Document:

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                                                                   Exhibit 10.18

                      [CONFIDENTIAL TREATMENT REQUESTED.
           CERTAIN PORTIONS OF THIS AGREEMENT HAVE BEEN REDACTED
             AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.]

                       COLLABORATIVE RESEARCH AGREEMENT
                       --------------------------------

     This COLLABORATIVE RESEARCH AGREEMENT ("Agreement") is entered into as of
December 28, 2000 by and between PFIZER INC, a Delaware corporation, having an
office at 235 East 42nd Street, New York, New York 10017 and its Affiliates
("Pfizer"), and XENOGEN BIOSCIENCES ("Xenogen Cranbury"), an Ohio Corporation,
with an office at 5 Cedar Brook Drive, Cranbury, NJ 08512, and a wholly owned
subsidiary of Xenogen Corp. ("Xenogen").

                                   RECITALS
                                   --------

     WHEREAS, Pfizer wishes to develop Assays (as defined below) to use in
performing phenotypic analysis of Transgenic Animals (as defined below) with a
view toward identifying the role of interesting genes in human disease processes
and toward validating gene function in research animals; and

     WHEREAS, Pfizer has detailed protocols for individual Assays;

     WHEREAS, Xenogen Cranbury has expertise in developing and conducting such
Assays and in performing phenotypic analysis of Transgenic Animals using such
Assays; and

     WHEREAS, Xenogen Cranbury desires to collaborate with Pfizer on the
development of such Assay packages for Transgenic Animals;

     NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, Xenogen Cranbury and Pfizer agree as follows:

1.   DEFINITIONS.
     -----------
          Whenever used in this Agreement, the terms defined in this Section 1
shall have the meanings specified.
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                                       2

     1.1  "Affiliate" means, with respect to Pfizer, any legal entity
           ---------
controlling, controlled by, or under common control with Pfizer; and with
respect to Xenogen Cranbury, any legal entity controlling, controlled by, or
under common control with Xenogen Cranbury; where, in all cases, "control" means
the ownership, directly or indirectly, of fifty percent (50%) or more of the
voting capital shares or similar voting securities of the other entity.

     1.2  "Area" means: (a) research to develop a battery of phenotypic and
           ----
challenge Assays on Transgenic Animals; (b) performing phenotypic analysis on
Transgenic Animals using such Assays; and (c) any other activities identified in
the course of the research or development hereunder; in all cases only as
specified in the Research Plan (as defined below).

     1.3  "Assay" means any of the Level I Assays, the Level II Assays, the
           -----
Level IIIP Assays, or the Level IIIXC Assays as defined below.

     1.4  "Contract Period" means the period beginning on the Effective Date and
           ---------------
ending on the date on which this Agreement terminates.

     1.5  "Contract Research Service" means a research service performed for a
           -------------------------
Third Party (as defined below) for a fee or other consideration.

     1.6  "Control Animal" means any mouse, other than a Transgenic Animal (as
           --------------
defined below), acquired by Xenogen Cranbury under this Agreement, including,
but not limited to: ***

     1.7  "Effective Date" means December 28, 2000.
           --------------

     1.8  "Level I Assay" means any assay identified as a Level I Assay in
           -------------
Exhibit B, as annexed hereto, or as the parties may from time to time identify
as a Level I Assay in a written amendment to the Research Plan.

     1.9  "Level II Assay" means any assay identified as a Level II Assay in
            --------------
Exhibit B, as annexed hereto, or as the parties may from time to time identify
as a Level II Assay in a written amendment to the Research Plan.

     1.10 "Level III Assay" means a Level IIIP Assay or a Level IIIXC Assay
           ---------------
(which may be collectively referred to as Level III Assays).

          1.10.1  "Level IIIP Assay" means any assay incorporating Pfizer
                   ----------------
Technology and Pfizer Confidential Information (both as defined below)
identified as a Level IIIP Assay in Exhibit B, as annexed hereto, or as the
parties may from time to time identify as a Level IIIP Assay in a written
amendment to the Research Plan.

_______________________
*** CONFIDENTIAL TREATMENT REQUESTED
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                                       3

          1.10.2  "Level IIIXC Assay" means any assay incorporating Xenogen
                   -----------------
Cranbury Technology and Xenogen Cranbury Confidential Information (both as
defined below) identified as a Level IIIXC Assay in Exhibit B, as annexed
hereto, or as the parties may from time to time identify as a Level IIIXC Assay
in a written amendment to the Research Plan.  The designation of the Level IIIXC
Assay shall be at the sole discretion of Xenogen Cranbury and Level IIIXC Assay
will not be part of Program Technology.

     1.11 "Period of Exclusivity" means, with respect to any Level III Assay,
           ---------------------
the period ending on the second anniversary of the termination or expiration of
this Agreement.

     1.12 "Pfizer Compound" means any Pfizer compound, any library of Pfizer
           ---------------
compounds, and intermediates of any Pfizer compound, any impurities of any
Pfizer compound, and any information regarding the chemical or biochemical
properties of any Pfizer compound that Pfizer delivers to Xenogen Cranbury under
this Agreement.

     1.13 "Pfizer Confidential Information" means (a) all Results (as defined in
           -------------------------------
Section 1.19) and Program Technology, and (b) all other information about any
element of Pfizer Technology, including, without limitation, protocols, which
Pfizer discloses to Xenogen Cranbury and designates as "Confidential," where
such disclosure is either in writing or within 30 days of such disclosure Pfizer
provides Xenogen Cranbury a memorandum identifying the disclosure and
characterizing it as confidential.  Notwithstanding the foregoing, "Pfizer
Confidential Information" shall not include any information that (i) at the time
of disclosure to Xenogen Cranbury, is already known by Xenogen Cranbury other
than by virtue of a prior confidential disclosure to Xenogen Cranbury by Pfizer;
or (ii) is or becomes disclosed in published literature, or otherwise is or
becomes generally known to the public, in each case through no fault or omission
of Xenogen Cranbury; or (iii) is obtained by Xenogen Cranbury from a third party
free from any obligation of confidentiality to Pfizer.

     1.14 "Pfizer Technology" means (a) Technology developed prior to the
           -----------------
Effective Date by employees of, or consultants to, Pfizer acting alone or
jointly with third parties (but, in the case of consultants or third parties,
only to the extent Pfizer has the right to grant rights to such Technology), and
including without limitation any Transgenic Animals; (b) Program Technology; or
(c) Results.

