Document:

<PAGE>   1

                                                                     EXHIBIT 4.2

THIS WARRANT (THIS "WARRANT") HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE GOOD GUYS, INC. (THE "COMPANY") THAT SUCH REGISTRATION IS
NOT REQUIRED.

Warrant Certificate No. 3
August 19, 1999

                   WARRANT TO PURCHASE SHARES OF COMMON STOCK
                                       OF
                               THE GOOD GUYS, INC.

            This certifies that Morgan Keegan & Company, Inc., or its successors
or assigns (the "Holder"), is entitled, subject to the terms set forth below, at
any time during the Exercise Period (defined in Section 3 hereof) to purchase
from THE GOOD GUYS, INC., a Delaware corporation, up to One Hundred Sixty
Thousand (160,000) fully paid and non-assessable shares (the "Warrant Shares")
of the Company's Common Stock, par value $.001 per share (the "Common Stock"),
at the purchase price per Warrant Share of SIX AND ONE HUNDRED TWENTY-FIVE ONE
HUNDREDTHS ($6.125) DOLLARS (the "Purchase Price"). The number of Warrant Shares
issuable upon exercise of this Warrant and the Purchase Price per Warrant Share
shall be subject to adjustment from time to time as provided in Section 5
hereto.

I. THIS WARRANT. This Warrant is issued to the Holder in connection with that
certain Stock Purchase Agreement, dated as of August 19, 1999, by and among the
persons listed on the signature page thereto (the "Stock Purchase Agreement").
This Warrant does not entitle the Holder to any rights as a stockholder of the
Company, except as set forth herein.

II. EXERCISE. During the period beginning on the date hereof and ending on the
third (3rd) anniversary hereof (the "Exercise Period"), this Warrant may be
exercised at an exercise price of $6.125 per Warrant Share (the "Exercise
Price"). The Warrant may be exercised at any time on any business day for all or
part of

                                      -1-
<PAGE>   2

the Warrant Shares issuable hereunder by surrendering this Warrant at
the principal office of the Company at 7000 Marina Boulevard, Brisbane,
California 94005 (or at such other office of the Company in the United States as
the Company may designate from time to time by notice in writing to the Holder),
with the subscription form attached hereto fully executed, together with payment
in cash or immediately available funds in the amount equal to the Purchase
Price.

III. PARTIAL EXERCISE. This Warrant may, in accordance with the provisions of
this Section 3, be exercised for less than the full number of Warrant Shares.
Upon any partial exercise, this Warrant shall be surrendered and a new Warrant
of the same tenor and for the purchase of that number of Warrant Shares not
purchased upon such partial exercise shall be issued by the Company to the
Holder. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the Warrant Shares issuable upon
exercise shall be treated for all purposes as the holder of such shares of
record as of the close of business on such date. As soon as practicable on or
after such date, and in any event within five (5) business days, the Company
shall issue and deliver to the person or persons entitled to receive the Warrant
Shares a certificate or certificates for the full number of Warrant Shares
issuable upon such exercise.

IV. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary,
if the fair market value of one share of Common Stock is greater than the
Purchase Price for one share of Common Stock (at the date of calculation, as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares of Common Stock equal to the value (as determined below) of
this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company, together with the properly
endorsed Warrant Certificate, substantially in the form as attached hereto, in
which event the Company shall issue to the Holder that number of shares of
Common Stock computed using the following formula:

                                WS = WCS (FMV-PP)
                                       FMV

WHERE:

            WS    equals the number of Warrant Shares to be issued to the Holder

            WCS   equals the number of shares of Common Stock purchasable under
                  the Warrant or, if only a portion of the Warrant is being
                  exercised, the portion of the Warrant being canceled (at the
                  date

                                      -2-
<PAGE>   3
                  of such calculation)

            FMV   equals the fair market value of one share of Common Stock (at
                  the

            PP    equals the per share Purchase Price (as adjusted to the date
                  of such calculation) of the Warrant

            As used in this Section 4, the term "Fair Market Value" of each
Share as of any date shall be the best bid price posted in respect of the Common
Stock in the NASDAQ Stock Market's automated dealer quotation system at the
close of trading on the day prior to such exercise, or, if the Common Stock
shall not then be so quoted, Fair Market Value shall be determined as follows:
(a) if the parties hereto can agree on the Fair Market Value, such agreed upon
value shall constitute the Fair Market Value; (b) if the parties cannot reach an
agreement as to the Fair Market Value within five (5) business days from the
onset of negotiations, then such parties shall jointly appoint an appraiser to
determine the Fair Market Value; (c) if the parties cannot agree upon the
selection of an appraiser within five (5) business days after such five (5) day
period, then each party shall deliver to the other a list of three (3)
appraisers on or before the third (3rd) business day immediately following the
expiration of said five (5) day period, each party shall select one appraiser
from the other party's list and notify such other party of its selection on or
before the fifth (5th) business day immediately following the expiration of the
three (3) day period; (d) if either party does not deliver to the other party a
list of appraisers within the three-day period or deliver its selection of the
appraiser from the other party's list within the five (5) day period, then the
first appraiser listed on the other party's list shall be deemed to have been
jointly selected to determine the Fair Market Value; (e) if both parties timely
select an appraiser from the other party's list, then the two appraisers so
selected shall jointly select a third appraiser, which third appraiser shall
independently calculate the Fair Market Value on or before the forty-fifth
(45th) day immediately following the date on which it was selected as an
appraiser. Any determination of the Fair Market Value made in accordance with
the terms hereinabove set forth shall be final and binding on the parties
hereto.

V.    ADJUSTMENTS.

      1.1 ADJUSTMENTS TO WARRANT RIGHTS. The number of Warrant Shares for which
Warrants are exercisable, and the Warrant Price of such shares shall be subject
to adjustment from time to time as set forth in this Section 5.

