Document:

THIS WARRANT AND THE SHARES OF CAPITAL STOCK ISSUED UPON ANY EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER
(A) A REGISTRATION WITH RESPECT TO THERETO SHALL BE EFFECTIVE UNDER THE
SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.

No. W-[__]                                                     For the Purchase
                                                               of 15,000 shares
                                                                of Common Stock

                            WARRANT TO PURCHASE STOCK

                                       OF

                           PALATIN TECHNOLOGIES, INC.

                            (A DELAWARE CORPORATION)

     Palatin Technologies, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that The Wistar Institute of Anatomy and
Biology (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time at or before the
earlier of 5:00 p.m. pacific standard time on December 15, 2010 and the
termination of this Warrant as provided in Section 7 hereof, 15,000 shares of
Common Stock, par value $.01 per share, of the Company (the "Common Stock"), at
a purchase price per share of $4.00 (the "Base Price"), subject to adjustment of
the Base Price upon the occurrence of certain events as set forth in Section 3
of this Warrant. The shares of stock issuable upon exercise of this Warrant, and
the purchase price per share, are hereinafter referred to as the "Warrant Stock"
and the "Purchase Price," respectively.

     1. EXERCISE.

          1.1 MANNER OF EXERCISE; PAYMENT IN CASH. This Warrant may be exercised
     by the Holder, in whole or in part, by surrendering this Warrant, with the
     purchase form appended hereto as EXHIBIT A duly executed by the Holder, at
     the principal office of the Company, or at such other place as the Company
     may designate, accompanied by payment in full of the Purchase Price payable
     in respect of the number of shares of Warrant Stock purchased upon such
     exercise. Payment of the Purchase Price shall be in cash or by certified or
     official bank check payable to the order of the Company.

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          1.2 EFFECTIVENESS. Each exercise of this Warrant shall be deemed to
     have been effected immediately prior to the close of business on the day on
     which this Warrant shall have been surrendered to the Company as provided
     in Section 1.1 above. At such time, the person or persons in whose name or
     names any certificates for Warrant Stock shall be issuable upon such
     exercise as provided in Section 1.3 below shall be deemed to have become
     the holder or holders of record of the Warrant Stock represented by such
     certificates.

          1.3. DELIVERY OF CERTIFICATES. As soon as practicable after the
     exercise of this Warrant in full or in part, the Company at its sole
     expense will cause to be issued in the name of, and delivered to, the
     Holder, or, subject to the terms and conditions hereof, as such Holder
     (upon payment by such Holder of any applicable transfer taxes) may direct:

               (a) A certificate or certificates for the number of full shares
          of Warrant Stock to which such Holder shall be entitled upon such
          exercise plus, in lieu of any fractional share to which such Holder
          would otherwise be entitled, cash in an amount determined pursuant to
          Section 2 hereof, and

               (b) In case such exercise is in part only, a new warrant or
          warrants (dated the date hereof) of like tenor, calling in the
          aggregate on the face or faces thereof for the number of shares of
          Warrant Stock (without giving effect to any adjustment therein) equal
          to the number of such shares called for on the face of this Warrant
          minus the number of such shares purchased by the Holder upon such
          exercise as provided in Section 1.1 above.

     2. FRACTIONAL SHARES. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the fair market value of the Warrant Stock
reasonably determined by The Board of Directors of the Company.

     3. CERTAIN ADJUSTMENTS, ETC.

          3.1 CHANGES IN COMMON STOCK. If the Company shall (i) combine the
     outstanding shares of Common Stock into a lesser number of shares, (ii)
     subdivide the outstanding shares of Common Stock into a greater number of
     shares, or (iii) issue additional shares of Common Stock as a dividend or
     other distribution with respect to the Common Stock, the number of shares
     of Warrant Stock shall be equal to the number of shares which the Holder
     would have been entitled to receive after the happening of any of the
     events described above if such shares had been issued immediately prior to
     the happening of such event, such adjustment to become effective
     concurrently with the effectiveness of such event. The Purchase Price in
     effect immediately prior to any such combination of Common Stock shall,
     upon the effectiveness of such combination, be proportionately increased.
     The Purchase Price in effect immediately prior to any such subdivision of
     Common Stock or at the record date of such dividend shall upon the

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     effectiveness of such subdivision or immediately after the record date of
     such dividend be proportionately reduced.

