Document:

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                                                                    EXHIBIT 10.1

                      LICENSE AND COLLABORATION AGREEMENT

                                    between

                        MAGAININ PHARMACEUTICALS, INC.

                                      and

                                GENENTECH, INC.

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commissions.
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                                  LICENSE AND
                            COLLABORATION AGREEMENT

     This License and Collaboration Agreement (the "Agreement") is made as of
April 28, 2000 (the "Effective Date") by and between Magainin Pharmaceuticals,
Inc., a Delaware corporation, having principal offices located at 5110 Campus
Drive, Plymouth Meeting, Pennsylvania 19462 ("Magainin"), and Genentech, Inc., a
Delaware corporation, with principal offices located at 1 DNA Way, South San
Francisco, California 94080 ("Genentech").  Each of Magainin and Genentech are a
Party to this Agreement and together the Parties hereto and may be referred to
as such herein.

     Whereas,   Magainin is the owner of and has all right, title and interest
in, or has acquired the exclusive rights to, certain technology, including,
without limitation, Know-How and Patents, relating to certain Antibodies and
Small Molecules or Compounds in the Field (as defined).

     Whereas, Genentech has been involved in a program (under collaborative
research and option agreement with Magainin expiring on April 29, 2000) for
development and commercialization of an anti-IL-9 antibody.

     Whereas, Genentech wishes to perform certain research and development using
Magainin Technology  for relevent uses in connection with, among other things,
conducting proof of concept research, humanizing and improving affinity of
Magainin's human anti-IL9 and IL-9 receptor(s) antibody(ies) and Magainin wishes
to enter into a collaborative arrangement with Genentech, as well as supply to
Genentech certain biological materials and access to a certain gene Database
Library, for the purposes of carrying out such research and development in
accordance with a Joint Development Plan.

     Whereas, Genentech is further interested in obtaining an exclusive license
to and under Magainin's Technology and Magainin wishes to grant the same to
Genentech, to develop, make, have made, use, sell, have sold, offer to sell,
import, distribute and otherwise exploit Products in the Field, retaining some
co-exclusive rights, but only insofar as relates to collaborative research and
development as further provided under the terms and conditions of this
Agreement.

     Whereas, Simultaneously with the execution of this Agreement, the Parties
are entering in that certain Series A Equity Purchase Agreement (together with
the Schedules and Schedules thereto, the "Stock Purchase Agreement") and
documents ancillary thereto, all dated of even date herewith, pursuant to which
Genentech has agreed to purchase, and Magainin has agreed to issue and sell,
shares of Magainin's Series A Preferred Stock as well as Common Stock (as such
capitalized terms are defined in the Stock Purchase Agreement).

     Now Therefore, in consideration of the foregoing premises and the mutual
covenants set forth below, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, Magainin and Genentech hereby agree as
follows:

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**Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with Commission. The omitted portions
have been filed separately with the Commission.
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                                   Article 1
                                  Definitions

     The following terms shall have the following meanings as used in this
Agreement:

     1.1  "Affiliate" means with respect to any Party, any entity controlled by
such Party. For the purposes of this Affiliate definition, "control" shall refer
to (i) the possession, directly or indirectly, of the power to direct the
management or policies of an entity, whether through the ownership of voting
securities, by contract or otherwise, or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity. With respect to Genentech, "Affiliate" shall not include Roche.

     1.2  "Antibody" means any immunoglobulin or fragment thereof, not limited
to [**] .

     1.3  "Biologics License Application" or "BLA" means that application, (as
defined in Title 21 of the United States Code of Federal Regulations, as amended
from time to time) filed with the Federal Food and Drug Administration seeking
Regulatory Approval to market and sell any biologic Product in the United States
for a particular indication in the Field.

     1.4  "Collaboration Know How" means Know How generated during the course
of, in furtherance of and as a direct result of performing an activity under the
Collaboration Program and may be either "Antibody Related" or "Small Molecule
Related" Collaboration Know How, as the case may be, as used in context herein.

     1.5  "Collaboration Program" means the program of jointly funded and
jointly determined research and development between Genentech and Magainin, as
generally described hereunder in Section 3.2.

     1.6  "Compound" means any molecule including [**].

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**Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with Commission. The omitted portions
have been filed separately with the Commission.
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     1.7  "Confidential Information" means all proprietary or confidential
information of a disclosing Party (including the terms of this Agreement), which
may be disclosed from one Party to the other at any time and from time to time
during the term of this Agreement. Information of the disclosing Party shall not
be considered confidential to the extent such information:

               (a)  Is publicly disclosed through no fault of the receiving
Party hereto, either before or after it becomes known to the receiving Party; or

               (b)  Was known to the receiving Party prior to disclosure under
this Agreement, which knowledge was acquired independently and not from the
disclosing Party hereto (or such Party's employees); or

               (c)  Is subsequently disclosed to the receiving Party in good
faith by a Third Party who has a right to make such disclosure.

               (d)  Was developed independent of and without reference to
information received as a result of the disclosures of these Parties. (Nothing
in this definition shall preclude a Party from use of its own proprietary or
Confidential Information without restriction.)

     1.8  "Control" means, (other than as defined in "Affiliate",) the power to
license and grant a sublicense.

     1.9  "Development Costs" means the development costs actually incurred by
Genentech or Magainin for a Compound or Product from the Effective Date of the
Agreement through the later of (i) the date of Regulatory Approval for a Product
(including thereafter costs to maintain or expand the label or indications for
such approved final Product) in the Field in the Territory, or (ii) the date of
termination of the Collaboration Program with regard to that Compound or Product
as described in Article 3.2. Development Costs are further described in Schedule
B, that certain financial schedule appended hereto and made a part hereof.

     1.10 "Downstream Target" means [**].

     1.11 "Effective Date" means the date first written above in the
introductory paragraph in this Agreement.

     1.12 "Field" means all therapeutic and prophylactic human uses.

     1.13 "Gene Database " means the gene library of known and novel genes that
are Downstream Targets identified by Magainin as playing a role in respiratory
conditions excluding Targets which are otherwise restricted to Magainin's mucin
program.

     1.14 "Genentech Know How" means the Know How that Genentech presently or
hereafter owns, develops and/or Controls, related only to IL-9.

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confidential treatment that has been filed with Commission. The omitted portions
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     1.15 "Genentech Patent(s)" means the Patent(s) which Genentech presently or
hereafter owns or Controls, the claims of which would be infringed in the
absence of licenses or assignments granted hereunder and which claims
specifically cover only Compounds or Products hereunder. General technology
patents are excluded from this definition. By way of example, the Cabilly family
of patents are not included in "Genentech Patents."

     1.16 "Genentech Technology" means Genentech Patent(s) and Genentech Know-
How.

     1.17 "Initial Research" means as is defined in Section 7.2 hereof.

     1.18 "Intellectual Property" means all Patents, copyrights, trade secrets,
trademarks and other proprietary rights, together with all related rights,
applications, filings, registrations and the like.

     1.19 "Inventions" means any Know-how hereunder that is or becomes
patentable or the subject of a Patent application or disclosure.

     1.20 "Investigational New Drug" or "IND" means an investigational new drug
application (as defined in Title 21 of the United States Code of Federal
Regulations, as amended from time to time) filed with the Federal Food and Drug
Administration with regard to any Product.

     1.21 "Joint Development Plan" means that plan promulgated by the Joint
Project Team, ratified by the Joint Steering Committee and updated annually,
under which the Parties shall conduct the research and development of this
Collaboration Program, a first iteration of which is attached hereto as Schedule
A and made a part hereof.

     1.22 "Joint Project Team" or "JPT" shall have the meaning ascribed to it
under Article 5 below.

     1.23 "Joint Steering Committee" or "JSC" shall have the meaning ascribed to
it under Article 4 below.

     1.24 "Know How" means all IL-9 related Confidential Information, trade
secrets, Inventions, practices, knowledge, skill, experience, methods,
processes, techniques, materials and data, whether tangible or not, including
without limitation, research data, test data, including pharmacological,
toxicological, analytical and quality control data, compounds, chemicals,
materials, compositions of matter, assays, reagents, results, cells, cell lines,
physical, chemical and biological materials and/or related software, and/or
other proprietary information which are in the Control of a Party, whether or
not: (i) the same is protected by patent or eligible for protection under the
patent laws of the United States or elsewhere; (ii) enforceable as a trade
secret; or (iii) the copying of which would be enjoined or restrained by a court
as constituting unfair competition.

     1.25 "Ludwig Institut Agreement" means as it is defined in11.2(d).

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confidential treatment that has been filed with Commission. The omitted portions
have been filed separately with the Commission.
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     1.26 "MAA" means any application filed with the relevant foreign regulatory
authorities in Europe seeking Regulatory Approval to market and sell any Product
in Europe or any country or territory therein for a particular indication in the
Field.

     1.27 "Magainin Know How" means the Know How that Magainin presently or
hereafter owns, develops and/or Controls.

     1.28 "Magainin Patents" means the Patent(s) which Magainin presently or
hereafter owns or Controls, the claims of which would be infringed in the
absence of licenses or assignments granted hereunder.

     1.29 "Magainin Technology" means Magainin Patents and Magainin Know-How.

     1.30 "NDA/BLA" means a New Drug Application or Biologics License
Application, as the case may be, (as defined in Title 21 of the United States
Code of Federal Regulations, as amended from time to time) filed with the
Federal Food and Drug Administration ("FDA"), before which application is
approved for a Product and it's indications in the Field, it is unlawful to
commercialize or sell such Product in the United States.

     1.31 "Net Sales" means the aggregate gross invoiced sales of a Product or
Compound, (but only if such Compound is being sold as a final product,) charged
by Genentech or its sublicensee to a Third Party in an arms-length transaction,
deducting the following (to the extent such items are incurred or allowed and do
not exceed reasonable and customary amounts in the market in which such sales
occurred): (i) quantity discounts, cash discounts or chargebacks; (ii) rebates
or allowances actually granted including government and managed care rebates;
(iii) customer credits or allowances for returned goods; (iv) any charges for
freight and insurance; (v) costs associated with Third Party diagnostic products
required to be in-licensed for the purpose of manufacture, commercialization or
sale of a Product or Target Product hereunder (provided not otherwise offset
under Section 6.8); and (vi) any tax, tariff, duty or government charge
(including any tax such as a value added or similar tax or government charge
other than an income tax) levied on the sale, transportation or delivery of a
Product or Target Product and borne by Genentech, its Affiliate or sublicensee
without reimbursement from any Third Party. Sale(s) of Product or Target Product
by and between Genentech and a Genentech Affiliate or sublicensee are excluded
(and not to be calculated as constituting a deductible) from this definition of
Net Sales. Such Net Sales may be adjusted in accordance with relevant Section
6.8.2 provisions.

     1.32 "Patents" means (i) valid and enforceable patents, re-examinations,
reissues, renewals, extensions, supplementary protection certificates and term
restorations, and (ii) pending applications for patents, including without
limitation continuations, continuations-in-part, divisional, provisionals and
substitute applications, including without limitation inventors' certificates
which cover or claim Technology, (iii) extensions of any patent or application
set forth in (i) or (ii); and (iv) all patents issuing from the foregoing
applications, so long as said patents have not been held invalid and/or
unenforceable in any decision by a court or other appropriate governmental body
of competent jurisdiction from which there is no appeal or, if appealable, from
which no appeal has been taken.

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**Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with Commission. The omitted portions
have been filed separately with the Commission.
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     1.33 "Phase I Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in human studies looking at
among other things the safety, dosing and dose ranging of such Product for such
indication .

     1.34 "Phase II Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in humans of the safety,
dosing, ranging and efficacy of such Product for such indication, which is
prospectively designed to generate sufficient data to commence a Phase III
Clinical Trial of such Product for such indication.

     1.35 "Phase III Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in humans of the safety and
efficacy of such Product for such indication, which is prospectively designed to
demonstrate statistically whether such Product is safe and effective for use in
such indication in a manner sufficient to file a NDA/BLA to obtain Regulatory
Approval to market and sell that Product in the United States for the indication
under investigation in such study.

     1.36 "Product" means any human therapeutic or drug in a final finished
form, the active ingredient of which is a Compound. Product shall exclude any
and all Target Products.

     1.37 "Regulatory Approval" means any and all approvals (including pricing
and reimbursement approvals), product and establishment licenses, registrations,
authorizations of any kind of the Federal Food and Drug Administration or any
other regulatory authority necessary for the development, pre-clinical and/or
human clinical testing, manufacture, quality testing, supply, use, storage,
importation, export, transport, marketing and sale of a Product (or any
component thereof) for use in the Field in any country or other jurisdiction in
the Territory. "Regulatory Approval" shall include without limitation any BLA,
NDA, MAA or other FDA-approved drug approval application.

     1.38 "Small Molecule" means any compound with a molecular weight below 1000
daltons.

     1.39 "Target" means a naturally-occurring molecule or fragment thereof that
has a direct or indirect biologic, chemical or physiologic effect on a cascade
leading to human illness, and which is provided to Genentech by Magainin
pursuant to this Agreement.

     1.40 "Target Compound" means any Antibody, peptide, Small Molecule or
aminosterol that has a primary mechanism of action of blocking, inhibiting,
acting on, or antagonizing the production of a Downstream Target, and which is
identified and developed by Genentech through use of the relevant Target. Target
Compound shall exclude [**].

     1.41 "Target Product" means any human therapeutic or drug in a final
finished form, the active ingredient of which is a Target Compound. Target
Product shall exclude any and all Products.

     1.42 "Territory" means the world.

     1.43 "Third Party" means any entity other than Genentech or Magainin or an
Affiliate of either Party.

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**Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with Commission. The omitted portions
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     1.44 "Upstream Compound" means a Compound that has a primary mechanism of
action or biologic effect of blocking, inhibiting, acting on, or antagonizing
the production of an Upstream Target, or as otherwise set forth in Section 4.8
below.

     1.45 "Upstream Product" is a Product containing an Upstream Compound as its
active ingredient.

     1.46 "Upstream Target" means [**].

     1.47 "Valid Claim" means a claim in any issued, unexpired patent which has
not been held unenforceable, unpatentable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid or unenforceable through reissue, reexamination or disclaimer and which
is not subject to an interference action.

                                   Article 2
                                Summary Section

2.
     This Article 2 is intended to generally summarize the collaboration between
the Parties to this Agreement. The terms and conditions of the Agreement,
excluding Article 2, should prevail in meaning and operation and this Article 2
should not be read to supercede any other term or condition of the Agreement in
the case of inconsistency.

     2.1  Synopsis:  This is a research and development collaboration under
which the Parties will together (or as separately appointed to tasks by a joint
committee of the Parties under a joint plan, as provided hereunder) research
Antibodies and Small Molecule Compounds for development and commercialization of
Compounds and Products. The primary and initial focus of this collaboration is
to develop an Antibody to be chosen by the Joint Development Team as a Compound-
candidate for clinical trials within the Field and Territory.

     2.2  Collaborative Development. Magainin will supply to this collaboration
its Know How, scientific findings and other research showing the IL-9 mechanism
and its role in modulating allergic and asthmatic response to antigen. Genentech
and Magainin will conduct the Initial Research, including certain proof of
concept relating to the IL-9 mechanism in respiratory/immune reaction to
antigen, as determined by the Joint Project Team and provided in the Joint
Development Plan. In addition to which, Genentech wishes to develop a human or
humanized Antibody (using Genentech proprietary Know How or a transgenic mouse),
as well as possibly generate a mouse Antibody that reacts with or affects IL-9
or IL-9 receptors. The Initial Research shall begin on the Effective Date and
last until such time that the Joint Project Team selects the Compound for
clinical development, including Phases I and II testing by Magainin. All such
Initial Research shall be conducted by the Parties together or individually as
assigned to tasks by the Joint Project Team, at the sole expense of the Party
completing the work and at

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confidential treatment that has been filed with Commission. The omitted portions
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Magainin's expense for Phases I and II Clinical Studies. Once the data from
those trials merits the commencement of a Phase III Clinical Study (per the
determination by the Joint Project Team), Genentech shall at its expense
(subject only to Section 8.6 herein), design the Phase III Clinical Study and
take the Compound into Phase III, or a pivotal trial, through and including
filing of the NDA/BLA. Genentech will be responsible for manufacturing Compounds
hereunder. Magainin may have a role in manufacturing (or contract manufacturing)
Small Molecule Compounds if so decided by the Joint Project Team and approved by
the JSC. In accordance with the JSC approved budget for the Collaboration
Program, Genentech will provide quarterly funding in advance for Magainin
Collaboration Program expenses with preferred equity in tranches of that same
Series A equity provided in the Stock Purchase Agreement, of even date herewith.

     2.3  Respiratory Gene Database; Exclusive Access; Licensing Target(s).
Genentech shall have sole and exclusive access to Magainin's Gene Database (as
defined) for a period of six (6) months from the Effective Date and from such
access, the right, but not the obligation, to choose up to five (5) Targets
therefrom. Genentech will then have an additional four and one-half more years
(for a total five from the Effective Date) of non-exclusive access. Targets will
be excluded from the Target pool by Magainin if, prior to Genentech's selection,
Magainin has licensed rights to such Target (that Genentech wants to select) to
a Third Party, or Magainin has already initiated and is diligently pursuing, at
its own expense, an active research program regarding that Target. Genentech
shall have the right, but not the obligation, to acquire exclusive rights to
develop Target Compounds and Target Products pursuant to Section 3.2(c)(i)
below.

                                   Article 3
                                License grants

3.

     3.1  Licenses Granted by Magainin -

          3.1.1  Magainin Technology. Magainin hereby grants to Genentech and
its Affiliates an exclusive (even as to Magainin) right and license, with the
right to grant sublicenses, under any and all Magainin Technology, whether owned
or controlled by Magainin, to research, develop, manufacture, make, have made,
use, import, export, sell, offer for sale, or have sold Compounds and/or
Product(s) in the Field in the Territory. Notwithstanding the foregoing, the
exclusive license granted above shall be subject only to Magainin's rights to
collaborate with Genentech as solely provided in this Agreement and under the
Joint Development Plan.

          3.1.2  Research & Development License to Magainin. Subject to the
terms and conditions of this Agreement, Genentech hereby grants to Magainin a
non-exclusive, non-royalty-bearing license under the Genentech Technology for
the sole purpose of enabling Magainin to conduct its activities (always to the
exclusion of making or manufacturing, except with respect to limited rights for
Small Molecule manufacture, as provided in Section 3.1.3) under the
Collaboration Program, and as described in the Joint Development Plan.

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confidential treatment that has been filed with Commission. The omitted portions
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          3.1.3  Small Molecule Election; Limited Commercial License for Small
Molecule Compounds. In the event that Magainin believes it discovered a Small
Molecule that has substantial pre-clinical data affecting or effecting a
respiratory response (in which Genentech might have an interest), Magainin shall
so advise Genentech as soon as reasonably practical. Magainin shall also provide
to Genentech data for each such Small Molecule in support of Magainin's findings
and suppositions, in sufficient detail so as to enable Genentech to determine
whether it might be interested in bringing the Small Molecule under the
Collaboration Program. In the event that Genentech is interested in going
forward in development with such Small Molecule, then Genentech shall within
[**] months thereafter inform Joint Project Team of its assent to go forward
under the Collaboration Program. Upon the election to include the Small Molecule
in the Collaboration Program, the then current Joint Development Plan will be
modified to reflect the addition of said Small Molecule and all activities of
the Parties to develop such Small Molecule, as well as provide budgets required
to fund the same. Funding shall be consistent with funding and support
mechanisms outlined herein as apply to Compounds. Subject to the terms and
conditions of this Agreement, in the event that Genentech elects not to develop
a Small Molecule Compound, pursuant to this Section 3.1.3, or if after electing
to develop such a Small Molecule Compound, ceases development, [**].

     3.2  Access to the Gene Database; Rights to Targets.

               (a)  Right of Access. Magainin hereby grants Genentech an
exclusive right, to the exclusion of Magainin and any Third Party, and research
license, for a period not to exceed six (6) months from the Effective Date
("Period of Exclusivity") of sole access to the Gene Database and rights to
choose up to five (5) Target(s) therefrom for research and development. After
the Period of Exclusivity, Genentech shall have an additional non-exclusive
right and research license, for a period not to exceed four and one-half (4
1/2), or a total of five (5) from the Effective Date, to non-exclusive access of
the Gene Database and to choose any Target contained therein, subject only to
the then existing rights of Third Parties, as of the designation date being
after the Period of Exclusivity. Targets will be excluded if prior to
Genentech's selection, Magainin has removed such Target from the Gene Database
because Magainin either licensed rights to the Target (that Genentech wants to
select) to a Third Party, or Magainin has already initiated and is diligently
pursuing, at its own expense, an active research program regarding such Target
("Internal Development Effort"). Genentech shall also be required to initiate
and diligently pursue an active research program regarding any Target it selects
for exclusive development.

               (b)  Target Selection; Exclusivity. For any Target that Genentech
shall select from the Gene Database, Genentech shall, as soon as reasonably
practicable, notify Magainin of Genentech's desire to designate such Target for
its own use, exclusive or subject to Third Party rights, as the case may be at
the time of designation. Immediately upon designation, Genentech will be deemed
to have been granted, at its sole choice, an exclusive fully sublicensable right
and license to research, develop, manufacture, make, have made, use, import,
export, sell, offer for sale, or have sold Target Compounds and/or Target
Products in the Field in the Territory. Notwithstanding the provision of
exclusivity in the foregoing sentence,

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confidential treatment that has been filed with Commission. The omitted portions
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and only with respect to designations by Genentech occurring after the Period of
Exclusivity ends, the exclusive license granted above shall be subject to Third
Party rights only to the extent existing, or subject to Magainin's rights as
provided above in Section 3.1.2 in the event that Magainin is involved in an
Internal Development Effort with such Target, as defined in Section 3.2(a), as
of the time of designation by Genentech.

               (C)  Developing a Target Compound or Target Product;.

                    (I)  Sole Development by Genentech. Genentech may elect to
solely develop a Target Compound, or Target Product, as the case may be, which
shall not be subject to Magainin's election under Section 8.6. Royalties and
milestones for a Target Compound and Target Product shall be governed by Section
6.5.

                    (II) Co-Development by Genentech and Magainin; Designation
of a Target Compound or Target Product as a Compound and Product. Genentech may
alternatively elect to designate a Target Compound as a Compound hereunder to be
co-developed with Magainin. In the event of such an election by Genentech, then
upon written notice from Genentech, such Target Compound shall be deemed a
Compound, and such Target Product a Product, and governed under the then current
Joint Development Plan with milestones and royalties in accordance with Section
6.3 and 6.4, or eligible for a profit sharing arrangement at Magainin's election
under Section 8.6. In the event Genentech elects to co-develop pursuant to this
paragraph, Genentech and Magainin are individually and together responsible, in
accordance with the Joint Development Plan and with input from the Joint Project
Team or senior management from both Genentech and/or Magainin (within the budget
promulgated by the Joint Project Team, approved by the JSC, and provided for in
the then current annual Joint Development Plan,) for all development efforts
including, without limitation, humanizing the Antibodies and/or increasing
affinity (affinity maturation) of any Antibody in accordance with a Joint
Development Plan and any other research and development that the Joint Project
Team shall require of Genentech or Magainin, as the case may be to develop such
Target Compound.

     3.3  Full Collaboration Program. Reference to the collaboration program
means the full research and development program for developing Products from
designated Compounds and developing Compounds (or developing Compounds that act
on Targets as Genentech elects to co-develop pursuant to Section 3.2(c)(ii)
above) and encompassing the activities of either or both Parties as provided and
set forth in the then annual Joint Development Plan, promulgated by the Joint
Project Team and approved by the Joint Steering Committee and which include all
of the activities under the purview of the Joint Project Team to implement (the
"Collaboration Program"). The Collaboration Program commences on the Effective
Date and terminates, Compound by Compound, as of the termination of a Compound
in pre-Regulatory Approval stages of development. A Compound will only be put
into full development under an annual Joint Development Plan upon selection and
designation of such Compound by the Joint Project Team and approval by the JSC
(subject to the dispute resolution provisions in this agreement), as it may deem
appropriate for research, development, Phase I, II and/or III Clinical Studies.
Compounds rejected under this Collaboration Program shall be subject to the
grant-back of certain rights as provided in Sections 3.1.3, 13.8(b)(i)(2) or
13.8(b)(ii), as the case may be; provided, however, that (i) with respect to
rejected Compounds and Products that are neither Small Molecules nor Upstream
Compounds, no grantback shall occur if another Compound or Product is proceeding
with development or being commercialized, and (ii) with respect to rejected
Small Molecule Compounds and Small Molecule Products (that are not Upstream
Compounds), no grantback shall occur if another Small Molecule Compound or Small
Molecule Product is proceeding with development or being commercialized in
accordance with this Agreement.

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confidential treatment that has been filed with Commission. The omitted portions
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rejected Small Molecule Compounds and Small Molecule Products (that are not
Upstream Compounds), no grantback shall occur if another Small Molecule Compound
or Small Molecule Product is proceeding with development or being commercialized
in accordance with this Agreement.

     3.4  Initial Research. Initial Research ends with respect to a Compound,
Compound by Compound, upon such time as the Joint Project Team selects such
Compound for Phase I Clinical Study. Phases I and II Clinical Studies shall be
conducted solely by Magainin, with assistance by Genentech or the Joint Project
Team, as may be deemed necessary by the Joint Project Team, at Magainin's sole
cost and expense, funding to be earmarked from funds generated by Genentech to
Magainin under the then current tranche of Series A Preferred Stock pursuant to
that certain Stock Purchase Agreement, dated of even date herewith. Phase III
Clinical Studies and NDA/BLA filing shall be solely Genentech's obligation at
Genentech's sole expense, the soleness of the expenses borne by Genentech being
subject only to Magainin's opt-in for co-funding under Section 8.6 hereof.

                                   Article 4
                      Administration of the Collaboration

4.

     4.1  Formation of Joint Steering Committee. The Parties shall establish one
joint steering committee (the "JSC"), which shall consist of no fewer than four
(4) permanent members, two (2) permanent members from each Party. Each Party may
replace any or all of its representatives on the JSC at any time upon written
notice to the other Party in accordance with Section 14.9 of this Agreement.
Such representatives shall include individuals within or designated by the
senior management of each Party, and those representatives of each Party shall,
individually or collectively, have expertise and/or responsibility in business
and bio-pharmaceutical therapy development or commercialization and authority to
cause the participants from each Party to conduct the work of this Collaboration
Program. Any member of the JSC may designate a substitute to attend and perform
the functions of that member at any meeting of the JSC and each member of the
JSC may invite such other non-members as deemed necessary to help explore and
resolve the issues before the JSC. Each Party may individually, in its
discretion, invite non-member representatives of such Party to attend meetings
of the JSC.

     4.2  Responsibilities. The JSC shall perform the following functions:

               (a)  Approve the overall strategy and timelines for the
Collaboration Program and the collaborative process including appointing and
providing direction to the Joint Project Team.;

               (b)  review and approve: (i) the Joint Development Plan; (ii)
division of labor among the Parties; (iii) annual budgets and multiyear expense
forecasts formulated by the Joint Project Team; (iv) any expenditure made in
connection with purchasing preferred shares of equity in Magainin, or otherwise
entering into a debt instrument (for amounts reflecting budgeted activities), as
recommended by the Joint Project Team and provided in that

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

certain Stock Purchase Agreement, dated of even date herewith; and the (v) the
financial results of the Collaboration Program;

               (c)  review and evaluate progress of the activities under the
Joint Development Plan, provided that the JSC shall not have authority to make
any determination that either Party is in breach of this Agreement;

               (d)  review and approve "go/no-go" decisions and recommendations
made by the Joint Project Team;

               (e)  resolve disputes or disagreements unresolved by any Joint
Project Team and any other disputes or disagreements between the Parties with
respect to the Collaboration Program;

               (f)  review marketing plans for any Product; and

               (g)  have such other responsibilities as may be assigned to the
JSC pursuant to this Agreement or as may be mutually agreed upon by the Parties
or any member of senior management from the Parties from time to time.

     4.3  Decisions of the JSC. With respect to the mandated responsibilities of
the JSC, the JSC shall operate by consensus with each Party having a single
vote. If, with respect to a matter that is subject to the JSC's decision-making
authority, the JSC cannot reach consensus within fifteen (15) days after it has
met and attempted to reach such consensus, the matter shall then be immediately
referred to the Chief Executive Officer of Magainin, or such other person
holding a similar position designated by Magainin from time to time, and a
Senior Officer of Genentech, or such other person holding a similar position
designated by Genentech, from time to time, for resolution. The executive/senior
officers shall use reasonable efforts to resolve the matter referred to them. If
the executive/senior officers cannot reach a mutually acceptable decision within
fifteen (15) days after the matter was referred to them, then the Chief
Executive Officer of Genentech shall have the final authority to make decisions
in good faith that are binding on both Parties.

     4.4  Meetings. During the term of the collaboration, the JSC shall meet in
person at least twice during every calendar year, and more frequently as the
Parties deem appropriate, on such dates, and at such places and times, as the
Parties shall agree. Meetings of the JSC that are held in person shall alternate
between the offices of the Parties, or such other place as the Parties may
agree. The members of the JSC also may convene or be polled or consulted from
time to time by means of telecommunications, video conferences, electronic mail
or correspondence, as deemed necessary or appropriate.

     4.5  Minutes. With the sole exception of specific items of the meeting
minutes to which the Parties cannot agree and which are escalated as provided in
Section 4.3, minutes of all JSC meetings shall be finalized no later than thirty
(30) days after the meeting to which the minutes pertain, as follows:

                    (i)    Within ten (10) days after each JSC meeting, a
secretary designated by one Party at each meeting shall prepare and distribute
to all members of the JSC

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

draft minutes of the meeting. Such minutes shall provide a description, in
reasonable detail, of the discussions at the meeting and a list of any actions,
decisions or determinations approved by the JSC and a list of any issues to be
resolved by the Executive Officers.

                    (ii)   The non-drafting Party shall then have ten (10) days
after receiving such draft minutes to collect comments thereon from the members
of its Party and provide them to such secretary.

