRANTY. Notwithstanding anything to the
contrary herein, nothing in this Agreement shall be deemed or construed as a
representation or warranty by either Party that any patent or inventor's
certificate within the Patent Rights of such Party is valid and enforceable.

        6.5 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
PARTIES MAKE NO, AND EXPRESSLY DISCLAIM ALL, REPRESENTATIONS OR WARRANTIES OF
ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.

        6.6 LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO A BREACH OF EACH
PARTY'S OBLIGATIONS PURSUANT TO ARTICLE 7 AND WITH RESPECT TO LIABILITY ARISING
UNDER ARTICLE 9, NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR INDIRECT DAMAGES AS A

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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RESULT OF ITS BREACH OF THIS AGREEMENT, NO MATTER THE CAUSE OR THEORY OF
LIABILITY. THE FOREGOING LIMITATION SHALL APPLY EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED WARRANTY PROVIDED HEREIN.

                                    ARTICLE 7

                                 CONFIDENTIALITY

        7.1 CONFIDENTIALITY; EXCEPTIONS. Except as otherwise provided in this
Agreement, the Parties agree that, for the term of this Agreement and [***]
thereafter, all non-public, proprietary, or "confidential"-marked invention
disclosures, Inventions, know-how, data, and technical, financial and other
information of any nature whatsoever, including, without limitation, all
discussions and information exchanged or disclosed, in writing or through
observation, by one Party (the "DISCLOSING PARTY") to the other Party (the
"RECEIVING PARTY") hereunder (collectively, "CONFIDENTIAL INFORMATION") shall be
received and maintained by the Receiving Party in strict confidence, shall not
be used by the Receiving Party for any purpose other than the purposes expressly
permitted by this Agreement or for the purpose of exercising the Receiving
Party's rights and obligations under this Agreement, and shall not be disclosed
to any Third Party (including, without limitation, in connection with any
publications, presentations or other disclosures). Notwithstanding the
foregoing, the Receiving Party may, subject to the provisions of this Agreement,
disclose the Disclosing Party's Confidential Information to those of its and its
Affiliates' or Sublicensees' directors, officers, employees, agents, consultants
and clinical investigators that have a need to know such Confidential
Information to achieve the purposes of this Agreement, provided that such
Receiving Party shall ensure that its and its Affiliates' or Sublicensees'
directors, officers, employees, agents, consultants or clinical investigators to
whom disclosure is to be made are bound by the obligations of confidentiality
and non-disclosure and non-use no less stringent than those set forth herein.
Each Party shall promptly notify the other Party in writing upon discovery of
any unauthorized use or disclosure of the Confidential Information, and shall
describe the facts and circumstances of such use or disclosure. Except to the
extent expressly provided for in this Agreement, Confidential Information
belongs to and shall remain the property of the Disclosing Party. The provisions
of this Article 7 shall not apply to any information which can be shown by
contemporaneous written documentation by the Receiving Party:

               7.1.1 To have been known to or in the possession of the Receiving
Party prior to the date of its actual receipt from the Disclosing Party;

               7.1.2 To be or to have become readily available to the public
other than through any act or omission of the Receiving Party in breach of this
Agreement or any other agreement between the Parties;

               7.1.3 To have been disclosed to the Receiving Party, other than
under an obligation of confidentiality, by a Third Party which had no obligation
not to disclose such information to others; or

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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               7.1.4 To have been subsequently independently developed by the
Receiving Party without use of the Confidential Information as demonstrated by
competent written records.

        7.2 AUTHORIZED DISCLOSURE. Notwithstanding anything to the contrary in
Section 7.1 of this Agreement, each Party shall have the right to disclose
Confidential Information hereunder solely to the extent such disclosure is
reasonably necessary in connection with submissions to any governmental
authority for the purposes of this Agreement or in filing or prosecuting patent
applications contemplated under this Agreement, [***] solely to the extent
required by law, complying with Applicable Laws, conducting R&D Work for the
purposes expressly permitted by this Agreement, or complying with applicable
securities laws and regulations; provided, however, that in the event of any
such anticipated disclosure of the Disclosing Party's Confidential Information
by the Receiving Party, the Receiving Party shall, except where impracticable,
give reasonable advance notice to the Disclosing Party of such disclosure
requirement (so that the Disclosing Party may seek a protective order and/or
other appropriate remedy or waive compliance with the confidentiality provisions
of this Article 7) and shall use its [***] efforts to secure confidential
treatment of such Confidential Information required to be disclosed.