          3.2 REORGANIZATIONS AND RECLASSIFICATIONS. If there shall occur any
     capital reorganization or reclassification of the Common Stock (other than
     a change in par value or a subdivision or combination as provided for in
     Section 3.1), then, as part of any such reorganization or reclassification,
     lawful provision shall be made so that the Holder shall have the right
     thereafter to receive upon the exercise hereof the kind and amount of
     shares of stock or other securities or property which such Holder would
     have been entitled to receive if, immediately prior to any such
     reorganization or reclassification, such Holder had held the number of
     shares of Common Stock which were then purchasable upon the exercise of
     this Warrant. In any such case, appropriate adjustment (as reasonably
     determined by the Board of Directors of the Company) shall be made in the
     application of the provisions set forth herein with respect to the rights
     and interests thereafter of the Holder such that the provisions set forth
     in this Section 3 (including provisions with respect to adjustment of the
     Purchase Price) shall thereafter be applicable, as nearly as is reasonably
     practicable, in relation to any shares of stock or other securities or
     property thereafter deliverable upon the exercise of this Warrant.

          3.3 MERGER, CONSOLIDATION OR SALE OF ASSETS. If there shall be a
     merger or consolidation of the Company with or into another corporation
     (other than a merger or reorganization involving only a change in the state
     of incorporation of the Company or the acquisition by the Company of other
     businesses where the Company survives as a going concern), or the sale of
     all or substantially all of the Company's capital stock or assets to any
     other person, then as a part of such transaction, provision shall be made
     so that the Holder shall thereafter be entitled to receive the number of
     shares of stock or other securities or property of the Company, or of the
     successor corporation resulting from the merger, consolidation or sale, to
     which the Holder would have been entitled if the Holder had exercised its
     rights pursuant to the Warrant immediately prior thereto. In any such case,
     appropriate adjustment shall be made in the application of the provisions
     of this Section 3 to the end that the provisions of this Section 3 shall be
     applicable after that event in as nearly equivalent a manner as may be
     practicable.

          3.4 CERTIFICATE OF ADJUSTMENT. When any adjustment is required to be
     made in the Purchase Price, the Company shall promptly mail to the Holder a
     certificate setting forth the Purchase Price after such adjustment and
     setting forth a brief statement of the facts requiring such adjustment.
     Delivery of such certificate shall be deemed to be a final and binding
     determination with respect to such adjustment unless challenged by the
     Holder within ten (10) days of receipt thereof. Such certificate shall also
     set forth the kind and amount of stock or other securities or property into
     which this Warrant shall be exercisable following the occurrence of any of
     the events specified in this Section 3.

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<PAGE>

     4. COMPLIANCE WITH SECURITIES ACT.

          4.1 UNREGISTERED SECURITIES. The Holder acknowledges that this Warrant
     and the Warrant Stock have not been registered under the Securities Act of
     1933, as amended, and the rules and regulations thereunder, or any
     successor legislation (the "Securities Act"), and agrees not to sell,
     pledge, distribute, offer for sale, transfer or otherwise dispose of this
     Warrant or any Warrant Stock in the absence of (i) an effective
     registration statement under the Securities Act covering this Warrant or
     such Warrant Stock and registration or qualification of this Warrant or
     such Warrant Stock under any applicable "blue sky" or state securities law
     then in effect, or (ii) an opinion of counsel, satisfactory to the Company,
     that such registration and qualification are not required. The Company may
     delay issuance of the Warrant Stock until completion of any action or
     obtaining of any consent, which the Company deems necessary under any
     applicable law (including without limitation state securities or "blue sky"
     laws).

          4.2 INVESTMENT LETTER. Without limiting the generality of Section 4.1,
     unless the offer and sale of any shares of Warrant Stock shall have been
     effectively registered under the Securities Act, the Company shall be under
     no obligation to issue the Warrant Stock unless and until the Holder shall
     have executed an investment letter in the form appended hereto as EXHIBIT
     B.

          4.3 LEGEND. Certificates delivered to the Holder pursuant to Section
     1.3 shall bear the following legend or a legend in substantially similar
     form:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN FOR
          INVESTMENT AND THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY
          PERSON, INCLUDING A PLEDGEE, IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF
          1933, AS AMENDED, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE
          COMPANY, THAT AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE."

     5. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Warrant Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
covenants that all shares of Warrant Stock so issuable will, when issued, be
duly and validly issued and fully paid and nonassessable.

     6. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.

     7. TERMINATION UPON CERTAIN EVENTS. In the event of a sale of all or
substantially all of the assets of the Company to, or a merger or consolidation
of the Company with or into, any other

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entity (other than (i) a merger in which the sole consideration delivered to the
stockholders of the Company consists of equity securities of the surviving
corporation, or (ii) a merger the sole purpose of which is to change the state
of incorporation of the Company) or a dissolution or the adoption of a plan of
liquidation of the Company, this Warrant shall terminate on the effective date
of such sale, merger, consolidation, dissolution or adoption (the "Effective
Date") and become null and void, PROVIDED, HOWEVER, that if this Warrant shall
not have otherwise terminated or expired, the Holder shall have the right until
5:00 p.m, Pacific Standard Time, on the day immediately prior to the Effective
Date to exercise its rights hereunder to the extent not previously exercised.