     1.15 "Program Technology" means Technology developed, in the course of
           ------------------
performing the Research Program by employees of or consultants to Pfizer or
Xenogen Cranbury solely or jointly with each other, excluding Results and Level
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IIIXC Assays, but including, without limitation, Level I, Level II and Level
IIIP Assays.

     1.16 "Research Plan" means the written plan describing the research and
           -------------
development in the Area to be carried out during the Contract Period by Pfizer
and Xenogen Cranbury pursuant to this Agreement. The Research Plan is attached
to and made a part of this Agreement as Exhibit A. The Research Plan may be
amended from time to time by agreement of the parties. Any such amended Research
Plan shall be appended hereto as an Exhibit.

     1.17 "Research Program" is the collaborative research program in the Area
           ----------------
conducted by Pfizer and Xenogen Cranbury pursuant to the Research Plan.

     1.18 "Results" means any data or information generated by either party in
           -------
the course of performing the Research Program, including, without limitation,
any data relating to the development and use of any Assay, and any data or
information resulting from the application of any Assay to any Transgenic Animal
or Control Animal.

     1.19 "Technology" means and includes all materials, technology, technical
           ----------
data and information, inventions, methods, know-how, expertise and trade secrets
within the Area.

     1.20 "Third Party" means any party other than Pfizer, Xenogen, or Xenogen
           -----------
Cranbury.

     1.21 "Transgenic Animal" means any genetically modified mouse supplied by
           -----------------
Pfizer to Xenogen Cranbury under this Agreement.

     1.22 "Xenogen Cranbury Technology" means Technology that is or was
           ---------------------------
developed by employees of, or consultants to, Xenogen Cranbury alone or jointly
with third parties prior to the Effective Date, but, in the case of consultants
or third parties, only to the extent Xenogen Cranbury has the right to grant
rights to such Technology, and specifically excluding, in all cases: (i) any
technology concerning or relating to in vivo imaging; and (ii) light-producing
cells, micro-organisms or animals; and (iii) other technologies intended for use
with (i) or (ii).

     1.23 "Xenogen Cranbury Confidential Information" means (a) all information
           -----------------------------------------
about any element of Xenogen Cranbury Technology which Xenogen Cranbury
discloses to Pfizer and designates as "Confidential," where such disclosure is
either in writing or within 30 days of such disclosure Xenogen Cranbury provides
Pfizer a memorandum identifying the disclosure and characterizing it as
confidential.  Notwithstanding the foregoing, "Xenogen Cranbury Confidential
Information" shall not include any information that (i) at the
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                                       5

time of disclosure to Pfizer, is already known by Pfizer other than by virtue of
a prior confidential disclosure to Pfizer by Xenogen Cranbury; or (ii) is or
becomes disclosed in published literature, or otherwise is or becomes generally
known to the public, in each case through no fault or omission of Pfizer; or
(iii) is obtained by Pfizer from a third party free from any obligation of
confidentiality to Xenogen Cranbury.

2.   COLLABORATIVE RESEARCH PROGRAM
     ------------------------------

     2.1  Purpose.  Xenogen Cranbury and Pfizer each shall conduct their
          -------
respective responsibilities of the Research Program throughout the Contract
Period.  The objective of the Research Program is to develop specific phenotypic
assays and to validate and test such assays on Transgenic Animals.

     2.2  Research Plan.  The initial Research Plan is described in the attached
          -------------
Exhibit A.  As the Research Plan is modified by mutual agreement of the parties,
the modified version shall be appended to Exhibit A and made part of this
Agreement.

     2.3  Research Committee
          ------------------

          2.3.1  Purpose.  Pfizer and Xenogen Cranbury shall establish a
                 -------
Research Committee (the "Research Committee"):

                 (a)  to review and evaluate progress under the Research Plan;

                 (b)  to prepare the Research Plan, and amendments and evaluate
                 the need for extensions to the Agreement;

                 (c)  to propose, discuss, select and document in writing, the
                 mutual acceptance of Assays in the Area to be included in the
                 Research Plan;

                 (d)  to coordinate and monitor publication as provided under
                 Section 4.7 of this Agreement, of Results (this function shall
                 survive termination of this Agreement for five (5) years); and

                 (e)  to designate Assays as either Level I, Level II, or Level
                 III.

          2.3.2  Membership.  Each of Pfizer and Xenogen Cranbury shall appoint,
                 ----------
in its sole discretion, three members to the Research Committee. Each party may
replace its respective Research Committee members at any time, with prior
written notice to the other party hereto.  The parties initially appoint the
following members:
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     Pfizer Appointees:             John McNeish
                                    Andrew Reaume
                                    Kelly Longo

     Xenogen Cranbury Appointees:   David Grass
                                    Olesia Buiakova
                                    Satbir Kaur

          2.3.3  Chair. The Research Committee shall be chaired by two co-
                 -----
chairpersons, one appointed by Pfizer and the other appointed by Xenogen
Cranbury.

          2.3.4  Meetings. The Research Committee shall meet at least quarterly,
                 --------
at places selected by each party in turn and on dates mutually agreed by the
parties. The location of the first meeting of the Research Committee shall be at
Pfizer's election. Representatives of Pfizer or Xenogen Cranbury or both, in
addition to members of the Research Committee, may attend such meetings at the
invitation of either party. Any materials to be submitted to the members of the
Research Committee shall be delivered to each member not less than five (5)
business days before the meeting.

          2.3.5  Minutes.  The Research Committee shall keep accurate minutes of
                 -------
its deliberations which record all proposed decisions and all actions
recommended or taken. Drafts of the minutes shall be delivered to all Research
Committee members within five (5) business days after each meeting. The party
choosing the location for the meeting shall be responsible for the preparation
and circulation of the draft minutes. Draft minutes shall be edited by the co-
chairpersons and shall be issued in final form only with their approval and
agreement.

          2.3.6  Decisions.  All decisions of the Research Committee shall be
                 ---------
made by mutual agreement except that Pfizer, in its sole discretion, shall
decide the overall direction of the Research Program.

          2.3.7  Expenses.   Pfizer and Xenogen Cranbury shall each bear all
                 --------
expenses, including reasonable travel, related to the participation of their
designated members of the Research Committee, respectively.