                    (iii)  Upon the expiration of such second ten (10)-day
period, the members of the JSC shall have an additional ten (10) days to discuss
each other's comments and finalize the minutes. The member-representatives from
each Party having attended the meeting to which the minutes apply, shall each
sign and date the final minutes. The signature of the members upon the final
minutes shall indicate each Party's assent to the minutes. If the Parties
disagree on any issue with respect to the minutes, such issue shall be resolved
by the escalation process as provided in Section 4.3. The decision resulting
from the escalation process shall be recorded by the secretary in amended
finalized minutes for said meeting.

     4.6  Term. The JSC shall exist until the termination or expiration of the
Collaboration Program and for such longer period as necessary to perform the
remaining responsibilities assigned to it under this Agreement.

     4.7  Expenses. Each Party shall be responsible for all travel and related
costs and expenses for its members and approved invitees to attend meetings of,
and otherwise participate on the JSC.

     4.8  Upstream Compounds. As part of its ongoing business, Magainin will
continue its pursuit of researching Upstream Compounds. In the event that
Magainin believes it discovered an Upstream Compound that has substantial pre-
clinical data affecting or effecting a respiratory response (in which Genentech
might have an interest), Magainin shall so advise Genentech as soon as
reasonably practical. Magainin shall also provide to Genentech data for each
such Upstream Compound in support of Magainin's findings and suppositions, in
sufficient detail so as to enable Genentech to determine whether it might be
interested in bringing the Upstream Compound under this Collaboration Program.
In the event that Genentech is interested in going forward in development with
such Upstream Compound, then Genentech shall within [**] thereafter inform Joint
Project Team of its assent to go forward under the Collaboration Program. Upon
the election to include the Upstream Compound in this Collaboration Program, the
then current Joint Development Plan will be modified to reflect the addition and
all activities of the Parties with respect to the activities of the Parties to
develop such Upstream Compound, as well as provide budgets required to fund the
same. Funding shall be consistent with funding and support mechanisms outlined
herein as apply to Compounds. If Genentech shall not advise Magainin of its
interest in going forward and in development of such Upstream Compound within
[**], Genentech shall have no further rights to such Compound.

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** Certain portions of this exhibit have been omitted basd upon request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 5
                              Joint Project Team
5.

     5.1  Formation of Joint Project Team ("JPT").

               (a)  Within thirty (30) days of the Effective Date, the Parties
through the JSC, shall establish a joint project team ("JPT") to develop and
promulgate a Joint Development Plan ("JDP"), a first iteration of which is
attached hereto, as well as coordinate and implement all activities for the
research and development of Products and Compounds in the Field under the JDP,
within budgets to be promulgated by the Joint Project Team and approved by the
JSC.

               (b)  A sufficient number of authorized representatives (but no
more than four (4) for each Party, unless otherwise determined by the JPT),
shall be appointed as members of the JPT. Such representatives will include
individuals with expertise and responsibilities in the areas of basic research
and development, clinical development, process sciences, manufacturing,
regulatory affairs, product development, marketing and sales, as applicable to
the stage of development or commercialization of the Product. Each Party may
replace its representatives at any time, upon written notice to the other Party.
The JPT shall meet at regular intervals, but no less than once per calendar
quarter, at times and locations to be agreed upon by the members of the JPT.

               (c)  The JPT shall exist until the end of Phase II Clinical
Study(ies), and shall cease to exist on a Compound by Compound basis.

     5.2  Responsibilities. The Joint Project Team shall ensure open
communication between the Parties as relates to the development of Compounds and
Products as well as:

               (a)  oversee and coordinate all research and development
activities with respect to Compounds under this Agreement, in a manner
consistent with the JDP; evaluate data from the Collaboration Program;

               (b)  manage the day-to-day activities being conducted under the
JDP, allocate responsibilities between the Parties and coordinate the activities
of the Parties;

               (d)  provide a mechanism for the exchange of information between
the Parties with regard to Know-how and Inventions;

               (e)  provide a mechanism for the review of data and results from
any discovery efforts either Party is conducting from time to time with respect
to Compounds, and recommend Compounds for clinical testing;

               (f)  review and agree on all relevant proposed publications and
presentations of any of the Parties pursuant to Article 9;

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (g)  prepare clinical and regulatory strategy and review and
approve clinical study protocols that the implementing Party shall promulgate
and final reports therefor;

               (h)  prepare or revise Joint Development Plans annually, or as
needed more frequently, and refer them (or modifications thereto) to the JSC for
approval;

               (i)  keep the JSC informed on the status of the Collaboration
Program and the activities conducted by the Parties thereunder;

               (j)  promulgate budgets covering the activities under the
Collaboration Program and outlined in each annual Joint Development Plan;

               (k)  generate cost-estimates, quarter by quarter in advance of a
quarter, to the JSC covering funding required for a following quarter (for
activities of the Collaboration Program) through Phase II Clinical Studies and
paid in advance of each quarter from such shares of preferred equity as provided
in that certain Stock Purchase Agreement, dated of even date herewith;

               (l)  based upon Magainin's election to share in U.S. profits and
losses under Section 8.6, generate a quarterly schedule of preferred stock
purchases (or otherwise under a debt-instrument) as provided in that certain
Stock Purchase Agreement, dated of even date herewith, which schedule of
purchases shall cover and include Magainin's portion of losses incurred that
first year post-Regulatory Approval; submitting the same to the JSC for its
approval;

               (m)  ensure that each Party is aware of any ongoing activity of
any Party outside the Collaboration Program that may impact the Collaboration
Program or a Party's diligence obligations hereunder;

               (n)  resolve disputes and disagreements between the Parties with
respect to this Section 5.2, and refer unresolved disputes and disagreements to
the JSC for resolution in accordance with Section 4.3; and

               (o)  have such other responsibilities as may be assigned to the
JPT pursuant to this Agreement or by the JSC, or as may be mutually agreed upon
by the Parties from time to time.

     5.3  Meetings. During its term, the JPT shall meet at least once each
calendar quarter, and more frequently as agreed by the JPT, on such dates, and
at such places and times, as the JPT shall agree. Such meetings may be held in
person, or the members of the JPT may convene or be polled or consulted from
time to time by means of telecommunications, video conferences, electronic mail
or correspondence, as deemed necessary or appropriate.

     5.4  Decision-making. The JPT shall operate by consensus, and each Party
shall have collectively one (1) vote in all decisions. If, with respect to a
matter that is subject to a JPT's decision-making authority, the JPT cannot
reach consensus within fifteen (15) days after it has met and attempted to reach
such consensus, the matter shall be referred on the sixteenth day to the JSC,
which shall resolve such matter in accordance with Section 4.3.

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** Certain portions of this exhibit have been omitted basd upon request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 6

        Development Costs; Milestones and Funding of Development Costs.

6.

     6.1  Development Costs.

          6.1.1   Development Costs include without limitation the following:

                  (a)  costs of research or development including costs of
studies on the toxicological, pharmacokinetical, metabolical or clinical aspects
of a Compound conducted internally at Genentech or by Magainin, as the case may
be, or by individual investigators or consultants necessary for the purpose of
obtaining, maintaining and/or expanding marketing approval of a Product, process
development, process improvement and scale-up and recovery costs, qualification
lots, costs for preparing, submitting, reviewing or developing data or
information for the purpose of submission to a governmental authority to obtain,
maintain and/or expand marketing approval of a Product, and applicable Allocable
Overhead (as defined in the financial appendix.)

                  (b)  expenses for data management, statistical designs and
studies, document preparation, and other administration expenses associated with
the clinical testing program or post-marketing studies required to maintain
product approvals;

                  (c)  costs required to obtain, maintain and/or expand the
relevant authorization and/or ability to manufacture, formulate, fill, use,
ship, sell and/or distribute a Product in commercial quantities to Third Parties
in the Territory;

                  (d)  any other costs and expenses associated with the
activities of the Parties under an annual Joint Development Plan or as otherwise
deemed necessary by the Joint Project Team.

          6.1.2   All Development Costs shall be reviewed and approved by the
Joint Project Team and JSC in accordance with the procedures set forth in
Schedule B (the financial appendix) and as further provided under the Joint
Development Plan. Issues or questions arising from the meaning of any of the
above, accounted for in this Section 6.1, shall be the purview of the JSC to
evaluate and resolve, with the dispute resolution procedures under Section 5.4
and 4.3 abiding. These Development Costs may be borne by a Party in accordance
with its respective obligations under the then current Joint Development Plan
and/or subject to the Section 8.6 profit and loss share election, as the case
may be, should Magainin elect to share in U.S. profits and losses by co-funding
the Collaboration Program from Phase III Clinical Study(ies) through and
including all Regulatory Approvals.

          6.1.3   In determining Development Costs chargeable under the
Agreement, each Party will use its respective project accounting systems and
will review and approve its respective project accounting systems and
methodologies for this Collaboration Program with the other Party.

          6.1.4   US Development Costs shall mean (i) one hundred (100%) of
Development Costs (as defined in Section 1.9) through the end of Phase II plus
(ii) fifty percent (50%) of Development Costs in the United States and Europe,
beginning in Phase III through filing of NDA/BLA.

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     6.2  Up-Front Payments. Genentech will make the following nonrefundable,
non-creditable payment to Magainin of $5 Million in exchange for such form of
common equity described in the Stock Purchase Agreement, dated of even date
herewith, immediately upon the closing of the Stock Purchase Agreement.

     6.3  Milestones and Milestone Payments for Compounds and Products. Only in
the event that Magainin declines funding Phase III Clinical Studies, foregoing
also all subsequent filing costs associated with obtaining Regulatory Approval
for any Compound, then Genentech will be obligated to pay the milestones in
Section 6.3(a) with respect to such Compound and Product. However, Genentech
will be obligated to pay milestone payments contained in Section 6.3(b) upon
reaching the milestone events listed in Section 6.3(b) whether or not Magainin
makes such an election to jointly fund under Section 8.6 below:

               (a)  Milestone Payments on Compounds and Products in Lieu of U.S.
Profit-Share. The following payment obligations shall be triggered once only
with respect to any Compound/Product, and only in the event that Magainin does
not exercise its option to co-fund development (under Section 8.6). Genentech
shall pay said milestone payments within thirty (30) days of the occurrence of
the relevant event:

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

---------------------------------------------------------------------------
First NDA/BLA filing for an Antibody-based Compound               [**]

---------------------------------------------------------------------------
First BLA approval for an Antibody-based Product                  [**]

---------------------------------------------------------------------------
First NDA/BLA filing for each Small Molecule Compound             [**]

---------------------------------------------------------------------------
First NDA/BLA approval for each Small Molecule Product            [**]

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

               (b)  Milestone Payments on Compounds and Products Regardless of
Profit Share. The following milestones shall be payable by Genentech, once only
with respect to any Compound/Product, within thirty days of the occurrence of
the relevant event, and whether or not Magainin elects to participate in US
profits and losses pursuant to Section 8.6 below.

---------------------------------------------------------------------------
Milestone                                                         Milestone
---------                                                         ---------
                                                                  Payment
                                                                  ---------
Upon Initiating first Phase I Clinical Study for the first           [**]
Antibody Compound

---------------------------------------------------------------------------
Initiation of first Phase II Clinical Study for the first            [**]
Antibody Compound

---------------------------------------------------------------------------
Initiation of the first Phase III Clinical Study for the first       [**]
Antibody
---------------------------------------------------------------------------

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

---------------------------------------------------------------------------
Compound
---------------------------------------------------------------------------
Upon first Regulatory Approvals for the first Antibody Compound      [**]
in Europe
---------------------------------------------------------------------------
Upon first Regulatory Approvals for the first Antibody Compound      [**]
in Japan
---------------------------------------------------------------------------
Selection of each Small Molecule-based Compound ready to enter       [**]
clinical testing
---------------------------------------------------------------------------
Initiation of first Phase I Clinical Study for each such Small       [**]
Molecule-based Compound
---------------------------------------------------------------------------
Initiation of the first Phase II Clinical Study for each such        [**]
Small Molecule-based Compound
---------------------------------------------------------------------------
Initiation of the first Phase III Clinical Study for each such       [**]
Small Molecule-based Compound
---------------------------------------------------------------------------
Upon first Regulatory Approval for each Small Molecule-based         [**]
Compound in Europe
---------------------------------------------------------------------------
Upon first Regulatory Approval for each Small Molecule-based         [**]
Compound in Japan
---------------------------------------------------------------------------

     6.4   U.S. Royalties in Lieu of Profit-Share & Ex-US Royalties on Products
Regardless of Profit-Share. In the event that Magainin declines co-funding Phase
III Clinical Studies (by not electing an option to share in U.S. profits and
losses, pursuant to 8.6 hereof) then the following U.S. royalties on Net Sales
apply to the sale of a Product, covered by a Valid Claim of a Magainin Patent at
the following rates; andregardless of whether or not Magainin elects to fund
Phase III development and beyond, pursuant to Section 8.6, Genentech shall be
obligated to pay the following ex-U.S. royalties based upon revenue that
Genentech recognizes for Net Sales of the Product in the Territory outside of
the United States; provided, however, that to the extent that, and for so long
as, no Valid Claim of a Magainin Patent (or of a Patent solely or jointly
invented by Magainin which has been assigned to Genentech under Article 10
below) covers the Product in the relevant country (U.S. or ex-U.S.), then the
royalties payable in such country shall be [**]% of the royalties set forth
below. These royalty obligations shall expire on a country-by country, and
Product-by-Product basis, on the later of the last to expire Valid Claim of a
Magainin Patent (or of a Patent solely or jointly invented by Magainin which has
been assigned to Genentech under Article 10 below) covering such Product or [**]
years from the first sale of such Product in such country.

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

<TABLE>
<S>                                                                     <C>
------------------------------------------------------------------------------------
Net Sales for Products Sold in the Field                                Royalty Rate
----------------------------------------                                ------------
------------------------------------------------------------------------------------
For each dollar up to the first [**] in U.S. Net Sales, calculated           [**]
annually based on a calendar year
------------------------------------------------------------------------------------
For each dollar of U.S. Net Sales (reset each January 1st) that is           [**]
greater than [**] in a calendar year
------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales in                 [**]
Europe, calculated annually in a calendar year
------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales in Asia,           [**]
calculated annually in a calendar year
------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales for the            [**]
rest of the world (outside the United States, Europe and Asia),
calculated annually
------------------------------------------------------------------------------------
For each dollar of Europe cumulative Net Sales (reset each calendar          [**]
year) that is greater than [**], calculated annually
------------------------------------------------------------------------------------
For each dollar of Asian cumulative Net Sales (reset each calendar           [**]
year) that is greater than [**], calculated annually
------------------------------------------------------------------------------------
For each dollar of cumulative Net Sales from the rest of the world           [**]
world (outside the United States, Europe and Asia) (reset each
calendar year) that is greater than [**], calculated annually
------------------------------------------------------------------------------------
</TABLE>

     6.5  Fees and Royalties for Target Compounds and Target Products.

               (a)  In the event Genentech selects and receives exclusive rights
with respect to a Target from the Magainin Gene Database, upon which Genentech
does not elect to co-develop pursuant to Section 3.2(c)(ii) above, then
Genentech shall be obligated to pay to Magainin the following payments under
6.5(b), only once for each Target, within thirty (30) days of a Target Compound
within such Target reaching the following milestone events, and also the
royalties under 6.5(c).

               (b)  Milestones for Target Compounds:

Milestone                                                   Milestone Payment
---------                                                   -----------------
First IND acceptance                                               [**]
--------------------------------------------------------------------------------
First Start of Phase III Clinical Study                            [**]
--------------------------------------------------------------------------------
First NDA/BLA approval                                             [**]
--------------------------------------------------------------------------------
Upon Reaching the First [**] in U.S.                               [**]
Net Sales
--------------------------------------------------------------------------------

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (c)  Royalties Payable by Genentech on Target Products. Royalties
are payable by Genentech to Magainin at a rate of [**] based upon Net Sales
revenues (throughout the world) for Target Products, and are subject to an
offset for Third Party rights as provided in Section 6.7, with a floor of [**].
This royalty obligation shall expire, on Target Product by Target Product basis,
[**] from the First Sale of a Target Product.

     6.6  Profit Share Election - In the event that Magainin elects to
participate in U.S. profits and losses for a Compound pursuant to Section 8.6,
meaning that Magainin elects to fund [**] of the US Development Costs for Phase
III Clinical Study or pivotal trial through and including regulatory filings as
well as all costs associated with obtaining Regulatory Approvals in the United
States, as detailed below in Article 8, Magainin will become eligible to share
U.S. operating profits and losses at the rate of [**]. Said sharing of US
profits and losses shall be governed by the provisions of the Financial Appendix
attached as Schedule B. For any losses incurred in any given year, Genentech
will fund Magainin's portion of such losses by taking an amount constituting
such loss in preferred equity similar to and under the same conditions as
provided in the Stock Purchase Agreement, dated of even date herewith.

     6.7  Failed Compounds. Milestone payments made by Genentech for Small
Molecule Compound(s) never reaching a Regulatory Approval are fully creditable
back to Genentech at the time of Small Molecule Product or Small Molecule
Compound withdrawal from the Collaboration Program. In the event that a Small
Molecule Compound or Small Molecule Product shall fail to achieve Regulatory
Approval in any country ("Failed Compound"), such milestone amount paid shall be
applied to any future Compound or Product put into development by the Joint
Project Team ("Replacement Compound"). Milestone payments for a Replacement
Compound that proceeds in further development (as determined by the Joint
Project Team) following the time that the Failed Compound was taken out of the
Collaboration Program shall resume only after all such credits due to Genentech
are applied. There shall be no obligation by Magainin to refund Genentech for
previously paid milestones. [**].

     6.8  Offsets for Third Party Rights; Combination Product Adjustments.

          6.8.1   Third Party Royalty Offset. Subject to other terms of this
Agreement, on a country by country basis, the royalties otherwise due and
payable by Genentech under Sections 6.4 and 6.5 above, shall be reduced as
provided in this Section 6.7 in the event that in any royalty period, Genentech
(or its Affiliates or sublicensees) in its good faith determination in order to
exploit the licenses granted under Article 3, and Section 6.4 of this Agreement
in any country, makes (or, pursuant to Section 12.3, later makes) any payment to
one or more Third Parties ("Third Party Payments") in connection with any
license agreement with such Third Party granting rights to practice and use any
patent rights or technology of such Third Party, in connection with a Product or
its development, manufacture, use or sale in any country in the Territory. In
any such case, the royalties

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

(if any) due to Magainin shall be fully reduced by the amount of such Third
Party Payment until it reaches a floor of [**] of the royalties owed therefor
plus amounts constituting Magainin's obligation to pay royalites to Ludwig
Insitut, if applicable.

          6.8.2   Combination Product Adjustment. In the event a Product is sold
in the form of a combination product containing one or more active ingredients
licensed from a Third Party, Net Sales for such combination product will be
adjusted by multiplying actual Net Sales as applicable, of such combination
product by the fraction A/(A + B) where A is the invoice price of the Product,
sold separately, and B is the invoice price of the Third Party product, sold
separately. If the Third Party product is not sold separately, Net Sales shall
be calculated by multiplying actual Net Sales of such combination product by the
fraction A/C where A is the invoice price of the Product sold separately, and C
is the invoice price of the combination product.

     6.9  Royalty Payment Periods and Procedure.

          6.9.1   Quarterly Royalty Payments and Royalty Periods. To the extent
royalties are payable hereunder, such royalties owing to Magainin pursuant to
Sections 6.4 and 6.5 shall be payable by Genentech within sixty (60) days after
each March 31, June 30, September 30 and December 31 based upon the Net Sales of
Products during the three (3) month period preceding these dates or on such
periodic basis, no less than quarterly, as Genentech shall conduct its regular
accounting and payment of royalties, provided Genentech is not recognizing sales
that in any foreign jurisdiction where the currency is blocked as provided under
Section 6.9 hereof. Genentech shall pay Magainin royalties based upon the time
that revenue is recognized by Genentech for such Net Sales of Products.

          6.9.2   Reports. Genentech shall furnish to Magainin on a
quarterly basis at the same time as each royalty payment is made by Genentech, a
reasonably detailed written report of Net Sales of the Products and the royalty
due and payable thereon, including a description of any offsets or credits
deducted therefrom, on a product-by-product and country-by-country basis, for
the quarterly calendar period upon which the royalty payment is based. Each
Affiliate and sublicensee shall report its Net Sales to Magainin through
Genentech, which Net Sales will be added to Net Sales made by Genentech for
purposes of determining incremental royalty-rates applicable, based upon a
calculation of total cumulative Net Sales on an annualized basis.

          6.10    Foreign Sales; Blocked Currency . The remittance of royalties
payable on Net Sales generated in currencies other than U.S. Dollars shall be
payable to Magainin in United States Dollars, calculated at the official rate of
exchange of the currency received by Genentech, its Affiliates or sublicensee,
as quoted in Reuters for the last business day of the quarterly period to which
the royalties apply. In each country where the local currency is blocked and
cannot be removed from the country, royalties shall continue to be accrued in
such country based upon Net Sales in that country, but such royalties will not
be paid until such time as they may be removed from that country.

          6.11    Taxes. All royalty payments due hereunder shall be made free
and clear of any taxes, duties, levies, fees or charges. Any tax required to be
withheld by Genentech, its Affiliates or sublicensees, including without
limitation income and withholding taxes as well as customs duties owed by
Magainin, under the laws of any country for the accounts of Magainin, shall be
promptly paid by Genentech or such sublicensee for and on behalf of Magainin to
the appropriate governmental authority, and Genentech or such sublicensee, as
the case may be, shall use best efforts to furnish Magainin with proof of
payment and any official documentation issued by the applicable government
authority.

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** Certain portions of this exhibit have been omitted basd upon request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     6.12   Audits and Auditing Procedures. At the request and expense of either
Party to call an audit ("Auditing Party"), the other Party ("Audited Party")
shall permit an independent, certified public accountant appointed by the
Auditing Party and reasonably acceptable to the Audited Party, at reasonable
times and upon reasonable written notice, to examine such records as may be
necessary to: (i) determine the correctness of any report or payment made under
this Agreement; (ii) obtain information as to the aggregate U.S. Operating
Profit or Loss and/or royalties payable for any calendar quarter in the case of
either Party's failure to report or pay pursuant to this Agreement; or (iii)
determine the correctness of the application of any proceeds hereunder;
provided, however, that such accountant shall sign a confidentiality agreement
in a form reasonably satisfactory to the Audited Party, and, provided further,
that such examination shall not be permitted more than once in any twelve (12)-
month period. Said accountant shall not disclose to the Auditing Party or any
other person any information, except that such accountant may disclose to the
Auditing Party the fact of a deficiency, the lack of a deficiency or any
overpayment, and the degree thereof, including the dollar amount. All results of
any such examination shall be made available to the both Parties.

     In the event that any audit reveals a deficiency in the amount that should
have been paid by Genentech to Magainin, then Genentech shall pay the underpaid
amount to Magainin within forty-five (45) days after Magainin makes a demand
therefor, plus interest thereon if such deficiency is in excess of five percent
(5%) of the amount that actually should have been paid by Genentech. Such
interest shall be calculated from the date such underpaid amount was due until
the date such underpaid amount is actually paid, at the prime rate of interest
reported in the Federal Reserve's Weekly Publication "H.15" applicable for week
containing the date such amount was due. In addition, if such underpaid amount
is in excess of the greater of five percent (5%) of the amount that actually
should have been paid by Genentech, then Genentech shall reimburse Magainin for
the reasonable cost of such audit. In the event of an overpayment, such amounts
shall be deducted from Magainin's royalties. If such overpaid amounts have not
been settled by such royalty deductions three (3) years from the date originally
overpaid, Genentech shall invoice Magainin for such amounts.

     6.13   Additional Equity Purchases.

     (a)    Schedule of Purchases over a Period of Time. Beginning on the
Effective Date through Phase II Clinical Study(ies), and potentially extending
to such periods covering Phase III Clinical Study(ies), Regulatory Approval and
first year post-launch, depending on Magainin's election to opt in to the profit
share under Section 8.6 hereof, Genentech shall fund Magainin's expenses
associated with its obligations in the Collaboration Program over the
aforementioned time periods by making the following additional equity or debt
investments, as the case may be, as provided in that certain Stock Purchase
Agreement, dated of even date herewith. The schedule of such continuing equity
purchases or debt arrangements is quarterly, from the Effective Date, set on
dates outlined in the Stock Purchase Agreement or as otherwise established by
the Joint Steering Committee. Genentech's obligations to make equity investments
or enter into a debt arrangement pursuant to the Stock Purchase Agreement shall
terminate (i) when the threshold measurement, as calculated in Section 8.6(b) is
met, as a measurement that Genentech's percentage holdings in Magainin are over
20% on an as converted basis; or (ii) upon the termination or expiration of the
Stock Purchase Agreement, whichever is earlier .

     (b)    Applying the Funding from Equity. On a yearly basis, and prior to
 any quarterly equity purchase or debt arrangement that Genentech will make, the
 Joint Project Team will generate a quarter by quarter budget specifically
 describing Magainin's activities and projected expenses for work to be
 conducted during periods either (i) prior to end of Phase II Clinical Study for
 Magainin; or (ii) after the start of Phase III Clinical Study, for Genentech.
 Such budgets shall, quarter by quarter,

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confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

be submitted to the Joint Steering Committee for its review and prior approval
to fund. Once the the Joint Steering Committee approves the budget, it will give
its confirmation to allow the next purchase of equity, or debt as the case may
be, to occur. Such funds (in exchange for preferred equity or as otherwise
generated under a debt instrument as further described in the Stock Purchase
Agreement,) shall be used to fund Magainin's activities in accordance with the
purposes and procedures set forth in Sections 5.2(k) and (l) and 4.2(b) and
under the Joint Development Plan or for Magainin's [**] share of US Development
Costs or launch year losses owed to Genentech. Funds generated to Magainin
therefrom shall be applied by Magainin only to that following quarter's expenses
(through the end of Phase II), or through Phase III, filing and for Magainin's
cost-sharing, pursuant to an election it may make under Section 8.6 and for no
other purpose unless otherwise approved in writing by Genentech.

          (C)  Quality of the Preferred at Each Closing. Each share of equity
that Genentech shall purchase shall have the same substantive provisions as the
Series A Preferred Stock with the same preferences, pricing provisions, rights
and designations as described in the Stock Purchase Agreement and ancillary
documents, dated of even date herewith.

          6.14  Royalties Payable to Genentech on its Grant Back to Magainin. In
the event that Magainin elects a grant-back of rights under Section
13.8(b)(i)(2) for a Genentech termination under Section 13.2(a) and Magainin
then successfully develops a Product under a program from rights granted back,
Magainin shall be obligated to pay to Genentech quarterly the following
incremental U.S. royalties, on a Product by Product basis; provided, however,
that to the extent that, and for so long as, no Valid Claim of a Genentech
Patent (or of a Patent solely or jointly invented by Genentech which has been
assigned to Magainin under Article 10 below) covers the Product in the relevant
country, then the royalties payable in such country shall be [**] of the
royalties set forth below. Subject to Section 13.8(b)(i)(4), these U.S. royalty
obligations shall expire on a Product-by-Product basis, on the later of the last
to expire Valid Claim of a Genentech Patent (or of a Patent solely or jointly
invented by Genentech which has been assigned to Magainin under Article 10
below) covering such Product or [**] from the first sale of such Product in such
country.

--------------------------------------------------------------------------------
For terminations prior to the end of Phase II Clinical Study,           [**]
for each generated product dollar up to the first [**]
cumulative Net Sales in the U.S., calculated annually in a
calendar year
--------------------------------------------------------------------------------
For terminations prior to the end of Phase II Clinical Study,           [**]
for each  generated product dollar above [**] cumulative
Net Sales in the U.S., calculated annually in a calendar year
--------------------------------------------------------------------------------
For terminations after the end of Phase II Clinical Study,              [**]
for each generated product dollar up to the first [**]
cumulative Net Sales in the U.S., calculated annually in a
calendar year
--------------------------------------------------------------------------------
For terminations after the end Phase II Clinical Study,                 [**]
for each generated product dollar above [**] cumulative Net
Sales in the U.S., calculated annually in a calendar year
--------------------------------------------------------------------------------

                                   Article 7
                 Materials Transfer and Pre-Clinical  Research

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

7.

     7.1  Materials.  Magainin shall supply Genentech with Materials and
attendant data as shall be generally described in the Joint Development Plan.
Once received, Genentech shall use the Materials solely for the purposes
specified in this Agreement and will not sell, transfer, disclose or otherwise
provide access to the Materials to any Third Party, except that Genentech may
allow its consultants access to the Materials for purposes consistent with this
Agreement. Genentech will ensure that such consultants will use the Materials in
a manner consistent with the terms of this Agreement.

     7.2  Initial Research for the Collaboration. Initial Research, including
without limitation, proof of concept studies, humanization, development of a
mouse Antibody, humanization of mouse Antibody(ies), and affinity maturation,
will be conducted in accordance with the then annual Joint Development Plan,
("Initial Research"), as determined in the first Joint Development Plan. Initial
Research shall last, Compound by Compound, until such time as an Antibody is
selected by the Joint Project Team to be entered into a Phase I Clinical Study.

                                   Article 8
                               Joint Development
8.

     8.1  Scope of Development under the Collaboration Program; Diligence
Standard.

          8.1.1  The Collaboration Program begins at the Effective Date and
includes all of the research and development activities of either or both of the
Parties, planned, governed and resourced together and providing for joint
funding, to ultimately develop Products containing Compounds. Specifically, the
Collaboration Program includes a subset of activities, which are those
activities of the Parties pursuant to Sections 8.2 and 8.4 and, if Magainin
exercises its election to jointly fund development, (Sections 6.5 and 8.6 (Opt-
in)), and such other activities under Sections 8.3 and 8.5 as necessary to
implement the activities approved by the JSC in the annual JDPs (Joint
Development Plans as defined). The JPT (Joint Project Team, as defined), under
the oversight of the JSC (Joint Steering Committee, as defined), shall manage
the activities of the Parties under this Collaboration Program. Annually, the
JPT shall prepare a report of the development and regulatory actions to be taken
during the upcoming year. The JPT shall:

                 (a)  discuss and prepare an annual Joint Development Plan for
     the first year of the term of the Collaboration Program (or such other
     period as instructed by the JSC) and, not later than ninety (90) days
     thereafter, submit to the JSC for approval an annual JDP for such period;
     and

                 (b)  not later than June 1st of each year during the term of
     the Collaboration Program, discuss and prepare the next year's annual JDP
     and, at least thirty (30)

days prior to each anniversary of the Effective Date thereafter, submit to the
JSC for approval of such annual JDP.