     8. TRANSFERABILITY. Without the prior written consent of the Company, the
Warrant shall not be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of the Warrant or of any rights granted hereunder contrary to
the provisions of this Section 8, or the levy of any attachment or similar
process upon the Warrant or such rights, shall be null and void.

     9. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Holder
shall not have or exercise any rights by virtue hereof as a stockholder of the
Company.

     10. REGISTRATION RIGHTS.

          10.1 "PIGGY BACK" REGISTRATION. If at any time the Company shall
     determine to register under the Act, any of its Common Stock, other than on
     Form S-8 or its then equivalent, it shall send to the Holder written notice
     of such determination and, if within thirty (30) days after receipt of such
     notice, the Holder shall so request in writing, the Company shall use its
     best efforts to include in such registration statement all or any part of
     the Warrant Stock except that if, in connection with any offering involving
     an underwriting of Common Stock to be issued by the Company, the managing
     underwriter shall impose a limitation on the number of shares of such
     Common Stock which may be included in any such registration statement
     because, in its judgment, such limitation is necessary to effect an orderly
     public distribution, and such limitation is imposed PRO RATA among the
     holders of such Common Stock having an incidental ("piggy back") right to
     include such Common Stock in the registration statement according to the
     amount of such Common Stock which each holder had requested to be included
     pursuant to such right, then the Company shall be obligated to include in
     such registration statement only such limited portion of the Warrant Stock
     with respect to which the Holder has requested inclusion hereunder.

          10.2 EFFECTIVENESS. The Company will use its best efforts to maintain
     the effectiveness for up to nine (9) months of any registration statement
     pursuant to which any of the Warrant Stock is being offered, and from time
     to time will amend or supplement such registration statement and the
     prospectus contained therein as and to the extent necessary to comply with
     the Act and any applicable state securities statute or regulation. The
     Company will also provide the Holder with as many copies of the prospectus
     contained in any such registration statement as it may reasonably request.

                                       5

<PAGE>

     11. NOTICES. All notices, requests and other communications hereunder shall
be in writing, shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered mail, postage prepaid, return receipt requested. In the case
of notices from the Company to the Holder, they shall be sent to the address
furnished to the Company in writing by the last Holder who shall have furnished
an address to the Company in writing. All notices from the Holder to the Company
shall be delivered to the Company at its offices at 106 Charles Lindbergh
Boulevard, Uniondale, New York 11553, or such other address as the Company shall
so notify the Holder. All notices, requests and other communications hereunder
shall be deemed to have been given (i) by hand, at the time of the delivery
thereof to the receiving party at the address of such party described above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notices is delivered to the courier service, or (iv) if sent by registered
mail, on the fifth business day following the day such mailing is made.

     12. WAIVERS AND MODIFICATIONS. Any term or provision of this Warrant may be
waived only by written document executed by the party entitled to the benefits
of such terms or provisions. The terms and provisions of this Warrant may be
modified or amended only by written agreement executed by the parties hereto.

     13. HEADINGS. The headings in this Warrant are for convenience of reference
only and shall in no way modify or affect the meaning or construction of any of
the terms or provisions of this Warrant.

     14. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with and governed by the law of the State of New York, without giving
effect to the conflict of law principles thereof.

                                     PALATIN TECHNOLOGIES, INC.

                                     By:________________________________
                                         Name:
                                        Title:

ATTEST:

                                       6

<PAGE>

                                    EXHIBIT A

                                  PURCHASE FORM

To:      Palatin Technologies, Inc.

     The undersigned pursuant to the provisions set forth in the attached
Warrant (No. W-[__]), hereby irrevocably elects to purchase ___ shares of the
Common Stock, par value $.01 per share (the "Common Stock") of Palatin
Technologies, Inc., covered by such Warrant and herewith makes payment of $___,
representing the full purchase price for such shares at the price per share
provided for in such Warrant. The Common Stock for which the Warrant may be
exercised shall be known herein as the "Warrant Stock".

     The undersigned is aware that the Warrant Stock has not been and will not
be registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities laws. The undersigned understands that reliance by
the Company on exemptions under the Securities Act is predicated in part upon
the truth and accuracy of the statements of the undersigned in this Purchase
Form.