      1.2 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Company shall:

                                      -3-
<PAGE>   4

            (a)   take a record of the holders of its Common Stock for the
                  purpose of entitling them to receive a dividend payable in, or
                  other distribution of, additional shares of Common Stock,

            (b)   subdivide its outstanding shares of Common Stock into a larger
                  number of shares of Common Stock, or

            (c)   combine its outstanding shares of Common Stock into a smaller
                  number of shares of Common Stock,

then (i) the number of Warrant Shares for which a Warrant is exercisable
immediately prior to the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive after the
happening of such event and (ii) the Warrant Price immediately prior to the
occurrence of such event shall be adjusted to equal the product of the Warrant
Price multiplied by a fraction, the numerator of which shall be the number of
Warrant Shares for which a Warrant is exercisable immediately prior to the
adjustment and the denominator of which shall be the number of Warrant Shares
for which a Warrant is exercisable immediately after such adjustment.

      1.3 OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall make or fix a
record date for the holders of Common Stock entitled to receive a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then lawful and adequate provision shall be made so that Holder
shall be entitled to receive upon exercise of the Warrants, for the aggregate
Warrant Price in effect prior thereto, in addition to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrants, the kind
and number of securities of the Company which Holder would have owned and been
entitled to receive had the Warrants been exercised immediately prior to that
date (pro rated in the case of any partial exercise).

      1.4 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock is
changed into the same or a different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other
than a subdivision or combination of shares, stock dividend or a reorganization,
recapitalization, merger, consolidation or sale of assets, each as provided for
elsewhere in this Section 5) then the Holder of the Warrants shall be entitled
to receive upon exercise of the Warrants, in lieu of the Warrant Shares
immediately theretofore issuable upon exercise of the Warrants, for the
aggregate Warrant Price in effect prior thereto, the kind and amount of stock
and other securities and property receivable upon such reclassification,
exchange, substitution or other change, which Holder would have been entitled to
receive had the Warrants been exercised immediately prior to such
reclassification, exchange,

                                      -4-
<PAGE>   5

substitution or change, which Holder would have been entitled to receive had
the Warrants been exercised immediately prior to such reclassification,
exchange, substitution or change (pro rated in the case of any partial
exercise).

      1.5 LIQUIDATION. If the Company shall, at any time, prior to the
expiration of the Warrants, dissolve, liquidate or wind up its affairs, Holder
shall have the right, but not the obligation, to exercise the Warrants. Upon
such exercise, Holder shall have the right to receive, in lieu of the shares of
Common Stock that Holder otherwise would have been entitled to receive upon such
exercise, the same kind and amount of assets as would have been issued,
distributed or paid to Holder upon any such dissolution, liquidation or winding
up with respect to such shares of Common Stock had Holder been the holder of
record of such shares of Common Stock receivable upon exercise of the Warrants
on the date for determining those entitled to receive any such distribution. If
any such dissolution, liquidation or winding up results in any cash distribution
in excess of the Warrant Price, Holder may, at Holder's option, exercise the
Warrants without making payment of the applicable Warrant Price and, in such
case, the Company shall, upon distribution to Holder, consider the applicable
Warrant Price per Warrant Share to have been paid in full, and in making
settlement to Holder shall deduct an amount equal to the applicable Warrant
Price from the amount payable to Holder.

      1.6 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If any of
the following transactions (each, a "Special Transaction") shall become
effective: (a) a capital reorganization or recapitalization (other than a
dividend or other distribution, subdivision, combination, reclassification,
substitution or exchange of shares provided for elsewhere in this Section 5),
(b) a consolidation or merger of the Company with and into another entity (where
the Company is not the surviving corporation or where there is a change in, or
distribution with respect to, the Common Stock), or (c) a sale or conveyance of
all or substantially all of the Company's assets, then, as a condition of the
Special Transaction, lawful and adequate provision shall be made so that Holder
shall thereafter have the right to purchase and receive upon exercise of the
Warrants, in lieu of the Warrant Shares immediately theretofore issuable upon
exercise of the Warrants, for the aggregate Warrant Price in effect immediately
prior to such consummation, such shares of stock, other securities, cash or
other assets ("Other Property") as may be issued or paid pursuant to the terms
of such Special Transaction to the holders of shares of Common Stock for which
such Warrants could have been exercised immediately prior to such Special
Transaction (pro rated in the case of any partial exercise). In connection with
any Special Transaction, appropriate provision shall be made with respect to the
rights and interests of Holder to the end that the provisions of the Warrants
(including without limitation provisions for adjustment of the Warrant Price and
the number of Warrant Shares issuable upon the exercise of the

                                      -5-
<PAGE>   6

Warrants), shall thereafter be applicable, as nearly as may be practicable, to
any Other Property thereafter deliverable upon the exercise of the Warrants. The
Company shall not effect any Special Transaction unless prior to, or
simultaneously with, the closing, the successor entity (if other than the
Company), if any, resulting from such consolidation or merger or the entity
acquiring such assets shall assume by a written instrument executed and mailed
by certified mail or delivered to Holder at the address of Holder appearing on
the books of the Company, the obligation of the Company or such successor
corporation to deliver to Holder such Other Property, as in accordance with the
foregoing provisions, which Holder shall have the right to purchase.

      1.7 NOTICE. Whenever the Warrants or the number of Warrant Shares issuable
hereunder is to be adjusted as provided herein or a dividend or distribution (in
cash, stock or otherwise and including, without limitation, any distributions
under Section 5.5) is to be declared by the Company, or a definitive agreement
with respect to a Special Transaction has been entered into, the Company shall
forthwith cause to be sent to the Holder at the last address of the Holder shown
on the books of the Company, by first-class mail, postage prepaid, at least 5
business days prior to the record date specified in Section 5.7(a)(i) below or
at least 10 business days before the date specified in Section 5.7(b) and
Section 5.7(a)(ii) below, a notice stating in reasonable detail the relevant
facts and any resulting adjustments and the calculation thereof, if applicable,
and stating (if applicable):

            (a)   the date to be used to determine (i) which holders of Common
                  Stock will be entitled to receive notice of such dividend,
                  distribution, subdivision or combination (the "Record Date"),
                  and (ii) the date as of which such dividend, distribution,
                  subdivision or combination shall be made; or, if a record is
                  not to be taken, the date as of which the holders of Common
                  Stock of record to be entitled to such dividend, distribution,
                  subdivision or combination are to be determined (provided,
                  that in the event the Company institutes a policy of declaring
                  cash dividends on a periodic basis, the Company need only
                  provide the relevant information called for in this Section
                  5.7(a) with respect to the first cash dividend payment to be
                  made pursuant to such policy and thereafter provide only
                  notice of any changes in the amount or the frequency of any
                  subsequent dividend payments), or

            (b)   the date on which a Special Transaction is expected to become
                  effective, and the date as of which it is expected that

                                      -6-
<PAGE>   7

                  holders of Common Stock of record shall be entitled to
                  exchange their shares of Common Stock for securities or other
                  property deliverable upon consummation of the Special
                  Transaction (the "Exchange Date").