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

          8.1.2  Diligence. In performing their respective development and
commercialization obligations under this Agreement, the Parties shall use
commercially reasonable efforts, meaning the maximum effort consistent with
prudent business judgment, with resources and work-commitment to an amount
commensurate for like research and development programs, and in accordance with
activities and goals set forth in the then current Joint Development Plan.

     8.2  Genentech General Responsibilities with Regard to the Collaboration
Program. As part of the Collaboration Program, Genentech shall:

               (a)  Develop (with Magainin) a human or humanized Antibody and
Mouse Antibody.

               (b)  review and approve the JPT's: (i) selection of any candidate
Compound(s), (ii) development decision criteria, and to the extent able, (iii)
determination of particular indication(s) for which a Compound is chosen to be
developed.

               (c)  Regularly review all data on all Compounds.

               (d)  Provide consulting services for Magainin regarding Phase I
and II Clinical Studies for first Compound.

               (e)  Conduct formulation-development of Products , and provide
     consulting for any related long-term toxicology studies as deemed necessary
     or desirable by the JPT in accordance with the then current annual JDP.

               (f)  Conduct all regulatory filings, provide all marketing and
     sales support and undertake any post-approval development work deemed
     necessary in Genentech's sole opinion, or as otherwise considered within
     the purview of the JPT to determine.

               (g)  Perform such other obligations with respect to the
     Collaboration Program and the then current JDP as the JSC may assign from
     time to time.

     8.3  Genentech Diligence Responsibilities under the Overall Collaboration
Program. Subject to Magainin's participation upon its election to share in
profits and losses under Sections 6.5 and 8.6, and pursuant to the annual JDPs
where applicable, Genentech shall:

               (a)  Conduct all Phase III Clinical Studies of Products for any
     indications in the Field as deemed necessary or desirable by Genentech in
     accordance with the then current annual JDP, or as applicable, to meet the
     requirements of the Regulatory Authorities as required by the Regulatory
     Authorities in the Territory for Regulatory Approvals and registrations.

               (b)  Use commercially reasonable efforts to proceed with the
     development, registration, Regulatory Approval, marketing and sale of
     Products in the Field.

               (c)  Prepare and file those regulatory filings deemed necessary
     or desirable by Genentech and for which Genentech is responsible with the
     appropriate regulatory authorities in the applicable Territory and obtain
     all Regulatory Approvals and/or registrations

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

(including pricing registrations) that Genentech deems necessary or desirable to
market and sell in such Products in the Field.

               (d)  With respect to any Compound, as between Genentech and
Magainin, Genentech shall assume all responsibilities for the manufacture and
supply of Bulk Materials of such Compound for its use and that of its Affiliates
and Sublicensees, subject to Magainin's manufacture of Small Molecule based
Compounds, for all clinical trials with the expense for such manufacture being
born by the Parties in accordance with this Agreement unless otherwise agreed by
the JSC.

               (e)  Genentech shall own the registration applications,
registrations and other regulatory filings and Regulatory Approvals (except INDs
as provided in this Agreement) for the Products in the Territories.

               (f)  Within [**] of receipt, review data on any Upstream Compound
or group of Upstream Compounds referred by Magainin and independently decide
whether to go forward in development under this Collaboration Program or
terminate that specific Compound or group of Compounds.

               (g)  Genentech shall solely be responsible for preparing and
filing regulatory filings for the Compounds as determined by the JSC up to and
including Regulatory Approval, and thereafter shall be responsible for
maintaining such Regulatory Approvals and/or registrations. All such filings
shall be in Genentech's name.

               (h)  Genentech shall be solely responsible for marketing and
sales.

     8.4  Magainin General Responsibilities with Regard to Collaboration
Program. As part of the Collaboration Program, Magainin shall:

               (a)  Develop (with Genentech) a human or humanized Antibody and
Mouse Antibody.

               (b)  Conduct, in consultation with Genentech and in accordance
with the applicable annual JDPs, all preclinical, and long-term toxicology,
clinical trials pre-IND through the end of Phase II Clinical Studies up until
the JPT's decision to put a Compound or Product into a Phase III Clinical Study.

               (c)  Prepare and file INDs for each Compound selected by the JPT
for development and provide Genentech with all information necessary or
desirable and a concomitant right to cross-reference and/or assume
responsibility for each of Magainin's INDs in the Field.

     8.5  Magainin Diligence Responsibilities under the Overall Collaboration
Program. As part of the Collaboration, and pursuant to the annual JDPs, Magainin
shall:

               (a)  Magainin shall resource this Collaboration Program with a
sufficient number of FTEs as are necessary and required under the then current
Joint Development Plan.

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (b)  With respect to any Compound, and at the time requested by
the Joint Project Team, transfer to Genentech copies of all pre-clinical and
clinical data and studies and information developed, owned, or controlled by
Magainin (including primary and secondary pharmacology, toxicology, formulation,
stability studies, and any relevant feasibility study results) relating to the
development and commercialization of Compounds.

               (c)  Provide the JPT with data and results from any discovery
efforts Magainin may conduct from time to time with respect to each Compound,
Target Compound and Upstream Compound, as available.

               (d)  Assume all responsibilities for the manufacture and supply
of Bulk Materials for Small Molecule Compound(s) for any Party's use and that of
their respective Affiliates and sublicensees, as agreed upon by the JSC, for all
clinical trials with the expense for such manufacture being borne by the Parties
in accordance with this Agreement.

               (e)  At all times during the term of this Agreement, keep
Genentech informed, through regular, periodic but detailed written reports, at
least once in each calendar year, of all development progress being made by
Magainin with respect to all Compounds, both in and outside the Field.

               (f)  In order to assist Genentech in the performance of its
obligations under Section 8.5 (f), Magainin shall provide Genentech or its
designee(s) with complete copies (or copies of relevant portions) of, and shall
grant Genentech or its designee(s), free of charge, the right to cross-reference
any INDs, registration applications, Regulatory Approval registrations or other
regulatory filings made or held in any country for the Products. Magainin shall
execute, acknowledge and deliver such further instruments, and shall do all such
other acts, all as promptly as possible after Genentech's request therefor, that
may be necessary or appropriate to effectuate such right of cross-reference in
each such country.

     8.6  U.S. Profit and Loss Share or "Opt In".

     (a)  Election or Opt In. Within ninety (90) days after the completion of
Phase II Clinical Studies (including the receipt of all results therefrom)
relating to the first (and any subsequent) Compound selected by Joint Project
Team under this Collaboration Program, Magainin shall notify Genentech in
writing if Magainin elects to exercise this option to jointly fund [**]
(Genentech funding [**] and Magainin funding [**]) of all US Development Costs
for the Phase III Clinical Study, filing of the NDA/BLA, other costs associated
with a Regulatory Approval. For this election, Magainin shall share in U.S.
profits and losses for Products at a rate of [**] share of U.S. profits and
losses by Magainin and [**] share of profits and losses by Genentech), with
allocations and allowances governed by the Financial Appendix, Schedule B. In
the event that Magainin makes such election, Genentech shall invoice Magainin
for Magainin's share of projected US Development Costs or losses on a quarterly
basis, in advance of each Quarter, according to the Financial Appendix, Schedule
B.

     (b)  Investments for Co-Funding Development. Genentech shall be obligated
to provide funding to Magainin in exchange for equity or debt at Magainin's
election and on the following conditions. At Magainin's option, Magainin will
have the right but not the obligation to fund its [**] share of Phase III
Clinical Study(ies), NDA/BLA filing, Regulatory Approval expenses and [**] of
launch year losses ("Cumulative Investment") with funds generated from
Genentech's

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

quarterly purchases of Series A preferred stock or debt, pursuant to the Stock
Purchase Agreement of even date herewith. Magainin shall only use the funding
from this Section 8.6 election for the purposes ascribed in this Section 8.6.
Moreover, such equity or debt purchases are contingient upon the following event
not occuring. If the Cumulative Investment through the launch year, determined
at the beginning of Phase III Clinical Study(ies), would cause: (i) the number
of shares obtained by multiplying the then outstanding shares including this
investment (being the sum of (A) the number of issued and outstanding shares of
Magainin Common Stock, (B) the number of shares of Magainin Common Stock
issuable upon exercise of vested options, and exercisable warrants and (C) the
number of shares of Magainin Common Stock that would be issued upon conversion
of the Outstanding Series A Preferred Stock (employing for the purpose of
calculating the number of shares of Common Stock to be issued upon such
conversion, in lieu of the Conversion Price, the closing price of Magainin's
Common Stock on the immediately preceding Trading Day)), by the average closing
price of such Common Stock in the preceding [**] Trading Days; to be less than
                                                               ---------------
(ii) [**] of the Cumulative Investment. In such event, Genentech shall have no
obligation to provide funding or purchase any more equity or debt of Magainin.
Furthermore, in the event Magainin is in default of any debt instrument
hereunder with Genentech, Genentech will be relieved of any further obligation
to fund, purchase equity or enter into any debt arrangement with Magainin from
that date of default forward. See Stock Purchase Agreement for definitions not
contained herein.

     8.7  Conduct of the Collaboration Program. The Parties, acting in
accordance with this Article 8 and the then current annual JDP, when applicable,
shall use commercially reasonable efforts to develop the Products in the Field.
Genentech, acting in accordance with this Article 8 and the then relevant JDP,
when applicable, shall use commercially reasonable efforts to obtain Regulatory
Approval and/or registrations that Genentech deems necessary to market and sell
the Products in the applicable Territory. Without limiting the generality of the
foregoing, during the term of the Collaboration Program, each Party shall:

               (a)  cooperate with the other Party to implement the JDP, and
such other activities that, from time to time, the JSC decides are necessary for
the commercial success of the Collaboration Program;

               (b)  use commercially reasonable efforts to perform the work set
out for such Party to perform in the then current JDP;

               (c)  conduct the Collaboration Program in good scientific manner,
and in compliance in all material respects with all requirements of applicable
laws, rules and regulations, and all other requirements of any applicable cGMP,
good laboratory practice and current good clinical practice to attempt to
achieve the objectives of the Collaboration Program efficiently and
expeditiously;

               (d)  maintain records, in sufficient detail and in good
scientific manner, which shall be complete and accurate and shall fully and
properly reflect all work done and results achieved in connection with the
Collaboration Program in the form required under all applicable laws and
regulations. The other Party shall have the right, during normal business hours
and upon reasonable prior written notice, to inspect and copy all such records
at its own expense, so long as doing so is not unreasonably disruptive. The
other Party shall maintain such records and information contained therein as
Confidential Information in accordance with Article 9 and shall not use such
records or information except to the extent otherwise permitted by this
Agreement; and

               (e)  allow representatives of either Party, upon reasonable prior
written notice and during normal business hours, to visit the other Party's
facilities where the Collaboration

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

Program is being conducted, and consult, during such visits and by telephone,
with relevant personnel performing work on the Collaboration Program, so long as
such visits and consultations are not unreasonably disruptive. Each Party shall
maintain any information received (whether by observation or otherwise) during
such visit in confidence in accordance with Confidential Information provisions
and Article 9 and shall not use such information except to the extent otherwise
permitted by this Agreement.

     8.8  Liability.  Each Party shall be responsible for, and hereby assumes,
any and all risks of personal injury or property damage attributable to the
negligent or willful acts or omissions, during the term of the Collaboration
Program, of such Party or its Affiliates, and their respective directors,
officers, employees and agents.

                                   Article 9
                          Publication; Confidentiality

9.

     9.1  Notification and Review with Respect to Magainin and Genentech.

          9.1.1  Both Parties recognize that each may wish to publish the
results of their work relating to the subject matter of this Agreement. However,
both Parties also recognize the importance of acquiring patent protection.
Consequently, any proposed publication, by either Party (including its
Affiliates), that includes information related to the Compounds or Products, or
which otherwise includes proprietary information of the other Party or
Confidential Information, shall comply with this Article 9. At least sixty (60)
days before any disclosure or manuscript is to be submitted to a publisher, the
publishing Party shall provide the nonpublishing Party with a copy of the
manuscript. If the publishing Party wishes to make an oral presentation, it
shall provide the nonpublishing Party with a summary of such presentation at
least fifteen (15) business days before such oral presentation and, if an
abstract is to be published, seven (7) business days before such abstract is to
be submitted. Any oral presentation, (including any question and answer period
or discussion period in conjunction with such oral presentation), shall not
include any Confidential Information unless both Parties otherwise mutually
agree in writing in advance of such oral presentation.

          9.1.2  The nonpublishing Party shall review the manuscript, abstract,
text or any other material provided under Section 9.1.1 to determine whether
patentable subject matter is or may be disclosed. The nonpublishing Party shall
notify the publishing Party in writing within thirty (30) days (or seven (7)
business days in the case of abstracts) of receipt of the proposed publication
if it, in good faith, determines that patentable subject matter is or may be
disclosed, or if the Joint Project Team, in good faith, believes Confidential
Information (as defined) is or may be disclosed. To the extent solely determined
by the JSC, after consulting with the nonpublishing Party, that patent
applications should be filed, the publishing Party shall delay its publication
or presentation for a period not to exceed one hundred twenty (120) days from
the nonpublishing Party's receipt of the proposed publication or presentation to
allow time for the filing of patent applications covering patentable subject
matter. In the event that the delay needed to complete the filing of any
necessary patent application will exceed the one hundred twenty (120)-day
period, the nonpublishing Party will discuss with the publishing Party the need
for obtaining an extension of the publication delay beyond the one hundred
twenty (120)-day period. If the nonpublishing Party determines in good faith
that Confidential Information or proprietary information is or may be disclosed,
the Parties will consult in

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

good faith to arrive at an agreement on mutually acceptable modifications to the
proposed publication or presentation to avoid such disclosure.

     9.2  Public Announcements and Statements to Press. Except as expressly
provided in this Article 9, each Party agrees not to make any public
announcement or disclosure (including, without limitation, any press release,
summary or Q&A) of any sort, including without limitation, the terms of this
Agreement, the Stock Purchase Agreement or the documents ancillary thereto, or
the identity or potential applications of any Compound, without first obtaining
the written approval of the other Party and agreement upon the nature and text
of such public announcement or disclosure. On and after the Effective Date,
Magainin may issue the press release after a full review and approval by
Genentech, the content of which will be agreed upon in advance by the Parties.
The Party desiring to make any other such public announcement or media release
shall provide the other Party with a copy of the proposed announcement for
review and comment in reasonably sufficient time prior to public release.

     9.3  Statements under Securities Law; Information Shared with Professional
Advisors.

               (a)  Each Party agrees that it shall cooperate fully with the
other with respect to all disclosures regarding this Agreement, the Stock
Purchase Agreement and the documents ancillary thereto required under applicable
laws and regulations to the United States Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers ("NASD") and any
other governmental or regulatory agencies, including by way of example only but
not limited to, (i) disclosures relating to the filing of a registration
statement by Magainin regarding a public offering of its common stock and (ii)
requests for confidential treatment of proprietary information of either Party
included in any such governmental disclosure.

               (b)  In addition, each Party agrees not to disclose, under any
circumstances except as set forth in this Article 9 or as otherwise required by
law, the terms of this Agreement, the Stock Purchase Agreement or the documents
ancillary thereto, or the identity or potential applications of any Compound, to
any Third Party other than to professional advisors and financing sources, and
in that case, only under confidentiality terms at least as stringent in material
respects as this Article 9. Genentech shall have the right to review and comment
on registration statements and applications for confidential treatment insofar
as they pertain to this Agreement, the Stock Purchase Agreement and the
documents ancillary thereto, prior to being filed with the SEC or NASD as the
case may be, and Magainin shall not unreasonably refuse to accommodate such
comments. Genentech shall provide its comments, if any, on such registration
statement or application as soon as practicable, and in no event later than the
fifth (5th) business day after the day such registration statement or
application is received by Genentech.

     9.4  Confidentiality Period. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree that, during
the term of this Agreement and for five (5) years thereafter, the receiving
Party shall keep, and shall ensure that its employees, officers and directors
keep, completely confidential and shall not publish or otherwise disclose and
shall not use for any purpose any Confidential Information furnished to it by
the other Party or developed under or in connection with this Agreement or the
Stock Purchase Agreement.

     9.5  Limitations on Use. Each Party shall use any Confidential Information
obtained by such Party from the other Party, its Affiliates, its licensees or
its sublicensees, pursuant to this Agreement or otherwise, solely in connection
with the activities or transactions contemplated hereby.

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** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

Neither Party shall be precluded from using its own Confidential Information to
the extent it does not negatively impact the other Party or impair any rights of
the other Party with respect to the Collaboration Program.

     9.6  Remedies. Each Party shall be entitled, in addition to any other right
or remedy it may have, at law or in equity, to an injunction, without the
posting of any bond or other security, enjoining or restraining the other Party
from any violation or threatened violation of this Article 9.

                                  Article  10
                               Proprietary Rights

10.

     10.1 Know How.

               (a)  Genentech shall own all Antibody Related Collaboration Know
How whether generated solely by Genentech, solely by Magainin or jointly by
Magainin and Genentech. Magainin shall own all Small Molecule Related
Collaboration Know How whether generated solely by Genentech, solely by Magainin
or jointly by Magainin and Genentech.

               (b)  Know How other than Collaboration Know How shall be owned by
the Party generating the Know How.

     10.2  Inventions.

               (a)  Antibody Inventions: Any invention that becomes the subject
of a patent application during the course of the Collaboration Program that
relates to an Antibody Compound and that is conceived and reduced to practice
either (i) jointly by employees of Magainin and Genentech or others obligated to
assign such invention to Magainin or Genentech, or (ii) solely by employees of
Magainin or others obligated to assign such inventions to Magainin ("Magainin
Inventors") or (iii) solely by employees of Genentech or others obliged to
assign such inventions to Genentech ("Genentech Inventors") shall be owned
solely by Genentech during the term of this Agreement ("Antibody Inventions").
Magainin will execute such documents or take such actions as are necessary to
assign Antibody Inventions to Genentech to effectuate the foregoing. Genentech
shall be responsible for filing, prosecuting, and maintaining patent
applications and patents covering Antibody Inventions during the term of this
Agreement. Within thirty days of the termination of this Agreement for any of
the reasons provided in Article 13 hereof, Magainin and Genentech shall assign
all issued and pending U.S. and foreign patents and applications covering
Antibody Inventions to Genentech or Magainin according to the following: i)
patent applications or patents having only Magainin Inventors shall be assigned
to Magainin, ii) patent applications or patents having only Genentech Inventors
shall remain assigned to Genentech and iii) patent applications or patents
having both Magainin Inventors and Genentech Inventors shall be jointly assigned
to Genentech and Magainin.

               (b)  Small Molecule Inventions: Any invention that becomes the
subject of a patent application during the course of the Collaboration Program
that relates to a Small Molecule and that is conceived and reduced to practice
either (i) jointly by employees of Magainin and Genentech or others obligated to
assign such invention to Magainin or Genentech, or (ii) solely by

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confidential treatment that has been filed with the Commission. The omitted
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<PAGE>

employees of Magainin or others obligated to assign such inventions to Magainin
("Magainin Inventors") or (iii) solely by employees of Genentech or others
obliged to assign such inventions to Genentech ("Genentech Inventors") shall be
owned solely by Magainin during the term of this Agreement ("Small Molecule
Inventions"). Genentech will execute such documents or take such actions as are
necessary to assign Small Molecule Inventions to Magainin to effectuate the
foregoing. Magainin shall be responsible for filing, prosecuting, and
maintaining patent applications and patents covering Small Molecule Inventions
during the term of this Agreement. Within thirty days of the termination of this
Agreement for any of the reasons provided in Article 13 hereof, Magainin and
Genentech shall assign all issued and pending U.S. and foreign patents and
applications covering Small Molecule Inventions to Genentech or Magainin
according to the following: i) patent applications or patents having only
Magainin Inventors shall remain assigned to Magainin, ii) patent applications or
patents having only Genentech Inventors shall be assigned to Genentech and iii)
patent applications or patents having both Magainin Inventors and Genentech
Inventors shall be jointly assigned to Genentech and Magainin.

               (c)  Other Inventions. The Parties acknowledge that inventions
may be made under the scope of this Agreement that do not constitute
Collaboration Inventions (e.g., inventions that are not Antibody Inventions or
Small Molecule Inventions). Consequently, Genentech shall own all inventions
other than Collaboration Inventions conceived and reduced to practice solely by
employees of Genentech (or by employees of Genentech together with employees of
a Genentech Affiliate or a Third Party), and Magainin shall own all inventions
other than Collaboration Inventions conceived and reduced to practice solely by
employees of Magainin (or by employees of Magainin together with employees of a
Magainin Affiliate or a Third Party). All inventions other than Collaboration
Inventions conceived and reduced to practice jointly by employees of Magainin
and Genentech shall be jointly owned by Genentech and Magainin. Each Party, at
its sole discretion and responsibility, may file, prosecute and maintain patent
applications and patents covering its such solely owned inventions. For such
inventions which are conceived jointly by employees of Magainin and Genentech,
the Parties shall jointly decide on a patent application filing and prosecution
strategy.

     10.3  Disclosure of Patentable Inventions.

     Each Party shall promptly, but no later than thirty days after such Party
determines that an invention has been made, disclose to the other Party any
Collaboration Inventions. In the event patent applications or patents are not
filed on such invention disclosures by either Party, such inventions shall be
considered Know-How hereunder.

     10.4  Magainin Patents

           10.4.1  Magainin Responsibility. Magainin shall be responsible for
the continued prosecution and maintenance of all patent applications and patents
within the Magainin Patents in the U.S. and each of such other countries around
the world as reasonably may be requested by Genentech, during the term of the
Agreement. All costs associated with the prosecution and maintenance of the such
patents and applications, including the costs of any interferences, oppositions,
reexamination requests, nullity proceedings, appeals or other inter-party
proceedings shall be borne solely by Magainin, except that Genentech shall
reimburse Magainin for such actual costs incurred by Magainin on or after the
Effective Date hereof in an amount not to exceed [**]. Magainin shall keep
Genentech promptly and fully informed of the course of patent prosecution of
such patents and applications within the Territory including providing Genentech
with copies of substantive communications by or with the U.S. Patent Office.
Magainin shall use reasonable efforts to solicit Genentech's advice and review
of material prosecution matters related to such patents within the Territory.

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<PAGE>

          10.4.2 Abandonment of Patents. Should Magainin intend to abandon any
Magainin Patent, Genentech shall be entitled to acquire such Magainin Patent
free of charge from Magainin, and thereafter Genentech may continue or maintain
such acquired Magainin Patent at its expense and in its sole discretion. In
order to enable Genentech to take over ownership and responsibility for any such
Magainin Patent, Magainin shall notify Genentech at least three (3) months prior
to taking or failing to take any action that would result in a loss of rights or
abandonment of subject matter within a Magainin Patent. Such action or inaction
includes, without limitation, canceling or abandoning subject matter (without
preserving the right to pursue the subject matter in a related application),
abandoning a patent (including, but not limited to, failing to pay an annuity or
maintenance fee when due), or not perfecting the filing of a patent application
within the Territory. After receiving such notice from Magainin, Genentech shall
thereafter notify Magainin whether Genentech wishes to acquire such Magainin
Patent, and if Genentech does so wish, then Magainin shall promptly cooperate to
transfer ownership of such Magainin Patent to Genentech together with all
related documents. Upon request by Genentech, Magainin shall provide to
Genentech all reasonably necessary information relating to a Magainin Patent
acquired by Genentech pursuant to this Section, in order to assist Genentech
with the continuation or maintenance of such acquired Magainin Patent.

          10.4.3 Patents from Ludwig. Magainin shall request an assignment from
Ludwig Institut for all patents or applications owned or controlled by Ludwig
Institut and licensed to Magainin by virtue of the Ludwig Agreement should
Ludwig Institut no longer be interested in prosecuting or maintaining them.
Should Magainin obtain such an assignment, Magainin agrees that Genentech shall
thereafter be responsible for the prosecution and maintenance of all such
Magainin Patents in the Territory at Genentech's cost. Prior to any actual
assignment, Magainin shall request that Ludwig Institut keep Magainin promptly
and fully informed of the course of patent prosecution of all patents and
applications owned by Ludwig Institut within the Territory including providing
Magainin with copies of substantive communications by or with the patent office
within the Territory. Magainin shall copy Genentech on all such correspondence
and use reasonable efforts to solicit Genentech's advice and review of material
prosecution matters related to the Magainin Patents within the Territory and
shall consider in good faith Genentech's comments related thereto.

     10.5 Genentech Filings. Genentech shall file, prosecute and maintain
patents and applications covering Antibody Inventions and Other Inventions owned
solely by Genentech or jointly by Genentech and Magainin conceived and reduced
to practice after the Effective Date in such countries around the world as
Genentech deems necessary.

     10.6 Cooperation in Patent Prosecution. The Parties shall cooperate in the
filing, prosecution and maintenance of Collaboration Inventions which are the
subject of patent applications. Each Party shall have the right to use any of
the data generated in the Collaboration Program to support claims made in its
patent filings. Each Party shall make available to the other Party, or its
authorized attorneys, agents or representatives, such of its employees whom the
Parties jointly deem reasonably necessary to assist it in obtaining patent
protection for inventions made in the course of the Collaboration Program.

     10.7 Waiver.

               (a)  Magainin on behalf of itself and its directors, employees,
officers, shareholders, agents, successors and assigns hereby waives any and all
actions and causes of action, claims and demands whatsoever, in law or equity of
any kind it or they may have against Genentech, its officers, directors
employees, shareholders, agents, successors, and assigns, which may arise in
any

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<PAGE>

way out of Genentech's performance of it's rights or obligations under Section
10 of this Agreement, except those resulting from Genentech's gross negligence,
recklessness, or willful misconduct.

               (b)  Genentech on behalf of itself and its directors, employees,
officers shareholders agents, successors and assigns hereby waives any and all
actions and causes of action, claims and demands whatsoever, in law or equity of
any kind it or they may have against Magainin, its officers, directors,
employees shareholders, agents, successors and assigns, which may arise in any
way out of Magainin's performance of its rights or obligations under Section 10
of this Agreement, except those resulting from Magainin's gross negligence,
recklessness, or willful misconduct.

                                  Article 11
                      Party Representations; Publications

11.

     11.1  Parties Representations and Warranties. Each Party represents and
warrants to the other Party, as of the Effective Date, that:

               (a)  such Party is duly organized and validly existing under the
laws of the jurisdiction of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;

               (b)  such Party is free to enter into this Agreement and in so
doing, such Party will not violate any other agreement to which it is a party;

               (c)  such Party has the free and clear right and authority to
enter into this Agreement and grant the licenses set forth hereunder; and such
Party has taken all corporate action necessary to authorize the execution and
delivery of this Agreement and the performance of its obligations under this
Agreement.

     11.2  Representations and Warranties of Magainin. In addition to the
representations and warranties set forth in Section 11.1, Magainin represents
and warrants to Genentech, as of the Effective Date, that:

               (a)  Magainin is the owner of, or has exclusive rights to, all of
the Magainin Patents, or has the exclusive right to grant the licenses granted
therefor this Agreement; and that all patents within the Magainin Patents are in
full force and effect;

               (b)  to the best of Magainin's knowledge, after diligent inquiry,
Magainin is the owner of or has exclusive rights to all of the Magainin Know-how
in existence on the Effective Date and, with respect to Magainin Know-how,
Magainin will use commercially reasonable efforts to own, or have rights to, all
such Know-how, and has the exclusive right to grant the licenses granted under
this Agreement with respect thereto;

               (c)  Magainin shall not provide to Genentech any Know-How,
materials, data or information that to its knowledge would infringe any rights
of any Third Party;

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               (d)  that the Exclusive License Agreement between Magainin and
the Ludwig Insitut for Cancer Research, dated December 20, 1996 ("Ludwig Insitut
Agreement") is the only license to which the rights Magainin is licensing
hereunder applies, that Magainin is in good standing under that Ludwig Insitut
license and that it has no indication or notification of breach or default
thereunder.

               (e)  Magainin shall not materially breach the Ludwig Insitut
Agreement and fail to cure such breach within the cure period provided
thereunder;

               (f)  Magainin has not entered into, and hereby agrees that it
shall not enter into, any agreement with any Third Party that is or with the
passage of time or otherwise could be in conflict with the rights granted to
Genentech, including without limitation, its due diligence covenants and as
otherwise provided pursuant to this Agreement.

     11.3  DISCLAIMER OF WARRANTIES. THE MATERIALS BEING SUPPLIED TO GENENTECH,
IF ANY, ARE BEING SUPPLIED WITH NO WARRANTIES EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

     11.4  Publication. Neither Party shall publish, submit for publication or
present any data, results, Inventions, Confidential Information or materials of
any kind arising from the research and development hereunder, without written
approval from the non-publishing Party, such approval not to be unreasonably
withheld, or as otherwise provided in Article 9 above.

                                  Article 12
                         Infringement of Patent Rights

12.

     12.1  Notification of Infringement. Each Party shall promptly notify the
other of any violation by a Third Party of any applicable Patent(s) of which
that Party becomes aware, and shall provide the other with available evidence of
such violation.