        7.3 RETURN OF CONFIDENTIAL INFORMATION. The Receiving Party shall keep
Confidential Information belonging to the Disclosing Party in appropriately
secure locations. Upon the termination of this Agreement, any and all
Confidential Information possessed in tangible form by a Receiving Party, its
Affiliates or Sublicensees or its or any of their officers, directors,
employees, agents, consultants or clinical investigators and belonging to the
Disclosing Party, shall, upon written request, be immediately returned to the
Disclosing Party (or destroyed if so requested) and not retained by the
Receiving Party, its Affiliates or Sublicensees or any of their officers,
directors, employees, agents, consultants or clinical investigators, provided
that, in the event any rights or licenses survive the termination of this
Agreement pursuant to Article 8, each Party shall be entitled to retain any
Confidential Information of the other Party that is reasonably required to
exercise such rights and licenses for so long as such rights and licenses
survive. Notwithstanding the foregoing, each Party may retain one (1) copy of
any Confidential Information in an appropriately secure location for
record-keeping purposes.

                                    ARTICLE 8

                        TERM, TERMINATION AND ABANDONMENT

        8.1 TERM OF AGREEMENT. The term of this Agreement shall commence on the
Effective Date and continue for three (3) years after the Effective Date (the
"Term"), unless sooner terminated in accordance with this Article 8.
Notwithstanding the foregoing, if the JRDC fails to approve the initial R&D Plan
within one hundred eighty (180) days after the Effective Date, either Party may
terminate this Agreement at any time, effective upon delivery of notice thereof.

        8.2 TERMINATION FOR CAUSE.

               8.2.2 If either Party commits a material breach of this Agreement
at any time, which breach is not cured within ninety (90) days after written
notice from the non-breaching Party specifying the breach, the non-breaching
Party shall have the right to terminate this Agreement by written notice. The
Parties acknowledge and agree that failure to exercise any right or option, or
to

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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<PAGE>
take any action expressly within the discretion of a Party, shall not be deemed
to be a material breach by the Party with such right, option or discretion.

               8.2.3 Each Party shall have the right to terminate this Agreement
if there is a Change of Control of the other Party.

        8.3 TERMINATION FOR INSOLVENCY. Either Party may terminate this
Agreement upon written notice to the other Party on or after the occurrence of
any of the following events: (a) the appointment of a trustee, receiver or
custodian for all or substantially all of the property of the other Party, or
for any lesser portion of such property, if the result materially and adversely
affects the ability of the other Party to fulfill its obligations hereunder,
which appointment is not dismissed within sixty (60) days, (b) the determination
by a court or tribunal of competent jurisdiction that the other Party is
insolvent such that such other Party's liabilities exceed the fair market value
of its assets, (c) the filing of a petition for relief in bankruptcy by the
other Party on its own behalf, or the filing of any such petition against the
other Party if the proceeding is not dismissed or withdrawn within sixty (60)
days thereafter, (d) an assignment by the other Party for the benefit of
creditors, or (e) the dissolution or liquidation of, or cessation of business in
the ordinary course by, the other Party.

        8.4 EFFECT OF TERMINATION; SURVIVAL.

               8.4.1 Upon termination or expiration of this Agreement, all of
the Parties' rights and obligations hereunder shall terminate, except as
provided in this Article 8.

               8.4.2 Except as provided in Section 8.4.3, upon termination or
expiration of this Agreement, if one or more New Products exists, then, for so
long as such one or both Parties or its Affiliates (or their Sublicensees)
continues to market and sell such New Products the following Sections shall
survive in addition to those set forth in Section 8.5: (a) Sections 2.2.2, 3.3,
3.4, 3.5, 4.1.1(b), 4.2.1(b), 4.1.3, 4.2.3, 6.1 and 6.2 shall remain in effect
until the earlier of (i) the last to expire of the Patent Rights claiming,
covering or directed to such New Products or (ii) the termination for cause,
pursuant to Section 8.2, of such surviving rights and obligations by either
Party; and (b) Sections 2.1.2, 2.1.3 and 2.1.4 shall survive solely to the
extent and for so long as necessary for the JRDC (or any approved subcommittee
thereof) to oversee the Parties' development and commercialization activities
with respect to one or more New Products.

