Document:

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                                                                   Exhibit 10.34

                    AMENDED AND RESTATED SEVERANCE AGREEMENT

     THIS AGREEMENT is entered into as of May 17, 2001, by and between
___________ (the "Employee") and MICROCIDE PHARMACEUTICALS, INC., a Delaware
                  --------
corporation (the "Company").
                  -------

     WHEREAS, the Company and the Employee entered into that certain Severance
Agreement, dated as of March 26, 2001 (the "Original Agreement"); and

     WHEREAS, it is the intent of the Company and the Employee that this Amended
and Restated Severance Agreement amend and restate in its entirety the Original
Agreement and that, from and after the date hereof, the Original Agreement shall
be of no force and effect.

     NOW, THEREFORE, the parties hereto hereby agree to amend and restate the
Original Agreement as follows:

     1.   Term of Agreement.
          -----------------

     This Agreement shall remain in effect from the date hereof until the
earlier of:

          (a)   The date when the Employee's employment with the Company
terminates for any reason not described in Section 6; or

          (b)   The date when the Company has met all of its obligations under
this Agreement following a Termination Event, as defined in Section 6, below.

     2.   Definition of Change in Control.
          -------------------------------

     For all purposes under this Agreement, "Change in Control" shall mean (i) a
                                             -----------------
merger, reorganization or other transaction or series of related transactions
(other than financings) following which the shareholders of the Company do not
own a majority of the capital stock of the surviving corporation or (ii) the
sale of all or substantially all of the assets of the Company.

     3.   Definition of Good Reason.
          -------------------------

     For all purposes under this Agreement, "Good Reason" shall mean that the
                                             -----------
Employee:

          (a)   Has been demoted or has incurred a material reduction in his
authority or responsibility as an employee of the Company, including (without
limitation) a reduction or

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elimination of his authority to approve expenditures or to hire, promote, demote
or terminate subordinates;

          (b)   Has incurred a reduction in his total compensation (including
benefits) as an employee of the Company, other than pursuant to a Company-wide
reduction of total compensation (including benefits) for employees of the
Company generally; or

          (c)   Has been notified that his principal place of work as an
employee of the Company will be relocated by a distance of 50 miles or more.

     4.    Definition of Cause.
           -------------------

     For all purposes under this Agreement, "Cause", shall mean:
                                             -----
           (a)   A willful act by the Employee which constitutes misconduct or
fraud and which is injurious to the Company; provided, however, that no act, or
failure to act, by the Employee shall be considered "willful" unless committed
                                                     ------
without good faith and without a reasonable belief that the act or omission was
in the Company's best interest; or

           (b)   Conviction of, or a plea of "guilty" or "no contest" to, a
                                              ------      ----------
felony.

     The Board of Directors of the Company shall have sole discretion with
respect to whether any act or failure to act constitutes "Cause" for purposes of
this Agreement.

     5.    Definition of Continuation Period.
           ---------------------------------

     For all purposes under this Agreement, "Continuation Period" shall mean the
                                             -------------------
period commencing on the date when the termination of the Employee's employment
under Section 6 is effective and ending on the earlier of:

           (a)   The date twelve (12) months after the date when the employment
termination was effective; or

           (b)   The date of the Employee's death.

     6.    Entitlement to Severance Pay and Benefits.
           -----------------------------------------

     The Employee shall be entitled to receive the severance pay described in
Section 7 (the "Severance Pay") and the benefits described in Section 8 from the
                -------------
Company if, and only if, one of the following events occurs (each a "Termination
Event"):

           (a)   Within the first 12-month period after the occurrence of a
Change in Control, the Employee voluntarily resigns his employment for Good
Reason; or

           (b)   Within the first 12-month period after the occurrence of a
Change in Control, the Company terminates the Employee's employment for any
reason other than Cause.

                                                                             -2-
<PAGE>

     7.   Amount of Severance Pay.
          -----------------------

     During the Continuation Period, the Company shall pay the Employee
Severance Pay at an annual rate equal to the Employee's base compensation at the
annual rate in effect on the date when the termination of his employment with
the Company is effective.  Such amount shall be paid pro-rata at periodic
intervals in accordance with the Company's standard payroll procedures.