     12.2  Enforcement of Patents. Upon reasonable notice and evidence of
infringement, Genentech shall have the first right but not the obligation, to
bring any suit or action for infringement of any Magainin Patents. For any
action under Magainin Patents controlled by Magainin by virtue of the Ludwig
Institute Agreement, Magainin shall (in accordance with Section 7.1 of the
Ludwig Institut Agreement: (i) provide Ludwig Insitut with sixty (60) days prior
notice of the alleged infringement, and (ii) notify Ludwig Institut of
Magainin's election to institute action against the infringement. Magainin
hereby agrees that Genentech shall have the sole right to undertake and control
any infringement action that Magainin is permitted to bring pursuant to Section
7.1 of the Ludwig Insitut Agreement. The costs of any suit or action undertaken
by Genentech under this Section 12.2 shall be borne and paid by Genentech. Any
amount recovered by Genentech in the suit or action, whether by judgment, award,
decree or settlement, shall be first used to reimburse all of Genentech's
litigation costs, and any remainder shall be shared equally between Genentech
and Magainin. Magainin shall, upon request by Genentech, actively assist in the
prosecution of any such suit or action, but the control of such prosecution
shall reside with Genentech.

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     12.3  Standstill for Interference. During the entire period of any patent
interference action, including any court proceeding or appeal relating to such
interference, ("Interference Period") involving a United States patent
application or patent within the Magainin Patents, royalties on Net Sales then
accruing shall be subject to the offsets provided in Section 6.8.1, to the
offset floor, and Genentech may elect at any time up to one hundred eighty (180)
days following the Interference Period to pay all or part of the offset amount
to obtain a license under any patent that is awarded to a Third Party in such
patent interference action, and such payment shall be considered a Third Party
Payment under Section 6.8.1. Any portion of the offset amount that Genentech
does not pay to obtain such license from a Third Party shall be paid by
Genentech to Magainin without interest.

                                  Article 13
                             Term and Termination

13.

     13.1  Term and Expiration. The Term of this Agreement ("Term") shall expire
upon the expiration of the final royalty payment obligation under Section 6.4 or
fifteen (15) years from the first product sale, whichever comes first. With
respect to any Product being marketed under a profit share arrangement (pursuant
to Magainin's right to opt in under Section 8.6), expiration shall not occur
until such time as the Product subject of the profit-share arrangement is no
longer being marketed or sold.

     13.2  Unilateral Termination without Cause.

               (a)  Genentech's Unilateral Right to Terminate. Genentech shall
have the unilateral right to terminate this Agreement at any time for any reason
upon one hundred and eighty (180) days prior written notice to Magainin (which
notice shall be delivered as required by Section 14.9). Such unilateral right to
terminate may be as to the entire Agreement, or Compound by Compound, or Target
by Target, without the rights of the Parties impaired as to any Compounds or
Products then selected by the JPT for research, pre-clinical or clinical
development and not terminated hereby, and without the rights of Genentech
impaired as to any Target Compounds or Target Products for a Target not hereby
terminated. Genentech will only be responsible for uncancellable costs incurred
after the termination notices and before the termination is effective.

               (b)  Magainin Unilateral Right to Terminate. Magainin shall have
a right to terminate the entire Agreement for any reason on one hundred and
eighty (180) days prior written notice to Genentech, in accordance with the
notice provisions of Section 14.9 hereof. In the event that Magainin elects to
terminate its participation hereunder for any reason, Genentech shall be deemed
to have received an exclusive, irrevocable, freely transferable, and
sublicensable license under the assignments or licenses made in Section
13.8(b)(ii) in the Territory under the Magainin Technology to develop, have
developed, make, have made, use, sell and have sold, offer for sale,

import and export all Compounds, Products. Target Compounds and Target Products
in the Territory, subject only to a royalty payable in accordance with Sections
6.4 and 6.5(c), as the case may be, for Products Genentech shall sell after such
termination by Magainin; provided, however, that the maximum royalty under
Section 6.4 shall be [**], and subject to the offsets for third party rights set
forth in Section 6.8.

     13.3  Notice of Termination; Period to Cure; Uncured Defaults.

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          13.3.1  Default and Cure Period. Any one of the following events shall
constitute an event of default hereunder: (i) the failure of either Party to pay
any amounts when due hereunder and the expiration of sixty (60) days after
receipt of a written notice which shall be delivered as required by Section 14.9
requesting the payment of such amount; (ii) the failure of a Party to perform a
material obligation, other than a payment obligation, required to be performed
hereunder, and the failure to cure within one hundred twenty (120) days after
receipt of notice from the other Party specifying in reasonable detail the
nature of such default.

          13.3.2  Notice to Terminate. Upon the occurrence of any event of
default, and concomitant failure to cure as provided, the non-defaulting Party
may deliver to the defaulting Party written notice of intent to terminate, such
termination to be effective thirty (30) days after the date set forth in such
notice.

     13.4 Other Rights and Remedies Upon Default. Such termination rights shall
be in addition to and not in substitution for any other remedies that may be
available to the non-defaulting Party. Termination pursuant to this Article 13
shall not relieve the defaulting Party from liability and damages to the other
Party for breach of this Agreement. Waiver by either Party of a single default
or a succession of defaults shall not deprive such Party of any right to
terminate this Agreement arising by reason of any subsequent default.

     13.5 NASDAQ Delisting. In the event that Magainin's stock is delisted from
trading on the National Association of Securities Dealers Association Quotation
system ("NASDAQ"), for reason of the stock price falling below $1.00, under NASD
rules requiring the same, then Magainin shall promptly notify Genentech and make
any assignment of rights and licenses necessary, at Genentech's election, to
enable the Parties to continue operating under the Collaboration Program or in
the event Magainin elects no longer to be a part of the Collaboration Program,
then Magainin agrees to make any assignment of rights and licenses necessary, at
Genentech's election, to enable Genentech to continue in its development and
under all of the licenses granted hereunder. Genentech shall have a continuing
obligation, pursuant to this Agreement, for payment of milestones and royalties
(or profit-shares) as the case may be as provided in Article 6 above for
Products or Target Products.

     13.6 Change of Control. This Agreement may be assigned by Magainin upon a
change of Control (as defined in Affiliate) in Magainin, but only if the
assignee accepts all performance requirements of it and assumes all of the
obligations hereunder. Otherwise, Genentech, has the right and may elect to
terminate this Agreement by giving written notice of termination to other Party.
Termination shall be effective upon the date specified in such notice.

     13.7 Termination Upon Bankruptcy or Insolvency. This Agreement may be
terminated by a Party giving written notice of termination to other Party upon
the filing of bankruptcy or bankruptcy of the other Party or the appointment of
a receiver of any of the other Party's assets, or the making by the other Party
of any assignment for the benefit of creditors, or the institution of any
proceedings against the other Party under any bankruptcy law. Termination shall
be effective upon the date specified in such notice.

     13.8 Effects of Termination.

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               (a)  Rights Upon Expiration. Following the Term of this
Agreement, as provided in Section 13.1 above, excluding a Genentech default or
breach, Genentech shall have and remain with a fully paid up, irrevocable freely
transferable and sublicensable license in the Territory under all Magainin
Patents, Magainin owned or Controlled Intellectual Property and Magainin
Technology that were transferred, developed and licensed hereunder for any
reason, including without limitation, rights to develop, have developed, make,
have made, use, sell and have sold, offer for sale, import and export all
Products. Other than these rights intended to survive termination, or as
otherwise provided hereunder, including any obligation for Genentech to make any
reports and payments due or then owing, neither Party shall have any further
obligation to the other upon the expiration of this Agreement upon its regularly
scheduled expiration date, except for the perpetual rights surviving expiration
as provided in this Sections13.8(a) and 13.8(c).

               (b)  Rights Upon Termination.

                    (i)  In the event that this Agreement terminates in its
entirety or as it may be terminated with respect to a certain compound or
product (which may include a Compound, Product, Target, Target Compound, or
Target Product, as the case may be hereunder), or the Term expires under
Section 13.1, the licenses and assignments granted hereunder from one Party to
another with respect to the agreement in general or the relevant Compound,
Product, Target, Target Compound or Target Product, as the case may be, shall
terminate except for the grants provided in Section 3.1.3, this Section 13.8 or
as otherwise provided in Section 13.9 (work in progress).

                         (1)  Upon a unilateral termination by Genentech
pursuant to Section 13.2(a), then with respect to the entire Agreement or the
terminated Product, Compound, Target Product or Target Compound, Genentech shall
promptly return only those relevant materials, samples, documents, information,
and other materials which embody or disclose Magainin Technology which Magainin
provided to Genentech hereunder and which relate to the relevant terminated
Product, Compound, Target Product or Target Compound. Notwithstanding the
foregoing, for consideration deemed paid and received, from termination and in
perpetuity, Genentech shall retain certain rights (the "Retained Rights")
consistent with Section 13.8(c) below.

                         (2)  In the event that Genentech affects an early
termination under Section 13.2(a) or is terminated by Magainin under Section
13.3.1 due to an uncured breach or default by Genentech hereunder, which may be
compound by compound or as to the entire program, and subject to the limitations
under Section 3.3, Genentech shall provide to Magainin the following grant back
of rights and licenses in the United States, and restricted to IL-9 as follows.
Magainin shall be granted an exclusive right and license in the U.S. under
Genentech's Technology (limited to Genentech Technology developed by Genentech
under and as a direct result of Genentech's performance of activities under this
Collaboration Program) restricted to IL-9 for the research, development, use and
sale of Compounds and Products, the subject of which was terminated as the case
may be. Said grantback shall be on a royalty bearing basis in accordance with
Section 6.14. Genentech shall transfer to Magainin the preclinical and clinical
data and information, together with any relevant regulatory filings, applicable
to the relevant Compound or Product which has been terminated. In conjunction
with said grantback, Genentech agrees to attempt in good faith to separately
provide Magainin with a nonexclusive license under general technology patents
which Genentech controls and which are licensed nonexclusively by Genentech to
unrelated Third Parties, but only to the extent such rights are available and
only on such separate terms as are generally offered to such Third Parties.

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               (3)  Notwithstanding the foregoing, for consideration deemed paid
and received, from termination and in perpetuity, Genentech shall retain certain
rights (the "Retained Rights") consistent with Section 13.8(c) below.

               (4)  With respect to a Compound for which IND-enabling toxicology
and pharmacology work has been successfully completed or that has entered or
completed human clinical trials under a Joint Development Plan and for which
Genentech is manufacturing clinical or commercial quantities of said Compound or
Product, then if Genentech terminates this Agreement under Section 13.2(a) as to
said Compound or Product, then the following manufacturing provisions shall
apply. In the event that Magainin elects to go forward independently to continue
developing such Compound or Product pursuant to the grantback of U.S. rights
under Section 13.8(b)(i)(2) above, Genentech agrees to either manufacture,
itself or using a Third Party, said Compound or Product for Magainin, or to
transfer manufacturing technology to a mutually acceptable Third Party. In the
event that Genentech elects to transfer said technology, Genentech shall use its
good faith efforts to provide Magainin or said Third Party with a nonexclusive
license under relevant Genentech manufacturing patents with respect to said
Compound or Product to effect the transfer on such separate terms as are
generally made available to unrelated Third Parties or as the Parties may
mutually agree, but only to the extent that such rights and licenses are
available. The decision as to whether to manufacture or transfer manufacturing
technology shall be at Genentech's sole discretion, and Genentech may elect to
manufacture for a period of time and later transfer technology to a Third Party.
For so long as Genentech or its designee manufactures said Compound or Product
for Magainin, Magainin shall pay Genentech's Fully Burdened Manufacturing Costs
plus [**]. In the event that Genentech elects to transfer manufacturing, then
Genentech agrees to a transition period of one (1) year for a Compound in
clinical trials, and of up to two (2) years for a Product currently being
marketed, during which transition period Genentech shall continue to manufacture
said material for Magainin. Genentech shall supply up to 6 months worth of FTE
in Genentech personnel time for the technology transfer process, and Magainin
shall bear all of Genentech's FTE time in excess thereof, and any other costs or
expenses Genentech may reasonably incur in such transfer. Magainin shall
continue to pay the full royalties set forth under Section 6.14, without regard
to whether or not a Valid Claim of a Genentech Patent covers the Product, for so
long as the Product is manufactured substantially utilizing Genentech's process.

          (ii) In the event that Magainin affects an early termination at its
election or the agreement terminates for an uncured breach or default hereunder
by Magainin, or Genentech terminates this Agreement pursuant to Sections 13.6 or
13.7, then Magainin agrees to affect an exclusive assignment of rights and
licenses as necessary to enable Genentech to continue in a program under the
Magainin and Joint Technology, restricted to IL-9. In addition, Magainin shall
be obligated to promptly turn over to Genentech all Compound, Product and/or
Target related data applicable to IL-9, and related Magainin Technology, further
providing Genentech with all reasonable assistance to affect a transfer of
right, title or ownership under any relevant IND's, such to enable Genentech to
continue its development efforts that Magainin shall have been deemed hereby to
have

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abandoned. The rights in this Section 13.8(b)(ii) are then the same as provided
and contained in Sections 3.1.1 and 3.2(b) . Genentech shall have a continuing
obligation, pursuant to this Agreement, for payment of royalties as the case may
be as provided in Article 6 above for Products or Target Products.

               (c)  Retained Rights; Perpetual Know-How License to Improvements
and Data Generated. Notwithstanding any other provisions of this Agreement,
during the term as well as from termination of this Agreement and in perpetuity,
Genentech retains and owns all rights to improvements, know how, results,
methods, processes, techniques, approaches, skill, experience, knowledge that it
develops, generates, studies, derives or employs in connection with its
performance hereunder ("Retained Rights"). In no event unless otherwise agreed
herein shall Magainin seek any further rights or remuneration or seek to block
Genentech for Genentech's exercise of Retained Rights from termination and in
perpetuity.

               (d)  Rights Under the Ludwig Insitut Agreement. With respect to a
Magainin default or breach under its agreement with the Ludwig Insitut, (as
generally described in Section 11.2(d)), having the effect of impairing
Magainin's rights to operate thereunder, then, to the extent allowed and at
Genentech's sole option, Genentech shall be deemed (or named hereby) to assume
the responsibilities and own or license directly all rights under such
license(s).

     13.9  Work-in-Progress. Notwithstanding anything in this Agreement to the
contrary, upon any such early termination of the license granted hereunder in
accordance with this Agreement, Genentech shall be entitled to finish any work-
in-progress and to sell any completed inventory of a Compound or Product which
remain on hand as of the date of the termination, so long as Genentech pays to
Magainin the royalties applicable to said subsequent sales in accordance with
the terms and conditions as set forth in this Agreement, provided that no such
sales shall be permitted after the expiration of six (6) months after the date
of termination.

     13.10 Manufacturing Small Molecules for Magainin Default. If Magainin is
manufacturing and this Agreement is or may be terminated for a breach by or
insolvency of Magainin, or at such time as Genentech's rights to operate freely
hereunder are impaired by a default of Magainin to Genentech or a Third Party,
Genentech shall have the right, itself or with a Third Party, to manufacture the
Small Molecule based Compound hereunder. Magainin shall on Genentech's request,
transfer the most current of Magainin's biological materials, Know-How, reagents
and expertise necessary for Genentech to undertake, solely or with Third
Parties, the manufacture of any Product licensed to it, to the extent such is
the case.

     13.11 Effect of Termination; Survival. The termination of this Agreement
for whatever cause shall neither affect any of the rights or obligations of
either Party which have accrued until the effective Date of Termination, nor
shall it affect any rights or obligations of either Party under this Agreement
which are intended by the parties to survive such expiration or termination.
Termination of this agreement shall be without prejudice to or limitation on any
other remedies of either Party. In addition, the rights and obligations under
Article 13 and under Sections 6.14, 8.8, 10.2(a) and (b), 10.7, 11.3, 14.11 and
14.14 shall survive any termination, expiration or completion of this Agreement.

--------------------------------------------------------------------------------
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                  Article 14
                                 Miscellaneous

14.

     14.1  No Other licenses. Unless otherwise provided hereunder, nothing in
this Agreement shall be construed as conferring on either Party an express or
implied license or option to license any disclosed Confidential Information,
Technology, or any Patent or patent application owned by the other Party.

     14.2  Independent Contractors. The Parties shall perform their obligations
under this Agreement as independent contractors and nothing contained in this
Agreement shall be construed to be inconsistent with such relationship or
status. This Agreement shall not constitute, create or in any way be interpreted
as a joint venture or partnership of any kind.

     14.3  Entire Agreement. This Agreement sets forth all the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supercedes and terminates all prior agreements
and understanding between the parties hereto, and there are no covenants,
promises, agreements, warranties, representations, conditions or understandings,
either oral or written, between the parties hereto other than set forth herein.
No subsequent alteration, amendment, change or addition to this Agreement shall
be binding upon the parties hereto unless reduced to writing and signed by the
respective authorized officers of the Parties hereto.

     14.4  Governing Law. This Agreement shall be governed by the laws of the
State of California as those laws are applied to contracts entered into and to
be performed entirely in California by California residents.

     14.5  Headings. Heading are inserted for convenience and shall not affect
the meaning or interpretation of this Agreement.

     14.6  Severance. Any provision of this Agreement which is prohibited and
unenforceable in any jurisdiction, shall be ineffective as to such jurisdiction,
and to the extend of such prohibition or impossibility of enforcement, without
invalidating the remaining provisions thereof or affecting the validity or
enforcement of such provision in other jurisdictions, except if the economy of
this Agreement is obviously changed for one of the parties in which case the
parties shall negotiate to modify such illegal clause in a legal way, keeping
the financial equilibrium contemplated at the signature of this Agreement.

     14.7  Waiver.  The failure on the part of any Party hereto to exercise or
enforce any right conferred upon it hereunder, shall not be deemed to be a
waiver of any such right or operate to bar the enforcement thereof at any time
thereafter.

     14.8  Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors of the parties but shall not be assigned in whole or
in part by either party without the prior written consent of the other party,
which consent may be withheld in its absolute discretion.

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

     14.9  Notices. Any notice or consent each party shall give under this
Agreement shall be made by certified letter, telegram, telex, or telefax
followed by certified confirmation letter to the address of each party as
written in the forehead of this Agreement or to the possible new address each
party may have notified thereafter.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
For Genentech, Inc.:                                   For Magainin:

-------------------------------------------------------------------------------------------------------------
<S>                                                    <C>
1 DNA Way                                              5110 Campus Drive
-------------------------------------------------------------------------------------------------------------
South San Francisco, California. 94080                 Plymouth Meeting, Pennsylvania 19462

fax: 650-952-9881                                      fax: 610-941-5399
-------------------------------------------------------------------------------------------------------------
Attention:  Stephen G. Juelsgaard                      Attention:  Michael R. Dougherty
-------------------------------------------------------------------------------------------------------------
Executive Vice President, General Counsel and          President and CEO
Secretary
-------------------------------------------------------------------------------------------------------------
</TABLE>

     14.10 Licensed Patents. Rights and licenses granted hereunder from Magainin
to Genentech are subject to the material terms, conditions and restrictions of
the Ludwig Insitut Agreement, a license granted to Magainin from the Ludwig
Insitut.

     14.11 Disputes. Any controversy arising under or related to the Agreement,
and any disputed claim by either Party against the other under the Agreement,
shall be settled by binding arbitration in accordance with the Rules for
American Arbitration Association in proceedings conducted in the State of
California, USA. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.

     14.12 Counterparts. This Agreement may be executed simultaneously in one
(1) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

IN WITNESS WHEREOF, the parties have by duly authorized persons, executed this
Agreement, as of the date first above written.

AGREED TO:                                  AGREED TO:

Magainin Pharmaceuticals Inc.               Genentech, Inc.
5110 Campus Drive                           1 DNA Way
Plymouth Meeting, Pa.  19462                South San Francisco, Ca. 94080

/s/ Michael R. Dougherty                    /s/ Arthur D. Levinson
------------------------                    ----------------------
President & CEO                             Chairman and Chief Executive Officer

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

                                  Schedule A
                             Aerosolized Anti IL-9
                               Antibody Program
                          Joint Development Plan # 1

                                    SUMMARY

     This research plan and cost estimates are for the completion of a clinical
efficacy experiment using an aerosolized anti IL-9 antibody. The proposal covers
our current understanding of the steps required to develop and manufacture an
antibody suitable for human testing and the requirements to receive approval for
administering an antibody to asthmatic patients in Europe. This proposal is not
IND enabling. The principal project milestones are as follows:

[**]

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

                                  SCHEDULE B
                                  ----------

                              Financial Appendix

     1.1  This Schedule B covers financial planning, accounting policies and
               ----------
procedures to be followed in determining Development Costs, Fully Burdened
Manufacturing Costs and Operating Profit or Loss and related sharing of revenue
and expenses pursuant to the Agreement.

     1.2  For such purpose, this Schedule B sets forth the principles for
                                 ----------
reporting actual results and budgeted plans of the combined operations in the
Territories, the frequency of reporting, the use of a single "Functional
Currency" (as defined below) and the methods of determining payments to the
Parties, auditing of accounts and other matters.

     1.3  For purposes of this Schedule B only, the consolidated accounting of
                               ----------
operations for the Territories shall be referred to as "GenGain."  GenGain is
not a legal entity and has been defined for identification purposes only.

     1.4  This Schedule B also provides the definitions of certain financial
               ----------
terms applicable to the Parties for purposes of the Agreement; provided,
however, that the definition of "Fully Burdened Manufacturing Costs" shall apply
to Genentech or Magainin to the extent it manufactures any Product (or component
thereof) under the Agreement and the definition of "Development Costs" shall
apply to the development work by both Parties under the Agreement. All
capitalised terms used herein without definition shall have the meanings
ascribed thereto in the Agreement, unless otherwise expressly provided herein.
References in this Schedule B to a "Party" or "Parties" shall be construed to
                   ----------
mean Genentech or Magainin, as the case may be, and in every case shall be
deemed to include the Party's Affiliates under the Agreement.

B.1. Principles of Reporting

     The presentation of results of operations of the Parties in the Territories
will be based on each Party's respective financial information presented
separately and on a consolidated basis in the reporting format depicted as
follows:

                                                      Genentech  Magainin  Total
                                                      ---------  --------  -----
     Gross Sales
     less [Returns and Allowances]
        = Net Sales
     less Cost of Sales
        = Gross Profits
     less Marketing Costs
     less Sales Costs of Genentech
     less Post-Approval Development Costs chargeable to GenGain
     less Other Operating Income/Expense
     less Distribution Costs
     less General and Administrative Costs
        = Operating Profit (Loss)

     It is the intention of the Parties that the interpretation of these
definitions will be consistent with GAAP in the United States.

       If necessary, a Party will make the appropriate adjustments to the
financial information it supplies under the Agreement to conform to the above
format of reporting results of operations.

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

B.2.   Frequency of Reporting

       The fiscal year of GenGain will be a calendar year.

       Reporting by each Party for GenGain revenues and expenses will be
performed as follows, with submissions due on the date indicated or the next
business day if such date is a weekend or U.S. holiday:

<TABLE>
<CAPTION>
          -------------------------------------------------------------------------------------
          Reporting Event       Frequency                   Timing of Submission
          -------------------------------------------------------------------------------------
          <S>                  <C>                   <C>                     <C>
          Actuals              Quarterly               Q1-Q4:  End of quarter + 30
                                                               working  days
          -------------------------------------------------------------------------------------
          Forecasts            Approximately           As soon as practicable after each
                               Quarterly               quarterly meeting of Genentech's board
                                                       of directors
          -------------------------------------------------------------------------------------
          Preliminary Budgets  Annually                September 1 (one year; by year)
          -------------------------------------------------------------------------------------
          Final Budgets        Annually                October 17 (one year; by quarter)
          -------------------------------------------------------------------------------------
          Long-Range Plan      Annually                April 30 (current year plus 5 years)
          -------------------------------------------------------------------------------------
</TABLE>

Reports of actual results compared to budget shall be made to the relevant Joint
Project Team on a quarterly basis.  After approval by the Joint Project Team as
to amounts, such Joint Project Team shall forward the report to the JSC for its
approval. Variances from the total overall budgets, and significant variances in
budget line items, shall only be included in calculation of Operating Profit or
Loss when approved by the JSC after referral by the Joint Project Team.

Genentech will be responsible for the preparation of consolidated reporting of
GenGain (including Operating Profit or Loss), calculation of the profit/loss
sharing and determination of the cash settlement.  Genentech will provide the
financial representatives from each Party a statement showing the consolidated
results and calculations of the Operating Profit or Loss sharing and cash
settlement required in a format agreed to by the Parties.

On a monthly basis, Genentech will supply Magainin with each month's Gross Sales
and Net Sales of Products in units, local currency and U.S. dollars (using the
month-end rate for conversion for such month as shown in Reuters) by country in
the Territories according to Genentech's sales reporting system, which shall be
consistent with the definitions herein.  Each such report shall be provided as
early as possible, but no later than fifteen (15) days after the last day of the
month in question, and shall provide monthly and year-to-date cumulative
figures.

The financial representatives from the Parties will meet as appropriate but at
least quarterly to review and approve the following:

     .    actual results
     .    forecasts
     .    budgets
     .    long range plans
     .    inventory levels

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

     .    Sales Returns and Allowances
     .    other financial matters, including Genentech's methodologies for
          charging costs and allocating sales representatives to GenGain for
          determination of actuals, forecasts, budgets and long-range plans and
          the results of applying such methodologies.

B.3. Budget and Long-Range Plan

Responsibility for the budget and long-range plan will rest with the relevant
Joint Project Team, which will develop budgets for development and
commercialization for the term of the Joint Project Team, subject to final
approval by the JSC.

Budgets will be prepared annually.  In addition, headcount chargeable to GenGain
will be agreed to annually by the JSC.

Budgets will be supplemented with detailed business plans for clinical trials,
Regulatory Approval applications, and detailed plans for product introduction,
sales efforts and promotion as determined by each Joint Project Team.  Budgets,
once approved by the JSC, can only be changed with the written approval of the
JSC.

The Joint Project Team, with the assistance of the financial representatives
from Genentech and Magainin, will be responsible for identifying, analyzing and
reporting all significant line item budget variances and all overall, total
budget variances.  Only the JSC may approve materially unfavorable line item
budget variations, as defined by the Joint Project Team, and all overall, total
budget variations, chargeable to GenGain during the course of any year during
the term of the Agreement.

A five (5)-year long-range plan for GenGain shall be established on a yearly
basis under the direction of the JSC and submitted to Genentech and Magainin by
April 30 of each year beginning ninety (90) days after the end of Phase III
Clinical Trials.

B.4. Definitions

     B.4.1   "Allocable Overhead" means costs incurred by a Party or for its
account which are attributable to a Party's supervisory services, occupancy
costs, corporate bonus (to the extent not charged directly to department), and
its payroll, information systems, human relations or purchasing functions and
which are allocated to company departments based on space occupied or headcount
or other activity-based method consistently applied by a Party, or a standard
rate if agreed to by the Parties. Allocable Overhead shall not include any costs
attributable to general corporate activities including, by way of example,
executive management, investor relations, business development, legal affairs
and finance.

     B.4.2.  "Cost of Sales" means Fully Burdened Manufacturing Costs (as
defined below).

     B.4.3.  "Post Approval Development Costs" shall mean those Development
Costs incurred after the filing.

     B.4.4.  "Distribution Costs" means the costs, including applicable
Allocable Overhead, specifically identifiable to the distribution of a Product
by a Party including customer services, collection of data about sales to
hospitals and other end users, order entry, billing, shipping, credit and
collection and other such activities. For the purpose of the Agreement,
Genentech will charge GenGain for Distribution Costs an amount equal to two
percent (2%) of Net Sales in a lump sum.

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

     B.4.5.  "Fully Burdened Manufacturing Costs" of an item or items,
including, without limitation, a Compound, Bulk Materials or a Product (in bulk,
vialed or finished product form, as the case may be) means one hundred percent
(100%) of a Party's fully burdened manufacturing cost (as defined in the Party's
generally accepted accounting policies consistently applied) which shall
comprise the sum of:

             (a) The cost of goods produced, as determined by the Party(ies)
performing (or having performed by a Third Party) each stage of the
manufacturing process in accordance with GAAP consistently applied by such
Party(ies), including, but not limited to, direct labor and material costs and
product quality assurance/control costs as well as applicable Allocable
Overhead;

             (b) All of the Party's allocable intellectual property acquisition
and licensing costs (including, without limitation, any royalties) paid to Third
Parties as such costs relate to Products; and

             (c) Any other costs borne by the manufacturing Party for transport,
customs clearance and storage of product (if necessary) at the request of
another Party (i.e., freight, customs, duty, and insurance).

     B.4.6.  "General and Administrative Costs" means costs chargeable to
GenGain equal to ten (10%) of Genentech's Marketing Costs, Sales Costs, Post-
Approval Development Costs (excluding patent and trademark expenses) after
approval by the applicable Regulatory Authority in any country, of Genentech and
of Magainin, in the aggregate, but only to the extent these costs are chargeable
to GenGain.

     B.4.7.  "Gross Profit" means Net Sales less Cost of Sales for sales of a
Product by a Party to Third Parties in the Territory.

     B.4.8.  "Gross Sales" means the gross amount invoiced by either Party or
their Affiliates or Sublicensees for sales of a Product to Third Parties in the
Territory.

     B.4.9.  "Marketing Costs" means the direct costs of marketing, promotion,
advertising, Product promotional materials, professional education, product
related public relations, relationships with opinion leaders and professional
societies, market research (before and after product approval), healthcare
economics studies, post-marketing studies not required to maintain product
approvals, and other similar activities related to the Products and approved by
the Joint Project Team.  Such costs will include both internal costs (e.g.,
without limitation, salaries, benefits, supplies and materials, etc.),
applicable Allocable Overhead, and outside services and expenses (e.g., without
limitation, consultants, agency fees, meeting costs, etc.).  "Marketing Costs"
shall also include, without limitation, activities related to obtaining
reimbursement from payers and costs of sales and marketing data.  "Marketing
Costs" will specifically exclude the costs of activities which promote either
Party's business as a whole without being product specific (such as corporate
image advertising).

     B.4.10. "Net Sales" means, for purposes of this Financial Appendix, Gross
Sales of a Product less applicable Sales Returns and Allowances.

     B.4.11. "Operating Profit or Loss" means Net Sales of all Products less the
following items with respect to each Product, all for a given period: Cost of
Sales, Marketing Costs, Sales Costs, Development Costs (to the extent chargeable
to GenGain), General and Administrative Costs, Distribution

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

Costs, and Other Operating Income/Expense [plus revenues other than Gross Sales
attributable to a Product--Robert Please review the plus language here].