     The undersigned represents and warrants that (1) it has been furnished with
all information which it deems necessary to evaluate the merits and risks of the
purchase of the Warrant Stock, (2) it has had the opportunity to ask questions
concerning the Warrant Stock and the Company and all questions posed have been
answered to its satisfaction, (3) it has been given the opportunity to obtain
any additional information it deems necessary to verify the accuracy of any
information obtained concerning the Warrant Stock and the Company and (4) it has
such knowledge and experience in financial and business matters that it is able
to evaluate the merits and risks of purchasing the Warrant Stock and to make an
informed investment decision relating thereto.

     The undersigned hereby represents and warrant that it is purchasing the
Warrant Stock for its own account for investment and not with a view to the sale
or distribution of all or any part of the Warrant Stock.

     The undersigned understands that because the Warrant Stock has not been
registered under the Securities Act, it must continue to bear the economic risk
of the investment for an indefinite period of time and the Warrant Stock cannot
be sold unless it is subsequently registered under applicable federal and state
securities laws or an exemption from such registration is available.

     The undersigned agrees that it will in no event sell or distribute or
otherwise dispose of all or any part of the Warrant Stock unless (1) there is an
effective registration statement under the Securities Act and applicable state
securities laws covering any such transaction involving the Warrant Stock, or
(2) the Company receives an opinion satisfactory to the Company of the
undersigned's legal counsel stating that such transaction is exempt from
registration. The

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<PAGE>

undersigned consents to the placing of a legend on its
certificate for the Warrant Stock stating that the Warrant Stock has not been
registered and setting forth the restriction on transfer contemplated hereby and
to the placing of a stop transfer order on the books of the Company and with any
transfer agents against the Warrant Stock until the Warrant Stock may be legally
resold or distributed without restriction.

     The undersigned has considered the federal and state income tax
implications of the exercise of the Warrant and the purchase and subsequent sale
of the Warrant Stock.

                                        ______________________________________

                                        Dated: _______________________________

                                       8

<PAGE>

                                    EXHIBIT B

                                INVESTMENT LETTER

Purchaser:  ______________________________________

Security:   Common stock in ________________________

Amount:  ____________________________________

Date:  ______________________________________

In connection with the purchase of the above-listed shares of common stock (the
"Securities"), the undersigned (the "Purchaser") represents to Palatin
Technologies, Inc. (the "Company") as follows:

     1. The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").

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

     3. The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate evidencing the
Securities will be imprinted with the legend referred to in the Warrant under
which the Securities are being purchased.

     4. The Purchaser is aware of the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including,

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<PAGE>

among other things: The availability of certain public information about the
Company, the resale occurring not less than one year after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.

     5. The Purchaser further understands that at the time it wishes to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and that, in
such event, the Purchaser may be precluded from selling the Securities under
Rule 144 even if the one-year minimum holding period had been satisfied.

                                   HOLDER:

Date: _______________              By:   ______________________________________

                                   Name: ______________________________________

                                   Title: _____________________________________

                                       10PALATIN TECHNOLOGIES, INC.

                             1996 STOCK OPTION PLAN

1.   PURPOSE.

     The purposes of the 1996 Stock Option Plan (the "Plan") are to induce
certain employees, consultants and directors to remain in the employ or service,
or to continue to serve as directors, of Palatin Technologies, Inc. (the
"Company") and its present and future subsidiary corporations (each a
"Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), to attract new individuals to enter into such
employment or service and to encourage such individuals to secure or increase on
reasonable terms their stock ownership in the Company. The Board of Directors of
the Company (the "Board") believes that the granting of stock options (the
"Options") under the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company by those who are
or may become primarily responsible for shaping and carrying out the long range
plans of the Company and securing its continued growth and financial success.
Options granted hereunder are intended to be either (a) "incentive stock
options" (which term, when used herein, shall have the meaning ascribed thereto
by the provisions of Section 422(b) of the Code) or (b) options which are not
incentive stock options ("non-incentive stock options") or (c) a combination
thereof, as determined by the Committee (the "Committee") referred to in Section
4 hereof at the time of the grant thereof.

2.   EFFECTIVE DATE OF THE PLAN.

     The Plan became effective on August 28, 1996, by action of the Board,
subject to ratification by stockholders of the Company.

3.   STOCK SUBJECT TO PLAN.

     5,000,000 of the authorized but unissued shares of the Common Stock, $0.01
par value, of the Company (the "Common Stock") are hereby reserved for issue
upon the exercise of Options granted under the Plan; provided, however, that the
number of shares so reserved may from time to time be reduced to the extent that
a corresponding number of issued and outstanding shares of the Common Stock are
purchased by the Company and set aside for issue upon the exercise of Options.
If any Options expire or terminate for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for the
purposes of the Plan.