      1.8 FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of shares of Common Stock upon the exercise of a Warrant. If any
fraction of a share of Common Stock would be issuable upon the exercise of a
Warrant, the Company shall, upon such issuance, purchase such fraction for an
amount in cash equal to the current value of such fraction, computed on the
basis of the Current Market Price on the last business day prior to the date of
exercise.

VI. PAYMENT OF TAXES. All Warrant Shares shall be validly issued, fully paid and
nonassessable and free of claims of preemptive rights, and the Company shall pay
all issuance taxes and similar governmental charges that may be imposed in
respect of the issue or delivery thereof, but in no event shall the Company pay
a tax on or measured by the net income or gain attributed to such exercise.
Notwithstanding the foregoing, the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder, and the
Company shall not be required to issue or deliver any such certificate unless
and until the Holder shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.

VII. TRANSFER AND EXCHANGE. This Warrant shall be transferable in whole or in
part, except as otherwise provided herein and except that the Holder hereof
represents that it is acquiring this Warrant for its own account and for the
purpose of investment and not with a view to any distribution or resale thereof
within the meaning of the Securities Act. The Holder further agrees that it will
not sell, assign or transfer any of this Warrant unless this Warrant shall have
been registered for sale under the Securities Act or until the Company shall
have received from counsel for the Holder an opinion to the effect that the
proposed sale or other transfer of this Warrant by the Holder may be effected
without such registration. The Holder acknowledges that, in taking this
unregistered Warrant, it must continue to bear the economic risk of its
investment for an indefinite period of time because of the fact that such
Warrant has not been registered under the Securities Act and further realizes
that such Warrant cannot be sold unless it is subsequently registered under the
Securities Act or an exception from such registration is available. The Holder
also acknowledges that appropriate legends reflecting the status of this Warrant
under the Securities Act may be placed on the face of this Warrant certificate
at the time of their transfer and delivery to the

                                      -7-
<PAGE>   8

Holder hereof. The transfer of Warrant Shares issuable upon exercise of this
Warrant is governed by Section 10 hereof.

VIII. LOSS OR MUTILATION. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or a
replacement hereof and, in the case of any such loss, theft or destruction, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant or a replacement, the Company at its expense
will execute and deliver in lieu thereof, a new warrant of like tenor.

IX. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery on the exercise of this Warrant, all
Warrant Shares from time to time issuable upon the exercise of this Warrant and
all shares of the Common Stock from time to time issuable upon the conversion of
the Warrant Shares issuable upon the exercise of this Warrant.

X. NEGOTIABILITY. This Warrant is issued upon the following terms, to all of
which the Holder, by the taking hereof, consents and agrees:

            (a)   this Warrant is subject to the terms and provisions of the
                  Stock Purchase Agreement;

            (b)   title to this Warrant may be transferred by endorsement (by
                  the Holder executing the form of assignment at the end hereof)
                  and delivery in the same manner as in the case of a negotiable
                  instrument transferable by endorsement and delivery and any
                  person in possession of this Warrant properly endorsed is
                  authorized to represent himself as absolute owner hereof and
                  is empowered to transfer absolute title hereto by endorsement
                  and delivery hereof to a bona fide purchaser hereof for value;
                  each prior taker or owner waives and renounces all of his
                  equities or right in this Warrant in favor of each such bona
                  fide purchaser, and each such bona fide purchaser shall
                  acquire absolute title hereto and to all rights represented
                  hereby;

            (c)   until this Warrant is transferred on the books of the Company,
                  the Company may treat the registered Holder hereof as the
                  absolute owner hereof for all purposes, notwithstanding any
                  notice to the contrary; and

                                      -8-
<PAGE>   9

            (d)   the Holder, by its acceptance hereof, represents that it is
                  acquiring this Warrant for investment purposes only and that
                  it does not have any present intention to resell this Warrant
                  or to sell or distribute any Warrant Shares for which this
                  Warrant may be exercised.

XI. NOTICES. All notices and other communications from the Company to the Holder
shall be mailed by first class registered or certified mail, postage prepaid, or
sent by express overnight courier service or electronic facsimile transmission
(with a copy by mail) at the address furnished to the Company in writing by the
last Holder of this Warrant who shall have furnished an address to the Company
in writing.

XII. CHANGE, WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.

XIII. HEADINGS. The headings in this Warrant are for purposes of convenience of
reference only and shall not be deemed to constitute a part hereof.

XIV. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with and governed by the internal laws of Delaware, without reference to the
conflicts of laws provisions in effect therein.

                                      -9-
<PAGE>   10

      IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.

ATTEST:                                       THE GOOD GUYS, INC.

By:/s/ Vance R. Schram                        By:/s/ Ronald Unkefer
   -------------------                           ------------------
   Name: Vance R. Schram                         Name: Ronald Unkefer
   Title: Vice President/Finance and             Title: Chairman and Chief
          Controller                                    Executive Officer

                                      -10-
<PAGE>   11

                                FORM OF EXERCISE
                   (To be signed only on exercise of Warrant)

TO:   THE GOOD GUYS, INC.

            The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
___________ shares of the Common Stock of THE GOOD GUYS, INC., and herewith
makes payment of $______________ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to
__________________________ whose address is_________________________________.