     B.4.12. "Other Operating Income/Expense" means other operating income or
expense from or to Third Parties which is not part of the primary business
activity of GenGain, but is considered and approved by the Joint Project Team
and JSC as income or expense for purposes of GenGain and is limited to the
following:

     .    actual inventory write-offs of any Product
     .    patent and trademark costs
     .    product liability insurance to the extent the Parties obtain a joint
          policy
     .    indemnification costs (as described in Section 11 of the Agreement)
     .    other (to be approved by JSC)
     .    non recurring start up costs associated with manufacturing of Product
          not included in cost of sales

     B.4.13. "Sales Costs" means Genentech's costs, including Allocable
Overhead, approved by the Joint Project Team with the annual budget, incurred by
the Parties or for their account and specifically identifiable to the sales
efforts of Products to all markets in the Territory including the managed care
market. "Sales Costs" shall include, without limitation, costs associated with
sales representatives for Products, including compensation, benefits and travel,
supervision and training of such sales representatives, sales meetings, and
other sales related expenses.

     B.4.14. "Sales Returns and Allowances" means the sum of (a), (b), and (c),
where: (a) is a provision, determined by a Party under GAAP for sales of
Products in the Territory for (i) trade, cash and quantity discounts or rebates
on Products (other than price discounts granted at the time of invoicing and
which are included in the determination of Gross Sales), (ii) credits or
allowances given or made for rejection or return of, and for creditable amounts
on, previously sold Products or for retroactive price reductions (including
Medicare and similar types of rebates and chargebacks), (iii) taxes, duties or
other governmental charges levied on or measured by the billing amount for
Products, as adjusted for rebates and refunds, (iv) charges for freight and
insurance directly related to the distribution of Products, to the extent
included in Gross Sales, and (v) credits for allowances given or made for
wastage replacement, indigent patient and any other sales programs agreed to by
the Parties for Products; (b) is a quarterly adjustment of the provision
determined in (a) to reflect amounts actually incurred by a Party in the
Territory for items (i), (ii), (iii), (iv) and (v) in clause (a); and (c) is an
adjustment for combination products (if any) under the Agreement. The provision
allowed in clause (a) and adjustments made in clauses (b) and (c) (if any) will
be reviewed by the Joint Project Team.

B.5  Foreign Exchange

The "Functional Currency" for accounting for Operating Profit or Loss will be
U.S. dollars.  For billing and reporting, the statement of operations and sales
will be translated into U.S. dollars based on the "spot-rate" on the last
business day of the calendar quarter in which the sale was made as reported in
Reuters data service, and if not available in Bloomberg.

B.6. Audits and Interim Reviews

     Either Party shall have the right to request that the other Party's
independent, certified accounting firm perform an audit or interim review of the
other Party's books in order to express an

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

opinion regarding such Party's compliance with GAAP. Such audits or review will
be conducted at the expense of the requesting Party in accordance with
procedures described in Section 6.12 of the Agreement.

B.7.  Payments between the Parties

Balancing Payments (meaning cost reimbursements plus profit share) by Genentech
to Magainin pursuant to Section 8.6 of the Agreement and, subject to Section B.2
above, payments to each Party of the agreed upon percentages of Operating Profit
or Loss as provided under Section B.10 below will be made quarterly, based on
actual results within sixty (60) days after the end of each quarter, adjusted
for reimbursement of the net expenses or income incurred or received by each
Party.  A report specifying how each payment was calculated shall also be
submitted with each payment to the non-paying Party.  In the event any payment
is made after the date specified herein, the paying Party shall increase the
amount otherwise due and payable by adding interest thereon, computed at the
rate of one percent (1%) over the prime rate of interest reported in Reuters
data service on the date so specified.  Genentech will perform the consolidation
and settlement calculations for submission to the JSC for its information.

B.8.  Responsibility for Reporting

The responsibility for the consolidated reporting of GenGain to the Joint
Project Team and JSC shall be with Genentech.  This will be the basis for the
GenGain accounting and determining of payments to the Parties.  Genentech shall
provide Magainin with a copy of the GenGain consolidated reporting and the
calculation serving as the basis of determining payments to the Parties.

B.9.  Accounting for Development Costs, Marketing Costs and Sales Costs

All Development Costs, Marketing Costs and Sales Costs will be based on the
appropriate costs definition stated in Section B.4 of this Schedule B. Each
                                                           ----------
Party shall report Development Costs in a manner consistent with its project
cost system.  In general, these project cost systems report actual time spent on
specific projects, apply the actual labor costs, capture actual costs of
specific projects and allocate other expenses to projects.  For commercial
support expenses, including without limitation, sales, marketing and product
experience, the Parties will report costs based on actual expenses at average
rates.  The Parties acknowledge that the methodologies used will be based on
systems in place in the applicable departments.

B.10. Operating Profit and Loss Sharing

In the event Magainin exercises its co-funding option pursuant to Section 8.6 of
the Agreement, Genentech and Magainin agree to share the Operating Profit or
Loss from the sale of Products in the United States in the following manner:

      (a)  Genentech shall be allocated [**] of the Operating Profit or Loss
           from the sale of Products in the United States; and

      (b)  Magainin shall be allocated [**] of the Operating Profit or Loss from
           the sale of Products in the United States.

The Party supplying commercial supplies of Product shall finance the cost of
building inventory necessary for product launch, other pre-launch marketing
activities approved by the Joint Project Team, and

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.
<PAGE>

commercial sales of Product. The non-supplying Party shall repay to the
supplying Party its share of such costs, as allocated in Section B.10(a) or (b)
above, as applicable, following first Regulatory Approval of such Products from
the Operating Profit or Loss allocated to the non-supplying Party in any
calendar quarter. If such repayment is not complete three (3) years following
such first Regulatory Approval, the non-supplying Party will complete such
repayment in a lump sum paid at the end of the next calendar quarter following
such first Regulatory Approval. Interest on any such repayment will be charged
at a rate equal to one percent (1%) over the prime rate of interest as published
in Reuters on the first business day of such calendar quarter.

B.11. Start of Operations and Effective Accounting Date Termination

Operation of GenGain will be deemed to have commenced, retroactively, as of the
completion of filing for a Product if Magainin has exercised its co-funding
option under 8.6 of the Agreement.  Costs and expenses incurred prior to such
date are not chargeable to GenGain.

For reporting and accounting purposes with respect to GenGain, the effective
termination date of the Agreement with regard to the last year a Product is sold
in the Territory will be the nearest month end to which such termination takes
place.

________________________________________________________________________________
** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
potions have been filed separately with the Commission.<PAGE>

                                                                    Exhibit 10.1

                           [Pursuant to Rule 24b-2, certain information has been
                              deleted and filed separately with the Commission.]

                           ASSET PURCHASE AGREEMENT

                                     AMONG

                                UROLOGIX, INC.,

                                EDAP TMS S.A.,

                        TECHNOMED MEDICAL SYSTEMS S.A.

                                      AND

                              EDAP TECHNOMED INC.

                                  dated as of

                                October 1, 2000
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>        <C>
ARTICLE 1, TRANSFER OF ASSETS
     1.1   Assets to Be Sold
     1.2   Assumption and Exclusion of Liabilities
     1.3   Transfer Documentation and Possession

ARTICLE 2, CONSIDERATION
     2.1   Consideration
     2.2   Escrow
     2.3   Receipt of Purchase Price

ARTICLE 3, CLOSING
     3.1   The Closing
     3.2   Deliveries of EDAP
     3.3   Deliveries of Urologix
     3.4   Further Documents

ARTICLE 4, REPRESENTATIONS AND WARRANTEES OF EDAP,
FRENCH SUBSIDIARY AND U.S. SUBSIDIARY
     4.1   Authority; Organization, Capitalization and Qualification; Effect of
           Agreement
     4.2   Financial Statements
     4.3   Absence of Certain Developments
     4.4   Title to Personal Property and Assets
     4.5   Patents, Trademarks and Copyrights
     4.6   Commitments
     4.7   Litigation
     4.8   Compliance with Laws; Permits
     4.9   Governmental Consents
     4.10  Products; Regulation
     4.11  Material Obligations
     4.12  Brokerage
     4.13  Affiliated Transactions
     4.14  Insurance
     4.15  Inventory
     4.16  Accounts and Notes Receivable
     4.17  Suppliers and Customers
     4.18  Policies, Procedures and Specifications
     4.19  Investment Representations
     4.20  Full Disclosure
     4.21  No Trading
     4.22  August 2000 PMA Report
     4.23  Labor
ARTICLE 5, REPRESENTATIONS AND WARRANTIES OF UROLOGIX
</TABLE>

                                       i
<PAGE>

<TABLE>
     <S>   <C>
     5.1   Corporate Power and Authority; Effect of Agreement
     5.2   Consents
     5.3   Financial Statements and SEC Filings
     5.4   Material Events
     5.5   Litigation
     5.6   Brokerage
     5.7   Issuance of Shares
     5.8   Absence of Certain Developments
     5.9   Patents, Trademarks and Copyrights
     5.10  Compliance with Laws
     5.11  HSR Act
     5.12  Products, Regulation
     5.13  Insurance
     5.14  Full Disclosure

ARTICLE 6, COVENANTS
     6.1   Cooperation
     6.2   Post-Closing Warranty Work
     6.3   Access
     6.4   Other Financial Statements
     6.5   Maintenance and Service Agreements
     6.6   Distribution Agreements
     6.7   Inventory
     6.8   Term Debt
     6.9   Corrective Actions
     6.10  Marketing Support
     6.11  Covenant Not to Sue
     6.12  RF Testing
     6.13  Collection of Receivables

ARTICLE 7, ADDITIONAL COVENANTS
     7.1   Sales and Other Tax
     7.2   Non-Competition
     7.3   Non-Solicitation
     7.4   EDAP TMS S.A. Name
     7.5   Confidentiality
     7.6   Bulk Sales Laws
     7.7   Board Representation
     7.8   Transferred Employees
     7.9   Insurance
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>        <C>
ARTICLE 8, INDEMNIFICATION AND RELATED MATTERS
     8.1   Survival
     8.2   Indemnification by EDAP
     8.3   Indemnification by Urologix
     8.4   Limitations
     8.5   Notice of Indemnification
     8.6   Indemnification Procedure for Third-Party Claims

ARTICLE 9, MISCELLANEOUS
     9.1   Entire Agreement
     9.2   Amendment; Waiver
     9.3   Assignment
     9.4   Headings; Usage
     9.5   Cooperation
     9.6   Expenses
     9.7   Governing Law
     9.8   Disputes
     9.9   Severability
     9.10  Counterparts
     9.11  Interpretation
     9.12  Notices
     9.13  Publicity
     9.14  No Third Party Beneficiary
     9.15  English Language

ARTICLE 10, DEFINITIONS
     10.1  Definitions
</TABLE>

                                      iii
<PAGE>

                                    EXHIBITS

     Exhibit 2.1.1    Form of Warrant

     Exhibit 2.2      Escrow Agreement

     Exhibit 3.2.1    Officers' Certificate

     Exhibit 3.2.2    Opinion of Sellers' Counsel

     Exhibit 3.2.4    Supply Agreement

     Exhibit 3.2.5    General Bill of Sale and Instrument of Assignment

     Exhibit 3.2.6-A  General Assignment of Patents and Technology

     Exhibit 3.2.6-B  General Assignment of Trademarks and Non-Patent
                      Intellectual Property

     Exhibit 3.2.7    Assumption Agreement

     Exhibit 3.2.9    Transition and Technology Transfer Agreement

     Exhibit 3.2.10   International Distribution Agreement

     Exhibit 3.2.13   Registration Rights Agreement

     Exhibit 3.3.3    Officers' Certificate

     Exhibit 3.3.4    Opinion of Urologix's Counsel

     Exhibit 3.3.11   Promissory Note

                                      iv
<PAGE>

     ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT is entered into as of October 1, 2000 among
EDAP TMS S.A., a French corporation ("EDAP"), Technomed Medical Systems S.A., a
French corporation ("French Subsidiary"), EDAP Technomed Inc., a Delaware
corporation ("U.S. Subsidiary") and Urologix, Inc., a Minnesota corporation
("Urologix").

     WHEREAS, EDAP, French Subsidiary and U.S. Subsidiary (each a "Seller" and
collectively the "Sellers") are engaged in the Business (as defined herein);

     WHEREAS, French Subsidiary and U.S. Subsidiary are each a wholly-owned
subsidiary of EDAP; and

     WHEREAS, the respective Boards of Directors of EDAP, French Subsidiary and
U.S. Subsidiary and Urologix have each determined that it is in their best
interests and the best interests of their respective shareholders that the
Sellers sell, assign, transfer, convey and deliver to Urologix or its Affiliates
all of the Assets, and that Urologix or its Affiliates purchase and acquire the
same, subject to the assumption by Urologix or its Affiliates of the Assumed
Liabilities (each such term being used as defined herein), all upon the terms
and subject to the conditions set forth in this Agreement;

     The parties hereto agree as follows:

     ARTICLE 1
                              TRANSFER OF ASSETS
                              ------------------

     1.1  Assets to be Sold.
          -----------------

     (a)  On the terms and subject to the conditions of this Agreement, Sellers
shall, on the Closing Date, sell, assign, transfer, convey and deliver to
Urologix, or to such Affiliate or Affiliates of Urologix, as Urologix may
designate in writing to EDAP (collectively, "Urologix Affiliates"), and Urologix
shall purchase or shall cause one of the Urologix Affiliates to purchase from
the Sellers on the Closing Date all of the right, title and interest of the
Sellers in the assets, properties, rights and goodwill of every kind and
description and wherever located, whether tangible or intangible, owned by the
Sellers which are used or held for use in the Business (as herein defined),
other than the Excluded Assets (the assets to be purchased by Urologix or the
Urologix Affiliates pursuant to this Section 1.1 being referred to as the
"Assets"), including, without limitation, the following:

          (i)    all equipment, machinery, molds, tools and dies and other
     tangible personal property, including all CPP units and other units at
     customer locations, whether on loan or consignment and wherever located,
     used or held for use by a Seller (or such Seller's vendors or customers)
     and used in the Business or otherwise owned or held by a

                                       1
<PAGE>

     Seller (or held by such Seller's vendors or customers) on the Closing Date
     for use in the Business, including, but not limited to the items listed on
     Schedule 1.1(a)(i), but excluding assets listed on Schedule 1.1(b)(xii);

          (ii)   all raw materials, work-in-process, spare parts and finished
     goods inventories of the Business (the "Inventory") on the Closing Date
     which are not located in France, and, as of the Closing Date, all parts of
     all Products (including, without limitation, disposables) to be sold in the
     ordinary course of the Business, merchandise, supplies or other personal
     property used in the Business;

          (iii)  all U.S. third-party accounts and notes receivable, excluding
     accounts and notes receivable from American MedTech Services, Inc.
     ("MedTech") and those listed on Schedule 1.1(b)(xiii), but including those
     receivables listed on Schedule 1.1(a)(iii), and the US$370,000 intercompany
     receivable (labeled as Other Current Assets on Sellers' March 31, 2000
     balance sheet) (the "Intercompany Receivable") of the Sellers arising from
     the conduct of the Business before the Closing Date;

          (iv)   all books of account, general and financial records, personnel
     records related to any Transferred Employee, invoices, shipping records,
     supplier lists, device history records, clinical study records, test data,
     manufacturing records, traceability records, device master records for each
     of the Products, regulatory documents, premarket approval ("PMA") files,
     including all approved and pending amendments and supplements and product
     materials prepared for, or submitted to, other governments and any files
     related to approvals by such governments, records, reports and
     correspondence, laboratory notes, research records, correspondence and
     other documents, records, data files and service manuals and any rights
     thereto used in, or relating to, the Business (with unrelated information
     redacted) on the Closing Date; provided that, within EDAP's reasonable
     discretion, EDAP may retain originals of any of the items listed in this
     Section 1.1(a)(iv), other than such original items which Urologix shall be
     required by law to retain, and provided further that any information
     retained by EDAP shall be subject to the terms of Section 7.5;

          (v)    all claims, causes of action, choses in action, rights of
     recovery and rights of set-off of any kind (including rights to insurance
     proceeds and rights under and pursuant to all warranties, representations
     and guarantees made by suppliers of products, materials or equipment, or
     components thereof), pertaining to, arising out of, and enuring to the
     benefit, of any Seller and relating to the Assets and the Business and
     relating to occurrences prior to the Closing Date, to the extent not
     expended for the repair or restoration of such Assets prior to the Closing
     Date;

          (vi)   all sales and promotional literature, customer lists artwork,
     and other sales-related materials owned, used, associated with or employed
     by and used in the Business on the Closing Date;

                                       2
<PAGE>

          (vii)  all rights of each Seller under the contracts, licenses,
     sublicenses, agreements, leases, commitments and sales orders for Products
     not delivered prior to the Closing, in each case listed on Schedule
     1.1(a)(vii), including all prepaid royalties related to the same, and any
     sales order placed in the ordinary course of business after the date hereof
     and prior to the Closing which is disclosed to Urologix at or prior to
     Closing and accepted by Urologix (collectively, the "Assumed Contracts");

          (viii) all U.S. and foreign patents, trademarks, service marks, trade
     names, copyrights, registrations and applications for registration with
     respect to any of the foregoing, including but not limited to those items
     listed on Schedule 1.1(a)(viii), trade secrets, know-how, product designs
     and design specifications, drawings, bills of material and engineering
     documentation and other intellectual property owned by any Seller and used
     in the Business on the Closing Date;

          (ix)   all product approvals, clearances, registrations, permits,
     consents, waivers, certificates, listings and exemptions submitted to or
     granted by a regulatory authority, foreign or domestic, for the purpose of
     allowing the manufacture, sale or distribution of a product of the
     Business, and all correspondence with and other permits, orders,
     certificates, authorizations or approvals of any supranational, national,
     federal, state, provincial or local, domestic or foreign, governmental
     authority or regulatory agency held by a Seller in respect of the Business;

          (x)    computer software and firmware used in the Business; and

          (xi)   all goodwill of the Sellers with respect to the Business on the
     Closing Date.

     (b)  Notwithstanding any provision of Section 1.1(a) to the contrary, the
Assets shall exclude the following assets owned by one or more of the Sellers
(the "Excluded Assets"):

          (i)    all cash, cash equivalents and bank accounts owned by each
     Seller at the Closing Date;

          (ii)   all raw materials, work-in-process, finished goods and spare
     parts inventories which are located in France used in the Business and all
     purchase orders and other commitments for raw materials and contract work
     with regard to the same;

          (iii)  the shares of capital stock of each Seller or any Subsidiary
     thereof and the corporate books and records of each Seller;

          (iv)   all rights of each Seller under this Agreement;

          (v)    any and all interests in real property owned or leased by any
     Seller;

          (vi)   any assets of any Employee Benefit Plan;

                                       3
<PAGE>

          (vii)  any contract, license, lease or other agreement not set forth
     on Schedule 1.1(a)(vii), including, without limitation, those contracts,
     licenses, leases and other agreements set forth in Schedule 1.1(b)(vii) and
     any Assumed Contract which is not assignable to Urologix;

          (viii) all advances, deposits, loans, prepaid interest and other
     prepaid expenses of all kinds of the Business;

          (ix)   all permits and licenses (including, without limitation, all
     environmental permits and licenses) related to the ownership or use of real
     property owned or leased by any Seller;

          (x)    all personnel records related to any employee or former
     employee of any Seller who is not a Transferred Employee;

          (xi)   tax records;

          (xii)  production and accounting software and other assets listed on
Schedule 1.1(b)(xii); and

          (xiii) the accounts and notes receivable listed on Schedule
1.1(b)(xiii).

     (c)  There shall be included in the Assets, for all purposes of this
Agreement, all assets of the type described in Section 1.1(a), other than
subsection (iii) thereof, which are owned by any EDAP Affiliates for use in the
Business.  Except as provided herein or in any agreement referred herein,
physical possession of such Assets shall be transferred only as requested by
Urologix.  Prior to Closing, EDAP agrees to cause such EDAP Affiliates to
transfer all right, title and interest in such assets to EDAP, free and clear of
all Liens.  On the Closing, EDAP shall transfer all right, title and interest in
such assets to Urologix, free and clear of all Liens.  After Closing, all tools
and dies shall stay in the possession of French Subsidiary to be utilized as
provided in the Supply and Transition and Technology Transfer Agreements.  All
Kits, other than those held by EDAP's Japanese subsidiary, shall be shipped to
Urologix's facility in Minneapolis, Minnesota immediately after Closing.  Kits
and spare parts held by EDAP's Japanese subsidiary shall be held by such
subsidiary and sold by Urologix to such subsidiary under the terms of the
International Distribution Agreement.  Except as provided above, EDAP shall
cause all spare parts to be held by the EDAP Affiliates and to be first
utilized, without charge to Urologix, as applicable to meet the service or sales
needs of Urologix, and for no other purpose unless agreed to in writing by
Urologix.

     (d)  EDAP may retain copies of those categories of documents identified on
Schedule 1.1(d).

     1.2  Assumption and Exclusion of Liabilities.
          ---------------------------------------

                                       4
<PAGE>

     (a)  On the terms and subject to the conditions of this Agreement,
including, without limitation, the provisions of Section 6.2, on the Closing
Date, Urologix shall, or shall cause the appropriate Urologix Affiliate to,
assume and shall pay, perform and discharge when due the following Liabilities
(as defined in Section 10.1) of each Seller arising out of the conduct of the
Business or relating to the Assets:  (i) the U.S. third-party accounts payable
identified on and not to exceed the amounts listed on Schedule 1.2(a)(i)
("Assumed Payables"); (ii) except as provided in Section 1.2(b)(ii), Liabilities
arising in connection with the Assumed Contracts, but not any Liability due
thereunder prior to Closing or arising out of a breach thereof on or prior to
the Closing, or related to any manufacturer's warranty related thereto or any
extension thereof (collectively, "Manufacturer's Warranty"), but including any
obligation thereunder, but not arising out of a breach thereto on or prior to
Closing, to maintain the equipment as provided therein ("Equipment Maintenance
Obligations"); and (iii) the performance of Seller's repair and service
obligations and other obligations identified on and not to exceed the amounts
listed on Schedule 1.2(a)(iii), but not any Liability for any Manufacturer's
Warranty related thereto (the Liabilities described in clauses (i), (ii) and
(iii) of this Section 1.2(a) and subject to the limitations described herein,
collectively, the "Assumed Liabilities").

     (b)  Except as expressly provided in Section 1.2(a), Urologix does not
assume any debt, liability, or obligation of Sellers and shall not become liable
for any obligations or liabilities of Seller of any nature whatsoever.  Without
limiting the generality of the foregoing sentence, it is specifically agreed
that the Sellers shall retain, and shall be responsible for paying, performing
and discharging when due, and neither Urologix nor the Urologix Affiliates shall
assume or have any responsibility for, the following Liabilities (the "Excluded
Liabilities"):

          (i)   all Liabilities (as defined in Section 10.1) relating to or
     arising out of the Excluded Assets, including, without limitation,
     Liabilities related to or arising out of the contracts, licenses, leases
     and other agreements set forth on Schedule 1.1(b)(vii);

          (ii)  Liabilities for Assumed Contracts or Permits included in the
     Assets which are not assignable at Closing because a consent or approval
     referred to in Section 6.1 is not obtained;

          (iii) Liabilities for Taxes now or hereafter owed by any Seller or
     any of their Affiliates, including Taxes imposed on any Seller or any of
     their Affiliates for which Urologix or any of its Affiliates becomes
     liable, under the laws of the relevant jurisdiction, by virtue of being a
     successor to the Business;

          (iv)  Liabilities to third parties for borrowed monies, including
     guarantees or indemnities of the same;

          (v)   any claims arising before or after the Closing Date which allege
     or alleged damages as a result of products manufactured and/or sold by any
     Seller prior to the Closing Date;

                                       5
<PAGE>

          (vi)   "Environmental Liabilities" (meaning any claim, expense, loss,
     damages, liabilities, expenses and costs associated with an actual or
     alleged violation of an Environmental Law (as defined in Section 10.1)
     arising from, related to or in connection with an act, omission, event or
     Environmental Condition (as defined in Section 10.1) occurring or existing
     on or before the Closing);

          (vii)  any Liabilities to employees or former employees of any Seller,
     including but not limited to any liability for wages, salary, commissions,
     vacation pay, vacation bonuses, sick leave pay or any other pay for leaves
     of absence or time not worked, front pay, back pay, retention bonuses, any
     denial of employment benefits, terms or conditions, damages (including
     attorneys' fees, costs and penalties) payable under remedies pursuant to
     statutes, regulations and common law governing employment practices,
     express, implied or statutory indemnities and claims by former employees
     continuing in Urologix's employ for retirement, severance or termination
     pay or other payments due as a result of actual or constructive
     termination, including any Liabilities imposed upon Urologix under French
     law or otherwise with respect to any employees of Sellers, whether such
     Liabilities arise before or after the Closing Date;

          (viii) any Liability under any Employee Benefit Plan;

          (ix)   any Liability related to claims from employees of EDAP and/or
     Employees of the French Subsidiary relating to the application of this
     Agreement;

          (x)    any Liability with regard to any Transferred Employee for
     claims based on conduct of such employee or a Seller occurring prior to the
     Closing which continues or is alleged to have continued after the Closing;

          (xi)   claims for patent infringement arising from, related to or in
     connection with Products manufactured, used or sold prior to the Closing
     Date, including any claims referenced on Schedule 4.5(b);

          (xii)  any debt, obligation, liability or expense with respect to any
     Litigation with respect to the Business or Assets relating to claims
     arising before or after the Closing Date which relate to the operation of
     the Business or Assets on or prior to the Closing Date, including any
     Litigation referenced on Schedule 4.7;

          (xiii) damages, losses, expenses related to, arising from, or in
     connection with any investigation, proceeding, examination, action or
     request initiated by a regulatory or other governmental authority with
     respect to the conduct of the Business or use of the Assets prior to
     Closing, whether such investigation, proceeds, examination, action or
     request commences or was initiated before the Closing Date or after the
     Closing Date;

                                       6
<PAGE>

          (xiv)  Liabilities arising out of a breach, on or prior to the
     Closing, of any Assumed Contract; or

          (xv)   except for the Assumed Liabilities described in and subject to
     the limitations contained in Section 1.2(a)(ii) and (iii), including the
     Equipment Maintenance Obligations thereunder, Liabilities with respect to
     any warranty repairs and warranty service, including Manufacturer's
     Warranty, with respect to products manufactured or sold by any Seller or
     any Affiliate thereof on or prior to Closing;

          (xvi)  Liabilities incurred by either Seller in connection with this
     Agreement or the consummation of the transactions provided herein or
     contemplated hereby, including, without limitation, fees and expenses of
     Sellers' counsel, accountants, investment bankers and other experts and all
     other experts and all other expenses incurred by Sellers incident to the
     negotiation, preparation and execution of this Agreement or any transaction
     incident hereto or contemplated hereby, including expenses incurred in
     proving or perfecting title to the Assets, taxes on transfer of Assets (as
     provided in Section 7.1), taxes, commissions and all other expenses of
     either Seller pertaining to the performance by it of its obligations under
     this Agreement; or

          (xvii) All Liabilities arising out of any FDA action related to
     matters referred in the letter and memorandum listed on Schedule 4.3.10 or
     the letter referenced in item (c) of Schedule 4.8, including all
     Liabilities related to the failure of the locations identified on the
     attachment thereof to be in compliance with FCC regulations.

     1.3  Transfer Documentation and Possession.  The parties hereto agree that,
          -------------------------------------
in order to effect the transfer of the Assets and the assumption of the Assumed
Liabilities, the parties shall deliver the documents described in Sections 3.2
and 3.3, and such other conveyance documents as are necessary to convey (and as
appropriate, record and perfect) title to the Assets to Urologix or a Urologix
Affiliate and for Urologix or a Urologix Affiliate to assume the Assumed
Liabilities, such other documents to be in form and substance mutually
satisfactory to the Sellers and Urologix and as may be necessary under the laws
of the jurisdiction where such Assets and Assumed Liabilities are located to
effect such transfer and assumption.  Except as provided in the Supply Agreement
or Section 1.1(c), coincident with the Closing, the Sellers shall deliver
possession of the Assets to Urologix or the appropriate Urologix Affiliate.

                                   ARTICLE 2
                                 CONSIDERATION
                                 -------------

     2.1  Consideration.
          -------------

          2.1.1  The consideration paid for the Assets shall be (i) US$6,840,000
(the "Cash Consideration"); (ii) 1,365,000 unregistered shares of Urologix
Common Stock and (iii) Warrants to purchase 327,466 shares of Urologix Common
Stock at an exercise price per share equal to $7.725 (the "Average Price").  The
Warrants shall be in the form of Exhibit 2.1.1 hereto.

                                       7
<PAGE>

          2.1.2  As additional consideration, Urologix shall pay the amount(s)
contemplated in Section 6.8 and shall assume the Assumed Liabilities.

          2.1.3  There shall be offset at the Closing from the Cash
Consideration the amount of US$370,000 representing payment by Sellers of the
Intercompany Receivable.

     2.2  Escrow.  On the Closing Date, Urologix shall deposit US$2,250,000 of
          ------
the Cash Consideration and 97,087 shares of Urologix Common Stock (the "Escrow
Fund") into an account (the "Escrow Account") managed by U.S. Bank Trust, N.A.
(the "Escrow Agent") under the terms of an Escrow Agreement in the form of
Exhibit 2.2 hereto (the "Escrow Agreement").  The Escrow Fund shall be available
to indemnify Urologix as provided in Article 8 and to assure technology transfer
under the terms of the Transition and Technology Transfer Agreement and Section
8 of the Supply Agreement.

     2.3  Receipt of Purchase Price.  Sellers agree that the aggregate
          -------------------------
consideration shall be paid directly to EDAP but shall be beneficially owned by
EDAP, French Subsidiary and U.S. Subsidiary.