                                     Page 1

<PAGE>

4.   COMMITTEE.

     The Committee shall consist of two or more members of the Board both or all
of whom shall be "non-employee directors" within the meaning of Rule
16b-3(b)(3)(i) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and "outside directors" within the contemplation of Section
162(m)(4)(C)(i) of the Code. The President of the Company shall also be a member
of the Committee, ex-officio, whether or not he or she is otherwise eligible to
be a member of the Committee. The Committee shall be appointed annually by the
Board, which may at any time and from time to time remove any members of the
Committee, with or without cause, appoint additional members to the Committee
and fill vacancies, however caused, in the Committee. In the event that no
Committee shall have been appointed, the Board shall serve as the Committee. A
majority of the members of the Committee shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members
present at a meeting duly called and held. Any decision or determination of the
Committee reduced to writing and signed by all of the members of the Committee
shall be fully as effective as if it had been made at a meeting duly called and
held.

5.   ADMINISTRATION.

     Subject to the express provisions of the Plan, the Committee shall have
complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective option agreements or certificates (which need
not be identical), to determine the individuals (each a "Participant") to whom
and the times and the prices at which Options shall be granted, the periods
during which each Option shall be exercisable, the number of shares of the
Common Stock to be subject to each Option and whether such Option shall be an
incentive stock option or a non-incentive stock option and to make all other
determinations necessary or advisable for the administration of the Plan. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees and consultants, their present
and potential contributions to the success of the Company and the Subsidiaries
and such other factors as the Committee in its discretion shall deem relevant.
The Committee's determination on the matters referred to in this Section 5 shall
be conclusive. Any dispute or disagreement which may arise under or as a result
of or with respect to any Option shall be determined by the Committee, in its
sole discretion, and any interpretations by the Committee of the terms of any
Option shall be final, binding and conclusive. The Board may, at any time,
exercise any of the powers of the Committee.

6.   ELIGIBILITY.

     A. An Option may be granted only to (i) an employee or consultant of the
Company or a Subsidiary, (ii) a director of the Company who is not employed by
the Company or any of the Subsidiaries (a "Non-Employee Director") and (iii)
employees of a corporation or other business enterprise which has been acquired
by the Company or a Subsidiary, whether by exchange or

                                     Page 2

<PAGE>

purchase of stock, purchase of assets, merger or reverse merger or otherwise,
who hold options with respect to the stock of such corporation which the Company
has agreed to assume or for which the Company has agreed to provide substitute
options.

     B. (i) On August 28, 1996, each Non-Employee Director shall be granted an
Option (a "Non-Employee Director's Formula Option") to purchase 20,000 shares of
the Common Stock at the initial per share option price of $1.36 per share.

     (ii) At the first meeting of the Board immediately following the annual
meeting of the Stockholders of the Company held following the effective date of
the Plan, and at the first meeting of the Board immediately following each
subsequent annual meeting of the Stockholders of the Company, each Non-Employee
Director shall be granted an Option (a "Non-Employee Director's Formula Option")
to purchase 10,000 shares (after giving effect to the reverse stock split
effected on September 5, 1997) of the Common Stock at the initial per share
option price equal to the fair market value of a share of the Common Stock on
the date of grant.

     (iii) Each Non-Employee Director who becomes a director subsequent to the
adoption date of the Plan shall be granted, as of a date determined by the
Board, which date shall be not earlier than the date he or she agrees to become
a director and not later than the date he or she becomes a director, an Option
(a "Non-Employee Director's Initial Option") to purchase the number of shares
(after giving effect to the reverse stock split effected on September 5, 1997)
of the Common Stock determined by the Board, but not more than 10,000 shares, at
the initial per share option price equal to the fair market value of a share of
the Common Stock on the date of grant.

     (iv) A Non-Employee Director may not exercise a Non-Employee Director's
Formula Option during the period commencing on the date of the granting of such
Option to him or her and ending on the day next preceding the first anniversary
of such date. A Non-Employee Director may (i) during the period commencing on
the first anniversary of the date of the granting of a Non-Employee Director's
Formula Option to him or her and ending on the day next preceding the second
anniversary of such date, exercise such Option with respect to one-fourth of the
shares granted thereby, (ii) during the period commencing on such second
anniversary and ending on the day next preceding the third anniversary of the
date of the granting of such Option, exercise such Option with respect to
one-half of the shares granted thereby, (iii) during the period commencing on
such third anniversary and ending on the date next preceding the fourth
anniversary of the date of the granting of such Option, exercise such Option
with respect to three-fourths of the shares granted thereby and (iv) during the
period commencing on such fourth anniversary and ending on the date of the
expiration of such Option, exercise such Option with respect to all of the
shares granted thereby.