     8.   Other Benefits.
          --------------

          (a)   Stock options and Restricted Stock. All unvested stock options
                ----------------------------------
     and shares of restricted stock granted to Employee by the Company shall
     vest immediately upon the occurrence of a Termination Event. The post-
     termination exercise grace period under the Employee's stock options shall
     commence at the end of the Continuation Period. The Employee represents
     that he has consulted or will consult a tax adviser regarding the impact of
     this Subsection (a) on the tax treatment of incentive stock options and
     shares of restricted stock.

          (b)   Group Insurance. At the commencement of the Continuation Period,
                ---------------
the Employee (and, where applicable, his dependents) shall he entitled to
convert his key employee long-term disability policy and group life insurance
policy into individual policies pursuant to the terms of such policies. Should
the Employee elect to convert either or both of such policies, the Company will
pay the premiums for such policy or policies during the Continuation Period. At
the commencement of the Continuation Period, the Employee shall be eligible to
continue his group health continuation coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1986, and the Company will pay the premiums for
such coverage during the Continuation Period. The foregoing notwithstanding, in
the event that the Employee becomes eligible for comparable group insurance
coverage in connection with new employment, the premium payments by the Company
under this Subsection (b) shall terminate immediately.

          (c)   Outplacement Services. Upon the occurrence of a Termination
                ---------------------
Event, the Employee shall be entitled to reasonable outplacement services at the
Company's expense. Such services shall be provided by a firm selected by the
Employee from a list compiled by the Company and shall be limited to a period of
six consecutive months.

     9.   Limitation on Payments.
          ----------------------

          (a) Basic Rule.  Any other provision of this Agreement
              ----------
notwithstanding, the Company shall not be required to make any payment or
property transfer to, or for the benefit of, the Employee (under this Agreement
or otherwise) that would be nondeductible by the Company by reason of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), or that
                                                            ----
would subject the Employee to the excise tax described in Section 4999 of the
Code. All calculations required by this Section 9 shall be performed by the
independent auditors retained by the Company most recently prior to the Change
in Control (the "Auditors"), based on information supplied by the
                 --------

                                                                             -3-
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Company and the Employee, and shall be binding on the Company and the Employee.
All fees and expenses of the Auditors shall be paid by the Company.

          (b)   Reductions. If the amount of the aggregate payments or property
                ----------
transfers to the Employee must be reduced under this Section 9, then the
Employee shall direct in which order the payments or transfers are to be
reduced, but no change in the timing of any payment or transfer shall be made
without the Company's consent. As a result of uncertainty in the application of
sections 280G and 4999 of the Code at the time of an initial determination by
the Auditors hereunder, it is possible that a payment will have been made by the
Company that should not have been made (an "Overpayment") or that an additional
                                            ------------
payment that will not have been made by the Company could have been made (an
"Underpayment"). In the event that the Auditors, based upon the assertion of a
 ------------
deficiency by the Internal Revenue Service against the Company or the Employee
that the Auditors believe has a high probability of success, determine that an
Overpayment has been made, such Overpayment shall be treated for all purposes as
a loan to the Employee that he shall repay to the Company, together with
interest at the applicable federal rate specified in section 7872(f)(2) of the
Code; provided, however, that no amount shall be payable by the Employee to the
Company if and to the extent that such payment would not reduce the amount that
is nondeductible under section 280G of the Code or is subject to an excise tax
under section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Under payment shall promptly be paid or
transferred by the Company to, or for the benefit of, the Employee, together
with interest at the applicable federal rate specified in section 7872(f)(2) of
the Code.

     10.  Non-Solicitation.
          ----------------

          After the occurrence of a Termination Event, the Employee agrees that
for a period of two years from the date of the Termination Event (the "Non-
Solicitation Term") he will not directly or indirectly solicit for employment
any employee of the Company who was employed by the Company at the time of the
ocurrence of the Termination Event and remains in the employment of the Company
during the Non-Solicitation Term.

     11.  Successors.
          ----------

          (a)   Company's Successors. The Company shall require any successor
                --------------------
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Employee, to assume this Agreement and to agree expressly to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform it in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to the
                                -------
Company's business and/or assets which executes and delivers the assumption
agreement described in this Subsection (a) or which becomes bound by this
Agreement by operation of law.

                                                                             -4-
<PAGE>

          (b)   Employee's Successors. This Agreement and all rights of the
                ---------------------
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     12.  Miscellaneous Provisions.
          ------------------------

          (a)   Notice. Notices and all other communications contemplated by
                ------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.