Dated:
      ----------------------       --------------------------------------------
                                   (Signature must conform to name of Holder as
                                   specified on the face of the Warrant)

                                   --------------------------------------------
                                                    (Address)

                                      -11-
<PAGE>   12

                               FORM OF ASSIGNMENT
                   (To be signed only on transfer of Warrant)

            For value received, the undersigned hereby sells, assigns, and
transfers unto ________________________________ the right represented by the
Warrant attached hereto to purchase ___________ shares of Common Stock of THE
GOOD GUYS, INC. to which the within Warrant relates, and appoints
____________________________________ Attorney-In-Fact to transfer such right on
the books of THE GOOD GUYS, INC. with full power of substitution in the
premises.

Dated:
      ----------------------       --------------------------------------------
                                   (Signature must conform to name of Holder as
                                   specified on the face of the Warrant)

                                   --------------------------------------------
                                                    (Address)

Signed in the presence of:

---------------------------------

                                      -12-
<PAGE>   13

The Good Guys, Inc.
September 16, 1999
Page 2

                                    EXHIBIT A

                                 EXERCISE NOTICE

               [To be executed only upon exercise of the Warrant]

      The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of the number of shares of Common Stock of The
Good Guys, Inc. (the "COMPANY") as is set forth below, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
the attached Warrant Certificate and requests that certificates for the shares
of Common Stock hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to the person
specified below whose address is set forth below, and, if such shares of Common
Stock shall not include all of the shares of Common Stock now and hereafter
issuable as provided in the attached Warrant Certificate, then the Company
shall, at its own expense, promptly issue to the undersigned a new Warrant
Certificate of like tenor and date for the balance of the shares of Common Stock
issuable thereunder.

Date:
     -----------------

Amount of Shares Purchased:
                           --------------------

Aggregate Purchase Price:  $
                            -------------------

Printed Name of Registered Holder:
                                  -------------------------------------

Signature of Registered Holder:
                               ----------------------------------------

NOTICE:      The signature on this Exercise Notice must correspond with the name
             as written upon the face of the attached Warrant Certificate in
             every particular, without alteration or enlargement or any change
             whatsoever.

      Stock Certificates to be issued and registered in the following name, and
delivered to the following address:

                             --------------------------------------------
                             (Name)

                             --------------------------------------------
                             (Street Address)

                             --------------------------------------------
                             (City)         (State)         (Zip Code)

<PAGE>   14

The Good Guys, Inc.
September 16, 1999
Page 3

                                    EXHIBIT B

                                ASSIGNMENT NOTICE

               [To be executed only upon transfer of the Warrant]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the person named below, whose address is set forth below, the rights
represented by the attached Warrant Certificate to purchase the number of shares
of the Common Stock of The Good Guys, Inc. (the "COMPANY") as is set forth
below, to which the attached Warrant Certificates relates, and appoints
_________________ attorney to transfer such rights on the books of the Company
with full power of substitution in the premises. If such shares of Common Stock
of the Company shall not include all of the shares of Common Stock now and
hereafter issuable as provided in the attached Warrant Certificate, then the
Company, at its own expense, shall promptly issue to the undersigned a new
Warrant Certificate of like tenor and date for the balance of the Common Stock
issuable thereunder.

Date:
     -------------------------

Amount of Warrants Transferred:
                               --------------------------

Printed Name of Registered Holder:
                                  ---------------------------------------

Signature of Registered Holder:
                               -------------------------------------------

NOTICE:      The signature on this Assignment Notice must correspond with the
             name as written upon the face of the attached Warrant Certificate
             in every particular, without alteration or enlargement or any
             change whatsoever.

      The Warrant Certificate for transferred Warrants is to be issued and
registered in the following name, and delivered to the following address:

                             --------------------------------------------
                             (Name)

                             --------------------------------------------
                             (Street Address)

                             --------------------------------------------
                             (City)         (State)         (Zip Code)<PAGE>   1

                                                                  EXHIBIT 10.12

                     MASSACHUSETTS INSTITUTE OF TECHNOLOGY

                                      and

                            SANGAMO BIOSCIENCES,INC.

                            PATENT LICENSE AGREEMENT
<PAGE>   2
11-7-94                                         TLO: LLN:jbw.sangamo.lic.ag41796
Patent Exclusive                                                  April 17, 1996

<TABLE>
<CAPTION>
                               TABLE OF CONTENTS

     <S>                                                               <C>
     WITNESSETH ......................................................  1

     1  DEFINITIONS ..................................................  2

     2  GRANT ........................................................  3

     3  DILIGENCE ....................................................  4

     4  ROYALTIES ....................................................  5

     5  REPORTS AND RECORDS ..........................................  6

     6  PATENT PROSECUTION ...........................................  7

     7  INFRINGEMENT .................................................  8

     8  PRODUCT LIABILITY ............................................  9

     9  EXPORT CONTROLS .............................................. 10

     10 NON-USE OF NAMES ............................................. 10

     11 ASSIGNMENT ................................................... 10

     12 DISPUTE RESOLUTION ........................................... 10

     13 TERMINATION .................................................. 11

     14 PAYMENTS, NOTICES AND OTHER COMMUNICATIONS ................... 12

     15 MISCELLANEOUS PROVISIONS ..................................... 13

     APPENDIX A ...................................................... 14
</TABLE>
<PAGE>   3

                     MASSACHUSETTS INSTITUTE OF TECHNOLOGY

                                      and

                           SANGAMO BIOSCIENCES, INC.

                            PATENT LICENSE AGREEMENT

     This Agreement is made and entered into this 9 day of MAY, 1996, (the
"EFFECTIVE DATE") by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and Sangamo BioSciences, Inc. a corporation duly organized under the laws of
DELAWARE and having its principal office at 950 MARINA VILLAGE PKWY, SUITE 100,
ALAMEDA, CA 94501 (hereinafter referred to as "LICENSEE").