     ARTICLE 3
                                    CLOSING
                                    -------

     3.1  The Closing.  The closing of the transactions contemplated hereby (the
          -----------
"Closing") are taking place simultaneously with the execution of this Agreement
and the related agreements at the offices of Lindquist & Vennum, P.L.L.P., 4200
IDS Center, Minneapolis, Minnesota 55402, at 10:00 a.m. (Central Standard Time)
on October 1, 2000 (the "Closing Date").  All matters at the Closing shall be
considered to take place simultaneously, and no delivery of any document shall
be deemed completed until all transactions and delivery of documents are
completed.  The Closing shall be effective as of 12:01 a.m. (Central Standard
Time) on October 1, 2000.

     3.2  Deliveries of EDAP.  At the Closing, EDAP shall deliver or cause to be
          ------------------
delivered to Urologix or the appropriate Urologix Affiliates the following:

          3.2.1  the Officers' Certificates from an executive officer of each of
EDAP and French Subsidiary and U.S. Subsidiary, in substantially the form of
Exhibit 3.2.1 attached hereto;

          3.2.2  the opinions of counsel for EDAP and French Subsidiary and U.S.
Subsidiary, in substantially the form of Exhibit 3.2.2 attached hereto;

          3.2.3  copies of resolutions of EDAP's Board of Directors and of
French Subsidiary and U.S. Subsidiary's  Board of Directors, each certified by
the respective Secretary (or other authorized officer) thereof as having been
duly and validly adopted and in full force and effect, authorizing execution and
delivery of this Agreement and performance respectively by EDAP and French
Subsidiary and U.S. Subsidiary of the transactions contemplated hereby;

                                       8
<PAGE>

          3.2.4  a Supply Agreement between Urologix and EDAP in the form of
Exhibit 3.2.4;

          3.2.5  the General Bill of Sale and Instrument of Assignments in the
form of Exhibit 3.2.5;

          3.2.6  a General Assignments of Patents and Technology in the form of
Exhibit 3.2.6-A and a General Assignments of Trademarks and Non-Patent
Intellectual Property in the form of Exhibit 3.2.6-B;

          3.2.7  Assumption Agreements in the form of Exhibit 3.2.7;

          3.2.8  an executed counterpart of the Escrow Agreement;

          3.2.9  a Transition and Technology Transfer Agreement in the form of
Exhibit 3.2.9;

          3.2.10 an International Distribution Agreement in the form of Exhibit
3.2.10;

          3.2.11 complete copies of Seller's PMA's, including all amendments,
supplements and reports, related to the Products and a letter from Sellers
addressed to the FDA, and signed by appropriate company officials, indicating
that all rights in the PMA's have been transferred to Urologix as of the Closing
date;

          3.2.12 such other documents as may be necessary to effect the
transfer of the right to use EDAP's CE mark in the EU and the right to market to
any country in which marketing authorization has been obtained by Sellers;

          3.2.13 a Registration Rights Agreement in the form of Exhibit 3.2.13;

                                       9
<PAGE>

          3.2.14 an executed counterpart of the Escrow Agreement, together with
stock powers duly executed in blank for the shares of Urologix Common Stock to
be delivered to the Escrow Agent pursuant to Section 2.2.

          3.2.15 Urologix shall receive a certificate of an officer of U. S.
Subsidiary listing all U. S. third party accounts and notes receivable and U. S.
accounts payable which are existing as of the Closing and included in the
Assets;

          3.2.16 EDAP shall deliver the Certificate of Insurance as provided in
Section 7.9;

     3.3  Deliveries of Urologix.  At the Closing, Urologix shall deliver to
          ----------------------
EDAP, on behalf of the Sellers, the following:

          3.3.1  the Cash Consideration, as adjusted in Sections 2.1.3 and 7.1,
(x) by check or wire transfer in immediately available funds to a bank account
designated by EDAP to Urologix in writing; and (y) to the Escrow Agent pursuant
to Section 2.2;

          3.3.2  the amount of Urologix Common Stock and Warrants determined
under Section 2.1, less the number of shares of Urologix Common Stock to be
delivered to the Escrow Agent pursuant to Section 2.2;

          3.3.3  the Officer's Certificate from an executive officer of
Urologix, in substantially the form of Exhibit 3.3.3 attached hereto;

          3.3.4  the opinion of counsel for Urologix, in substantially the form
of Exhibit 3.3.4 attached hereto;

          3.3.5  copies of resolutions of Urologix's Boards of Directors,
certified by the Secretary thereof as having been duly and validly adopted and
in full force and effect, authorizing execution and delivery of this Agreement
and performance of the transactions contemplated hereby;

          3.3.6  an executed counterpart of the Assumption Agreement;

          3.3.7  an executed counterpart of the Supply Agreement;

          3.3.8  an executed counterpart of the Escrow Agreement;

          3.3.9  an executed counterpart of the Registration Rights Agreement in
the form of Exhibit 3.3.8;

          3.3.10 executed counterparts of the Transition and Technology
Transfer Agreement and International Distribution Agreement; and

          3.3.11 an executed Promissory Note in the form of Exhibit 3.3.11.

                                       10
<PAGE>

     3.4  Further Documents.  Urologix and the Sellers shall execute and
          -----------------
deliver, or cause to be executed and delivered, such other powers of attorney,
instruments, documents or certificates as the other parties may reasonably
request to effect or evidence the consummation of the transactions contemplated
by this Agreement.  Without limiting the foregoing, each of the Sellers and
Urologix shall cooperate with and shall cause its respective attorneys to
cooperate with each other and its counsel to prepare and file all necessary
documents in the relevant jurisdictions to cause the complete transfer to
Urologix of the Assets, including without limitation, the patents and trademarks
and applications therefor included in the Assets.  Sellers shall cooperate with
Urologix to effect the return of Boxes under demonstration contracts terminated
on or prior to the date hereof.

                                   ARTICLE 4
                       REPRESENTATIONS AND WARRANTIES OF
                       ---------------------------------
                  EDAP, FRENCH SUBSIDIARY AND U.S. SUBSIDIARY
                  -------------------------------------------

     EDAP and French Subsidiary and U.S. Subsidiary represent and warrant to
Urologix and agree with Urologix that:

     4.1  Authority; Organization, Capitalization and Qualification, Effect of
          --------------------------------------------------------------------
Agreement.
---------

          4.1.1  Authority.  Each of EDAP, French Subsidiary and U.S. Subsidiary
                 ---------
has full corporate power and authority to execute and deliver this Agreement and
all agreements referenced herein to which either is a party ("Ancillary
Agreements"), perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby.  The execution and delivery of
this Agreement and the Ancillary Agreements, the performance by EDAP, French
Subsidiary and U.S. Subsidiary of their obligations under this Agreement and the
Ancillary Agreements and the consummation by EDAP, French Subsidiary and U.S.
Subsidiary of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of EDAP, French
Subsidiary and U.S. Subsidiary, and no other corporate proceedings on the part
of EDAP, French Subsidiary or U.S. Subsidiary are necessary to authorize the
execution and delivery of this Agreement or the Ancillary Agreements and to
consummate the transactions so contemplated.  This Agreement and the Ancillary
Agreements have been duly executed and delivered by EDAP, French Subsidiary and
U.S. Subsidiary and constitute the valid and binding obligations of EDAP, French
Subsidiary and U.S. Subsidiary and are enforceable against each of EDAP, French
Subsidiary and U.S. Subsidiary in accordance with their respective terms, except
to the extent that such enforceability (i) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally, and (ii) is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

          4.1.2  Organization and Qualification.  Each of EDAP, French
                 ------------------------------
Subsidiary and U.S. Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of France, France and the State of Delaware,
respectively, and has full corporate power and

                                       11
<PAGE>

authority to carry on its business as it is now being conducted. Each of EDAP,
French Subsidiary and U.S. Subsidiary is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect (as defined in Section 10.1). EDAP has heretofore delivered, or
caused to be delivered, to Urologix true and complete copies of EDAP's, French
Subsidiary's and U.S. Subsidiary's governing documents.

          4.1.3  Subsidiaries.  Paragraph (a) of Schedule 4.1.3 lists all of the
                 ------------
Subsidiaries of EDAP (except for French Subsidiary and U.S. Subsidiary), each of
which are wholly-owned by EDAP.  Except as set forth on paragraph (b) of
Schedule 4.1.3, neither U.S. Subsidiary nor French Subsidiary has any equity
interest, partnership interest or joint venture interest in any Person where
such interest is related to the Business or includes assets used or held for use
in the Business.

          4.1.4  Consents.  Except as disclosed in Schedule 4.1.4, no material
                 --------
consent, approval, waiver or other action by any Person under any contract,
agreement, indenture, lease, license, instrument or other document to which
EDAP, French Subsidiary or U.S. Subsidiary is a party or by which any of them or
the Assets is bound is required or necessary for the execution, delivery and
performance of this Agreement or the other documents contemplated hereby by
EDAP, French Subsidiary or U.S. Subsidiary, as the case may be, or the
consummation of the transactions contemplated hereby or thereby.

          4.1.5  No Default.  The execution, delivery and performance by EDAP,
                 ----------
French Subsidiary and U.S. Subsidiary of this Agreement or the other documents
contemplated hereby and the consummation by them of the transactions
contemplated hereby and thereby do not and will not (a) in any material respect,
contravene or constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of EDAP, French
Subsidiary or U.S. Subsidiary or to a loss of any benefit to which EDAP, French
Subsidiary or U.S. Subsidiary is entitled under (i) any provision of applicable
law or regulation (assuming the governmental consents referred to in Section 4.9
have been obtained); (ii) the governing documents of EDAP, French Subsidiary or
U.S. Subsidiary; (iii) except as provided in Schedule 4.1.5, any Commitment (as
defined in Section 4.6); or (iv) any judgment, injunction, order, decree,
administrative interpretation, award or other instrument binding upon EDAP,
French Subsidiary or U.S. Subsidiary in respect of the Business; or (b) result
in the creation or imposition of any Lien on any Asset.

     4.2  Financial Statements.  Schedule 4.2 includes a copy of the unaudited
          --------------------
balance sheet of the Business as of March 31, 2000 (the "Latest Balance Sheet").
The Latest Balance Sheet is accurate in all material respects.

                                       12
<PAGE>

     4.3  Absence of Certain Developments.  Since December 31, 1999, the
          -------------------------------
Business has been operated only in the ordinary course, and neither EDAP, French
Subsidiary and U.S. Subsidiary nor any EDAP Affiliate in respect of the
Business, alone or in the aggregate, has:

          4.3.1  mortgaged, pledged or subjected to any Lien, any of the Assets,
tangible or intangible;

          4.3.2  except as contemplated by this Agreement, (i) sold, leased,
assigned, transferred or otherwise disposed of any of its assets, except for
inventory sold in the ordinary course of business; or (ii) canceled or
compromised any debt or claim, or waived or released any right, in the case of
both (i) and (ii) above, having a value of more than $10,000 or an aggregate
value in excess of $50,000;

          4.3.3  sold, assigned, transferred or licensed to any Person any
rights under any patents, trademarks, service marks, trade names, copyrights,
applications for registration with respect to any of the foregoing, trade
secrets or other intellectual property owned by, or licensed to, EDAP, French
Subsidiary, U.S. Subsidiary or any EDAP Affiliate in respect of the Business,
other than rights to use any Seller's tradenames or trademarks in the ordinary
course of business granted to third parties in connection with the sale of
products;

          4.3.4  entered into any settlement agreement regarding the breach or
infringement (or alleged breach or infringement) of any United States or foreign
intellectual property license, patent, copyright or trademark;

          4.3.5  made any capital expenditures in excess of an aggregate of
$50,000;

          4.3.6  suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or consistent
with past practice;

          4.3.7  suffered any damage, destruction or loss of any Assets owned by
EDAP, French Subsidiary or U.S. Subsidiary or used in the operation of the
Business which in the aggregate have a replacement cost of more than $50,000
whether or not covered by insurance;

          4.3.8  modified, amended or terminated any Commitment (as defined in
Section 4.6) in a manner materially adverse to the Business;

          4.3.9  suffered any Material Adverse Effect;

          4.3.10 except as set forth on Schedule 4.3.10, been the subject of
any inquiry or action taken or, to the knowledge of EDAP, French Subsidiary or
U.S. Subsidiary, threatened by the United States Food and Drug Administration
(the "FDA") or any foreign regulatory authority having jurisdiction over similar
matters, excluding observations of inspectors which have not resulted in any
action, claim or investigation by the FDA or other regulatory authority;

                                       13
<PAGE>

          4.3.11  made any change in any method of accounting or accounting
practice or guideline by EDAP, French Subsidiary or U.S. Subsidiary in respect
of the Business, except for any such change required by U.S. GAAP or similar
rules and except for changes to obtain uniformity of accounting policies and
classifications;

          4.3.12  failed to maintain its inventory in a normal and customary
manner materially consistent with its prior practice, or made any material
change in its selling, pricing or advertising practices or credit terms, limits
or durations inconsistent with its prior practice;

          4.3.13  discharged or satisfied accounts payable other than in the
ordinary course of business consistent with past practice; or

          4.3.14  entered into any agreement or made any commitment to take any
of the types of action described in subparagraphs 4.3.1 through 4.3.13 above.

     4.4  Title to Personal Property and Assets.  EDAP, French Subsidiary and
          -------------------------------------
U.S. Subsidiary each owns or has a valid leasehold interest in all tangible
personal property necessary for the conduct of the Business, and owns or has a
valid license or sublicense to use all computer software used in the Business,
free and clear of all Liens.  The equipment and fixed assets of the Business are
in good condition and repair and are usable in the ordinary course of business,
ordinary wear and tear excepted.  EDAP shall cause the transfer of title to
Urologix to the assets as required in Section 1.1(c) and referred to therein to
occur at or prior to Closing.  Except for the Excluded Assets, the Assets
constitute all of the assets and properties necessary for the conduct of the
Business as currently conducted.  Schedule 1.1(a)(i) includes an accurate list
of all tools and dies necessary to conduct the Business, identifying the item
and the location thereof.  Schedule 1.1(a)(ii) is an accurate list of all
equipment consigned to or on loan to customers, identifying the item and
location thereof.  Schedule 1.1(c) also lists all items of inventory of Kits
owned by an EDAP Affiliate which are of the type identified in Section 1.1(c),
identifying the item and location thereof.

     4.5  Patents, Trademarks and Copyrights.  Schedule 1.1(a)(viii) lists all
          ----------------------------------
patents, trademarks, service marks, trade names, copyrights, registrations and
applications for registration with respect to any of the foregoing which are
owned by EDAP, French Subsidiary or U.S. Subsidiary or any EDAP Affiliate and
which are used in or necessary to the conduct the Business, and all of which are
in full force and all required updates to maintain the same have been made in
the jurisdictions listed on the Schedule.  Schedule 4.5(a) lists all license
agreements under which third party owned patents, trademarks, service marks,
trade names, copyrights, registrations and applications for registration of any
of the foregoing know-how, technology or other intellectual property rights used
in or necessary to conducting the Business are licensed to EDAP, French
Subsidiary or U.S. Subsidiary.  Except as set forth on Schedule 4.5(b), there
are no claims or disputes pending or, to the knowledge of EDAP, French
Subsidiary or U.S. Subsidiary, threatened with third parties alleging that EDAP,
French Subsidiary or U.S. Subsidiary, on the one hand, or such third party, on
the other hand, infringes on the other's patents, trademarks, service marks,
trade names, copyrights, trade secrets or other

                                       14
<PAGE>

intellectual property rights in connection with conducting the Business. EDAP
has provided to Urologix a copy of all pending patent applications filed by
EDAP, French Subsidiary, U.S. Subsidiary or any EDAP Affiliate (in respect of
the Business). There are no outstanding orders, judgments and decrees
restricting the use by EDAP, French Subsidiary, U.S. Subsidiary or any EDAP
Affiliate of the patents, trademarks, service marks, trade names, copyrights,
trade secrets or other intellectual property rights owned or licensed by any of
them. All of the license agreements listed on Schedule 4.5(a) will be in full
force and effect on the Closing Date, and neither EDAP, French Subsidiary or
U.S. Subsidiary, nor any EDAP Affiliate is in default under any of them nor, to
the knowledge of EDAP, (i) is any other party to any such license agreement in
default thereunder; nor (ii) does any condition exist that, with notice or lapse
of time or both, would constitute a default thereunder. The right, title and
interest of EDAP, French Subsidiary and U.S. Subsidiary in and to the
Proprietary Rights and Proprietary Information are duly recorded (as applicable)
and free and clear of all Liens and rights of third parties and all annuities
and registrations have been paid. Except as set forth on Schedule 4.5(b), none
of the features, components or configurations or methods of making or using the
same (whether developed or under development) of EDAP's, French Subsidiary's, or
U.S. Subsidiary's products or processes infringe the intellectual property
rights of any other party. EDAP, French Subsidiary and U.S. Subsidiary have
established safeguards to maintain the secrecy of its Proprietary Information
that it considers to be reasonable. To the knowledge of EDAP, the information
which EDAP believes is Proprietary Information has not been disclosed by EDAP,
French Subsidiary or U.S. Subsidiary nor any of their Affiliates to any other
person, entity or governmental agencies, except pursuant to confidentiality
agreements, protective orders or law. As used herein, "Proprietary Information"
means all know-how and technology owned by EDAP, French Subsidiary, U.S.
Subsidiary or any EDAP Affiliate and used in the Business; and "Proprietary
Rights" means all patents, trademarks, service marks, copyrights, registrations
and applications therefor arising out of, and owned by EDAP, French Subsidiary,
U.S. Subsidiary or any EDAP Affiliate as part of, the Business. No interference
actions are pending, and no notice has been received of an intention to provoke
an interference action or to otherwise challenge the validity or priority of
inventorship before the United States Patent and Trademark Office or other
similar U.S. or foreign authorities with respect to any patent or application
therefor included in the Assets, except as disclosed on Schedule 4.5(c).

     4.6  Commitments.  Paragraph (a) of Schedule 4.6 sets forth a list of all
          -----------
of the following written contracts and other agreements to which EDAP, French
Subsidiary or U.S. Subsidiary, or any EDAP Affiliate in respect of the Business,
is a party or by which EDAP, French Subsidiary or U.S. Subsidiary, or the EDAP
Affiliate in respect of the Business or any Assets, is bound or subject
(collectively, "Commitments"):  (i) customer contracts and agreements for the
sale, service or maintenance of materials or products which by their terms
exceed one year or which are in dollar amounts which equal or exceed $50,000 per
annum; (ii) distributorship agreements and manufacturer's representative
agreements; (iii) supply and vendor contracts for sole source components; (iv)
material research and development agreements related to the Business; (v) joint
venture agreements or license agreements (where any Seller is the licensor)
related to the Business; (vi) contracts and other agreements relating to the
borrowing of money; (vii) any equipment leases requiring payment of at least
$10,000 within a given year

                                       15
<PAGE>

which are not cancelable without penalty upon 90 days' notice; (viii) agreements
settling pending or threatened Litigation which require continuing obligations
of the Business after the date hereof; (ix) any agreements between EDAP, French
Subsidiary, U.S. Subsidiary or any EDAP Affiliate (in respect of the Business)
and any of their Affiliates; (x) agreements which limit the Business from
competing in any line of business or in any geographic area other than
distributorship or representation agreements which are exclusive as to
geographic area; or (xi) any other contract or other agreement (other than
contracts and agreements of the type specified in clauses (i) through (xi)
above) that is material to the Business, whether or not made in the ordinary
course of business. There have been delivered to Urologix true and complete
copies of all such contracts and other agreements set forth in paragraph (a) of
Schedule 4.6 and there are no oral modifications or amendments to any such
contracts or agreements. All of such Commitments are in full force and effect,
and none of EDAP, French Subsidiary or U.S. Subsidiary, nor any EDAP Affiliate
is in default under any of them, nor, to the knowledge of EDAP, French
Subsidiary or U.S. Subsidiary, (i) is any other party to any such contract or
other agreement in material default thereunder, nor (ii) does any condition
exist that, with notice or lapse of time or both, would constitute a default
thereunder. Paragraph (b) of Schedule 4.6 indicates which of the Commitments
included in the Assets requires the consent of a third party to be transferred
or to remain in full force and effect following the consummation of the
transactions contemplated by this Agreement. None of the Assumed Contracts will
require additional payments or increase any obligations of Urologix thereunder
as a result of the assignment by EDAP, French Subsidiary or U.S. Subsidiary of
such Assumed Contract to Urologix.

     4.7  Litigation.  There is no Litigation pending or, to EDAP's knowledge,
          ----------
threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.  Except as set forth in
Schedule 4.7, there is no material Litigation pending or, to EDAP's, French
Subsidiary's or U.S. Subsidiary's knowledge, threatened that (i) involves a
claim or potential claim of liability against or affecting French Subsidiary,
U.S. Subsidiary or EDAP or any EDAP Affiliate in respect of the Business; or
(ii) enjoins, or seeks to enjoin, the operation of a portion of the Business or
seeks declaratory judgment with respect to the Business.

     4.8  Compliance with Law: Permits.  Paragraph (a) of Schedule 4.8, lists
          ----------------------------
all permits, licenses, clearances, PMA's, registrations, consents, waivers,
listings, exemptions, orders, certificates, authorizations or approvals of any
international, federal, provincial, state or local, domestic or foreign,
governmental authorities or regulatory agencies, including, without limitation,
those regulating safety, effectiveness and market clearance of medical devices
(the "Permits"), held by either Seller or used in the Business.  There are no
other permits necessary to carry on the Business in the jurisdictions of the
United States, Europe or Japan or, to the knowledge of EDAP, French Subsidiary
or U.S. Subsidiary, in any other jurisdiction where the Business is currently
conducted. Except as set forth on paragraph (b) of Schedule 4.8, no approval or
consent of any Person is needed in order that any Permit shall continue in full
force and effect following the consummation of the transactions contemplated by
this Agreement and to assign such Permits to Urologix or one of its Affiliates
in the jurisdictions of the United States, Europe or Japan or, to the knowledge
of EDAP, French Subsidiary or U.S. Subsidiary, in any

                                       16
<PAGE>

other jurisdiction where the Business is currently conducted. Except as set
forth on paragraph (c) of Schedule 4.8, EDAP, French Subsidiary and U.S.
Subsidiary and each EDAP Affiliate in respect of the Business have complied, in
all material respects, with all applicable laws, including any Medicare or
Medicaid statutes, rules or regulations, Permits and orders of foreign, federal,
state and local governments and all agencies thereof (including, without
limitation, the FDA or any foreign regulatory authority having jurisdiction over
similar matters) that affect the Business and to which EDAP, Subsidiaries or any
EDAP Affiliate is subject, and no claims have been filed against EDAP, French
Subsidiary and U.S. Subsidiary or the EDAP Affiliates in respect of the Business
alleging a violation of any such laws, regulations or orders. No notice, warning
or other communication from any governmental authority in respect of any failure
or alleged failure by EDAP, French Subsidiary and U.S. Subsidiary or any EDAP
Affiliate in respect of the Business to comply with any law, regulation or order
has been received by EDAP, Subsidiaries or any EDAP Affiliate.

     4.9  Governmental Consents.   Except as set forth on Schedule 4.9, the
          ---------------------
execution, delivery and performance by EDAP or French Subsidiary and U.S.
Subsidiary of this Agreement and the other documents contemplated hereby and the
consummation by EDAP or Subsidiaries of the transactions contemplated by this
Agreement require no action by, or in respect of, or filing with, any
governmental body, agency, official or authority.  The "Ultimate Parent Entity"
(under the HSR Act) of EDAP and French Subsidiary and U.S. Subsidiary does not
have assets or revenues in excess of $100 million as of EDAP's and the French
Subsidiary and U.S. Subsidiary's most recently completed fiscal year, in each
case as determined under the HSR Act.

     4.10  Products; Regulation.
           --------------------

          4.10.1  Since January 1, 1997, there have been no written notices,
citations or decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at any time by the Business (the
"Products") is defective or fails to meet any applicable standards or other
regulatory requirements promulgated by any such governmental or regulatory body.
The Business has complied in all material respects with its policies, procedures
and specifications with respect to design, manufacture, labeling, testing,
inspection and sale of Products.  Since January 1, 1997, there have been no
recalls, field notifications or seizures ordered or, to the knowledge of EDAP,
French Subsidiary or U.S. Subsidiary, threatened by any such governmental or
regulatory body with respect to any of the Products.  Except as has been
disclosed to Urologix, since January 1, 1997, EDAP, French Subsidiary and U.S.
Subsidiary have not received, and EDAP, French Subsidiary and U.S. Subsidiary do
not have knowledge of any reasonable basis for, any warning letter, or Section
305 notices from, or civil or criminal investigations by, the FDA.

          4.10.2  The Products have been properly listed with the FDA and any
other governments, state, local or foreign, requiring a similar listing.  The
Products have all necessary and current marketing approvals or clearances by all
governments, state, local or foreign, requiring such approvals or clearances in
the jurisdictions where the Business is currently conducted.  All necessary
amendments, supplements and reports required to keep the approvals

                                       17
<PAGE>

and clearances current with the versions of the Products being marketed have
been filed in a timely manner and are complete and accurate. Without limiting
the foregoing, all required amendments or supplements related to the software
are complete and accurate. Any changes in product design and manufacturing and
quality assurance procedures have been filed in a timely manner.

          4.10.3  All management, facilities, personnel, manufacturing, quality
and other systems of EDAP, French Subsidiary and U.S. Subsidiary regulated by
the FDA and other similar regulatory agencies, either state, local or foreign,
are in compliance with all regulatory requirements (e.g., the FDA's Quality
System Regulation, ISO 9001 and EN46001) related to the Products.

          4.10.4  EDAP, French Subsidiary and U.S. Subsidiary have all necessary
reimbursement and pricing authorizations from all regulatory agencies of the
countries in which the Products are marketed and where such authorizations are
required.

          4.10.5  EDAP, French Subsidiary and U.S. Subsidiary have complied with
all incident and adverse event (both injury and malfunction) reporting
requirements to the FDA and similar state, local and foreign governmental
agencies with respect to the Products.  No events have occurred with respect to
Products sold by EDAP or French Subsidiary and U.S. Subsidiary which could, to
the knowledge of EDAP, result in claims against Urologix.

          4.10.6  EDAP's, French Subsidiary's and U.S. Subsidiary's facilities
have all necessary Permits for operation as a medical device manufacturing
and/or distribution facility.  EDAP, French Subsidiary and U.S. Subsidiary have
also obtained all necessary Permits from every country in which its Products are
currently marketed, if such a Permit is required.

          4.10.7  EDAP, French Subsidiary and U.S. Subsidiary are in possession
of and will, upon Urologix's request, provide to Urologix all supportive
materials and data substantiating representations made to the FDA or other
domestic or foreign governmental regulatory authority in its filings therewith,
including any and all testing data in the possession, or under the control, of
EDAP, French Subsidiary or U.S. Subsidiary or any EDAP Affiliate (but only to
the extent used in the Business), whether or not submitted to the FDA or other
domestic or foreign governmental regulatory authority.  The Products perform in
all material respects in compliance with the representations and performance
specifications as contained in said filings.  EDAP, French Subsidiary or U.S.
Subsidiary or any EDAP Affiliate (but only to the extent used in the Business),
are in possession of and will, upon Urologix's request, provide to Urologix all
regulatory information and documents located at any international locations.
EDAP, French Subsidiary and U.S. Subsidiary have provided Urologix with copies
of all FDA Establishment Inspection Reports and Form FDA 483s in their
possession and related to inspections of the Products.  In addition, EDAP,
French Subsidiary and U.S. Subsidiary have provided Urologix with copies of all
similar inspections and reviews by EDAP's EU conformity assessment body and any
other governmental authorities who have inspected the Products to the extent in
their possession or the possession of their Affiliates, agents or attorneys.

                                       18
<PAGE>

          4.10.8  All contractually required 30-minute protocol upgrades have
been completed.

     4.11 Material Obligations.  Neither EDAP, French Subsidiary or U.S.
          --------------------
Subsidiary, nor any EDAP Affiliate, in respect of the Business, has any debts,
liabilities or obligations of any nature (whether accrued, absolute, contingent,
direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due
or to become due) arising out of transactions entered into at or prior to the
Closing, or any transaction, series of transactions, action or inaction at or
prior to the Closing, or any state of facts or condition existing at or prior to
the Closing (regardless of when such liability or obligation is asserted),
except (a) to the extent specifically reflected and accrued for or reserved
against in the Financial Statements; (b) for Liabilities and obligations which
have arisen after the date of the Latest Balance Sheet in the ordinary course of
business consistent with past practice, none of which are material in nature; or
(c) other Liabilities specifically referenced in the Schedules hereto.

     4.12 Brokerage.  Other than the fee payable by EDAP to CIBC World Markets
          ---------
Corp., its investment banker, there are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
EDAP or French Subsidiary and U.S. Subsidiary.

     4.13 Affiliated Transactions.  Except as listed and described in paragraph
          -----------------------
(a) of Schedule 4.6 or in Schedule 4.13 hereto, neither EDAP, nor French
Subsidiary nor U.S. Subsidiary is a party to any transaction or Commitment with
any of their respective Affiliates, and has no obligation or liability owing
thereunder in respect of the Business in excess of $50,000 or which is not
cancelable by EDAP, French Subsidiary or U.S. Subsidiary on at least 60 days'
notice without penalty.

     4.14 Insurance.  Schedule 4.14 lists the coverages and limits presently
          ---------
applicable to or including the operations and property of the Business.
Schedule 4.14 shall identify those policies which are "claims made" and those
which are "occurrence" based policies.  All such policies shall continue through
the Closing and thereafter as provided in Section 7.9.  Schedule 4.14 identifies
all risks which EDAP, French Subsidiary or U.S. Subsidiary have designated as
being self-insured with respect to the Business.  Schedule 4.14 also includes a
list of all claims made by EDAP, French Subsidiary or U.S. Subsidiary with
respect to the Business related to Products sold by EDAP, French Subsidiary or
U.S. Subsidiary.  Neither EDAP, French Subsidiary or U.S. Subsidiary, nor any
EDAP Affiliate has received any notice of cancellation in respect of insurance
coverage for operations, assets and properties relating to the Business.  All
premiums due and payable in respect of such insurance have been paid.  There are
no pending or, to EDAP's, French Subsidiary's or U.S. Subsidiary's knowledge,
threatened terminations or premium increases with respect to any such policies
and EDAP, French Subsidiary and U.S. Subsidiary and the EDAP Affiliates are in
compliance with all material conditions contained therein.  Complete copies of
policies listed on Schedule 4.14 which have been requested by Urologix have been
delivered to Urologix.