          (b)   Waiver. No provision of this Agreement shall be modified, waived
                ------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

          (c)   Whole Agreement. No agreements, representations or
                ---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.

          (d)   No Setoff; Withholding Taxes. There shall be no right of setoff
                ----------------------------
or counterclaim, with respect to any claim, debt or obligation, against payments
to the Employee under this Agreement. All payments made under this Agreement
shall be subject to reduction to reflect taxes required to be withheld by law.

          (e)   Choice of Law. The validity, interpretation, construction and
                -------------
performance of this Agreement shall be governed by the laws of the State of
California.

          (f)   Severability. The invalidity or unenforceability of any
                ------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

          (g)   Potential Pooling Transactions. In the event the Board
                ------------------------------
determines that the acceleration of options pursuant to Sections 8(a) above
would preclude accounting for a proposed business transaction involving a Change
in Control as a "Pooling of Interests," but the Board otherwise desires to
approve and account for such transaction as a "Pooling of Interests," the
acceleration of options described in Sections 8(a) above shall be null and void,
and the Company shall enter into a consulting agreement with the employee
covering services and compensation to be determined by the parties at that time.
Such agreement shall be for a period of three years and shall not be subject to
earlier termination unless by mutual consent of the parties.

                                                                             -5-
<PAGE>

          (h)   Arbitration. Except as otherwise provided in Section 9, any
                -----------
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in San Jose, California, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
Punitive damages shall not be awarded.

          (i)   No Assignment of Benefits. The rights of any person to payments
                -------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (i) shall be
void.

          (j)   Employment Taxes. All payments made pursuant to this Agreement
                ----------------
will be subject to withholding of applicable income and employment taxes.

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

                                                 Microcide Pharmaceuticals, Inc.

                                                 ______________________________
                                                 By:
                                                 Title:

                                                 [Employee]

                                                 ______________________________

                                                                             -6-<PAGE>

                                                                   Exhibit 10.35

                 COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

          THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
made effective as of the 15th day of January, 2001 (the "Effective Date") by and
between MICROCIDE PHARMACEUTICALS, INC., a Delaware corporation ("Microcide"),
having its principal place of business at 850 Maude Avenue, Mountain View,
California, USA 94043; and NAEJA PHARMACEUTICAL INC., an Alberta corporation
("NAEJA"), with its principal place of business at #2, 4290-91A Street,
Edmonton, Alberta, Canada T6E 5V2. Microcide and NAEJA are sometimes referred to
herein individually as a "Party" and collectively as the "Parties".

          WHEREAS:

A.        Microcide is a biotechnology company involved in the development of
products useful for the treatment of infectious diseases or conditions.

B.        Microcide is currently conducting preclinical studies on its
proprietary fungal efflux inhibitors, and intends to discover and develop other
compounds of this class, or other classes for combining with an appropriate
Azole antifungal agent for the treatment of infectious diseases or conditions in
the future.

C.        NAEJA is a pharmaceutical company focusing on the discovery and
development of human pharmaceutical drug candidates and has identified certain
classes of Azole antifungal agents of interest to Microcide.

D.        The Parties entered into a binding letter agreement, dated December
14, 2000, under which the Parties entered into the collaboration, effective
January 15, 2001 (the "Letter Agreement"). On March 7, 2001, the Parties entered
into an amendment to the Letter Agreement (the "Amendment"), amending the
collaboration. The Letter Agreement and the Amendment, shown as Exhibit C and
Exhibit D respectively, which shall not be deemed part of this Agreement, are
considered by the Parties to be consistent in all respects with this Agreement.
The Parties agree that in the case of any ambiguity in this agreement, such
ambiguity shall, if possible, be resolved in a manner which is consistent with
the Letter Agreement and the Amendment. In case of any conflict between the
Letter Agreement, the Amendment and this Agreement, this Agreement (without
Exhibits C and D) will govern.

E.        The Parties desire to continue to collaborate to research, develop and
commercialize drugs based upon the combination of an Azole antifungal agent and
a fungal efflux inhibitor; or an Azole antifungal alone, within these classes
worldwide for the treatment of infectious diseases or conditions in the future
on the terms and conditions provided in this Agreement.

Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                                      -2-

                                   ARTICLE I
                                  DEFINITIONS

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

          "Affiliate" means an entity that, directly or indirectly, through one
          or more intermediaries, controls, is controlled by or is under common
          control with NAEJA or Microcide. For purposes of this Section 1.1,
          "control" shall mean direct or indirect beneficial ownership of
          greater than fifty percent (50%) of the voting stock or equity, or
          greater than fifty percent (50%) interest in the income of such
          corporation or other business entity; provided that, if local law
          requires a minimum percentage of local ownership, control will be
          established by direct or indirect beneficial ownership of one hundred
          percent (100%) of the maximum ownership percentage that may, under
          such local law, be owned by foreign interests.

          "Candidates" means Compounds identified by the Project Teams, pursuant
          to Section 3.3, for evaluation and recommendation by the JRC for
          possible Development.

          "Class" means one (1) of the generic classes of molecules described in
          Exhibit A.

          "Collaboration" means the program of joint Research to be conducted by
          the Parties pursuant to the Program Plan.

          "Commercialization" shall mean all activities undertaken by a Party
          relating to the manufacture and sale of Products, including without
          limitation advertising, education, marketing distribution, market and
          post approval product support clinical studies conducted after
          Regulatory Approval of a Product.

          "Compound" means any compound that is included in a Class.

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

          "Development" means the activities conducted by Microcide pursuant to
          Section 3.4 and following selection of a Candidate for IND-enabling
          studies pursuant to Section 3.3, including without limitation, pre-
          clinical studies, clinical studies and other activities directed
          toward obtaining Regulatory Approval of a Product and new indications
          thereof, and all activities relating to developing the ability to
          manufacture the same in quantities greater than those required to
          perform Research.
<PAGE>

                                      -3-

          "Drug Approval Application" means an application for Regulatory
          Approval required before commercial sale or use of a Product as a drug
          in a regulatory jurisdiction.

          "Field" means the treatment, diagnosis, monitoring or prevention of
          fungal infections in humans.

          "FTE" means one (1) fulltime equivalent research employee dedicated by
          a Party to the Collaboration, or in the case of less than a full-time
          dedicated scientific person, a full-time, equivalent person year based
          upon a total of forty-seven (47) weeks (i.e., one thousand eight
          hundred eighty (1,880) hours) per year of work on or directly related
          to the Collaboration.

          "IND" or "Investigational New Drug Application" shall mean an
          application for approval by the FDA or the equivalent non-U.S.
          regulatory authority, to commence human clinical testing of a drug.

          "Information" means techniques, assays, data and chemical, physical or
          biological materials relating to the composition of matter, use or
          manufacture of Compounds within Classes, Compounds and/or Products,
          including inventions, practices, methods, knowledge, know-how, skill,
          experience, test data including pharmacological, toxicological and
          clinical test data, analytical and quality control data or
          descriptions.

          "Intermediate" means compounds that are precursors to, or intermediate
          compounds in the manufacture or synthesis of, Compounds within a
          Class. Intermediates shall include Microcide Intermediates.

          "Joint Patent" shall have the meaning assigned to it in Section
          10.1(c).

          "Joint Research Committee" or "JRC" means the committee established as
          required by Section 2.1;

          "Microcide Intermediate" means all Intermediates Controlled by NAEJA
          or made by Affiliates, employees, agents or independent contractors of
          either Party or both Parties, solely or jointly, during the course of
          performing under the Program, other than any Intermediate that has all
          of the following characteristics: (i) it is not within a Class; (ii)
          it is patentably distinct from all compounds within Classes; and (iii)
          it can reasonably be believed to have potentially one or more uses
          other than for the manufacture or synthesis of a compound within a
          Class.

          "Microcide Know-how" means Information which (i) Microcide discloses
          to NAEJA under this Agreement and (ii) is within the Control of
          Microcide. Notwithstanding anything herein to the contrary, Microcide
          Know-how shall exclude Microcide Patents.
<PAGE>

                                      -4-

          "Microcide Patent" means a Patent which covers the discovery,
          evaluation, manufacture, use, sale, offer for sale and/or import of
          compounds within the Classes, Compounds and/or Products, which Patent
          is Controlled by Microcide. "Microcide Patents" shall include Program
          Patents.