               8.4.3 In the event a Party terminates this Agreement pursuant to
Section 8.2 or Section 8.3, (a) all licenses and rights granted to the other
Party pursuant to Article 4 shall terminate, and (b) the terminating Party shall
have an exclusive option to acquire (i) a worldwide, non-exclusive right and
license, without a right to grant sublicenses, under Hyseq Technology and Hyseq
Improvements or Kirin Technology and Kirin Improvements, as applicable, to
conduct research and development of Development Candidates and to make, have
made, use, sell, offer for sale and import any products resulting therefrom, and
(ii) a worldwide, royalty-bearing, exclusive right and license under all Patent
Rights of the other Party claiming, covering or directed to Development
Candidates, with a right to grant sublicenses, to make, use and evaluate such
Development Candidates and to make, have made, use, sell, offer for sale and
import any products resulting from such Development Candidates. The Party
entitled to exercise the foregoing option may do so only by providing written
notification thereof to the other Party at any time within a one

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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<PAGE>
hundred eighty (180) day period commencing on the date of the other Party's
written notice of termination of this Agreement. Upon the exercise of the
foregoing option, the Parties shall negotiate in good faith to establish
promptly a separate agreement formalizing the specific terms and conditions of
the foregoing license on commercially reasonable terms.

        8.5 SURVIVAL. Articles 1, 5, 7 (to the extent provided therein), 9, 10
and 11 and Sections 4.1.1(c) (to the extent limited by, if at all, Sections
8.4.3, 8.7.1, 8.7.2 and 8.7.3), 4.2.1(c) (to extent limited by, if at all,
Sections 8.4.3, 8.7.1, 8.7.2 and 8.7.3), 4.3, 5.1.6, 6.4, 6.5, 6.6, 8.4, 8.5 and
8.6 shall survive any termination or expiration of this Agreement.

        8.6 ACCRUED RIGHTS. Termination 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 or expiration, including
damages arising from any breach under this Agreement. Such termination or
expiration shall not relieve either Party from obligations which are expressly
indicated to survive termination or expiration of this Agreement.

        8.7 ABANDONMENT OF R&D WORK OR NEW PRODUCTS.

               8.7.1 Either Party shall have the right, upon not less than
ninety (90) days prior written notice to the other Party, to elect to abandon
all of the R&D Work with respect to one or more Development Candidates. In the
event a Party so elects to abandon its obligations with respect to any
Development Candidate, or if a Party fails to perform its obligations under
Sections 2.2.1 or 2.2.2 for a period of one hundred eighty (180) continuous
days, then (a) all licenses and rights granted to the abandoning Party pursuant
to Sections 4.1.1, 4.1.2 and 4.1.3 or Sections 4.2.1, 4.2.2 and 4.2.3, as
applicable, with respect to such Development Candidate shall terminate, and (b)
the other Party shall have an exclusive option to acquire (i) a worldwide,
non-exclusive right and license, without a right to grant sublicenses, under
Hyseq Technology and Hyseq Improvements or Kirin Technology and Kirin
Improvements, as applicable, to conduct research and development of such
Development Candidate and to make, have made, use, sell, offer for sale and
import any products resulting therefrom, and (ii) a worldwide, royalty-bearing,
exclusive right and license under all Patent Rights of the abandoning Party
claiming, covering or directed to such Development Candidate, with a right to
grant sublicenses, to make, use and evaluate such Development Candidate and to
make, have made, use, sell, offer for sale and import any products resulting
from such Development Candidate. The Party entitled to exercise the foregoing
option may do so only by providing written notification thereof to the other
Party at any time within a one hundred eighty (180) day period commencing on the
date of the other Party's written notice of abandonment of such Development
Candidate, after which such option shall expire. Upon the exercise of the
foregoing option, the Parties shall negotiate in good faith to establish
promptly a separate agreement formalizing the specific terms and conditions of
the foregoing license on commercially reasonable terms.