                                   WITNESSETH

     WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to                        *
                                                                            and
has the right to grant licenses under said PATENT RIGHTS, subject only to a
royalty-free, nonexclusive license heretofore granted to the United States
Government;

     WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;

     WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter
into this Agreement, that LICENSEE is experienced in the development,
production, manufacture, marketing and sale of products similar to the LICENSED
PRODUCT(s) (as later defined herein) and/or the use of the LICENSED
PROCESS(es) (as later defined herein) and that it shall commit itself to a
thorough, vigorous and diligent program of exploiting the PATENT RIGHTS so that
public utilization shall result therefrom; and

     WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:

                                      -1-

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   4

                                1-DEFINITIONS

     For the purposes of this Agreement, the following words and phrases shall
have the the following meanings:

     1.1  "LICENSEE" shall include a related company of Sangamo BioSciences,
Inc. the voting stock of which is directly or indirectly at least Fifty Percent
(50%) owned or controlled by Sangamo BioSciences, Inc., an organization which
directly or indirectly controls more than Fifty Percent (50%) of the voting
stock of Sangamo BioSciences, Inc. and an organization, the majority ownership
of which is directly or indirectly common to the ownership of Sangamo
BioSciences, Inc.

     1.2  "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:

          a.   the United States patents listed in Appendix A;

          b.   the United States patent applications listed in Appendix A, and
               divisionals, continuations and claims of continuation-in-part
               applications which shall be directed to subject matter
               specifically described in such patent applications, and the
               resulting patents;

          c.   any patents resulting from reissues or reexaminations of the
               United States patents described in a. and b. above;

     1.3  A "LICENSED PRODUCT" shall mean any product or part thereof which:

          a.   is covered in whole or in part by an issued, unexpired claim or
               a pending claim contained in the PATENT RIGHTS in the country in
               which any such product or part thereof is made, used or sold; or

          b.   is manufactured by using a process or is employed to practice a
               process which is covered in whole or in part by an issued,
               unexpired claim or a pending claim contained in the PATENT
               RIGHTS in the country in which any LICENSED PROCESS is used or
               in which such product or part thereof is used or sold.

     1.4  A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in the
PATENT RIGHTS.

     1.5 "NET SALES" shall mean LICENSEE's and its sublicensees' billings for
LICENSED PRODUCTS and LICENSED PROCESSES less the sum of the following:

          a.   discounts allowed in amounts customary in the trade for quantity
               purchases, cash payments, prompt payments, wholesalers and
               distributors;

          b.   sales, tariff duties and/or use taxes directly imposed and with
               reference to particular sales;

          c.   outbound transportation prepaid or allowed; and

          d.   amounts allowed or credited on returns.

                                      -2-

<PAGE>   5
     No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and
on its payroll, or for cost of collections. NET SALES shall occur when a
LICENSED PRODUCT or LICENSED PROCESS shall be invoiced. If a LICENSED PRODUCT
or LICENSED PROCESS shall be distributed or invoiced for a discounted price
substantially lower than customary in the trade or distributed at no cost to
affiliates or otherwise, NET SALES shall be based on the customary amount
billed for such LICENSED PRODUCTS or LICENSED PROCESSES.

     1.6  "TERRITORY" shall mean worldwide.

     1.7  "FIELDS OF USE" shall mean                     *
           *          of LICENSED PRODUCTS or LICENSED PROCESSES
                                 *

     Note: LICENSEE's rights to practice under the PATENT RIGHTS shall be in
     all FIELDS OF USE. The purpose of this FIELDS OF USE definition is to
     define the fields in which exclusivity is granted under this license under
     P. 2.3 below and in which LICENSEE may grant sublicenses under P. 2.6
     below.

                                   2 - GRANT

     2.1  M.I.T. hereby grants to LICENSEE the right and license in the
TERRITORY to practice under the PATENT RIGHTS and, to the extent not prohibited
by other patents, to                       *                      LICENSED
PRODUCTS and to     *    the LICENSED PROCESSES, until the expiration of the
last to expire of the PATENT RIGHTS, unless this Agreement shall be sooner
terminated according to the terms hereof.

     2.2  LICENSEE agrees that LICENSED PRODUCTS        *       in the United
States shall be       *      substantially in the United States.

     2.3  In order to establish exclusivity in the FIELDS OF USE for LICENSEE,
M.I.T. hereby agrees that it shall not grant any other license to      *
                *                 LICENSED PRODUCTS or to utilize LICENSED
PROCESSES subject to the royalty-free, nonexclusive license rights of the
United States Government per FAR 52.227-11, in the TERRITORY for the FIELDS OF
USE.

     2.4  M.I.T. agrees that prior to granting a license to any third party
outside the defined FIELDS OF USE, it shall notify LICENSEE of its intent to
grant such a license and LICENSEE shall have sixty (60) days in which to
present to M.I.T. reasons for widening LICENSEE's exclusive FIELD OF USE beyond
that defined in P.1.7 above. M.I.T. shall consider granting such widening to
LICENSEE, for suitable consideration, depending upon LICENSEE's scientific
progress, development plans and financial resources to develop the widened
FIELD OF USE.

                                      -3-

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   6
Any decision to widen the exclusive FIELD OF USE granted to LICENSEE shall be
at M.I.T.'s sole discretion.

     2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
allow third parties to practice under the PATENT RIGHTS in all fields of use
for noncommercial research purposes.

     2.6 LICENSEE shall have the right to enter into      *       agreements
for the rights, privileges and licenses granted hereunder only in the FIELDS
OF USE. Upon any termination of this Agreement,       *       rights shall also
terminate, subject to Paragraph 13.6 hereof.

     2.7 LICENSEE agrees to incorporate Articles 2, 5, 7, 8, 9, 10, 12, 13 and
15 of this Agreement into its     *      agreements, so that these Articles
shall be binding upon such      *       as if they were parties to this
Agreement.

     2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all      *
agreements promptly upon execution by the parties.

     2.9 Nothing in this Agreement shall be construed to confer any rights upon
LICENSEE by implication, estoppel or otherwise as to any technology or patent
rights of M.I.T. or any other entity other than the PATENT RIGHTS, regardless
of whether such patent rights shall be dominant or subordinate to any PATENT
RIGHTS.

                                 3 - DILIGENCE

     3.1 LICENSEE shall use its best efforts to bring one or more LICENSED
PRODUCTS or LICENSED PROCESSES to market through a thorough, vigorous and
diligent program for exploitation of the PATENT RIGHTS and to continue active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement.