          "Major European Market" means any of the following countries: France,
          Germany, Italy, Spain and the United Kingdom.

          "NAEJA Know-how" means Information which (i) NAEJA discloses to
          Microcide under this Agreement and (ii) is within the Control of
          NAEJA.  Notwithstanding anything herein to the contrary, NAEJA Know-
          how shall exclude NAEJA Patents.

          "NAEJA Patent" means a Patent which covers the discovery, evaluation,
          manufacture, use, sale, offer for sale and/or importation of compounds
          within the Classes, Compounds and/or Products, which Patent is
          Controlled by NAEJA.  "NAEJA Patent" shall include Intermediate
          Patents.

          "Net Sales" means the [*] by a Party or any of its Affiliates (each, a
          "Seller") from all sales, including without limitation [*], by Seller
          of any Product, which shall be reflected in Seller's books and records
          maintained in accordance with the accounting principles used by the
          applicable entity consistently applied across all of its products
          (which principles will comply with Generally Accepted Accounting
          Principles), less the following deductions with respect to such sale,
          [*].

          "Patent" means all (i) valid and enforceable patents, re-examinations,
          reissues, renewals, extensions, term restorations and foreign
          counterparts thereof, and (ii) pending (at any time while this
          Agreement is in effect) applications for United States patents and
          foreign counterparts thereof.

          "Phase I Clinical Trials" means those human clinical trials on
          sufficient numbers of normal volunteers and patients that are designed
          to establish that a drug is safe for its intended use, and to support
          its continued testing in Phase II Clinical Trials.

[*] Confidential Treatment Requested
<PAGE>

                                      -5-

          "Phase II Clinical Trials" means those human clinical trials on
          sufficient numbers of patients that are designed to establish safety
          and assess the biological activity of a drug for its intended use, and
          to define warnings, precautions and adverse reactions that are
          associated with the drug in the to be prescribed dosage range.

          "Phase III Clinical Trials" means those pivotal human clinical trials
          on sufficient numbers of patients that are designed to establish that
          a drug is safe and efficacious for its intended use, and to define
          warnings, precautions and adverse reactions that are associated with
          the drug in the to be prescribed dosage range, and intended to support
          Regulatory Approval of such drug.

          "Product" means any formulation of a product incorporating a Compound.

          "Program" means the Research of Products carried out by the Parties
          pursuant to the Program Plan.

          "Program Invention" shall have the meaning given such term in Section
          10.1(b).

          "Program Patents" shall have the meaning given such term in Section
          10.1(b).

          "Program Plan" shall have the meaning given such term in Section 3.1.

          "Program Term" shall mean the duration of the Program as set forth in
          Section 3.6.

          "Project Team" means a project team established as required by Section
          2.4.

          "Regulatory Approval" means any approvals (including pricing and
          reimbursement approvals, if appropriate), product and/or establishment
          licenses, registrations or authorizations of any federal, state or
          local regulatory agency, department, bureau or other governmental
          entity, necessary for the manufacture, use, storage, import, export or
          sale of Products in a regulatory jurisdiction.

          "Research" means activities conducted jointly by the Parties under the
          Program Plan in connection with selection of a compound in a Class as
          a Compound pursuant to Section 3.3, and any other studies conducted by
          a Party or the Parties together prior to commencement of Development
          of a compound.

          "Sublicense Revenues" means all amounts, other than reimbursement
          specifically for [*], that a Party or its Affiliates [*].

[*] Confidential Treatment Requested
<PAGE>

                                      -6-

          "Territory" shall mean the entire world.

          "Third Party" means any entity other than NAEJA or Microcide or their
          respective Affiliates.

          "Valid Claim" means a claim of (a) an issued patent, which claim has
          not lapsed, been canceled, or become abandoned and which claim has not
          been declared invalid or unenforceable by a court of competent
          jurisdiction in a decision from which no appeal has or can be taken,
          or (b) a patent application, so long as such application is being
          prosecuted and the claim in question has not been abandoned by the
          owner of the application (provided that such application has been
          pending for a period not to exceed [*] from the date such
          application takes priority).