     2.4  Reports and Materials.
          ---------------------

          2.4.1  Reports.  During the Contract Period, Xenogen Cranbury shall
                 -------
furnish to the Research Committee:

          (a)    summary written reports within fifteen (15) days after the end
                 of each three-month period commencing on the

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                 Effective Date, describing the progress under the Research
                 Plan;

          (b)                 a comprehensive written report within thirty (30)
                 days after the end of the Contract Period, describing in detail
                 the work accomplished by it under the Research Plan during the
                 Contract Period and discussing and evaluating the results of
                 such work;

          (c)                 a written report describing the detailed protocols
                 of all assays developed under the Research Program;

          (d)                 a written report detailing Results. Such reports
                 will be submitted at the end of Phase 1A, 1B and Phase 2 of
                 Tracks I and II; and

          (e)                 any report containing information that Xenogen
                 Cranbury may generate using Level II Assays for Third Parties
                 during the Term, pursuant to Section 4.3.

          2.4.2 Materials.  During the Contract Period, each party shall provide
                ---------
the other, to the extent necessary for the receiving party to perform its
responsibilities under the Research Plan, with Transgenic Animals, Control
Animals, Pfizer Compounds, which are part of Pfizer Technology, Xenogen Cranbury
Technology or Program Technology.  Such supply of materials and Technology shall
be in accordance with the Research Plan, or as a party may otherwise reasonably
request from time to time and the other party agree to provide.  To the extent
that the quantities of materials requested and supplied by the parties exceed
the quantities required to be provided under the Research Plan, the requesting
party shall reimburse the other for the reasonable costs of such materials.
Each party shall use and store such materials in accordance with all applicable
laws and regulations, and shall exert due care in so doing.

     2.5  Laboratory Facilities and Personnel.  Xenogen Cranbury and Pfizer each
          -----------------------------------
shall provide laboratory facilities, equipment and personnel, in each case
suitable to the need, for carrying out the Research Program.

     2.6  Diligent Efforts.  Pfizer and Xenogen Cranbury each shall use
          ----------------
reasonably diligent efforts to achieve the objectives of the Research Program.
Xenogen Cranbury will use reasonably diligent efforts to achieve the objectives
listed in the Research Plan and Pfizer will use reasonably diligent efforts to
assist Xenogen Cranbury in such efforts.
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     2.7  Key Investigators.  If Drs. Satbir Kaur's, David Grass' or Olesia
          -----------------
Buiakova's employment with Xenogen Cranbury ends for any reason and the parties
are unable to agree on a successor reasonably acceptable to Pfizer, Pfizer may
terminate this Agreement pursuant to Section 8.

     2.8  Delays.  Any schedules or milestone dates of a party hereunder shall
          ------
be extended to: (i) account for any delays in obtaining information, or
materials from the other party which are not caused by any fault of such party;
and (ii) account for any modifications to the Research Plan which affect
schedules or milestone dates.  To the extent that any such delays or
modifications are projected to impose additional costs on one of the parties,
both Xenogen Cranbury and Pfizer shall mutually agree on the reimbursement due
on account of such additional costs.  Notwithstanding the foregoing, to the
extent that the non-delaying party accrues labor and other resource costs which
remain idle with respect to the Research Program due to such delays, the non-
delaying party shall be entitled to reimbursement from the other party for such
documented cost of such idled resources.

3.   PAYMENTS
     --------

     3.1  Research Program Funding.  In consideration for its performance of the
          -------------------------
Research Program, Pfizer will pay Xenogen Cranbury up to Nine Million Dollars
($9,000,000) upon receipt of invoice from Xenogen Cranbury, payable as follows:

     (a)  Within thirty (30) days of the execution of this Agreement, a fee of
          One Million Dollars ($1,000,000) to be utilized for staffing,
          administrative and equipment acquisition costs over and above normal
          on going expenses;

     (b)  Within thirty days of the execution of the Agreement, a fee of One
          Million Dollars ($1,000,000) to be utilized for Start-UP Costs;

     (c)  On the first business day of each calendar quarter during the first
          and second years of this Agreement, a payment of  *** against Xenogen
          Cranbury's invoice for such calendar quarter for work to be performed
          and costs to be incurred in such calendar quarter;

     (d)  On the first business day of each calendar quarter during the third
          year of this Agreement, a payment of *** against Xenogen Cranbury's
          invoice for such calendar quarter work to be performed and costs to be
          incurred in such calendar quarter;

     (e)  During the third year of this Agreement, payments aggregating up to
          *** in equal quarterly installments, due on the first business day of
          each quarter, against Pfizer's receipt from Xenogen Cranbury during

_________________________
*** CONFIDENTIAL TREATMENT REQUESTED
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          that year of quarterly reports containing Results achieved pursuant to
          the Request Plan, including detailed data regarding the phenotypic
          analysis of Transgenic Animals and Xenogen Cranbury's invoice for such
          report; and

     (f)  Up to *** against delivery by Xenogen Cranbury to Pfizer of protocols
          for Track I and Track II Assays, as described in the Research Plan
          attached hereto, as the same may be amended by the parties, of which
          sum *** shall be payable upon Xenogen Cranbury's completion of Phase
          1B of Track I and initiating the testing of Control Animals in Track I
          Assays, the protocols for which Xenogen Cranbury shall have prepared
          and submitted to Pfizer for its approval (such approval not to be
          unreasonably withheld); and the remaining *** shall be payable upon
          Xenogen Cranbury's completion of Phase 1B of Track II and initiating
          the testing of Control Animals in Track II Assays, the protocols for
          which Xenogen Cranbury shall have prepared and submitted to Pfizer for
          its approval (such approval not to be unreasonably withheld).

     (g)  At Pfizer's option, it may be extend this Agreement for two successive
          one-year periods by providing 90 days' prior written notice to Xenogen
          Cranbury.

     (h)  If during the term of this Agreement Pfizer requests Xenogen Cranbury
          to perform phenotypic analysis on Transgenic Animals in addition to
          those Trangenic Animals identified in the Research Plan, Xenogen
          Cranbury will perform such services, allocating its capacity to
          perform such services for Pfizer on a priority basis, to the extent it
          is reasonably able to do so, consistent with Xenogen Cranbury's
          existing and anticipated contractual commitments. Such services shall
          be priced at the same rate as reflected in the Research Plan.

     3.2  Payment.  All payments by Pfizer under this Agreement shall be paid in
          -------
U.S. currency and shall be non-refundable.  Pfizer shall make such payments in
such form and to an account as specified by Xenogen Cranbury's invoices.