     3.2 LICENSEE shall deliver to M.I.T. on or before December 31, 1996 a
business plan showing the amount of money, number and kind of personnel and
time budgeted and planned for each phase of development of the LICENSED
PRODUCTS and LICENSED PROCESSES and shall provide similar reports to M.I.T. on
or before December 31 of each year.

     3.3 LICENSEE's failure to perform in accordance with either Paragraph 3.1
or 3.2 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.

                                 4 - ROYALTIES

     4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.

                                      -4-
<PAGE>   7
       a.   License Issue Fee of                  *                 , which said
            License Issue Fee shall be deemed earned and due immediately upon
                    *        .

       b.   License Maintenance Fees of             *              *
                      per year payable on January 1, 1997 and on January 1 of
            each year thereafter; provided, however, License Maintenance Fees
            may be credited to Running Royalties subsequently due on NET SALES
            for each said year, if any. License Maintenance Fees paid in excess
            of Running Royalties shall not be creditable to Running Royalties
            for future years.

       c.   Running Royalties in an amount equal to           *           of NET
            SALES of the LICENSED PRODUCTS and LICENSED PROCESSES       *
                       *           LICENSEE and/or its     *     .

       d.   A milestone payment of                       *
                  *      upon                        *                        a
            LICENSED PRODUCT or LICENSED PROCESS in the FIELDS OF USE which
            falls under the claims of the PATENT RIGHTS.

       e.   A milestone payment of                 *                ) upon the
                                  *                       a LICENSED PRODUCT or
            LICENSED PROCESS outside the FIELDS OF USE which falls under the
            claims of the PATENT RIGHTS.

       f.   A milestone payment of                      *
            upon                           *                          a LICENSED
            PRODUCT or LICENSED PROCESS in the FIELDS OF USE which falls under
            the claims of the PATENT RIGHTS.

       g.   A milestone payment of                      *
            upon                          *                           a LICENSED
            PRODUCT or LICENSED PROCESS outside the FIELDS OF USE which falls
            under the claims of the PATENT RIGHTS.

       h.                 *                 per         *        , plus *
            per year    *      maintenance fees.

  4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government, except as otherwise
provided in Paragraph 1.5(b).

   4.3 No multiple royalties shall be payable because any LICENSED PRODUCT, its
                *                are or shall be covered by more than one PATENT
RIGHTS patent application or PATENT RIGHTS patent licensed under this Agreement.

  4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate

                                      -5-

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   8
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.

                            5 - REPORTS AND RECORDS

     5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing
the amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than Ten Percent (10%) discrepancy
in reporting to M.I.T.'s detriment, LICENSEE agrees to pay the full cost of such
inspection.

     5.2 LICENSEE shall deliver to M.I.T. true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its sublicensees
under this Agreement as shall be pertinent to diligence under Article 3 and
royalty accounting hereunder:

     a.   before the first commercial sale of a LICENSED PRODUCT or LICENSED
          PROCESS, annually, on January 31 of each year; and

     b.   after the first commercial sale of a LICENSED PRODUCT or LICENSED
          PROCESS, quarterly, within sixty (60) days after March 31, June 30,
          September 30 and December 31, of each year.

     These reports shall include at least the following:

     a.   number of LICENSED PRODUCTS manufactured, leased and sold by and/or
          for LICENSEE and all sublicensees;

     b.   accounting for all LICENSED PROCESSES used or sold by and/or for
          LICENSEE and all sublicensees;

     c.   accounting for NET SALES, noting the deductions applicable as provided
          in Paragraph 1.5;

     d.   Running Royalties due under Paragraph 4.1(c);

     e.   royalties due on other payments from sublicensees under paragraph
          4.1(d);

     f.   total royalties due; and

     g.   names and addresses of all sublicensees of LICENSEE.

     5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.

                                      -6-
<PAGE>   9
     5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
balance sheet and an income statement.

     5.5 The amounts due under Articles 4 and 6 shall, if overdue, bear
interest until payment at a per annum rate           *            the prime
rate in effect at the Chase Manhattan Bank (N.A.) on the due date. The
payment of such interest shall not foreclose M.I.T. from exercising any other
rights it may have as a consequence of the lateness of any payment.

                             6 - PATENT PROSECUTION

     6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain the
PATENT RIGHTS during the term of this Agreement. The filing, prosecution and
maintenance of all PATENT RIGHTS applications and patents shall be the primary
responsibility of M.I.T.; provided, however, LICENSEE shall have reasonable
opportunities to advise M.I.T. and shall cooperate with M.I.T. in such filing,
prosecution and maintenance.

     6.2  Payment of all fees and costs relating to the filing, prosecution and
maintenance of the PATENT RIGHTS after the EFFECTIVE DATE shall be the
responsibility of LICENSEE, whether such fees and costs were incurred before or
after the EFFECTIVE DATE. LICENSEE shall pay such fees and costs to M.I.T.
within thirty (30) days of invoicing; late payments shall accrue interest and
shall be subject to Paragraph 5.5.

                                7 - INFRINGEMENT

     7.1  LICENSEE shall inform M.I.T. promptly in writing of any alleged
infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.

     7.2  M.I.T. shall have the right, but shall not be obligated, to prosecute
at its own expense all infringements of the PATENT RIGHTS and, in furtherance
of such right, LICENSEE hereby agrees that M.I.T. may include LICENSEE as a
party plaintiff in any such suit, without expense to LICENSEE. The total cost of
any such infringement action commenced or defended solely by M.I.T. shall be
borne by M.I.T., and M.I.T. shall keep any recovery or damages for past
infringement derived therefrom.

     7.3  If within six (6) months after having been notified of an alleged
infringement, M.I.T. shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if M.I.T. shall notify LICENSEE at any
time prior thereto of its intention not to bring suit against any alleged
infringer in the TERRITORY for the FIELDS OF USE, then, and in those events
only, LICENSEE shall have the right, but shall not be obligated, to prosecute
at its own expense any infringement of the PATENT RIGHTS in the TERRITORY for
the FIELDS OF USE, and LICENSEE may, for such

                                      -7-

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  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   10
purposes, use the name of M.I.T. as party plaintiff; provided, however, that
such right to bring such an infringement action shall remain in effect only
during the EXCLUSIVE PERIOD. No settlement, consent judgment or other voluntary
final disposition of the suit may be entered into without the consent of
M.I.T., which consent shall not unreasonably be withheld. LICENSEE shall
indemnify M.I.T. against any order for costs that may be made against M.I.T. in
such proceedings.