                                       19
<PAGE>

     4.15 Inventory.  The finished goods Inventory (including that reflected on
          ---------
the Latest Balance Sheet and any finished goods Inventory subsequently
purchased, produced or otherwise returned) is or was, prior to the sale thereof,
in good and merchantable condition and with respect to all finished goods
Products is the latest version of such Product, and suitable and usable or
salable in the ordinary course of business for the purposes for which intended,
and has been reflected on the Latest Balance Sheet and carried on the books of
account of EDAP in accordance with generally accepted accounting principles
consistently applied.  If any FDA action makes the finished goods Inventory of
Kits unsaleable, such Inventory of Kits shall be deemed not saleable as of the
time of Closing.  The finished goods Inventory will not be obsolete or damaged,
will be merchantable and fit for its normal purpose and will not be defective.
The Inventory (including raw materials, work-in-process and finished goods) on
the date of this Agreement is the same as set forth in the Latest Balance Sheet,
except for additions and reductions made in the ordinary course of business
since March 31, 2000.  There shall exist as of the Closing Date and be included
in the Assets acquired from U. S. Subsidiary, at least two Maxis, seven Classic
and five Praktis Boxes, 460 Kits and US$600,000 of book value of spare parts
inventory.

     4.16 Accounts and Notes Receivable.  All accounts and notes receivable
          -----------------------------
reflected on the Latest Balance Sheet, and all accounts and notes receivable
arising subsequent to the Latest Balance Sheet Date, have arisen in the ordinary
course of business of EDAP, represent valid obligations due to EDAP and have
been collected or, except as provided in Schedule 4.16, are collectible in the
ordinary course of business within ninety (90) days of the Closing Date.  All
items that are required by generally accepted account principles to be reflected
as accounts and notes receivable on the Latest Balance Sheet and on the books of
account of EDAP are so reflected.

     4.17 Suppliers and Customers.  EDAP has heretofore delivered to Urologix a
          -----------------------
complete list of its and French Subsidiary's and U.S. Subsidiary's suppliers and
top 20 customers (including without limitation its distributors) identifying
sales for calendar years 1997, 1998 and 1999 and year-to-date through June 30,
2000, for the products of each such vendor and customer.  The relationships of
EDAP and French Subsidiary and U.S. Subsidiary with such customers and suppliers
are good commercial working relationships and no such customer or supplier has
canceled or otherwise terminated, or threatened, verbally or in writing, to
cancel or otherwise terminate, its relationship with EDAP or French Subsidiary
and U.S. Subsidiary during the last twelve (12) months or has during the last
twelve (12) months decreased materially, or threatened to decrease or limit
materially, its services, supplies or material to EDAP or French Subsidiary and
U.S. Subsidiary or its usage or purchase of the services or products from EDAP
or French Subsidiary and U.S. Subsidiary, as the case may be.  Schedule 4.17
lists all commitments of EDAP or French Subsidiary and U.S. Subsidiary to
provide customers with product upgrades, warranty service, advertising
incentives or other special arrangements.  Schedule 4.17 also sets forth
Sellers' standard warranty with respect to products sold by Sellers.  Neither
EDAP nor French Subsidiary and U.S. Subsidiary has received any notification of
any change in its arrangements with customers or suppliers which would have an
adverse effect, nor is EDAP or

                                       20
<PAGE>

French Subsidiary and U.S. Subsidiary aware of any indication that any of its
customers, suppliers or vendors, nor any other material fact regarding or
pertaining to its customers, suppliers or vendors which would have an adverse
effect on Urologix after the consummation of the transactions contemplated
hereby. The transactions contemplated hereby will not, to the knowledge of EDAP
or French Subsidiary and U.S. Subsidiary, have an adverse effect on the
relationship of EDAP or French Subsidiary and U.S. Subsidiary with any such
customer, supplier or vendor, and none of EDAP, French Subsidiary or U.S.
Subsidiary has any reason to believe such transactions will cause termination of
any supplier or vendor agreement or permit termination of any such agreement
without the consent of EDAP, which consent has not and shall not be given by
EDAP without prior written permission from Urologix .

     4.18 Policies, Procedures and Specifications.  Each of EDAP and French
          ---------------------------------------
Subsidiary and U.S. Subsidiary has complied with its policies, procedures and
specifications in the conduct of the Business, including, without limitation,
all such policies, procedures and specifications with respect to employment
matters, design, manufacture, testing and inspection of products, safety
matters, and the protection of trade secrets, know-how and confidential
information.

     4.19 Investment Representations.   Each of EDAP and French Subsidiary and
          --------------------------
U.S. Subsidiary represents and warrants and acknowledges: (i) that it is
acquiring the common stock of Urologix hereunder for its own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution thereof, nor with any present intention of
selling or otherwise disposing of the same; (ii) that it is an "accredited
investor" as that term is defined in Rule 501 promulgated by the SEC under the
Securities Act of 1933, as amended ("Securities Act"), or, in the case of French
Subsidiary, which is owned approximately 99% by EDAP (an accredited investor),
that it has the knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the investment in Urologix
stock; and (iii) that it is fully informed that the shares of Urologix common
stock sold hereunder are being sold pursuant to a private offer exemption of the
Securities Act and are not being registered under the Securities Act or under
the Securities or Blue Sky Laws of any state or foreign jurisdiction, and that
such shares must be held indefinitely unless they are subsequently registered
under the Securities Act and any applicable State Securities or Blue Sky Laws,
or unless an exemption from registration is available thereunder, and that
Urologix has no obligation to register such shares other than pursuant to the
Registration Rights agreements referenced in Section 3.3.9).  Sellers
acknowledge they have been provided copies of Urologix's Annual Report on Form
10-K for the year ended June 30, 2000 and such other information as they have
deemed necessary in connection with their investment in Urologix stock.

     4.20 Full Disclosure.  To the knowledge of EDAP, all documents, contracts,
          ---------------
instruments, certificates, notices, consents, affidavits, letters, telegrams,
telexes, statements, schedules (including Schedules to this Agreement), exhibits
(including Exhibits to this Agreement) and any other papers whatsoever
(collectively, "Documents") delivered by or on behalf of EDAP in connection with
this Agreement and the transactions contemplated thereby are true, complete and
authentic.  No representation or warranty of EDAP contained in this Agreement
contains an untrue statement of material fact or, to the knowledge of any
Seller,

                                       21
<PAGE>

omits to state a material fact required to be stated therein or necessary to
make the statements made, in the context in which made, not false or misleading
in any material respect when made. There is no fact that EDAP has not disclosed
to Urologix in writing that has or could reasonably be expected to have a
material adverse effect upon the Assets or Business.

     4.21 No Trading.  No Seller and no EDAP Affiliate or any officers, director
          ----------
or other person associated with any such Seller or EDAP Affiliate has purchased
or sold Urologix common stock since January 1, 2000 and no Seller, or EDAP
Affiliate or any officers, director or other person associated with any such
Seller or EDAP Affiliate has taken any action to cause any other person to
effect any such purchases or sales.

     4.22 August 2000 PMA Report.  EDAP has provided Urologix with a complete
          ----------------------
copy of the PMA Report filed with the FDA in August 2000.

     4.23 Labor.  The Business and/or the Assets to be sold to Urologix do not
          -----
constitute an autonomous economic unit under French and/or EU labor laws.  The
transfer of the Business and/or Assets to Urologix do not create any rights or
entitlements whatsoever for the employees of EDAP and/or those of its French
Subsidiary towards Urologix.

                                   ARTICLE 5
                   REPRESENTATIONS AND WARRANTIES OF UROLOGIX
                   ------------------------------------------

     Urologix represents and warrants to EDAP and agrees with EDAP and French
Subsidiary and U.S. Subsidiary as follows:

     5.1  Corporate Power and Authority; Effect of Agreement.
          --------------------------------------------------

          5.1.1  Urologix is a corporation duly organized, validly existing and
in good standing under the laws of Minnesota and has full corporate power and
authority to carry on its business as it is now being conducted.

          5.1.2  Urologix has full corporate power and authority to execute and
deliver this Agreement, perform its obligations hereunder and to consummate the
transactions contemplated hereby.  The execution and delivery of this Agreement,
the performance by Urologix of its obligations hereunder and the consummation by
Urologix of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Urologix and no other corporate
proceedings on the part of Urologix are necessary to authorize the execution and
delivery of this Agreement, or to consummate the transactions so contemplated.

          5.1.3  This Agreement has been duly executed and delivered by Urologix
and constitutes the legal, valid and binding obligation of Urologix, enforceable
against each such party in accordance with its terms, except to the extent that
such enforceability (a) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally, and (b) is subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

                                       22
<PAGE>

          5.1.4  The execution, delivery and performance by Urologix of this
Agreement or the other documents contemplated hereby and the consummation by
them of the transactions contemplated hereby and thereby do not and will not
contravene or constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Urologix or to a loss
of any benefit to which Urologix is entitled under (i) except as would not be
materially adverse to the operations, results of operations, assets or financial
condition of Urologix, taken as a whole, or have a material adverse effect on
the ability of Urologix to consummate the transactions contemplated by this
Agreement and assuming the accuracy of the representations in Section 4.9, any
provision of applicable law or regulation (assuming the governmental consents
referred to in Section 5.2 have been obtained); (ii) the articles of
incorporation or bylaws of Urologix; (iii) any judgment, injunction, order,
decree, administrative interpretation, award or other instrument binding upon
Urologix; or (iv) result in the creation or imposition of any Lien on any asset
of Urologix which would have a material adverse effect on their ability to
consummate the transactions contemplated hereby.

     5.2  Consents.  Assuming the accuracy of the representations of EDAP and
          --------
French Subsidiary and U.S. Subsidiary in Section 4.9, except as set forth in
Schedule 5.2, no consent, approval or authorization of, or exemption by, or
filing with, any governmental or regulatory authority or any other third party
is required in connection with the execution, delivery or performance by
Urologix of this Agreement, or the other documents contemplated hereby, or the
taking by Urologix of any other action contemplated hereby, excluding, however,
consents, approvals, authorizations, exemptions and filings, if any, which any
of the Sellers is required to obtain or make.

     5.3  Financial Statements and SEC Filings.  Urologix has delivered to
          ------------------------------------
Sellers true and complete copies of (i) its annual reports on Form 10-K for its
fiscal years ended June 30, 2000, 1999 and 1998; (ii) its quarterly reports on
Form 10-Q for its fiscal quarters ended September 30, 1999, December 31, 1999
and March 31, 2000; (iii) its proxy or information statements relating to all
meetings of, or actions taken without a meeting by, the shareholders of Company
held since June 30, 1998; and (iv) all of its other 8-K reported filed with the
SEC since June 30, 1998.  The reports and statements so delivered are referred
to collectively in this Agreement as the "Urologix SEC Filings."  As of their
respective dates, the Urologix SEC Filings (including all exhibits and schedules
thereto and documents incorporated by reference therein) did not contain any
untrue statement of a material fact or, to Urologix's knowledge, omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.  The audited financial
statements and unaudited interim financial statements of Urologix included or
incorporated by reference in the Urologix SEC Filings (i) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto); (ii) complied as of their respective dates in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto; and (iii) fairly present, in all material
respects, the financial position of Urologix as of the dates thereof

                                       23
<PAGE>

and the income and cash flows for the periods then ended (subject, in the case
of any unaudited interim financial statements, to normal year-end adjustments).

     5.4  Material Events.  Except as disclosed in the Urologix SEC Filings, and
          ---------------
except as expressly contemplated by this Agreement, since the date of the most
recent audited financial statements including in the Urologix SEC Filings there
has not been any event, occurrence or development of a state of circumstances or
facts which has had a material adverse effect on the operations, results of
operations, assets or financial condition of Urologix's business, taken as a
whole.

     5.5  Litigation.  There is no Litigation pending or, to Urologix's
          ----------
knowledge, threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.  Except as set forth on
Schedule 5.5, there is no Litigation pending or, to Urologix's knowledge, any
investigation by a governmental entity, in each case that (i) involves a claim
or potential claim of liability against or affecting Urologix which, if
adversely determined, would have a material adverse effect on the operations,
results of operations, assets or financial condition of Urologix's business,
taken as a whole; (ii) enjoins or seeks to enjoin the operation of a portion of
Urologix's business or seeks declaratory judgment if such injunction or judgment
would, or if entered would, constitute any change in, or effect on, the business
of Urologix as currently conducted that is, or is reasonably likely to be,
materially adverse to the operations, results of operations, assets or financial
condition of Urologix's business, taken as a whole.

     5.6  Brokerage.  Other than the fee payable by Urologix to Houlihan Lokey
          ---------
Howard & Zukin, its investment banker, there are no claims for brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by Urologix.

     5.7  Issuance of Shares.  The shares to be issued pursuant to this
          ------------------
Agreement are duly authorized and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and non-assessable.  The shares of
Common Stock of Urologix issuable upon exercise of the Warrants, when issued in
accordance with the terms thereof, will be duly authorized, validly issued,
fully paid and non-assessable.

     5.8  Absence of Certain Developments.  Except as set forth in Schedule 5.8,
          -------------------------------
since June 30, 2000, Urologix has not:

          5.8.1  suffered any change in, or effect on, the business of Urologix
as currently conducted that is, or is reasonably likely to be, materially
adverse to the operations, results of operations, assets or financial condition
of Urologix's business, taken as a whole;

          5.8.2  been the subject of any inquiry or action taken or, to
Urologix's knowledge, threatened by the FDA or any foreign regulatory authority
having jurisdiction over

                                       24
<PAGE>

similar matters, excluding observations of inspectors which have not resulted in
any action, claim or investigation by the FDA or other regulatory authority; or

          5.8.3  made any change in any method of accounting or accounting
practice or guideline by Urologix, except for any such change required by U.S.
GAAP or similar rules and except for changes to obtain uniformity of accounting
policies and classifications.

     5.9  Patents, Trademarks and Copyrights.  No interference actions are
          ----------------------------------
pending, and no notice has been received of an intention to provoke an
interference action or to otherwise challenge the validity or priority of
inventorship before the United States Patent and Trademark Office or other
similar U.S. or foreign authorities with respect to any patent or application
therefor owned by Urologix.

     5.10 Compliance with Law.  Except as would not have a material adverse
          -------------------
effect on the operations, results of operations, assets or financial condition
of Urologix's business, taken as a whole, (i) no notice, warning or other
communication from any governmental authority in respect of any failure or
alleged failure by Urologix in respect of its business to comply with any law,
regulation or order has been received by Urologix; and (ii) no claims have been
filed against Urologix in respect of its business alleging a violation of any
such law, regulation or order.

     5.11 HSR Act.  The "Ultimate Parent Entity" (under the HSR Act) of Urologix
          -------
does not have assets or revenues in excess of $100 million as of Urologix's most
recently completed fiscal year, in each case as determined under the HSR Act.

     5.12 Products, Regulation.  Except as disclosed in the Schedules referenced
          --------------------
below or where such items would not have a material adverse effect on the
operations, results of operations, assets or financial condition of Urologix's
business, taken as a whole:

          5.12.1  Since January 1, 1997, there have been no written notices,
citations nor decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at any time by Urologix's
business (the "Urologix Products") is defective or fails to meet any applicable
standards or other regulatory requirements promulgated by any such governmental
or regulatory body.  Since January 1, 1997, there have been no recalls, field
notifications or seizures ordered or, to the knowledge of Urologix, threatened
by any such governmental or regulatory body with respect to any of the Urologix
Products.  Except as has been disclosed to EDAP, since January 1, 1997, Urologix
has not received, and Urologix does not have knowledge or any reasonable basis
for, any warning letter, or Section 305 notices from, or civil or criminal
investigations by, the FDA.

          5.12.2  The Urologix Products have been listed with FDA and any other
governments, state, local or foreign, requiring a similar listing.  All
necessary amendments, supplements and reports required to keep the approvals and
clearances current with the versions of the Urologix Products being marketed
have been filed in a timely manner and are complete

                                       25
<PAGE>

and accurate. Any changes in product design and manufacturing and quality
assurance procedures have been filed in a timely manner.

          5.12.3  Urologix has complied with all incident and adverse event
(both injury and malfunction) reporting requirements to the FDA and similar
state, local and foreign governmental agencies with respect to the Urologix
Products.  No events have occurred with respect to Urologix Products sold by
Urologix which will, to the knowledge of Urologix, result in claims against
EDAP.

          5.12.4  All management, facilities, personnel, manufacturing, quality
and other systems operated by or employed by Urologix at its facilities and
regulated by the FDA and other similar regulatory agencies, either state, local
or foreign, are in compliance with all regulatory requirements (e.g., the FDA's
Quality System Regulation, ISO 9001 and EN 46001) related to the Urologix
products produced at such facilities, except to the extent such non-compliance
would not have a material adverse effect on the operations, results of
operations, assets or financial condition of Urologix's business, taken as a
whole.

          5.12.5  Urologix is in compliance, in accordance with general industry
practices, with its policies, procedures and specifications in the conduct of
its business, including, without limitation, all such policies, procedures and
specifications with respect to employment matters, design, manufacture, testing
and inspection of products, safety matters, and the protection of trade secrets,
know-how and confidential information, except to the extent such non-compliance
would not have a material adverse effect on the operations, results of
operations, assets or financial condition of Urologix's business, taken as a
whole.

     5.13 Insurance.  Urologix has not received any notice of cancellation in
          ---------
respect of insurance coverage for operations, assets and properties relating to
its business.  All premiums due and payable in respect of such insurance have
been paid.  There are no pending or, to Urologix's knowledge, threatened
terminations nor premium increases with respect to any such policies and
Urologix is in compliance with all material conditions contained therein.

     5.14 Full Disclosure.  No representation or warranty of Urologix contained
          ---------------
in this Agreement, contains an untrue statement of material fact or, to the
knowledge of Urologix, omits to state a material fact required to be stated
therein or necessary to make the statements made, in the context in which made,
not false or misleading in any material respect when made.

     ARTICLE 6
                                   COVENANTS
                                   ---------

     6.1  Cooperation.  Each of EDAP, French Subsidiary and U.S. Subsidiary and
          -----------
Urologix shall use its reasonable best efforts to obtain the consent or approval
of third Persons to the transactions contemplated hereby with respect to the
Commitments identified on paragraph (b) of Schedule 4.6 and included in the
Assets, and the Permits, if any, identified on paragraph (b) of Schedule 4.8 as
requiring such consent or approval.  In no event shall Urologix be

                                       26
<PAGE>

responsible for or pay any fees, expenses or other costs or payments required to
obtain such consents and all such amounts shall be paid by EDAP. EDAP and
Urologix agree that, in the event any consent or approval of any such third
Person necessary or desirable to preserve for the Business any right or benefit
under any such Commitment or Permit is not obtained prior to the Closing, EDAP
will, subsequent to the Closing, cooperate with Urologix in attempting to obtain
such consent or approval as promptly thereafter as practicable. If such consent
or approval cannot be obtained, EDAP shall use its reasonable best efforts, and
cause the other Sellers to use their reasonable best efforts, to provide
Urologix with the rights and benefits of the affected Commitment or Permit for
the term of such Commitment or Permit. After the Closing, EDAP shall cooperate
with Urologix in the preparation of any financial statements required to be
filed by Urologix with respect to the Business pursuant to U.S. federal
securities laws. After the Closing, Urologix will supply such information as may
reasonably be required for EDAP to meet its reporting obligations under that
certain agreement referenced as item 15 of Schedule 1.1(b)(vii). Any such
information provided shall be subject to the confidentiality provisions of
Section 7.5.

     6.2  Post-Closing Warranty Work. Urologix agrees to perform on-site repairs
          --------------------------
to the extent feasible with respect to contractually required warranty repair
and warranty service under Manufacturer Warranties given directly by EDAP to its
customers with respect to the products listed on Schedule 6.2 during the
warranty period provided on such Schedule with respect to such products. Such
service will be performed under substantially the same terms as provided under
the terms of the Supply Agreement. The applicable warranty related to such
products is also attached to Schedule 6.2. Sellers agree that the cost of such
warranty repair and service and Urologix's out-of-pocket expenses shall be
reimbursed by Sellers within thirty (30) days of presentment by Urologix of
evidence of performance of such warranty work and the cost incurred by Urologix.
This Section 6.2 and the exception set forth in Section 1.2(b)(xv) are not
intended for the benefit of any third party or otherwise to create any rights in
favor of a third party beneficiary. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, AND NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THIS SECTION 6.2
AND THE EXCEPTION SET FORTH IN SECTION 1.2(b)(xv) ARE NOT INTENDED TO BE AN
ASSUMPTION BY UROLOGIX OF ANY MANUFACTURER WARRANTY OBLIGATIONS OF SELLERS OR TO
SUBJECT UROLOGIX TO ANY DAMAGES INCLUDING DIRECT, SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM PRODUCTS MANUFACTURED AND/OR SOLD BY ANY
SELLER PRIOR TO THE CLOSING DATE; PROVIDED THE COSTS REQUIRED IN THIS SECTION
6.2 TO BE REIMBURSED BY SELLERS SHALL NOT APPLY TO ANY OBLIGATIONS IDENTIFIED ON
AND NOT TO EXCEED THE AMOUNTS LISTED ON SCHEDULE 1.2(b)(iii) OR TO EQUIPMENT
MAINTENANCE OBLIGATIONS INCURRED UNDER ASSUMED CONTRACTS, SUBJECT TO THE
LIMITATIONS WITH RESPECT THERETO IN SECTION 1.2(a)(ii) or (iii).

     6.3  Access. In order to facilitate the resolution of any claims made by or
          ------
against or incurred by Urologix with respect to third parties after the Closing,
upon reasonable notice, EDAP in respect of the Business shall, after the
Closing: (i) afford the officers, employees and

                                       27
<PAGE>

authorized agents and representatives of Urologix reasonable access, during
regular business hours, to the offices, properties, books and records of the
Sellers with respect to the Business, (ii) furnish to the officers, employees
and authorized agents and representatives of Urologix such additional financial
and other information regarding the Business for the period prior to the Closing
as Urologix may from time to time reasonably request and (iii) make available to
Urologix, the employees of the Sellers whose assistance, testimony or presence
is necessary to assist Urologix in evaluating any such claims and in defending
such claims, including the presence of such persons as witnesses in hearings or
trials for such purposes; provided, however, that such investigation shall not
                          --------  -------
unreasonably interfere with the business or operations of EDAP; provided
                                                                --------
further, however, that EDAP shall not be obligated to disclose any information
-------  -------
which it holds under a legally binding obligation of confidentiality or which is
protected by any privilege; and provided further, however, that Urologix shall
                                -------- -------  -------
bear all costs related to those claims except to the extent such claims are
subject to indemnification by Sellers under Article 8. The parties agree to
enter into a reasonably acceptable confidentiality agreement at such time of
required disclosure.

     6.4  Other Financial Statements. EDAP shall, within 10 days after the
          --------------------------
Closing, deliver to Urologix complete audited statements of revenues and direct
expenses for the Business for the years ended December 31, 1998 and 1999 and
related notes, as well as audited statements of net assets of the Business as of
December 31, 1999 and related notes. EDAP shall, within 10 days after the
Closing, provide or will cause its independent auditors to provide all required
unqualified auditors opinions and consents for all SEC filings required to be
made by Urologix as a result of this transaction. EDAP shall, within 10 days
after the Closing, deliver to Urologix unaudited financial statements for the
Business, including statements of revenues and direct expenses and statements of
net assets and related notes to the financial statements for the twelve months
ended June 30, 2000. The audited financial statements for the years ended
December 31, 1998 and 1999, and the unaudited financial statements for the
twelve months ended June 30, 2000 are collectively referred to as the "Financial
Statements." The Financial Statements shall be prepared from the books and
records of EDAP in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis, subject to normal year-
end adjustments, and fairly present, in all material respects, the financial
condition of the Business as at the date thereof and results of its operations
for the periods covered thereby.

     6.5  Maintenance and Service Agreements. On or before the Closing Date,
          ----------------------------------
EDAP, French Subsidiary and U.S. Subsidiary shall have provided the required
notice to terminate all third party service and maintenance agreements,
including the Service Dealership Agreement dated August 12, 1999 between EDAP
and American MedTech Services, Inc.

     6.6  Distribution Agreements. Within 70 days after the Closing Date, EDAP,
          -----------------------
French Subsidiary and U.S. Subsidiary shall have terminated, without liability
to Urologix, all distributor agreements with respect to the Business except as
provided in Schedule 6.6. The agreements listed on Schedule 6.6 shall be
terminated as soon as allowed under such agreements, without liability to
Urologix.

                                       28
<PAGE>

     6.7  Inventory. EDAP agrees to cause its Japanese or French Subsidiary to
          ---------
purchase [Confidential Treatment Requested] each FOB shipping point, but with
shipping charges to be split by EDAP and Urologix, within fifteen months of
Closing, [Confidential Treatment Requested], as provided in the International
Distribution Agreement. In the event such Japanese or French Subsidiary and U.S.
Subsidiary does not fulfill its obligations hereunder, EDAP shall purchase such
Boxes from Urologix on the same terms and at the times provided in the
International Distribution Agreement and EDAP or the EDAP Affiliates may sell
such Boxes in the countries of Latin America (other than Mexico), Africa (other
than Egypt), former USSR countries, Middle East (other than the United Arab
Emirates), and Asia, notwithstanding Section 7.2 hereof, provided EDAP has
attempted in good faith to sell such Boxes in Japan for a period of at least six
months after purchase and shall thereafter notify Urologix of the country in
which such sales efforts will be made prior to initiating such sales efforts in
such country.

     6.8  Term Debt.  EDAP and Urologix have agreed that EDAP will retain all
          ---------
term debt obligations.  However, Urologix agrees to pay to EDAP US$575,000 on
December 30, 2003  pursuant to the terms of the Promissory Note.

     6.9  Corrective Actions. EDAP shall at its sole cost and expense promptly
          ------------------
comply with all FDA directives arising out of the PMA Annual Report filed by
EDAP on August 8, 2000, or arising out of any action taken or omitted to be
taken by any Seller prior to Closing related to product modifications.

     6.10 Marketing Support. Sellers have the marketing support commitments
          -----------------
described on Schedule 6.10 in the amounts set forth on such Schedule. Urologix
agrees to perform such commitments for the account of Sellers. Sellers agree to
reimburse Urologix within thirty (30) days of presentment by Urologix of
evidence of satisfaction, in whole or in part, of a commitment set forth on
Schedule 6.10 provided Seller shall not be obligated to reimburse Urologix for
amounts in excess of those set forth on Schedule 6.10 unless a Seller is
contractually committed to expend more than the amounts referenced in the
Schedule.

     6.11 Covenant Not to Sue.  Sellers covenant not to bring any claim or
          -------------------
action under any patent, trade secret or other intellectual property right of
Sellers, whether owned or licensed, against Urologix, any Urologix Affiliate or
any distributor, agent or customer of Urologix with respect to the development,
marketing, production, sale or distribution of the Products or any Competitive
Products.

     6.12 RF Testing.  Sellers and Urologix agree that various equipment used
          ----------
for the purpose of RF testing, including, without limitation, antennae, carrying
cases, cords, cables and other required sundry supplies, will be part of the
Assets which will be transferred to Urologix.  Sellers, jointly and severally,
covenant and agree to perform all RF tests at each of the locations listed on
Schedule 4.8(b) within sixty (60) days of the Closing at Sellers' sole cost and
expense.  Sellers shall be entitled to utilize the equipment solely for purposes
of fulfilling its obligations to complete the RF testing.

                                       29
<PAGE>

     6.13 Collection of Receivables. For a period of three months following the
          -------------------------
Closing Date, Urologix shall cooperate with Sellers in collecting the accounts
receivable listed on Schedule 1.1(b)(xiii), but Urologix shall have no
obligation to initiate legal proceedings for such purpose and shall have no
liability to Sellers by reason of Sellers' failure or inability to collect any
such accounts receivable. During such period, except as provided in Schedule
4.16, Urologix agrees not to provide such third party with Kits unless and until
such receivables have been paid in full.

     ARTICLE 7
                              ADDITIONAL COVENANTS
                              --------------------

     7.1  Sales and Other Tax. Sellers, jointly and severally, will pay, and
          -------------------
shall indemnify and hold Urologix harmless against transfer, documentary,
recording, notarial, sales, use, registration, stamp and other similar taxes,
fees and expenses and including any penalties, interest and additions to such
tax ("Transfer Taxes") imposed by any jurisdiction other than the United States
or any state thereof with respect to the Assets. At the Closing, EDAP shall pay
Urologix US$40,000 as an estimate of such Transfer Taxes by reduction in the
Cash Consideration. Within ten days after the Closing, EDAP and Urologix shall
agree on French Contracts based on appraisals received by EDAP and its experts
and acceptable to Urologix and its experts. EDAP shall provide the French
Contracts and all required attachments translated into English and summary of
Asset Purchase Agreement to be provided to the tax authority translated into
English. In the event the amount to be paid pursuant to the French Contracts is
in excess of US$40,000, EDAP shall promptly pay such excess in time for the
filing of such French Contracts. In the event the amount to be paid is less than
US$40,00, Urologix shall promptly reimburse EDAP the amount by which the
required amount is less than US$40,000. In no event shall the execution by
Urologix of the French Contracts or any other agreement with respect to any
other allocation or the payment by EDAP of an estimate of such Transfer Taxes
constitute a waiver of any right to indemnification from Sellers for Transfer
Taxes or prohibit Urologix from making any allocations required under U.S. law
or SEC requirements. In the event the amounts paid with the French Contracts are
challenged, Sellers will indemnify Urologix from and against all costs,
expenses, penalties, interest and other fees incurred by Urologix in connection
therewith. Urologix shall pay, and shall indemnify and hold EDAP harmless
against, all Transfer Taxes imposed by United States or any state thereof with
respect to the Assets transferred by the U.S. Subsidiary.