     3.3  Records.  Xenogen Cranbury shall keep for three (3) years from the
          -------
conclusion of each calendar year complete and accurate records of its costs and
expenses incurred hereunder.  The records shall conform to good accounting
principles as applied to a similar company similarly situated.  Pfizer shall
have the right, at its own expense, during the term of this Agreement and during
the

_________________________
*** CONFIDENTIAL TREATMENT REQUESTED

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                                       10

subsequent three-year period to appoint an independent certified public
accountant reasonably acceptable to Xenogen Cranbury to inspect said records to
verify the accuracy of such expenditures of efforts, pursuant to each Research
Plan. Upon reasonable notice by Pfizer, Xenogen Cranbury shall make its records
available for inspection by the independent certified public accountant during
regular business hours at the place or places where such records are customarily
kept, to verify the accuracy of the expenditures of efforts. This right of
inspection shall not be exercised more than once in any calendar year and not
more than once with respect to records covering any specific period of time. All
Xenogen Cranbury information concerning such expenditures of efforts, and all
information learned in the course of any audit or inspection, shall be Xenogen
Cranbury Confidential Information and not used or disclosed by Pfizer except to
the extent necessary for Pfizer to enforce its rights under this Agreement or to
comply with law. The failure of Pfizer to request verification of any
expenditures of efforts before or during the three-year period shall be
considered acceptance by Pfizer of the accuracy of such expenditures of efforts,
and Xenogen Cranbury shall have no obligation to maintain any records pertaining
to such report or statement beyond such three-year period. The findings of such
inspection, if any, shall be binding on the parties.

4.   TREATMENT OF CONFIDENTIAL INFORMATION
     -------------------------------------
     4.1  Confidentiality
          ---------------

          4.1.1  Except as expressly provided herein, the parties agree that,
for the term of this Agreement and for five (5) years thereafter, each party
shall protect from disclosure and shall not use for any purpose as contemplated
by this Agreement, any Confidential Information of the other party (Xenogen
Cranbury Confidential Information and Pfizer Confidential Information, as the
case may be).  Each party acknowledges that the Confidential Information of the
other party constitutes highly valuable, proprietary information which is not
publicly available.

          4.1.2  Each party shall only disclose Confidential Information of the
other party to its officers, employees or agents or those of its Affiliates to
the extent necessary for such party to perform its responsibilities under this
Agreement.  Each party shall take such actions, and shall cause its Affiliates
and sublicensees to take such action, to preserve the confidentiality of the
other party's Confidential Information as it would customarily take to preserve
the confidentiality of its own Confidential Information.  On the first to occur
of the termination or expiration of this Agreement or the other party's written
request, each party will return, within sixty (60) days, all Confidential
Information of the other party, including all copies and extracts of documents,
except for one (1) copy
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which each party may keep solely to enable it to comply with its continuing
obligations under this Agreement.

          4.1.3  Each party represents and covenants that all of its employees,
and any consultants of such party participating in the Research Program with
access to Program Technology, Xenogen Cranbury Technology, Pfizer Technology,
Xenogen Cranbury Confidential Information, or Pfizer Confidential Information
are, and during the term of this Agreement shall continue to be, bound by
agreement to maintain such information in confidence and use them only for the
purposes of this Agreement.

     4.2  Use by Xenogen Cranbury of Data Relating to Level I and Level II
          ----------------------------------------------------------------
Assays Performed on Pfizer Control Animals.  At any time, Xenogen Cranbury may
------------------------------------------
disclose to Third Parties results of Level I and Level II Assays performed on
Control Animals, provided that under no circumstances shall such disclosure
contain any information relating to any Pfizer Compounds, including Results
derived from animals tested with Pfizer Compounds.

     4.3  Use By Pfizer of Data Relating to Level II Assays Performed on Control
          -------------------------------------------------------------- -------
Animals of Third Parties.  During the term of this Agreement, if Xenogen
------------------------
Cranbury uses any Level II Assays to perform Contract Research Services, it will
make available to Pfizer at no charge and in a reasonably timely manner a copy
of the report containing the results of such Level II Assays (a) as such results
pertain to control animals used in such Level II Assays, (b) to the extent that
the Third Party does not prohibit Xenogen Cranbury from providing such
information and (c) subject to Pfizer agreeing to use such information only for
internal research purposes.

     4.4  Publicity.  Except as required by law, and except for a mutually
          ---------
approved press release to be issued upon signing of this Agreement, neither
party may disclose the terms of this Agreement nor the research described in it
without the written consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that Xenogen Cranbury may disclose the
terms, or provide copies of this Agreement as necessary in the normal course of
business to bankers, investors and others to obtain financing.

     4.5  Disclosure Required by Law.  If either party is required by law to
          ---------------------------
disclose any Confidential Information of the other party, in connection with a
legal or administrative proceeding, such party will promptly notify the other
party in writing of such requirement or request. If the party whose Confidential
Information is the subject of such requested disclosure seeks appropriate
protective orders or other remedies to prevent or limit such disclosure, the
other party will cooperate with such effort. If the party whose Confidential
Information is the
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                                       12

subject of such requested disclosure fails to obtain such remedy, or provides
the other party with a written waiver of its confidentiality obligations
regarding the Confidential Information covered by such legal requirement or
request, then the other party may comply with such requirement or request by
disclosing only such portion of Confidential Information as its legal counsel
determines it is required to disclose.

     4.6  Disclosure of Inventions.  If, in the course of performing the
          ------------------------
Research Program, any employee or consultant of either party makes any invention
within Program Technology, then such party shall promptly inform the other of
such invention.  Xenogen Cranbury shall cooperate with Pfizer, at Pfizer's
expense, to prosecute and protect any patents or other intellectual property
rights in such invention.  Such cooperation shall include without limitation
identification of all inventors and assignment by all inventors of patent or
other rights to Pfizer in such invention.

     4.7  Publication. Notwithstanding this Agreement's provisions regarding
          -----------
confidentiality, results obtained in the course of the Research Program may be
submitted for publication only after scientific review by the Research Committee
and subsequent approval by management of both Xenogen Cranbury and Pfizer, who's
approval or disapproval shall be given within thirty (30) days of their receipt
of manuscripts and within fourteen (14) days of their receipt of an abstract for
presentation at, or inclusion in the proceedings of a scientific meeting, or for
a transcript of an oral presentation to be given at a scientific meeting.

5.   INTELLECTUAL PROPERTY RIGHTS
     ----------------------------

     5.1  Ownership. Xenogen Cranbury Technology shall be owned by Xenogen
          ---------
Cranbury.  All Pfizer Technology and Program Technology made in connection with
the Research Program shall be owned by Pfizer.