               8.7.2 Either Party shall have the right, upon not less than
ninety (90) days prior written notice to the other Party, to elect to abandon
substantially all efforts to promote, market and sell one or more New Products
in the Hyseq Territory, Kirin Territory or Other Territory, as applicable (or
within any jurisdiction therein). In the event a Party so elects to abandon its
obligations with respect to any New Product, or if a Party fails to perform its
obligations under Section 2.2.2 for a period of one hundred eighty (180)
continuous days, (a) all licenses and rights

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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granted to the abandoning Party pursuant to Sections 4.1.1, 4.1.2 and 4.1.3 or
Section 4.2.1, 4.2.2 and 4.2.3, as applicable, with respect to such New Product
shall terminate, and (b) the other Party shall have an exclusive option to
acquire (i) a worldwide, non-exclusive right and license, without a right to
grant sublicenses, under Hyseq Technology and Hyseq Improvements or Kirin
Technology and Kirin Improvements, as applicable, to make, have made, use, sell,
offer for sale and import such New Product and (ii) a worldwide,
royalty-bearing, exclusive right and license under all Patent Rights of the
abandoning Party claiming, covering or directed to such New Product, with a
right to grant sublicenses, to make, have made, use, sell, offer for sale and
import such New Product. The Party entitled to exercise the foregoing option may
do so only by providing written notification thereof to the other Party at any
time within a one hundred eighty (180) day period commencing on the date of the
other Party's written notice of abandonment of such New Product, after which
such option shall expire. Upon the exercise of the foregoing option, the Parties
shall negotiate in good faith to establish promptly a separate agreement
formalizing the specific terms and conditions of the foregoing license on
commercially reasonable terms.

               8.7.3 In the event that the JRDC fails to approve all Development
Work with respect to a Development Candidate (which had previously been the
subject of Research Work, and became a Development Candidate pursuant to Section
2.1.3(j) and for which Development Work has not been conducted), and such
failure is the consequence of one (1) Party's failure to vote in favor of such
Development Work, then: (a) all licenses and rights granted to each Party
pursuant to Section 4.1, 4.2 or 4.3, as applicable, with respect to such
Development Candidate shall terminate, and (b) the other Party shall have an
exclusive option to acquire (i) a worldwide, non-exclusive right and license,
without a right to grant sublicenses, under Hyseq Technology, or Hyseq's
interests in Patent Rights and other intellectual property rights covering Hyseq
Improvements and/or Prior Art Inventions, or Kirin Technology, or Kirin's
interests in Patent Rights and other intellectual property covering Kirin
Improvements or Prior Art Inventions, to conduct research and development of
such Development Candidate and to make, have made, use, sell, offer for sale and
import any products resulting therefrom, and (ii) a worldwide, royalty-bearing,
exclusive right and license under all Patent Rights or other intellectual
property rights of Hyseq or Kirin, as applicable, covering Joint Inventions,
with a right to grant sublicenses, to make, use and evaluate such Development
Candidate and to make, have made, use, sell, offer for sale and import any
products resulting from such Development Candidate. To exercise the foregoing
option, the Party with such option shall provide written notification thereof to
the other Party at any time within a one hundred eighty (180) day period
commencing on the date of the other Party's most recent failure to approve such
Development Candidate for Development Work, after which time period such option
shall expire. Upon the exercise of the foregoing option, the Parties shall
negotiate in good faith to establish promptly a separate agreement formalizing
the specific terms and conditions of the foregoing license on commercially
reasonable terms.

                                    ARTICLE 9

                                 INDEMNIFICATION

        9.1 INDEMNIFICATION BY HYSEQ. Hyseq shall defend and indemnify Kirin and
its Affiliates, and its and their respective directors, officers, employees and
agents (collectively, the "KIRIN INDEMNIFIED PARTIES"), against all claims,
damages, liabilities, losses, costs and expenses arising out of any suit, action
or proceeding brought against any Kirin Indemnified Party by a Third Party

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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(collectively, "KIRIN CLAIMS") if and to the extent arising from (a) a breach by
Hyseq of any of its representations and warranties set forth in Sections 6.1 or
6.2, or (b) any gross negligence or willful acts or omissions of Hyseq or any of
its employees or agents in connection with the performance of any
responsibilities to be performed by Hyseq under this Agreement, including
without limitation the R&D Work, or (c) the manufacture, use or sale of a
Development Candidate or New Product by Hyseq or its Affiliates or Sublicensees,
or (d) any tax, interest, penalty or associated expense owed by Hyseq or its
Affiliates or imposed on or related to any amounts received by Hyseq or its
Affiliates, except in each case to the extent any such Kirin Claim is subject to
indemnification by Kirin pursuant to Section 9.2.