     7.4 In the event that LICENSEE shall undertake litigation for the
enforcement of the PATENT RIGHTS, or the defense of the PATENT RIGHTS under
Paragraph 7.5, LICENSEE may withhold up to        *            of the payments
otherwise thereafter due M.I.T. under Article 4 hereunder and apply the same
toward reimbursement of up to  *   of LICENSEE's expenses, including reasonable
attorneys' fees, in connection therewith. Any recovery of damages by LICENSEE
for such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of LICENSEE relating to such suit, and next toward
reimbursement of M.I.T. for any payments under Article 4 past due or withheld
and applied pursuant to this Article 7. The balance remaining from any such
recovery shall be divided equally between LICENSEE and M.I.T.

     7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against M.I.T. or
LICENSEE, M.I.T., at its option, shall have the right, within thirty (30) days
after commencement of such action, to take over the sole defense of the action
at its own expense. If M.I.T. shall not exercise this right, LICENSEE may take
over the sole defense at LICENSEE's sole expense, subject to Paragraph 7.4.

     7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.

     7.7 LICENSEE shall have the sole right in accordance with the terms and
conditions herein to sublicense any alleged infringer in the TERRITORY for the
FIELDS OF USE for future use of the PATENT RIGHTS.

                             8 - PRODUCT LIABILITY

     8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, directors,
officers, employees and affiliates,

                                      -8-

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   11
harmless against all claims, proceedings, demands and liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys' fees, arising
out of the death of or injury to any person or persons or out of any damage to
property, resulting from                     *
                             of the LICENSED PRODUCTS(s) and/or LICENSED
PROCESS(es) or arising from any obligation of LICENSEE hereunder.

     8.2  LICENSEE shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect LICENSEE and M.I.T. with
respect to events covered by Paragraph 8.1 above. Such insurance shall be
written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list M.I.T. as an additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to M.I.T. prior to any
cancellation or material change thereof. The limits of such insurance shall not
be less than One Million Dollars ($1,000,000) per occurrence with an aggregate
of Three Million Dollars ($3,000,000) for personal injury or death, and One
Million Dollars ($1,000,000) per occurrence with an aggregate of Three Million
Dollars ($3,000,000) for property damage. LICENSEE shall provide M.I.T. with
Certificates of Insurance evidencing the same.

     8.3  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.,
ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING,
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE.
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR
WARRANTY GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT
SHALL M.I.T., ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC
DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER M.I.T.
SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY OF THE FOREGOING.

                              9 - EXPORT CONTROLS

     LICENSEE acknowledges that it is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other

                                      -9-

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   12
commodities (including the Arms Export Control Act, as amended and the United
States Department of Commerce Export Administration Regulations). The transfer
of such items may require a license from the cognizant agency of the United
States Government and/or written assurances by LICENSEE that LICENSEE shall not
export data or commodities to certain foreign countries without prior approval
of such agency. M.I.T. neither represents that a license shall not be required
nor that, if required, it shall be issued.

                             10 - NON-USE OF NAMES

     LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology or Lincoln Laboratory, nor any adaptation thereof, nor
the names of any of their employees, in any advertising, promotional or sales
literature without prior written consent obtained from M.I.T., or said
employee, in each case, except that LICENSEE may state that it is licensed by
M.I.T. under one or more of the patents and/or applications comprising the
PATENT RIGHTS.

                               11 - ASSIGNMENT

     This Agreement is not assignable and any attempt to do so shall be void.

                           12 - DISPUTE RESOLUTION

     12.1  Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies arising
under, out of, or in connection with the Agreement, including any dispute
relating to patent validity or infringement, which the parties shall be
unable to resolve within sixty (60) days shall be mediated in good faith. The
party raising such dispute shall promptly advise the other party of such
claim, dispute or controversy in a writing which describes in reasonable
detail the nature of such dispute. By not later than five (5) business days
after the recipient has received such notice of dispute, each party shall
have selected for itself a representative who shall have the authority to
bind such party, and shall additionally have advised the other party in
writing of the name and title of such representative. By not later than ten
(10) business days after the date of such notice of dispute, the party
against whom the dispute shall be raised shall select a mediation firm in the
Boston area and such representatives shall schedule a date with such firm for
a mediation hearing. The parties shall enter into good faith mediation and
shall share the costs equally. If the representatives of the parties have not
been able to resolve the dispute within fifteen (15) business days after such
mediation hearing, then any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement, including any dispute
relating to patent validity or infringement,

                                      -10-

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  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   13
shall be resolved by final and binding arbitration in Boston, Massachusetts
under the rules of the American Arbitration Association, or the Patent
Arbitration Rules if applicable, then obtaining. The arbitrators shall have no
power to add to, subtract from or modify any of the terms or conditions of this
Agreement, nor to award punitive damages. Any award rendered in such
arbitration may be enforced by either party in either the courts of the
Commonwealth of Massachusetts or in the United States District Court for the
District of Massachusetts, to whose jurisdiction for such purposes M.I.T. and
LICENSEE each hereby irrevocably consents and submits.

     12.2  Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.

                                13 - TERMINATION

     13.1  If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.

     13.2  Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments
to M.I.T., the rights, privileges and license granted hereunder shall
automatically terminate.

     13.3  Upon any material breach or default of this Agreement by LICENSEE
(including, but not limited to, breach or default under Paragraph 3.3), other
than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 13.3, M.I.T. shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days' notice to LICENSEE. Such termination shall become
automatically effective unless LICENSEE shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.

     13.4  LICENSEE shall have the right to terminate this Agreement at any
time on six (6) months' notice to M.I.T., and upon payment of all amounts due
M.I.T. through the effective date of the termination.