7.   OPTION PRICES.

     A. Except as otherwise provided in Sections 6 and 17, the initial per share
option price of any Option shall be the price determined by the Committee, but
not less than the fair market value of a share of the Common Stock on the date
of grant; provided, however, that, in the case of a Participant who owns (within
the meaning of Section 424(d) of the Code) more than 10% of

                                     Page 3

<PAGE>

the total combined voting power of the Common Stock at the time an Option which
is an incentive stock option is granted to him or her, the initial per share
option price shall not be less than 110% of the fair market value of a share of
the Common Stock on the date of grant.

     B. For all purposes of the Plan, the fair market value of a share of the
Common Stock on any date shall be determined by the Committee as follows:

          (i) If the Common Stock is listed on the OTC Electronic Bulletin
     Board, its fair market value shall be the closing selling price on such
     date for the Common Stock as reported on the OTC Electronic Bulletin Board.
     If there are no sales of the Common Stock on that date, then the reported
     closing selling price for the Common Stock on the next preceding date for
     which such closing selling price is quoted shall be determinative of fair
     market value; or,

          (ii) If the Common Stock is listed on any established stock exchange
     or a national market system, including without limitation, the Nasdaq
     National Market System or the Nasdaq SmallCap Market System, its fair
     market value shall be the reported closing selling price for the Common
     Stock on the principal securities exchange or national market system on
     which the Common Stock is at such date listed for trading. If there are no
     sales of Common Stock on that date, then the reported closing selling price
     for the Common Stock on the next preceding day for which such closing
     selling price is quoted shall be determinative of fair market value; or,

          (iii) If the Common Stock is not traded on the OTC Electronic Bulletin
     Board, an exchange, or a national market system, its fair market value
     shall be determined in good faith by the Committee, and such determination
     shall be conclusive and binding on all persons.

8.   OPTION TERM.

     Participants shall be granted Options for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof;
provided, however, that, except as otherwise provided in Section 17, in the case
of a Participant who owns (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of the Common Stock of the
Company at the time an Option which is an incentive stock option is granted to
him or her, the term with respect to such Option shall not be in excess of five
years from the date of the granting thereof; provided, further, however, that
the term of each Non-Employee Director's Formula Option shall be ten years from
the date of the granting thereof.

9.   LIMITATIONS ON AMOUNT OF OPTIONS GRANTED.

     A. Except as otherwise provided in Section 17, the aggregate fair market
value of the shares of the Common Stock for which any Participant may be granted
incentive stock options which are exercisable for the first time in any calendar
year (whether under the terms of the Plan or any other stock option plan of the
Company) shall not exceed $100,000.

                                     Page 4

<PAGE>

     B. Except as otherwise provided in Section 17, no Participant shall, during
any fiscal year of the Company, be granted Options to purchase more than 500,000
shares of the Common Stock.

10.  EXERCISE OF OPTIONS.

     A. Except as otherwise provided in Section 17 and except as otherwise
determined by the Committee at the time of the grant of an Option other than a
Non-Employee Director's Formula Option, a Participant may not exercise an Option
during the period commencing on the date of the granting of such Option to him
or her and ending on the day next preceding the first anniversary of such date.
Except as otherwise set forth in Sections 9A and 17 and in the preceding
sentence, a Participant may (i) during the period commencing on the first
anniversary of the date of the granting of an Option to him or her and ending on
the day next preceding the second anniversary of such date, exercise such Option
with respect to one-fourth of the shares granted thereby, (ii) during the period
commencing on such second anniversary and ending on the day next preceding the
third anniversary of the date of the granting of such Option, exercise such
Option with respect to one-half of the shares granted thereby, (iii) during the
period commencing on such third anniversary and ending on the date next
preceding the fourth anniversary of the date of the granting of such Option,
exercise such Option with respect to three-fourths of the shares granted thereby
and (iv) during the period commencing on such fourth anniversary and ending on
the date of the expiration of such Option, exercise such Option with respect to
all of the shares granted thereby.

     B. Except as hereinbefore otherwise set forth, an Option may be exercised
either in whole at any time or in part from time to time.

     C. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Common
Stock and payment to the Company of the amount of the option price for the
number of shares of the Common Stock so specified.

     D. Except in the case of a Non-Employee Director's Formula Option, the
Board may, in its discretion, permit any Option to be exercised, in whole or in
part, prior to the time when it would otherwise be exercisable.