        9.2 INDEMNIFICATION BY KIRIN. Kirin shall defend and indemnify Hyseq and
its Affiliates, and its and their respective directors, officers, employees and
agents (collectively, the "HYSEQ INDEMNIFIED PARTIES"), against all claims,
damages, liabilities, losses, costs and expenses arising out of any suit, action
or proceeding brought against any Hyseq Indemnified Party by a Third Party
(collectively, "HYSEQ CLAIMS") if and to the extent arising from (a) a breach by
Kirin of any of its representations and warranties set forth in Sections 6.1 or
6.2, or (b) any gross negligence or willful acts or omissions of Kirin or its
employees or agents in connection with the performance of any responsibilities
to be performed by Kirin under this Agreement, including without limitation the
R&D Work, or (c) the manufacture, use or sale of a Development Candidate or New
Product by Kirin or its Affiliates or Sublicensees, or (d) any tax, interest,
penalty or associated expense owed by Kirin or its Affiliates or imposed on or
related to any amounts received by Kirin or its Affiliates, except in each case
to the extent any such Hyseq Claim is subject to indemnification by Hyseq
pursuant to Section 9.1.

        9.3 PROCEDURE. Any Kirin Indemnified Party or Hyseq Indemnified Party
(each, an "INDEMNIFIED PARTY") shall give prompt written notice to the other
Party (the "INDEMNIFYING PARTY") of any Kirin Claim or Hyseq Claim, as
applicable, with respect to which indemnification may be required under this
Article 9, provided that failure to give such notice shall not impair the
obligation of the Indemnifying Party to provide indemnification hereunder except
if and to the extent that failure materially impairs the ability of the
Indemnifying Party successfully to defend such claim. The Indemnifying Party
shall be entitled to assume the defense and control of any Kirin Claim or Hyseq
Claim, as applicable, at its own cost and expense, provided that the Indemnified
Party shall have the right to be represented by its own counsel at its own cost
in such matters. The Indemnified Party shall provide all reasonable assistance
to the Indemnifying Party, at the Indemnifying Party's expense, in connection
with the defense of any claim hereunder. In the event the Indemnifying Party
declines to assume control of any Kirin Claim or Hyseq Claim, as applicable, the
Indemnified Party may assume such control the defense and settlement of such
claim at the sole cost and expense of the Indemnifying Party. The Indemnifying
Party shall not settle or dispose of any Kirin Claim or Hyseq Claim, as
applicable, in any manner which would adversely impact the rights or interests
of the Indemnified Party without its prior written consent.

                                   ARTICLE 10

                        GOVERNING LAW; DISPUTE RESOLUTION

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        10.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California, without reference to or application
of its conflicts of laws rules or principles.

        10.2 DISPUTE RESOLUTION. The Parties are unable to resolve informally
any dispute arising out of or relating to this Agreement ("Dispute"), either
Hyseq or Kirin, by written notice to the other, may have such Dispute referred
to their respective executive officers designated for attempted resolution by
good faith negotiations (each, a "Responsible Executive").

               FOR KIRIN:                   President of Pharmaceutical Division

               FOR HYSEQ:                   Chairman

        Any such Dispute shall be submitted to the Responsible Executives no
later than thirty (30) days following such request by either Hyseq or Kirin. All
negotiations pursuant to this Section 10.2 shall be treated as confidential
compromise and settlement negotiations. Nothing said or disclosed, nor any
document produced, in the course of such negotiations which is not otherwise
independently discoverable shall be disclosed to any Third Party nor offered or
received as evidence or used for impeachment or for any other purpose in any
current or future arbitration or litigation.

        10.3 ARBITRATION. In the event the Parties are not able to resolve a
Dispute within sixty (60) days after submission of the dispute to the
Responsible Executives pursuant to Section 10.2, such Dispute shall be settled
by arbitration; provided, however, that claims for injunctions and other
equitable relief shall be submitted to a court of competent jurisdiction; and
provided further that actions relating to the infringement, validity or
enforceability of any intellectual property right, including without limitation
a Patent Right, of either Party shall be submitted to a court of competent
jurisdiction in the country or territory in which such intellectual property
right exists or issued. In the case of Hyseq as the claimant in such
arbitration, such arbitration shall be held in Tokyo, Japan in accordance with
the Commercial Arbitration Rules of the Japan Commercial Arbitration
Association. In the case of Kirin as the claimant in such arbitration, such
arbitration shall be held in San Francisco, U.S.A., in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Judgment
upon the award rendered by such arbitration may be entered in any court having
jurisdiction over the party against which such award was rendered. Such
arbitration shall be conducted in the English language. The arbitrators shall
include one nominee of Hyseq and one nominee of Kirin and a third person
selected by said nominees. The Parties agree that any arbitration panel shall
include members knowledgeable as to evaluation of biopharmaceutical technology.
The prevailing Party shall be entitled to reasonable attorneys' fees and costs
to be fixed by the arbitrators.