     5.2  Licenses to Pfizer.
          ------------------

          5.2.1  Subject to the terms and conditions of this Agreement, Xenogen
Cranbury grants to Pfizer a perpetual, worldwide, non-exclusive, royalty-free
license to make and use, but not to sell, Xenogen Cranbury Technology (i) for
Pfizer to perform the Research Program, and (ii) to the extent necessary for
Pfizer to use the Program Technology.

          5.2.2  Subject to the terms and conditions of this Agreement, Xenogen
Cranbury grants to Pfizer a perpetual, worldwide, non-exclusive, royalty-free
license, without the right to sublicense, to make and use, but not to sell the
Level IIIXC Assays.  In addition, Pfizer may use the Level IIIXC Assays with
Third
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                                       13

Parties provided only that Pfizer shall own all and any intellectual property
resulting from such use.

     5.3  Licenses to Xenogen Cranbury
          ----------------------------

          5.3.1   Subject to the terms and conditions of this Agreement, Pfizer
grants to Xenogen Cranbury a worldwide, non-exclusive, royalty-free license to
make and use, but not to sell Pfizer Technology (i) for Xenogen Cranbury to
perform the Research Program, and (ii) to the extent necessary for Xenogen
Cranbury to use the Program Technology within the scope of the license granted
in 5.3.2.

          5.3.2  Subject to the terms and conditions of this Agreement, Pfizer
grants to Xenogen Cranbury a worldwide, perpetual, non-exclusive, royalty-free
license, without the right to sublicense, to make, use, and sell Program
Technology, other than Level IIIP Assays. For the avoidance of doubt, pursuant
to this Section 5.3.2 Pfizer agrees that Xenogen Cranbury may disclose to Third
Parties, any and all protocols relating to the Program Technology (other than
Level IIIP Assays) in connection with Xenogen Cranbury's performance of Contract
Research Services for Third Parties.

          5.3.3  Subject to the terms and conditions of this Agreement, Pfizer
grants to Xenogen Cranbury a perpetual worldwide, non-exclusive, royalty-free
license, without the right to sublicense, to make, use, and sell Level IIIP
Assays to perform Contract Research Services after the Period of Exclusivity.
For the avoidance of doubt, pursuant to this Section 5.3.3 Pfizer agrees that
Xenogen Cranbury may disclose to Third Parties, any and all protocols relating
to the Level IIIP Assays in connection with Xenogen Cranbury's performance of
Contract Research Services for Third Parties after the Period of Exclusivity.

6.   ACQUISITION OF RIGHTS FROM THIRD PARTIES
     ----------------------------------------

     During the Contract Period, Xenogen Cranbury and Pfizer shall each promptly
notify each other of any appropriate opportunities to acquire in any manner from
third parties, technology or patents or information which it proposes to use in
the course of performing the Research Program.  Xenogen Cranbury and Pfizer
shall discuss if such rights should be acquired in connection with the Research
Program and, if so, whether by Xenogen Cranbury, Pfizer or both and how the
costs for such acquisition should be allocated, it being understood that nothing
herein shall obligate either party to obtain such rights or, if it does acquire
such rights, to make such rights available for use in the Research Program.
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7.   OTHER AGREEMENTS
     ----------------

     This Research Agreement, together with its Exhibits, sets forth the entire
agreement between the parties with respect to the subject matter and supersede
all other agreements and understandings between the parties with respect to
same.

8.   TERM, TERMINATION AND DISENGAGEMENT
     -----------------------------------

     8.1  Term.  Unless sooner terminated as provided below or extended by
          ----
mutual agreement of the parties, this Agreement shall expire on December 28,
2003.

     8.2  Events of Termination.  The following events shall constitute events
          ---------------------
of termination ("Events of Termination"):

          (a)  if any written representation or warranty by Xenogen Cranbury or
Pfizer, made in Section 9.1 shall prove to have been incorrect in any material
respect when made; and

          (b)  Xenogen Cranbury or Pfizer shall fail in any material respect to
perform or observe any term, covenant or understanding contained in this
Agreement or in any of the other documents or instruments delivered pursuant to,
or concurrently with, this Agreement, and any such failure shall remain
unremedied for thirty (30) days after written notice to the failing party.

          Except as provided in Section 8.2(b), upon the occurrence of any Event
of Termination, the party not responsible may, by written notice to the other
party, terminate this Agreement.

     8.3  Effects of Termination.
          ----------------------

          8.3.1     Termination of this Agreement by either party pursuant to
Section 8.2 will not terminate the confidentiality obligations and the
exclusivity and licenses pursuant to Section 4.1, 5.2 and 5.3.

          8.3.2     In the event of termination by either party pursuant to this
Section 8, neither party shall be liable to the other because of such
termination, for compensation, reimbursement of damages on account of the loss
of prospective profits, of anticipated sales or on account of expenditures,
inventory, investments, leases or commitments in connection with the business or
goodwill of Xenogen Cranbury or Pfizer.
<PAGE>

                                       15

          8.3.3     Notwithstanding the foregoing Section 8.3.2, termination of
this Agreement for any reason shall not release any party hereto from any
liability which, at the time of such termination, has already accrued to the
other party or which is attributable to a period prior to such termination nor
preclude either party from pursuing any rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this Agreement,
including without limitation Xenogen Cranbury's right to receive all payments
accrued under Section 3.

9.   REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY
     -------------------------------------------------------

     9.1  Representations, Warranties and Covenants.  Xenogen Cranbury and
          -----------------------------------------
Pfizer each represents and warrants as follows:

          9.1.1  It is a corporation duly organized, validly existing and is in
good standing under the laws of the States of Ohio and Delaware, respectively,
is qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification; and it has all requisite power and
authority, corporate or otherwise, to conduct its business as now being
conducted, to own, lease and operate its properties and to execute, deliver and
perform this Agreement.

          9.1.2  The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary corporate action and do not and will
not (a) require any consent or approval of its stockholders beyond the approvals
already obtained, (b) violate any provision of any law, rule, regulations,
order, writ, judgement, injunction, decree, determination or award presently in
effect having applicability to it or any provision of its certificate of
incorporation or by-laws or (c) result in a breach of or constitute a default
under any material agreement, mortgage, lease, license, permit or other
instrument or obligation to which it is a party or by which it or its properties
may be bound or affected.

          9.1.3  This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws, from time to time in effect,
affecting creditor's rights generally.