     E. Notwithstanding any other provision of the Plan to the contrary,
including, but not limited to, the provisions of Section 10D, if any Participant
shall have effected a "Hardship Withdrawal" from a "401(k) Plan" maintained by
the Company and/or one or more of the Subsidiaries, then, during the period of
one year commencing on the date of such Hardship Withdrawal, such Participant
may not exercise any Option. For the purpose of this paragraph E, a Hardship
Withdrawal shall mean a distribution to a Participant provided for in Reg. ss.
1.401(k)-1(d)(1)(ii) promulgated under Section 401(k)(2)(B)(i)(iv) of the Code
and a 401(k) Plan shall mean a plan which is a "qualified plan" within the
contemplation of section 401(a) of the Code which contains a "qualified cash or
deferred arrangement" within the contemplation of section 401(k)(2) of the Code.

                                     Page 5

<PAGE>

11.  TRANSFERABILITY.

     Except as provided in this Section 11, no Option shall be assignable or
transferable except by will and/or by the laws of descent and distribution and,
during the life of any Participant, each Option granted to him or her may be
exercised only by him or her. An option which is not an "incentive stock
option," as defined in Section 422(b) or any similar successor provision of the
Code, may be assigned or transferred to and exercised by a Participant's "family
member" as defined in SEC Form S-8, General Instruction A(5), or any similar
successor provision. Transfer of an option for value is permitted under this
Section 11 only to the extent not prohibited under Form S-8, General Instruction
A(5), or any similar successor provision.

12.  TERMINATION OF EMPLOYMENT.

     A. Unless otherwise provided by the Committee, in the event a Participant
leaves the employ of the Company and the Subsidiaries or ceases to serve as a
consultant to the Company and/or as a Non-Employee Director of the Company,
whether voluntarily or otherwise, each Option theretofore granted to him or her
which shall not have theretofore expired or otherwise been cancelled shall, to
the extent not theretofore exercised, terminate upon the earlier to occur of the
expiration of 90 days after the date of such Participant's termination of
employment or service and the date of termination specified in such Option.
Notwithstanding the foregoing, if a Participant's employment by the Company and
the Subsidiaries or service as a consultant and/or as a Non-Employee Director of
the Company is terminated for "cause" (as defined herein), each Option
theretofore granted to him or her which shall not have theretofore expired or
otherwise been cancelled shall, to the extent not theretofore exercised,
terminate forthwith.

     B. For purposes of the foregoing, the term "cause" shall mean: (i) the
commission by a Participant of any act or omission that would constitute a crime
under federal, state or equivalent foreign law, (ii) the commission by a
Participant of any act of moral turpitude, (iii) fraud, dishonesty or other acts
or omissions that result in a breach of any fiduciary or other material duty to
the Company and/or the Subsidiaries or (iv) continued alcohol or other substance
abuse that renders a Participant incapable of performing his or her material
duties to the satisfaction of the Company and/or the Subsidiaries.

13.  ADJUSTMENT OF NUMBER OF SHARES.

     A. In the event that a dividend shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any Option and the number of shares of the Common Stock reserved
for issuance in accordance with the provisions of the Plan but not yet covered
by an Option and the number of shares set forth in Sections 6B and 9B shall be
adjusted by adding to each share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend. In the
event that the outstanding shares of the Common Stock shall be changed into or
exchanged for a different number or kind of shares

                                     Page 6

<PAGE>

of stock or other securities of the Company or of another corporation, whether
through reorganization, recapitalization, stock split-up, combination of shares,
sale of assets, merger or consolidation in which the Company is the surviving
corporation, then, there shall be substituted for each share of the Common Stock
then subject to any Option and for each share of the Common Stock reserved for
issuance in accordance with the provisions of the Plan but not yet covered by an
Option and for each share of the Common Stock referred to in Sections 6B and 9B,
the number and kind of shares of stock or other securities into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged.

     B. In the event that there shall be any change, other than as specified in
Section 13, in the number or kind of outstanding shares of the Common Stock, or
of any stock or other securities into which the Common Stock shall have been
changed, or for which it shall have been exchanged, then, if the Committee
shall, in its sole discretion, determine that such change equitably requires an
adjustment in the number or kind of shares then subject to any Option and the
number or kind of shares reserved for issuance in accordance with the provisions
of the Plan but not yet covered by an Option and the number or kind of shares
referred to in Sections 6B and 9B, such adjustment shall be made by the
Committee and shall be effective and binding for all purposes of the Plan and of
each stock option agreement or certificate entered into in accordance with the
provisions of the Plan.

     C. In the case of any substitution or adjustment in accordance with the
provisions of this Section 13, the option price in each stock option agreement
or certificate for each share covered thereby prior to such substitution or
adjustment shall be the option price for all shares of stock or other securities
which shall have been substituted for such share or to which such share shall
have been adjusted in accordance with the provisions of this Section 13.