        10.4 EXCLUSIVE DISPUTE RESOLUTION PROCEDURES. The Parties agree that the
procedures set forth in this Article 10 shall be the exclusive means of
resolving any and all Disputes between the Parties.

                                   ARTICLE 11

                                  MISCELLANEOUS

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        11.1 ASSIGNMENT.

               11.1.1 Neither Party may assign or otherwise transfer its rights
or obligations under this Agreement without the prior written consent of the
other Party, such consent not to be unreasonably withheld, except that a Party
may assign or otherwise transfer its rights or obligations in whole or in part
without such consent, upon thirty (30) days prior written notice to the other
Party, (a) to an Affiliate of such Party, provided that no such assignment shall
relieve any Party as the primary obligor hereunder, or (b) to a Third Party in
connection with the merger, consolidation, or sale of substantially all of the
assets of the assigning Party, or reorganization affecting substantially all of
the assets or voting control of the assigning Party, with respect to the subject
matter of this Agreement.

               11.1.2 This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Parties. Any assignment
not in accordance with this Agreement shall be void.

        11.2 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party to the extent the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo, act of
God, or any other similar cause beyond the control of the defaulting Party,
provided that the Party claiming force majeure shall promptly notify the other
Party in writing setting forth the nature of such force majeure, shall use its
best efforts to eliminate, remedy or overcome such force majeure and shall
resume performance of its obligations hereunder as soon as reasonably
practicable after such force majeure ceases. Except as provided in the previous
sentence, if any force majeure continues for more than one hundred eighty (180)
days, the other Party may terminate this Agreement in part, on a
country-by-country basis, or in whole, if all countries are affected, upon
written notice to the affected Party.

        11.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary in order to carry out the express provisions of this Agreement.

        11.4 GOVERNMENTAL APPROVALS; COMPLIANCE WITH LAW. Parties shall make all
filings with governmental authorities as shall be required by Applicable Laws in
connection with this Agreement and the activities contemplated hereunder or
thereunder. In fulfilling its obligations under this Agreement each Party agrees
to comply in all material respects with all Applicable Laws.

        11.5 PUBLIC ANNOUNCEMENT. No announcement, news release, public
statement, publication or presentation relating to the existence of this
Agreement, or the terms hereof, shall be made without the other Party's prior
written approval; provided, however, that, subject to the provisions of Section
7.2, each Party shall have the right to make such disclosures as are required by
applicable law, including without limitation the securities regulations
applicable to each Party. Each Party agrees that it shall not publish or present
the results of the R&D Work (including any and all Inventions resulting
therefrom) carried out pursuant to this Agreement without the opportunity for
prior review by the other Party. Each Party shall provide the other Party an
opportunity to review any proposed abstract, manuscript or presentation
(including information to be presented orally) at least [***] prior to its
intended submission for publication, and each Party

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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agrees, upon written request from the other Party, not to submit such abstract
or manuscript to any publication, or to deliver such presentation, until the
other Party has had a reasonable opportunity and amount of time to review such
publication or presentation for its Confidential Information and to either: (i)
secure patent protection for any material in such publication or presentation
that it believes is patentable; or (ii) redact from the proposed abstract or
manuscript the Confidential Information of such reviewing Party, which redacted
material shall not be disclosed to any Third Party.

        11.6 NOTICES. All notices required or permitted to be given under this
Agreement shall be deemed given if delivered personally or by facsimile
transmission receipt verified, mailed by registered or certified mail return
receipt requested, postage prepaid, or sent by express courier service, to the
Parties at the following addresses, or at such other address for a Party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof.