                                       30
<PAGE>

     7.2  Non-Competition.
          ---------------

          7.2.1  During the period from the date of this Agreement to and
including the fifth anniversary of the date hereof (or, if not enforceable for
such period in any country or jurisdiction, for such shorter period as shall be
enforceable in such country or jurisdiction), neither EDAP, French Subsidiary
nor U.S. Subsidiary shall, nor shall any one of them permit any of its
Affiliates to, directly or indirectly, engage in the development, marketing,
production, sale or distribution anywhere in the world of Competitive Products
(as defined below), except as set forth in the Supply Agreement, the Transition
and Technology Transfer Agreement, the International Distribution Agreement and
any other agreement executed in connection with this Agreement and the overall
transaction.

          7.2.2  During the period from the date of this Agreement to the later
of (i) the fifth anniversary of the date hereof; or (ii) the date of expiration
of the last patent included in the intellectual property identified below,
neither EDAP, French Subsidiary nor U.S. Subsidiary shall, nor shall any one of
them permit any of their Affiliates to, whether pursuant to an asset transfer,
stock transfer, merger, exchange, joint venture, by operation of law or
otherwise, assign or transfer, license, grant rights to, or otherwise allow any
Person to use, in any manner, other than for purposes of fulfilling the
obligations of Sellers under the Supply Agreement or Transition and Technology
Transfer Agreement, any intellectual property used or held for use in the
Business which is not included in the Assets, including any intellectual
property licensed to EDAP, French Subsidiary or U.S. Subsidiary or any Affiliate
of any one of them. EDAP, French Subsidiary and U.S. Subsidiary represent to
Urologix that no such assignment, transfer, license or right to use has been
granted to any Person on or prior to the date hereof. If requested in writing by
Urologix at any time after Sellers have fulfilled all of the obligations of
Sellers under the Supply Agreement and Transition and Technology Transfer
Agreement, Sellers will, without the payment of any further consideration by
Urologix, promptly assign and transfer in writing to Urologix all intellectual
property used or held for use in the Business which is not included in the
Assets, including any such intellectual property licensed to EDAP, French
Subsidiary, or U.S. Subsidiary, or any Affiliate of any one of them.

          7.2.3  As used in Section 7.2.1 hereof, the phrase "directly or
indirectly, engage in" includes any direct or indirect ownership, profit
participation or other interest by EDAP, French Subsidiary, U.S. Subsidiary or
any Affiliate of any one of them, whether as owner, stockholder, partner, joint
venturer, beneficiary or otherwise, in any Person; provided, however, that the
                                                   --------  -------
foregoing provisions shall not prevent EDAP, French Subsidiary, U.S. Subsidiary
or any Affiliate of any one of them from investing in businesses that compete
with the Competitive Products where such investments are incidental investments
in public companies and constitute, in the aggregate, less than 5% of the
outstanding securities or voting interest of each of such companies or where
such investments are in Urologix or its successors or assigns of its entire
business.

                                       31
<PAGE>

          7.2.4  As used in this Section 7.2, "Competitive Products" means any
microwave products, including, without limitation, the EDAP Prostatron and any
other microwave devices performing the same purpose or function as, or that are
competitive with, the EDAP Prostatron, and shall include any microwave product
intended for use in minimally invasive treatments for BPH or any other disorders
(including, without limitation, parts, components, modules, subsystems or
subassemblies thereof, or parts, components, modules, subsystems or
subassemblies of and for such products).

     7.3  Non-Solicitation. For thirty-six months from the Closing Date, neither
          ----------------
EDAP nor its Affiliates, on the one hand, nor Urologix nor any of its
Affiliates, on the other hand, shall specifically solicit to hire any current
employees of the other party without the prior written consent of such other
party, provided that nothing herein shall restrict or preclude the rights of
either party to make generalized searches for employees by use of advertisements
in the media (including without limitation, trade media) or by engaging search
firms to engage in searches which are not targeted or focused on the employees
of the other party.

     7.4  EDAP Name.  Except for use in the sale of any inventory included in
          ---------
the Assets, Urologix will take all action necessary to cease the use of the name
"EDAP" (or any variant thereof) and related trademarks, corporate names, and
trade names incorporating the name "EDAP", and any "EDAP" logos and trade dress,
in each case in connection with the conduct of the Business.

     7.5  Confidentiality.  Except as otherwise provided in this Agreement,
          ---------------
after the Closing, the Sellers and their Affiliates shall not use or disclose to
third Persons any information disclosed to and transferred and assigned,
licensed or otherwise made available to Urologix or its Affiliates in connection
with the Business and transfer of Assets hereunder. Without limitation, this
obligation of confidentiality shall apply to information related to the
Products, business plans, strategies, technologies, and future business
relationships of the Business. This obligation of confidentiality shall not
apply to the extent any such information (a) is or becomes part of the public
domain through no fault of the Sellers (but only after and only to the extent
that it is published or otherwise becomes part of the public domain); (b) after
the Closing, comes into the possession of the Sellers from a third Person, other
than Urologix or its Affiliates, who was not, to the Sellers' knowledge, under a
continuing obligation of confidence to the disclosing party; or (c) is disclosed
by the Sellers pursuant to any judicial compulsion, provided that Urologix is
notified at the time such judicial action is initiated. Disclosures relating to
the Products, business plans, strategies and future business relationships of
Urologix or EDAP shall not be deemed to be in the public domain or in the
possession of the receiving party merely because they are embraced (but not
disclosed) by general disclosures in the public domain or in the possession of
the receiving party.

     7.6  Bulk Sales Laws.  EDAP shall comply with the provisions of the "bulk
          ---------------
sales" type laws applicable in France, if any, and otherwise each of the parties
waives compliance by the other parties with the provisions of the "bulk sales"
laws of any jurisdiction which may be applicable to the transactions
contemplated by this Agreement.

                                       32
<PAGE>

     7.7  Board Representation. This Section 7.7 shall only apply as of the date
          --------------------
the Closing occurs. At least 15 days prior to the meeting of the Board of
Directors of Urologix establishing the slate of directors for the next scheduled
Annual Meeting of Shareholders of Urologix, Urologix shall provide EDAP with a
notice of such meeting. Prior to the date of such meeting of directors, EDAP
shall give the Urologix Board of Directors, in writing, the names of two
director candidates selected from EDAP's executive management team or directors.
Urologix will nominate and solicit proxies of the election of one such candidate
submitted by EDAP as a member of the Board of Directors of Urologix at that
Annual Meeting of Shareholders and at future Annual Meetings of Shareholders at
which successors to the directors in that same class of directors are elected;
provided, however, that at such time as the number of shares of Urologix Common
--------  -------
Stock outstanding owned by EDAP is reduced to less than eight percent (8%) of
the total number of then outstanding shares of Urologix, Urologix shall no
longer be obligated to nominate and solicit proxies for election of such
designee of EDAP as a director of Urologix and such nominee shall, if requested
by the Board of Directors of Urologix, resign from the Urologix Board of
Directors.

     7.8  Transferred Employees.  Promptly after Closing, Urologix shall provide
          ---------------------
EDAP with a list of those employees of U.S. Subsidiary to which Urologix desires
to make offers of employment.  To the extent any offer is made and accepted,
such individual shall be referred to herein as a "Transferred Employee."  In no
event shall Urologix employ any Employee of EDAP or the French Subsidiary.

     7.9  Insurance.  Sellers shall deliver at Closing a Certificate of
          ---------
Insurance naming Urologix as an additional insured under U.S. Subsidiary's
products liability insurance policy.  Sellers shall comply with the insurance
requirements of Section 10.4 of the Supply Agreement.

     ARTICLE 8
                      INDEMNIFICATION AND RELATED MATTERS
                      -----------------------------------

     8.1  Survival. Subject to the limitations and other provisions of this
          --------
Agreement, the representations and warranties of EDAP, French Subsidiary and
U.S. Subsidiary and Urologix contained herein shall survive the Closing and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of Urologix, EDAP or French Subsidiary and U.S. Subsidiary, as the
case may be, for a period of twenty-one (21) months after the Closing Date;
provided, however, that (A) the representations and warranties in Sections 4.1,
--------  -------
4.4, 4.5, 4.10 and 4.23 shall survive indefinitely after the Closing Date and
(B) the agreements of indemnification in Sections 8.2 and 8.3 shall remain
effective in respect of claims made in writing as provided in Section 9.12 with
respect to such representations and warranties prior to the expiration of the
relevant survival period until such claims are finally determined and satisfied
in full. All other covenants, agreements and indemnification obligations shall
survive indefinitely unless a different period is specified herein.

                                       33
<PAGE>

     8.2  Indemnification by Sellers.  Subject to the terms and conditions of
          --------------------------
this Article 8, Sellers, jointly and severally, agree to indemnify and hold
Urologix and its Affiliates, including, in each case, any of its or their
respective directors, officers, employees and representatives, harmless from and
against:

          8.2.1  Any and all Losses resulting from any breach of any of the
representations and warranties, covenants or other agreements of EDAP or French
Subsidiary and U.S. Subsidiary contained in this Agreement; and

          8.2.2  Losses arising out of, related to or resulting from Excluded
Liabilities.

     8.3  Indemnification by Urologix.  Subject to the terms and conditions of
          ---------------------------
this Article 8, Urologix agrees to indemnify and hold EDAP and its Affiliates,
including, in each case, any of its or their respective directors, officers,
employees and representatives, harmless from and against:

          8.3.1  Any and all Losses resulting from any breach of any
representations and warranties, covenants or agreements of Urologix contained in
this Agreement; and

          8.3.2  Losses arising out of, related to or resulting from Assumed
Liabilities.

     8.4  Limitations.  Notwithstanding the provisions of Section 8.2, Losses
          -----------
for which Urologix or its Affiliates are entitled to indemnification as a result
of a breach by Sellers of any representation or warranty of Sellers in Article 4
of this Agreement shall not include the first US$50,000 of Losses (the
"Basket"); provided the Basket shall not apply to matters which may be covered
by the representations and warranties but which are also Excluded Liabilities.

     8.5  Notice of Indemnification.  In the event any legal proceeding shall be
          -------------------------
threatened or instituted or any claim or demand shall be asserted by any person
in respect of which payment may be sought by one party hereto from the other
party under the provisions of this Agreement, the party seeking indemnification
(the "Indemnitee") shall promptly cause written notice of the assertion of any
such claim of which it has knowledge which is covered by this indemnity to be
forwarded to the other party (the "Indemnitor"). Any notice of a claim by reason
of any of the representations, warranties, covenants or agreements contained in
this Agreement shall state specifically the representation, warranty, covenant
or agreement with respect to which the claim is made, the facts giving rise to
an alleged basis for the claim, and the amount of the liability asserted against
the Indemnitor by reason of the claim.

     8.6  Indemnification Procedure for Third-Party Claims.  In the event that
          ------------------------------------------------
an Indemnitee receives written notice of the commencement of any action or
proceeding, the assertion of any claim by a third party or the imposition of any
penalty or assessment for which indemnity may be sought pursuant to this Article
8 (a "Third Party Claim"), and such Indemnitee intends to seek indemnity
pursuant to this Article 8, the Indemnitee shall promptly provide the Indemnitor
with notice of such action, proceeding, claim, penalty or assessment. The
Indemnitor

                                       34
<PAGE>

shall have the right, by giving notice to the Indemnitee within twenty (20) days
after receipt of notice from the Indemnitee of a Third Party Claim, stating that
the Indemnitor is responsible for such claim to the extent required under this
Article 8, at its expense, to defend against, negotiate, settle or otherwise
deal with any claim with respect to which it is the Indemnitor and to have the
Indemnitee represented by counsel reasonably satisfactory to the Indemnitee,
selected by the Indemnitor, provided that the Indemnitee may participate in any
                            --------
proceeding with counsel of its choice and at its expense; provided further that
                                                          ----------------
the Indemnitee, at any time when it believes in good faith that (i) any third
party claim with respect to which Indemnitor is defending is having a Material
Adverse Effect; (ii) the Indemnitor does not have the financial resources to
defend against the claim and fulfill its indemnification obligations hereunder;
(iii) the settlement of, or adverse judgment with respect to, the third party
claim is likely to establish a precedential custom or practice materially
adverse to the business of the Indemnitee or, with respect to Urologix as
Indemnitee, will adversely affect the Indemnitee's relationship with its
customers; (iv) the Indemnitor is not conducting the defense of the third party
claim actively and diligently; or (v) the third party claim seeks an injunction
or other equitable relief, may assume the defense and settlement of such third
party claim in good faith, with counsel of its choice, and be fully indemnified
therefor; and provided further, that the Indemnitor may not enter into a
              ----------------
settlement of any third party claim without the consent of the Indemnitee unless
such settlement requires no more than a monetary payment for which the
Indemnitee has been fully paid. In the event the Indemnitee is controlling the
defense, the Indemnitor may participate in such defense and settlement through
counsel chosen by it or consent to any settlement of the third party claim,
which consent shall not be unreasonably withheld. The parties will cooperate
fully with each other in connection with the defense, negotiation or settlement
of any third party claim.

     ARTICLE 9
                                 MISCELLANEOUS
                                 -------------

     9.1  Entire Agreement.  This Agreement (including the exhibits hereto, the
          ----------------
Schedules and the documents referred to herein and the other documents executed
by the parties on the date hereof) and the Letter Agreement dated July 21, 1999
contain the entire understanding of the parties hereto in respect of the subject
matter contained herein and supersede all prior agreements and understandings
between the parties with respect to such subject matter. There are no
restrictions, promises, representations, warranties, covenants, or undertakings,
other than those expressly set forth or referred to herein or therein.

     9.2  Amendment; Waiver.  No waiver and no modification or amendment of any
          -----------------
provision of this Agreement shall be effective unless specifically made in
writing and duly signed by the parties to be bound thereby. Waiver by a party of
any breach of or failure to comply with any of the provisions of this Agreement
by any other party shall not be construed as, or constitute, a continuing waiver
of, or a waiver of any other breach of, or failure to comply with, any other
provision of this Agreement.

     9.3  Assignment.  This Agreement and all of the provisions hereof shall be
          ----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted

                                       35
<PAGE>

assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties; provided, however, that Urologix may
                                            --------
assign this Agreement and its rights, interests and obligations in whole or in
part hereunder to one or more directly or indirectly wholly owned subsidiaries
of Urologix without the consent of EDAP or French Subsidiary and U.S.
Subsidiary; provided, however, that such assignment shall not relieve Urologix
            --------  -------
of any of its obligations hereunder.

     9.4  Headings; Usage.  The paragraph headings contained herein and the
          ---------------
headings and subheadings used herein or on any of the Schedules to this
Agreement are for the purposes of convenience only and are not intended to
define, limit or expand the contents of said paragraphs or said headings or
subheadings. The meanings of any terms defined herein are equally applicable to
both the singular and plural forms of the terms defined.

     9.5  Cooperation.  Each party hereto shall cooperate, shall take further
          -----------
action and shall execute and deliver such further documents as may be reasonably
requested by the other party in order to carry out the provisions and purposes
of this Agreement.

     9.6  Expenses.  Except as provided in Section 7.1, Urologix shall bear its
          --------
and EDAP shall bear its and French Subsidiary and U.S. Subsidiary's costs and
expenses in connection with the negotiation, preparation, performance and
consummation of the transactions contemplated by this Agreement, including all
taxes of any type, the fees and disbursements of all attorneys, accountants,
appraisers, investment bankers and advisors retained by or representing them in
connection with the preparation and performance of this Agreement.

     9.7  Governing Law.  This Agreement shall be governed by and construed in
          -------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed therein without regard to the principles of any jurisdiction
with respect to conflicts of laws.

     9.8  Disputes.
          --------

     (a)  Any dispute between Urologix and EDAP arising out of or in connection
with this Agreement (or any agreements or documents delivered by the parties
hereto pursuant to the terms of this Agreement) or any alleged breach hereof
may, at the option of either Urologix or EDAP, be submitted for discussion and
possible resolution by senior officers of Urologix and EDAP, as designated by
their respective chief executive officers.

     (b)  All disputes arising, relating to or arising in connection with this
Agreement, including those pertaining to the validity, interpretation,
construction or breach hereof or of any legal obligation owed or claimed to be
owed by any party hereto to any other party hereto or its Affiliates, that is
not otherwise amicably settled between the parties shall exclusively be resolved
by arbitration between EDAP and Urologix pursuant to the Commercial Arbitration
Rules of the

                                       36
<PAGE>

American Arbitration Association (the "Rules"), with the arbitration to be
conducted in the English language and taking place in New York, New York.

     (c)  The arbitral tribunal shall be composed of three arbitrators appointed
in accordance with the Rules. The Chairman of the arbitral tribunal shall be
nominated by the two arbitrators nominated respectively by EDAP and Urologix,
and if they fail to agree upon such Chairman within 30 days after the second
arbitrator has been appointed, such Chairman shall be appointed by the American
Arbitration Association. No arbitrator shall be or have been a present or past
employee, officer, director, legal counsel, consultant or agent of either party
or its Affiliates. All arbitrators shall be of legal education, unless the
parties agree otherwise at the time. Unless prohibited or restricted by
applicable law, each party agrees to provide to the arbitrators and the other
party, subject to a strict confidentiality agreement, such documents, other
evidence, witness testimony as may reasonably be requested by the other party
and as are relevant to the issues being arbitrated. The arbitrators may restrict
or terminate discovery requests which they conclude are unreasonable, unduly
burdensome or not relevant to the issues being arbitrated. Such discovery shall
occur during a reasonable time period. The arbitrators shall not have the power
to act as "amiable compositeurs" with respect to any dispute submitted to such
arbitration, but rather shall make their decision based on their understanding
and interpretation of the applicable law and facts. The fees and disbursements
of the arbitrators shall be allocated between the disputing party and the other
party to the dispute in the same proportion that the disputed items so submitted
to the arbitrators that are unsuccessfully disputed by each (as finally
determined by the arbitrators) bears to the total amount of all disputed items
so submitted. Notwithstanding any provision of this Agreement to the contrary,
(i) any party shall be entitled to seek a judicial order for interim relief to
the extent necessary to safeguard the property that is the subject matter of an
arbitration proceeding hereunder, and (ii) judgment upon the award rendered in
any arbitration proceeding hereunder may be entered in any court having
jurisdiction or application may be made to such court in a judicial acceptance
of the award and an order by enforcement, as the case may be. The parties hereto
agree that the arbitrators appointed pursuant to this Section 9.8 shall have the
power to grant equitable relief, including temporary and permanent injunctive
relief and specific performance.

     (d)  Notwithstanding any other provision in this Section 9.8 to the
contrary, either party may bring court proceedings or claims against the other
as part of separate litigation commenced by an unrelated third party.

     (e)  Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State court or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may

                                       37
<PAGE>

be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.

     9.9  Severability.  Whenever possible, each provision of this Agreement
          ------------
will be interpreted in such manner as to be effective and valid under the
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.

     9.10 Counterparts.  This Agreement may be executed in one or more
          ------------
counterparts, all of which taken together will constitute one and the same
instrument.

     9.11 Interpretation.  This Agreement has been fully negotiated by the
          --------------
parties through their legal counsel.  Accordingly, in interpreting this
Agreement, the rule of the interpretation requiring that documents be construed
against the draftsman shall be inapplicable.

     9.12 Notices.  All notices, requests and other communications to any party
          -------
hereunder shall be in writing, will be effective upon receipt, and shall be
given or made (and shall be deemed to have been duly given or made upon receipt)
by delivery in person, by courier service, by cable, by facsimile transmission,
by telegram or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 9.12):

     if to EDAP or French Subsidiary and U.S. Subsidiary, to:

                              EDAP TMS S.A.
                              4-6 rue du Dauphine
                              69120 Vaulx-en-Velin
                              France
                              Attention: Chief Executive Officer

     with a copy to:          Cleary, Gottlieb, Steen & Hamilton
                              City Place House
                              55 Basinghall Street
                              London EC2V 5EH, England
                              Attention: Pierre-Marie Boury

     if to Urologix to:       Urologix, Inc.
                              14405 21/st/ Avenue North
                              Minneapolis, MN 55447
                              Attention: Chief Executive Officer

                                       38
<PAGE>

     with a copy to:          Lindquist & Vennum P.L.L.P.
                              4200 IDS Center
                              80 South 8TH Street
                              Minneapolis, MN 55402
                              Attention:  Ronald G. Vantine

     9.13 No Third Party Beneficiary.  The provisions of this Agreement are for
          --------------------------
the sole benefit of the parties to this Agreement and are not for the benefit of
any third party.

     9.14 English Language.  This Agreement shall be executed solely in English
          ----------------
language which shall be controlling in all respects whether or not translations
are made of this Agreement into any other language.

                                  ARTICLE 10
                                  DEFINITIONS
                                  -----------

     10.1 Definitions.  For purposes of this Agreement, the following terms have
          -----------
the meaning set forth below:

     "Affiliate" means as to any Person controlling, controlled by, or under
common control with, such Person, any officer, director or executive employee of
such Person, and any Employee Benefit Plan maintained by such Person (including,
without limitation, related trusts and the fiduciaries thereof).

     "Affiliated Group" means an affiliated group as defined in Section 1504 of
the Code (or any analogous combined, consolidated or unitary group defined under
state, local or foreign income tax law) of which EDAP is or has been a member.

     "Assets" shall have the meaning given to it in Section 1.1(a).

     "Assumption Agreement" means the Assumption Agreement to be executed by
Urologix and the Sellers on the Closing Date substantially in the form of
Exhibit 3.2.7.

     "Assumed Liabilities" shall have the meaning given to it in Section 1.2(a).

     "Bill of Sale" means the Bill of Sale and Assignment to be executed by the
Sellers on the Closing Date substantially in the form of Exhibit 3.2.5.

     "Box" means all models of the Prostatron control module, which consists of
a microwave generator, a cooling system, a fiberoptic temperature measurement
system and a computer, including but not limited to the Prostatron Maxis and
Classics and the Prostatron Praktis, and including all current versions of
operating software and those under development.

                                       39
<PAGE>

     "Business" means the research, development, manufacturing, marketing,
assembly, sales, maintenance and service of microwave products for the minimally
invasive treatment of benign prostatic hyperplasia (BPH) or other urological
disorders including, without limitation, microwave thermotherapy products.

     "Business Day" means any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of Minnesota.

     "Cash Consideration" shall have the meaning given to it in Section 2.1.

     "Closing" shall have the meaning given to it in Section 3.1.

     "Closing Date" shall have the meaning given to it in Section 3.1.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Commitments" shall have the meaning given to it in Section 4.6.

     "Competitive Products" shall have the meaning given to it in Section 7.2.3.

     "Dollars" and the symbol "US$" means lawful currency of the United States
of America.

     "EDAP Affiliate" means any Affiliate of EDAP, including any French
Subsidiary and U.S. Subsidiary.

     "Employee" shall mean a current employee, including both active employees
(including light duty employees), inactive employees (including employees on a
leave of absence, sick leave, short term disability or worker's compensation
disability on the Closing Date), and former employees (including retirees and
employees on long term disability), of EDAP or French Subsidiary and U.S.
Subsidiary or any active employee of any EDAP Affiliate who is 100% engaged in
the Business.

     "Employee Benefit Plan" shall mean any agreement, plan, program, fund,
policy, contract or arrangement (either written or unwritten) providing
compensation, benefits, pension, retirement, profit sharing, stock bonus, stock
option, stock purchase, phantom or stock equivalent, bonus, incentive, deferred
compensation, hospitalization, medical, dental, vision, vacation, insurance,
sick pay, disability, severance, or similar employee benefits covering any
Employee, and the beneficiaries and dependents of the Employee, including
without limitation, (i) any Employee Welfare Benefit Plan (the "Welfare Plan"),
whether or not terminated, including but not limited to any severance agreement
or plan, any material fringe benefit plan or program, any medical plan, life
insurance plan, short-term or long-term disability plan, dental plan, personnel
policy, vacation time, holiday pay, bonus program, service award, moving expense
reimbursement program or sick leave; (ii) any deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
whether or not terminated, including but not limited to any excess benefit plan,
top hat plan, or deferred compensation plan, any

                                       40
<PAGE>

Multiemployer Plan, defined contribution or defined benefit arrangements which
are Employee Pension Benefit Plans (the "Pension Plans"); (iii) any other plan,
program, policy, contract or arrangement, including but not limited to any bonus
or incentive plan, stock options, restricted stock, stock bonus, deferred bonus
plan, salary reduction agreement, change-of-control agreement, retention
agreement, employment agreement, or consulting agreement with former Employees.

     "Environmental Condition" shall mean all environmental conditions existing
on or prior to the date hereof and arising or resulting from (i) the
noncompliance by EDAP or French Subsidiary and U.S. Subsidiary with any
applicable Environmental Law; or (ii) the release of a Regulated Substance into
the environment at or from the Property.

     "Environmental Laws" shall mean any and all applicable national, federal,
state, foreign and local treaties, laws, regulations, ordinances, codes,
standards or criteria, orders or decrees of any court, agency, entity,
organization or authority, or of any jurisdiction where EDAP, French Subsidiary
and U.S. Subsidiary or any EDAP Affiliate conducting any part of the Business is
located or conducts business pertaining to the public health and safety,
workers, health and safety and the pollution of or protection of the
environment, including but not limited to those related to air, water, noise,
odor, land, soil, pesticide, hazardous or toxic substances and wastes, in effect
at the Closing Date.

     "Environmental Liabilities" shall have the meaning given to it in Section
1.2(b).

     "Escrow Agent" shall have the meaning given to it in Section 2.2.

     "Escrow Agreement" shall have the meaning given to it in Section 2.2.

     "EU" means the European Union.

     "Excluded Assets" shall have the meaning given to it in Section 1.1(b).

     "Excluded Liabilities" shall have the meaning given to it in Section
     1.2(b).

     "Financial Statements" shall have the meaning given to it in Section 4.2.

     "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.

     "Kit" means all models of the Prostatron microwave delivery system, which
consists of a disposable urethral catheter and a rectal probe, including current
versions and those under development.

     "Knowledge" means the knowledge, after due inquiry, of any officer,
director or division manager of such Person.

                                       41
<PAGE>

     "Latest Balance Sheet" shall have the meaning given to it in Section 4.2.

     "Liabilities" means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent or matured or unmatured.

     "Lien" means any mortgage, claim, lien, pledge, charge, security interest,
option, preemptive right, assessment, security interest, restriction on transfer
or encumbrance of any kind.

     "Litigation" means any claim, action, suit or proceeding in any court or
before any arbitrator or governmental body, agency or official.

     "Losses" means any and all Liabilities, obligations, duties, demands,
claims, actions, causes of action, assessments, losses, costs, damages,
deficiencies, taxes, fines or expenses, including, without limitation, interest,
penalties, reasonable attorneys' fees and all amounts paid in investigation,
defense or settlement of any of the foregoing.

     "Material Adverse Effect" means any change in, or effect on, the Business
as currently conducted that is, or is reasonably likely to be, materially
adverse to the operations, results of operations, assets or financial condition
of the Business, taken as a whole.

     "Permits" shall have the meaning given to it in Section 4.8.

     "Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation or other such entity or
government (whether domestic, foreign, federal, state, county, city or
otherwise, including, without limitation, any instrumentality, division, agency
or department thereof).

     "Products" shall have the meaning given to it in Section 4.10.1.

     "Property" shall mean all real estate and property now or formerly owned or
leased by EDAP, French Subsidiary and U.S. Subsidiary or any EDAP Affiliate
conducting any part of the Business.  For purposes of this definition only,
"Property" includes groundwater underlying the surface.

     "Regulated Substances" shall mean toxic, radioactive or hazardous
substances or wastes, pollutants or contaminants, including but not limited to:
asbestos; urea formaldehyde; the group of organic compounds known as
polychlorinated biphenyls; petroleum products including gasoline, fuel oil,
crude oil and the various constituents of such products; and any substance or
material the generation, storage, handling, release, disposal or cleanup of
which is regulated by any Environmental Law.

     "Rules" shall have the meaning given to it in Section 9.8.

                                       42
<PAGE>

     "Sellers" has the meaning given to it in the first WHEREAS clause.

     "Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by EDAP either
directly or through one or more Subsidiaries.

     "Tax" or "Taxes" means with respect to any person any federal, state,
county, local or foreign income, gross receipts, profits, capital, franchise,
estimated, alternative minimum, add-on minimum, estimated, sales, use,
occupancy, transfer, registration, value added, ad valorem, excise, natural
resources, severance, stamp, occupation, premium, windfall profit, environmental
(including taxes under Section 59A of the Code), customs, duties, levies, real
property, personal property, capital stock, mercantile, social security (or
similar), unemployment, disability, payroll, license, employment, employee or
other withholding, or other tax, governmental fee or like assessment or charge
of any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing, whether disputed or not and
whether computed on a separate, consolidated, unitary, combined or any other
basis; the foregoing shall include any transferee or secondary liability for a
Tax and any liability assumed by agreement or arising as a result of being (or
ceasing to be) a member of any Affiliated Group (or being included (or required
to be included) in any Tax Return relating thereto) or as a result of any spin-
off, distribution or other reorganization related to the disposition of any
assets or business of EDAP or any other member of the EDAP Consolidated Group.

     "Tax Returns" means returns, amendments, statements, forms, information,
elections, declarations, reports, claims for refund, information returns or
other documents (including any related or supporting schedules, statements or
information) filed or required to be filed in connection with the determination,
assessment or collection of any Taxes of any party or the administration of any
laws, regulations or administrative requirements relating to any Taxes.

     "Transferred Employee" has the meaning given to it in Section 7.8.

     "U.S. GAAP" shall have the meaning given to it in Section 4.2.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

                                    UROLOGIX, INC.

                                    By:_________

                                       Its:_____

                                    EDAP TMS S.A.

                                       43
<PAGE>

                                    By:________

                                       Its:____

                                    TECHNOMED MEDICAL SYSTEMS S.A.

                                    By:________

                                        Its:____

                                    EDAP TECHNOMED INC.

                                    By:_______

                                       Its:___

                                       44

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