          9.1.4  It is not under, and will not enter into, any obligation to any
person, or entity, contractual or otherwise, that is conflicting or inconsistent
in any respect with the terms of this Agreement or that would impede the
diligent and complete fulfillment of its obligations.
<PAGE>

                                       16

          9.1.5  It has the right, power and title to enter into this Agreement
and grant the rights and licenses and/or sublicenses granted herein.

     9.2  Disclaimer of Warranties.  EXCEPT FOR THE EXPRESS WARRANTY SET FORTH
          ------------------------
ABOVE IN SECTION 9.1, NEITHER XENOGEN CRANBURY NOR PFIZER MAKES ANY OTHER
WARRANTIES (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) WITH RESPECT TO THE
XENOGEN CRANBURY TECHNOLOGY, PFIZER TECHNOLOGY, AND PROGRAM TECHNOLOGY, AND
SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES OF NONINFRINGEMENT OF THIRD
PARTY INTELLECTUAL PROPERTY RIGHTS.

     9.3  LIMITATION OF LIABILITY.  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
          -----------------------
THE OTHER OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR
INDIRECT DAMAGES, UNLESS SUCH PARTY DEMONSTRATES THAT THE OTHER PARTY'S BREACH
CONSTITUTED WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.

     9.4  Covenants.  Throughout the Contract Period, Xenogen Cranbury and
Pfizer each shall:

          9.4.1  maintain and preserve its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified as a foreign corporation in good standing in each
jurisdiction in which such qualification is from time to time necessary or
desirable in view of their business and operations or the ownership of their
properties; and

          9.4.2  comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any government authority to
the extent necessary to conduct the Research Program, except for those laws,
rules, regulations, and orders it may be contesting in good faith.

10.  INDEMNIFICATION
     ---------------

     Pfizer and Xenogen Cranbury each will indemnify, defend and hold each other
harmless for any and all damages, settlements, costs, legal fees and other
expenses incurred in connection with a claim by a third party against either
party based on any action or omission of the indemnifying party's agents,
employees, or officers related to its obligations under this Agreement;
provided, however, that the foregoing shall not apply (i) if the claim is found
to be based upon the gross
<PAGE>

                                       17

negligence, recklessness or willful misconduct of the party seeking
indemnification; or (ii) if such party fails to give the other party prompt
notice of any claim it receives and such failure materially prejudices the other
party with respect to any claim or action to which its obligation pursuant to
this Section applies. Notwithstanding the foregoing, Pfizer hereby expressly
agrees to indemnify, defend and hold harmless Xenogen Cranbury (and all
officers, directors, agents and Affiliates of Xenogen Cranbury) for any and all
claims arising from clinical trials pursued by Pfizer or its Affiliates and/or
sublicensees, the exercise of rights granted to Pfizer under Section 5.2 and/or
claims arising from patent rights, Pfizer patent rights, Program Technology and
Pfizer Technology except for intellectual property claims with respect to
Xenogen Cranbury patent rights, or Xenogen Cranbury Technology. The indemnifying
party agrees to pay, subject to the limitations set forth herein, any final
judgement entered against the indemnified party on such issue in any such claim
defended by the indemnifying party. Each party shall cooperate with the other
during the course of such a claim, and the indemnifying party shall keep the
indemnified party(ies) reasonably informed of the progress and status of the
claim. The indemnifying party, in its sole discretion, shall choose legal
counsel, shall control the defense of such claim or action and shall have the
right to settle same on such terms and conditions it deems advisable.

11.  NOTICES
     -------

     All notices shall be in writing mailed via certified mail, return receipt
requested, courier, or facsimile transmission addressed as follow, or to such
other address as may be designated from time to time:

     If to Pfizer:            Pfizer Global Research & Development
                              Eastern Point Road
                              Groton, CT 06340
                              Attention:  President of Strategic Operations -
                              PGRD-Groton
                              copy to: Assistant General Counsel - PGRD - Groton

     If to Xenogen Cranbury:  Xenogen Biosciences
                              5 Cedar Brook Drive
                              Cranbury, NJ 08512

         with a copy to:      Xenogen Corporation
                              860 Atlantic Avenue
<PAGE>

                                       18

                              Alameda, CA  94501
                              Attn:  General Counsel

Notices shall be deemed given as of the date received at the above specified
address.

12.  GOVERNING LAW
     -------------

     This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, without reference to its conflict of laws
rules.  The U.N. Convention for the Sale of Goods shall not apply. The exclusive
venue of any dispute arising out of or in connection with the performance or
breach of this Agreement shall be the New Jersey state courts located in
Middlesex County, New Jersey or the U.S. district court for the District of New
Jersey.

13.  MISCELLANEOUS
     -------------

     13.1 Binding Effect.  This Agreement shall be binding upon and inure to the
          --------------
benefit of the parties and their respective legal representatives, successors
and permitted assigns.

     13.2 Headings.  Paragraph headings are inserted for convenience of
          --------
reference only and do not form a part of this Agreement.

     13.3 Counterparts.  This Agreement may be executed simultaneously in two or
          ------------
more counterparts, each of which shall be deemed an original.  Signatures may be
transmitted via facsimile, thereby constituting the valid signature and delivery
of this Agreement.

     13.4 Amendment, Waiver.  This Agreement may be amended, modified,
          -----------------
superseded or cancelled, and any of the terms may be waived, only by a written
instrument executed by each party or, in the case of waiver, by the party or
parties waiving compliance.  The delay or failure of any party at any time or
times to require performance of any provisions shall in no manner affect the
rights at a later time to enforce the same.  No waiver by any party of any
condition or of the breach of any term contained in this Agreement, whether by
conduct, or otherwise, in any one or more instances, shall be deemed to be, or
considered as, a further or continuing waiver of any such condition or of the
breach of such term or any other term of this Agreement.

     13.5 No Third Party Beneficiaries.  No third party including any employee
          ----------------------------
of any party to this Agreement shall have or acquire any rights by reason of
this
<PAGE>

                                       19

Agreement. Nothing contained in this Agreement shall be deemed to constitute the
parties partners with each other or any third party.

     13.6 Assignment and Successors.  This Agreement may not be assigned by
          -------------------------
either party, except that each party may assign this Agreement and the rights
and interests of such party, in whole or in part, to any of its Affiliates, any
purchaser of all or substantially all of its assets related to the subject
matter of this Agreement, or to any successor corporation resulting from any
merger or consolidation of such party with or into such corporations.