           IF TO HYSEQ:                 HYSEQ, INC.
                                        670 Almanor Avenue
                                        Sunnyvale, California  94085
                                        Attention: Legal Department
                                        Telephone: 408-524-8100
                                        Facsimile: 408-524-8145

           IF TO KIRIN:                 KIRIN BREWERY COMPANY, LTD.
                                        26-1, Jingumae 6-chome
                                        Shibuya-ku
                                        Tokyo 150-8011, Japan
                                        Attention: Licensing Department
                                        Telephone: 81-3-5485-6206
                                        Facsimile: 81-3-5485-6765

        The date of receipt of any notice given under this Agreement shall be
deemed to be the date given if delivered personally or by facsimile transmission
receipt verified, seven (7) days after the date mailed if mailed by registered
or certified mail return receipt requested, postage prepaid, and two (2) days
after the date sent if sent by express courier service.

        11.7 WAIVER. No failure of either Party to exercise and no delay in
exercising any right, power or remedy in connection with this Agreement (each, a
"RIGHT") shall operate as a waiver thereof, nor shall any single or partial
exercise of any Right preclude any other or further exercise of such Right or
the exercise of any other Right. To be effective, the waiver of any Right must
be set forth in a writing signed by both Parties.

        11.8 DISCLAIMER OF AGENCY. The relationship between the Parties
established by this Agreement is that of independent contractors, and nothing
contained herein shall be construed to (a) give either Party the power to direct
or control the day-to-day activities of the other, (b) constitute the Parties as
the legal representative or agent of the other Party or as partners, joint
venturers, co-owners or otherwise as participants in a joint or common
undertaking, or (c) allow either Party to bind the other Party or to create or
assume any liability or obligation of any kind,

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       29
<PAGE>
express or implied, against or in the name of or on behalf of the other Party
for any purpose whatsoever, except as expressly set forth in this Agreement.

        11.9 SEVERABILITY. If any term, covenant or condition of this Agreement
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable by a court or administrative agency of
competent jurisdiction, then (a) the remainder of this Agreement, or the
application of such term, covenant or condition to any Party or circumstance
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of such documents shall be
valid and be enforced to the fullest extent permitted by law, and (b) the
Parties hereto covenant and agree to renegotiate any such term, covenant or
application thereof in good faith in order to provide a reasonably acceptable
alternative to the term, covenant or condition of such documents or the
application thereof that is invalid or unenforceable, it being the intent of the
Parties that the basic purposes of this Agreement are to be effectuated.

        11.10 NATURE OF AGREEMENT. The rights and licenses granted under this
Agreement are, for purposes of Section 365(n) of the U.S. Bankruptcy Code (the
"BANKRUPTCY CODE"), licenses of "intellectual property" within the scope of
Section 101 of the Bankruptcy Code. The Parties agree that each Party, as a
licensee of such rights and licenses, shall retain and may fully exercise all of
its rights and elections under the Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy or insolvency proceeding
by or against a Party, the other Party shall be entitled to a complete duplicate
of (and complete access to) any such intellectual property and embodiments
thereof. If not already in the other Party's possession, such other Party shall
have the right to immediate delivery of such intellectual property and
embodiments upon written request.

        11.11 ENTIRE AGREEMENT. 11.11.1 Except for the rights and obligations
that survive the expiration of the certain Collaboration and License Agreement,
dated as of November 10, 1998, between the Parties, this Agreement and Exhibits
hereto set forth all covenants, promises, agreements, warranties,
representations, conditions and understandings between the Parties hereto and
supersedes and terminates all prior and contemporaneous agreements and
understandings between the Parties. There are no covenants, promises,
agreements, warranties, representations, conditions or understandings, either
oral or written, between the Parties other than as set forth herein or therein.
No subsequent alteration, amendment, change or addition to this Agreement and
Exhibits hereto shall be binding upon the Parties hereto unless reduced to
writing and signed by the respective authorized officers of the Parties.

        11.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed on the date below written.

     HYSEQ, INC.                                KIRIN BREWERY
                                                COMPANY, LTD.

     By     /s/  Ted Love                       By     /s/ Katsuhiko Asano
       --------------------------------           ------------------------------

     Typed Name         Ted Love                Typed Name   Katsuhiko Asano
                -----------------------                   ----------------------

     Title   Chief Executive Officer             Title  President, Pharm. Div.
          -----------------------------              ---------------------------

     Date   8/16/01                             Date   8/28/01
         ------------------------------             ----------------------------

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       31
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                                    EXHIBIT A