     D. No adjustment or substitution provided for in this Section 13 shall
require the Company to sell a fractional share under any stock option agreement
or certificate.

     E. In the event of the dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not the
surviving corporation, then, except as otherwise provided in the second sentence
of Section 13A, each Option, to the extent not theretofore exercised, shall
terminate forthwith.

14.  PURCHASE FOR INVESTMENT, WITHHOLDING AND WAIVERS.

     A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, as amended, such Participant will, as a condition of the
Company's obligation to issue such shares, be required to give a representation
in writing that he or she is acquiring such shares for his or her own account as
an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.

     B. In the event of the death of a Participant, a condition of exercising
any Option shall be the delivery to the Company of such tax waivers and other
documents as the Committee shall determine.

                                     Page 7

<PAGE>

     C. In the case of each non-incentive stock option, a condition of
exercising the same shall be the entry by the person exercising the same into
such arrangements with the Company with respect to withholding as the Committee
may determine.

15.  NO STOCKHOLDER STATUS.

     Neither any Participant nor his or her legal representatives, legatees or
distributees shall be or be deemed to be the holder of any share of the Common
Stock covered by an Option unless and until a certificate for such share has
been issued. Upon payment of the purchase price thereof, a share issued upon
exercise of an Option shall be fully paid and non-assessable.

16.  NO RESTRICTIONS ON CORPORATE ACTS.

     Neither the existence of the Plan nor any Option shall in any way affect
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.

17.  OPTIONS GRANTED IN CONNECTION WITH ACQUISITIONS.

     In the event that the Committee determines that, in connection with the
acquisition by the Company or a Subsidiary of another corporation which will
become a Subsidiary or division of the Company or a Subsidiary (such corporation
being hereafter referred to as an "Acquired Subsidiary"), Options may be granted
hereunder to employees and other personnel of an Acquired Subsidiary in exchange
for then outstanding options to purchase securities of the Acquired Subsidiary.
Such Options may be granted at such option prices, may be exercisable
immediately or at any time or times either in whole or in part, and may contain
such other provisions not inconsistent with the Plan, or the requirements set
forth in Section 19 that certain amendments to the Plan be approved by the
stockholders of the Company, as the Committee, in its discretion, shall deem
appropriate at the time of the granting of such Options.

18.  NO EMPLOYMENT OR SERVICE RIGHT.

     Neither the existence of the Plan nor the grant of any Option shall require
the Company or any Subsidiary to continue any Participant in the employ of the
Company or such Subsidiary or require the Company to continue any Participant as
a director of the Company.

                                     Page 8

<PAGE>

19.  TERMINATION AND AMENDMENT OF THE PLAN.

     The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable; provided, however, that the Board may not
without further approval of the holders of a majority of the shares of the
Common Stock present in person or by proxy at any special or annual meeting of
the stockholders, increase the number of shares as to which Options may be
granted under the Plan (as adjusted in accordance with the provisions of Section
13), or change the manner of determining the option prices, or extend the period
during which an Option may be granted or exercised; provided, however, the
provisions of the Plan governing the grant of Non-Employee Director's Formula
Options may not be amended except by the vote of a majority of the members of
the Board and by the vote of a majority of the members of the Board who are
employees of the Company or a Subsidiary and shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974 or the Rules of the Securities and
Exchange Commission promulgated under Section 16 of the Exchange Act. Except as
otherwise provided in Section 13, no termination or amendment of the Plan may,
without the consent of the Participant to whom any Option shall theretofore have
been granted, adversely affect the rights of such Participant under such Option.

20.  EXPIRATION AND TERMINATION OF THE PLAN.

     The Plan shall terminate on August 27, 2006 or at such earlier time as the
Board may determine. Options may be granted under the Plan at any time and from
time to time prior to its termination. Any Option outstanding under the Plan at
the time of the termination of the Plan shall remain in effect until such Option
shall have been exercised or shall have expired in accordance with its terms.

                                      [END]

As adopted by the stockholders at a special meeting of stockholders held on
August 21, 1997;

as amended by the board of directors pursuant to a unanimous written consent
dated January 12, 1998;

as amended by the board of directors pursuant to a unanimous written consent
dated March 26, 1999;

as amended upon shareholder approval of amendments at the reconvened annual
meeting of stockholders on July 1, 1999;

as amended upon shareholder approval of an amendment at the reconvened annual
meeting of stockholders on November 21, 2000;

as amended by the board of directors effective January 1, 2001.

                                     Page 9

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