     13.7 Force Majeure. Neither Pfizer nor Xenogen Cranbury shall lose any
          -------------
rights hereunder or be liable to the other for damages or losses (except for
payment obligations) on account of failure of performance by the defaulting
party if the failure is occasioned by war, strike, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond the reasonable
control, and not caused by the negligence, intentional conduct or misconduct, of
the nonperforming party and the nonperforming party has exerted all reasonable
efforts to avoid or remedy such force majeure; provided, however, that in no
event shall a party be required to settle any labor dispute or disturbance.

     13.8 Severability.  If any provision of this Agreement is or becomes
          ------------
invalid or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties that the remainder of the
Agreement shall not be affected so long as the essential benefits of this
Agreement remain enforceable and obtainable.
<PAGE>

                                       20

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.

PFIZER INC                                       XENOGEN BIOSCIENCES

By:/s/ George M. Milne, Jr.       By: /s/ Pamela Reilly Contag
   ------------------------           ------------------------

Name:  George M. Milne, Jr.       Name:   Pamela Reilly Contag

Title: Senior Vice President      Title:  President
<PAGE>

                                       21

                                   EXHIBIT A

                                      ***

_________________________
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

                                       22

                                   EXHIBIT B

                                      ***

_________________________
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

                                       23

                                   EXHIBIT C

                                      ***
________________________
***CONFIDENTIAL TREATMENT REQUESTED<PAGE>   1
                                                                     Exhibit 4.2

[THIS NOTE IS SUBJECT TO A [SUBORDINATION AGREEMENT] DATED AS OF [ ], 2001 AMONG
THE MAKER, THE HOLDER, FLEET CREDIT CORPORATION, IN ITS CAPACITY AS THE
ADMINISTRATIVE AGENT FOR A SYNDICATE OF LENDERS, AND [ ] (THE "SUBORDINATION
AGREEMENT"). BY ITS ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF AGREES TO BE
BOUND BY THE PROVISIONS OF SUCH SUBORDINATION AGREEMENT TO THE SAME EXTENT THAT
THE [SUBORDINATED LENDER] (AS DEFINED THEREIN) IS BOUND.]

                                 PROMISSORY NOTE

$18,333,333.33                                              Ronkonkoma, New York
                                                            __________, 2001

         FOR VALUE RECEIVED, the undersigned QK HEALTHCARE, INC., a Delaware
corporation (the "Maker"), and its successors and assigns, having an office at
2060 Ninth Avenue, Ronkonkoma, New York 11779, promises to pay to the order of
____________, having an address of __________________________ (the "Holder"),
the principal sum of EIGHTEEN MILLION THREE HUNDRED THIRTY-THREE THOUSAND THREE
HUNDRED THIRTY-THREE AND 33/100 DOLLARS ($18,333,333.33) as hereinafter
provided, together with interest (computed on the basis of a 360-day year of
twelve 30-day months) at a rate equal to seven and one-half percent (7-1/2%) per
annum on (i) the sum of the unpaid principal amount hereof from the date hereof
until paid in full, whether upon maturity or by acceleration or otherwise, and
(ii) the unpaid Capitalized Interest (as defined below) from March 31, 2002
until paid in full, whether upon maturity or by acceleration or otherwise. The
principal amount hereof and all interest accruing on such principal amount for
the period commencing on the date hereof through and including March 31, 2002
(the "Capitalized Interest") shall be payable in equal installments quarterly on
June 30, September 30, December 31 and March 31 in each year commencing on June
30, 2002 and ending on March 31, 2009, each of which installments shall be in an
amount equal to the outstanding principal amount of this Note as of June 30,
2002 and the Capitalized Interest divided by twenty-eight (28). Interest
accruing after March 31, 2002 on the unpaid principal amount hereof and the
unpaid Capitalized Interest shall be payable quarterly on June 30, September 30,
December 31, and March 31 in each year commencing on June 30, 2002 and ending on
March 31, 2009. The balance of the sum of the unpaid principal and the unpaid
Capitalized Interest, together with any accrued and unpaid interest, shall be
due and payable in full on March 31, 2009 (the "Maturity Date"). At any point in
time during the term of this Note, the quarterly payments of principal and
Capitalized Interest, including the interest thereon, due and payable during the
immediately following period of twelve consecutive months shall be referred to
as the "Current Portion" of this Note. Conversely, any such quarterly
<PAGE>   2
payments due and payable after the immediately following period of twelve
consecutive months shall be referred to as the "Non-Current Portion" of this
Note.

         Upon the consummation of the Maker's initial public offering (the
"Offering"), $6,666,667 of the principal amount hereof shall be immediately due
and payable. In the event the Maker's underwriters exercise their option to
purchase additional shares of the Maker's Common Stock in connection with the
Offering (the "Over-Allotment Option"), the Maker shall use one sixth (1/6) of
one half (1/2) of the proceeds from the exercise of the Over-Allotment Option to
prepay the principal amount of this Note. All payments of principal, Capitalized
Interest and interest are to be made in lawful money of the United States of
America at Holder's aforesaid address or at such other place or places as the
holder hereof may from time to time designate in writing.

       The Maker, for itself and its successors and assigns, agrees, and the
Holder of this Note, by its acceptance hereof, agrees that the Non-Current
Portion of this Note is hereby expressly subordinated, to the extent and in the
manner hereinafter set forth, in right of payment to the prior payment or
satisfaction in full of the Maker's Current Liabilities. As used herein,
"Current Liabilities" shall mean any liability of the Maker which is classified
as a current liability under generally accepted accounting principles as then in
effect, except for liabilities to the [Senior Lenders] (as defined in the
Subordination Agreement) constituting [Senior Indebtedness] (as defined in the
Subordination Agreement).

       So long as any part of the Current Liabilities shall be unpaid, no
payment of principal, Capitalized Interest or interest hereunder shall be made
at any time without the consent of the then holders of the Current Liabilities
(the "Current Debt Holders"); provided, however, that (i) any payments due and
payable under the Current Portion of this Note shall be paid as they become due
and (ii) any further quarterly payments of interest and any regularly scheduled
principal or Capitalized Interest payments may be made as they become due
hereunder other than by way of acceleration as aforesaid if at the time of
payment or after giving effect to such payment there exists no event of default
under any agreement evidencing the Current Liabilities or any agreement pursuant
to which instruments evidencing the Current Liabilities have been issued and no
event which upon notice or lapse of time or both would constitute such an event
of default.