                                 HYSEQ TERRITORY

    Anguilla
    Antigua and Barbuda
    Aruba
    Bahamas
    Barbados
    Belize
    Bermuda
    Bonaire
    British Virgin Islands
    Canada
    Cayman Islands
    Costa Rica
    Curacao
    Dominica
    Dominican Republic
    El Salvador
    Grenada
    Guadeloupe
    Guatemala
    Haiti
    Honduras
    Jamaica
    Martinique
    Mexico
    Montserrat
    Nicaragua
    Panama
    Puerto Rico
    Saint Kitts and Nevis
    Saint Lucia
    Saint Vincent and the Grenadines
    Trinidad and Tobago
    U.S. Virgin Islands
    United States

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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                                    EXHIBIT B

                                 KIRIN TERRITORY

    Afghanistan
    Australia
    Bahrain
    Bangladesh
    Brunei
    Cambodia
    India
    Indonesia
    Iran
    Iraq
    Israel
    Japan
    Jordan
    Kuwait
    Laos
    Lebanon
    Malaysia
    Mongolia
    Myanmar
    Nepal
    New Zealand
    North Korea
    Oman
    Pakistan
    Peoples Republic of China (including  Hong Kong and Macao)
    Philippines
    Saudi Arabia
    Singapore
    South Korea
    South Yemen
    Sri Lanka
    Syria
    Taiwan
    Thailand
    Turkey
    United Arab Emirates
    Vietnam
    Yemen

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       33
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                                    EXHIBIT C

                       SUBJECT MATTER FOR INITIAL R&D PLAN

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       34
<PAGE>
Kirin/Hyseq

Workplan/Timeline/Budget

Based upon our existing contract and subsequent discussions, we would like to
propose the following workplan and timelines for the first project year. During
the course of this collaboration, Subcommittees will be formed to provide
specific guidance to the research proposals, to analyze and digest the resulting
data and to provide reports and recommendations to the JRDC. The initial phases
of [***] are relatively predictable in terms of resource planning, but later
stage [***] will be guided by the observed results. Therefore, rough estimates
of the costs associated with [***] are included, however, it would be
appropriate for the JRDC to more fully define and approve these activities in
the second half of the project year. The budget breakdown is based on the FTE
rate for Hyseq research staff, including standard research expenses, as
indicated in the contract (Section 3.1.1).

Workplan: [***]

A. [***].
        The JRDC will develop a Subcomittee that will consist of [***]. The
        Subcomittee will have the following initial responsibilities.

    i)     Develop a [***] that will allow each member to review the pertinent
           data on [***]. At present, the [***] will be used and will be loaded
           with genes that [***].
    ii)    Nominate genes based on [***]. Genes can be nominated by any
           Subcomittee member and a short summary statement or report should
           accompany the nomination. The summary report should include direct
           reference to the salient features of the gene, such as its [***].
    iii)   Approve nominated genes as [***]. The Subcommittee will define it's
           own mechanism for approval (prioritized list, consensus or unanimous
           vote). A short report summary for approved genes will be forwarded to
           the JRDC for final review and approval.

B. [***]

        Genes that have been approved by the JRDC will be set up for [***]. For
those genes that are [***] will also be generated. An initial assessment of the
expression of this tagged version of the gene will be [***] or other appropriate
methods.
        Intially, approved genes will be [***]. During the initial phases of the
study, Hyseq will also attempt to generate a [***]. This [***] will be assessed
in the K.I. model to judge whether its expression [***]. The Subcomittee will
review the results and then decide whether to proceed with the use of a [***].

C. [***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        Upon approval [***] of a gene, the two parties will agree [***]. This
could include [***]. The intent would be to have a [***].

D. [***]

        Upon receipt of the appropriate [***]. Correctly targeted [***].

E. [***].
        Assessments based on [***] as indicated in documentation provided to the
JRDC [***]. Data files generated from these assessments will be made available
to the Subcommittee and JRDC. Additional assistance in [***].

        Additional assessment of [***]. These may include [***]. In the second
half of the first project year, [***]. The Subcommittee and JRDC will be
responsible for developing an [***].

F. [***].
        In addition to the quarterly status reports generated by [***]. These
should be generated [***]. These reports will be [***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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Project Timelines

November 1, 2001: [***]

December 1, 2001: [***]

Jan. 15, 2001: [***].

January 15, 2002: [***].

March 1, 2002: [***].

March 1, 2002: [***]

July 1, 2002: [***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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                                    EXHIBIT D

                                  PATENT RIGHTS

                THAT CLAIM A DEVELOPMENT CANDIDATE OR NEW PRODUCT

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       38

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