     13.5  Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles
1,8,9,10,12,13.5,13.6 and 15 shall survive any such termination. LICENSEE and
any sublicensee thereof may, however, after the effective date of such
termination, sell all LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the
process of manufacture at the time of such termination and sell the same,
provided that LICENSEE shall make

                                      -11-

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  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.

<PAGE>   14
the payments to M.I.T. as required by Article 4 of this Agreement and shall
submit the reports required by Article 5 hereof.

     13.6  Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.

                14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS

     Any payments, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, return receipt requested, postage prepaid,
addressed to it at its address below or as it shall designate by written notice
given to the other party:

          In the case of M.I.T.:

          Director
          Technology Licensing Office
          Massachusetts Institute of Technology
          77 Massachusetts Avenue, Room E32-300
          Cambridge, Massachusetts 02139

          In the case of LICENSEE:

                         15 - MISCELLANEOUS PROVISIONS

     15.1  All disputes arising out of or related to this Agreement, or the
performance, enforcement, breach or termination hereof, and any remedies
relating thereto, shall be construed, governed, interpreted and applied in
accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent shall have been
granted.

     15.2  The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument signed by the parties.

     15.3  The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.

     15.4  LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. ALL LICENSED PRODUCTS
shipped to or sold

                                      -12-
<PAGE>   15
in other countries shall be marked in such a manner as to conform with the
patent laws and practice of the country of manufacture or sale.

     15.5  The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.

MASSACHUSETTS INSTITUTE OF TECHNOLOGY    SANGAMO BIOSCIENCES, INC.

By /s/ Lita Nelsen                       By /s/ Edward O. Lanphier
  -------------------------------          -----------------------------
Name LITA L. NELSEN, DIRECTOR            Name EDWARD LANPHIER
    -----------------------------            ---------------------------
Title TECHNOLOGY LICENSING OFFICE        Title PRESIDENT
     ----------------------------             ---------------------------
Date April 17, 1996                      Date May 9, 1996
    -----------------------------            ---------------------------

                                      -13-
<PAGE>   16
                                FIRST AMENDMENT

This Amendment, with the effective date of 12/10/97, is to the License
Agreement dated May 9, 1996, between Sangamo Biosciences, Inc. and
Massachusetts Institute of Technology.

The parties thereto now further agree as follows:

1. Paragraph 1.7 shall be deleted, including the "Note", and replaced with the
following:

     1.7  "FIELDS OF USE" shall mean         *        .

2. Paragraph 2.4 shall be deleted and replaced with:

     2.4  LICENSEE and M.I.T. agree that neither party shall assert the Patent
     Rights against not-for-profit institutions in their conduct of research,
     provided, however, that if a not-for-profit institution practices under the
     Patent Rights to conduct high throughput drug screening on behalf of a
     commercial entity, then the Patent Rights may be asserted against that
     institution.

3. The following shall be inserted as Paragraph 3.4:

     3.4  After January 1, 2002, if M.I.T. notifies LICENSEE of a request by a
     third party for a license to the Patent Rights for an application or
     product (such as drug screening for a particular disease state, or
     development of a Licensed Product for a particular disease state) not
     currently under development by LICENSEE (or its sublicensee), and no such
     application or product (nor any directly competing application or product)
     is then currently under development or being sold by LICENSEE or a
     sublicensee, then LICENSEE shall either:

          (a)  within three months of the request submit to M.I.T. plans to
          begin development of the application or product within six months of
          the original request, at a level of effort appropriate to success of
          the development in a commercially reasonable time; or

          (b)  begin good faith negotiations with the third party toward
          granting a sublicense to the Patent Rights for the application
          or product.

     If LICENSEE does not begin (or abandons) efforts under (a) above, and does
     not reach a sublicense agreement with the third party within 6 months
     thereafter, M.I.T. shall have the right to grant a nonexclusive license to
     the Patent Rights to the third party for the particular application or
     product, under terms no more favorable to the third party than are granted
     hereunder to LICENSEE, and including diligent development milestones.
     M.I.T. shall share with LICENSEE         *          of any revenue it
     derives from such license.

4. Royalties:

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
<PAGE>   17
(a) LICENSEE shall pay to M.I.T. a First Amendment Issue Fee of
              *                due upon              *              .

(b) The License Maintenance Fees due under P. 4.1b shall be increased to
*              on January 1, 1998 and               *               per year
beginning January 1, 1999 and beyond.

(c) Subparagraphs 4.1e and 4.1g shall be deleted.

(d) The sublicense fees of P. 4.1h shall be increased to            *
per sublicense granted plus               *               per year per    *    .

(e) The following subparagraph shall be added to P. 4.1, and shall be designated
as subparagraph P. 4.1i

     4.1i:       *        OF ANY MILESTONE FEES OR ROYALTIES PAID TO LICENSEE
FROM     *      OR OTHER THIRD PARTIES FOR PRODUCTS DISCOVERED OR DEVELOPED
THROUGH THE USE OF LICENSED PRODUCTS OR LICENSED PROCESSES. HOWEVER, IF THESE
MILESTONE FEES AND ROYALTIES ARE ON PRODUCTS WHOSE COMPOSITION AND/OR PRODUCTION
ARE COVERED BY OTHER PATENTS OWNED OR CONTROLLED BY LICENSEE, AND IF THESE FEES
AND ROYALTIES ARE ALSO INTENDED TO COMPRISE COMPENSATION FOR PRACTICE UNDER SUCH
LICENSEE PATENTS, THEN THE PAYMENTS DUE TO M.I.T. SHALL BE          *
 OF THE MILESTONE FEES AND ROYALTIES.

Agreed to for:

MASSACHUSETTS INSTITUTE OF TECHNOLOGY    SANGAMO BIOSCIENCES, INC.

By /s/ Lita Nelsen                       By /s/ Edward O. Lanphier
  -------------------------------          -----------------------------
Name LITA L. NELSEN, DIRECTOR            Name EDWARD LANPHIER
    -----------------------------            ---------------------------
Title  TECHNOLOGY LICENSING OFFICE       Title PRESIDENT & CEO
     ----------------------------             ---------------------------
Date Dec 1, 1997                         Date  12/10/97
    -----------------------------            ---------------------------

* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.

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