       In the event of any acceleration of the Current Liabilities or
distribution of the assets, dissolution, winding-up, liquidation or
reorganization of the Maker (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):

                (a) Except for any payments due and payable under the Current
       Portion of this Note, the Current Liabilities shall be paid or satisfied
       in full before the Holder hereof is entitled to receive any further
       payment on account of principal, Capitalized Interest or interest
       hereunder, and any further payment or distribution to which the Holder
       hereof would be entitled

                                     - 2 -
<PAGE>   3
       hereunder but for the subordination provisions of this Note shall be paid
       directly to the Current Debt Holders.

                (b) In the event that any such further payment of principal,
       Capitalized Interest or interest or other payment or distribution of
       assets of the Maker shall be received by the Holder hereof,
       notwithstanding the foregoing, in violation of the subordination
       provisions of this Note while any Current Liability is unpaid, such
       further payment or distribution shall be held by the Holder hereof for
       the Current Debt Holders and paid over to such Current Debt Holders by
       the Holder hereof.

       The Holder hereof by his or her acceptance hereof irrevocably authorizes
and directs the Current Debt Holders and their successors and assigns and any
trustee in bankruptcy, receiver or assignee for the benefit of creditors of the
Maker, whether in voluntary or involuntary liquidation, dissolution or
reorganization, in his or her behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided for in this Note
(including, without limitation, the right to file proof of claim for the debt
represented by this Note and, upon failure of the Holder to vote, to vote such
claim in any such proceeding) and irrevocably appoints the Current Debt Holders
and their successors and assigns, acting jointly, or any such trustee, receiver
or assignee, his or her attorneys-in-fact for such purpose with full powers of
substitution and revocation.

         The foregoing subordination provisions are solely for the purpose of
defining the relative rights of the Current Debt Holders on the one hand, and
the Holder of the Note on the other hand, and nothing herein shall impair, as
between the Maker and the Holder of this Note, the obligation of the Maker,
which is unconditional and absolute, to pay the principal, Capitalized Interest
and interest on this Note in accordance with its terms, nor shall anything
herein prevent the Holder of this Note from exercising all remedies otherwise
permitted by applicable law or hereunder upon default hereunder, subject to the
rights of the Current Debt Holders as herein provided.

         The Maker shall be entitled to offset against any payment of principal,
Capitalized Interest, interest or any other amount due hereunder any amount due
and payable to the Maker with respect to Losses, Taxes or Third Party Claims
(each as defined in that certain Indemnification, Noncompetition and Tax
Cooperation Agreement of even date herewith (the "Indemnification Agreement")
among the Maker, Quality King Distributors, Inc. ("QK") and Pro's Choice Beauty
Care, Inc. ("Pro's Choice")) or any other amount payable under the
Indemnification Agreement, which shall not be paid within fifteen (15) days of
notice of claim therefor in accordance with the Indemnification Agreement, or,
if such amount relates to a Third Party Claim, within fifteen (15) days of
determination of the amount of such Third Party Claim whether by final judicial
or arbitral non-appealable order or as the result of a settlement entered into
in accordance with the Indemnification Agreement (a "Final Determination").
Notwithstanding any other provision of this Note to the contrary, if (i) Maker
shall have notified QK of a Third Party Claim (an "Unliquidated Claim") under
the Indemnification Agreement and there shall have been no Final

                                     - 3 -
<PAGE>   4

Determination with respect thereto, and (ii) a majority of the independent
directors shall have made a reasonable estimate of the amount of the probable
Loss with respect to such Third Party Claim (the "Claim Amount"), Maker shall be
entitled to defer all or any portion of any payment of principal, Capitalized
Interest, interest or any other amount due hereunder equal to such Claim Amount
until a Final Determination shall have been made with respect to such
Unliquidated Claim; provided that QK shall not have provided adequate security
for the payment of the Claim Amount in the event of a Final Determination with
respect to such Third Party Claim, which security shall be reasonably acceptable
to a majority of the independent directors of Maker.

         The Maker hereby waives all applicable exemption rights as well as
valuation and appraisement, presentment and demand for payment, protest and
notice of protest, notice of dishonor, protest and demand, demand and dishonor,
and non-payment of this Note, and expressly agrees that its liability under this
Note shall not be affected by any renewal or extension in the time of payment of
the principal, Capitalized Interest and/or interest due and payable hereunder,
regardless of the number of such renewals and extensions. No failure or delay by
the Holder in exercising any right, power or privilege hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any rights, power or
privilege.

         If this Note (a) is not paid when due or (b) is collected through a
bankruptcy, receivership or other court proceeding, whether before or after this
Note is due, or (c) is placed in the hands of attorneys for collection, the
undersigned agrees to pay, in addition to the then outstanding balance of the
principal sum, Capitalized Interest, any accrued and unpaid interest thereon and
all other fees, sums, charges and amounts due and payable under this Note, all
costs of collecting or attempting to collect the same (including, but not
limited to, attorney' fees and disbursements) incurred by the Maker hereof.

         This Note may not be altered, amended, canceled, changed, discharged,
modified, terminated or waived orally, but only by an agreement in writing dated
and executed by the party against which enforcement of such alteration,
amendment, change, cancellation, discharge, modification, termination or waiver
is sought and in the case of the Maker, such alteration, amendment, change,
cancellation, discharge, modification, termination or waiver is approved by the
majority of the members of the Maker's Board of Directors (including the
majority of independent directors). A director shall be deemed to be an
"independent director" if he or she satisfies the requirement of independence
set forth in the then current rules of the New York Stock Exchange.

         Any notice, request, demand, consent, approval or other communication
which the holder hereof or the undersigned is obligated or may elect to give
hereunder ("Notice") shall be given by registered or certified mail, return
receipt requested, postage prepaid, addressed to the party to receive such
Notice at such party's address first above set forth. Either party may, by
Notice given as aforesaid, change its address for all subsequent Notices.
Notices shall be deemed given as of the second business day following the date
when mailed as aforesaid.

                                     - 4 -
<PAGE>   5
         The provisions of this Note shall be binding upon and inure to the
benefit of the undersigned and the holder hereof and their respective heirs,
legal representatives, successors and assigns. For the purposes of this Note,
the phrase "Holder" shall mean and include all subsequent holders of this Note.

         In case any one or more of the provisions contained in this Note shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions hereof, but this Note shall be construed as if such invalid, illegal
or unenforceable provision had never been included.

         This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.

                                            QK HEALTHCARE, INC.

                                            By:__________________________
                                            Name:
                                            Title:

                                     - 5 -

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