                                   ARTICLE 2
                   JOINT RESEARCH COMMITTEE AND PROJECT TEAM

2.1       Formation of Joint Research Committee; Decision Making
          ------------------------------------------------------

          The Parties shall establish a Joint Research Committee having a total
of four (4) members within thirty (30) days after the Effective Date, which
shall have responsibility for strategic oversight and management of Research
efforts for Products pursuant to the Program Plan.  NAEJA and Microcide each
shall select two (2) representatives to serve as members of the Joint Research
Committee, each of whom shall have senior management responsibilities for the
Party appointing such member.  Each Party shall have the right at any time to
replace its representatives on the JRC.  Either Party may designate a substitute
for a committee member to participate in a meeting in the event one of that
Party's regular committee members is unable to be present at such meeting.  As
Research of Products progresses, the composition of the Joint Research Committee
shall change from time to time to include members from each Party with expertise
appropriate for the stage of Research then being conducted. The Joint Research
Committee shall be operative during the Program Term.  The Joint Research
Committee shall make decisions only by unanimous vote after an open discussion
of the matters as to which decisions are being made.  If the JRC is unable to
resolve any disagreement among its members, then the JRC shall submit such
disagreement to the Chief Executive Officer of each party, who shall meet within
fifteen (15) days of such submission and attempt to resolve such disagreement.
If the Chief Executive Officers cannot resolve such dispute, either party shall
have the right to initiate dispute resolution pursuant to Section 14.2.

[*] Confidential Treatment Requested
<PAGE>

                                      -7-

2.2       Meetings
          --------

          Meetings of the Joint Research Committee may be called by either Party
on twenty-one (21) days written notice to the other Party, unless such notice is
waived in writing by the Parties. The Joint Research Committee will meet at
least once every calendar quarter following its formation, with the site of such
meetings alternating between Microcide's facility in Mountain View, California
and NAEJA's facility in Edmonton, Alberta, or such other site as to which the
Parties may mutually agree. Each Party will bear its own costs for participation
in the Joint Research Committee meetings. One member of the hosting party will
chair the meeting. The chairperson will prepare minutes of each meeting of the
Joint Research Committee, which minutes will not be finalized until one of the
other Party members of the Joint Research Committee reviews and confirms the
accuracy of such minutes, which confirmation shall be given no later than ten
(10) days after such minutes are submitted for review to the other Party. Such
minutes shall be deemed Confidential Information of each Party under Section
9.1.

2.3       Responsibilities of the Joint Research Committee During the Program
          -------------------------------------------------------------------
Term
----

          The Joint Research Committee shall oversee the Research of Products in
order to obtain Regulatory Approvals, including, but not limited to, the
following activities: (i) selection and substitution of Compounds for
designation as Candidates based upon the presentations and recommendations of
the Project Team; (ii) review of the overall strategy for Research of all
Products; (iii) review and approval of the Program Plan; (iv) resolution of
issues that remain unresolved by the Project Team; (v) approval of the
specifications for each Compound or Product as proposed by the Project Team;
(vi) selection of Third Party manufacturers of Compounds for Research
activities; (vii) determination of the appropriate composition of the Project
Team as set forth in Section 2.4; and (viii) performance of such other functions
as appropriate for Research of Products, as may be agreed to in writing by the
Parties.

2.4       Establishment of the Project Team; Membership; Responsibilities
          ---------------------------------------------------------------

          Each Party shall appoint representatives, pursuant to this Section
2.4, to oversee the day-to-day activities of the Parties under the Program (the
"Project Team").  The Parties shall establish a Project Team for each Class of
compounds.  The number and composition of the membership of each Project Team
will vary from time to time during Research of each Product, with each Party
providing at least two (2) members of each Project Team at all times.  The Joint
Research Committee shall determine the number of members for each Project Team
and the appropriate areas of expertise required for each Project Team as
Research of each Product progresses.  Each Project Team shall meet by
teleconference at least once (1) per month, and shall maintain more frequent
ongoing communication by telephone or electronic mail as appropriate to fulfill
its obligations under this Section 2.4.  In all other respects, the Project Team
shall follow the same procedures as to decision-making and quarterly meetings as
the Joint Research Committee, with the Project Team Leader having the
responsibility for preparing minutes of such quarterly meetings, such minutes to
<PAGE>

                                      -8-

be deemed Confidential Information of each Party pursuant to Section 9.1.
The Project Team will:

     (a)       coordinate the flow of Information and the Parties' efforts under
          the Program Plans with respect to Research of each Product;

     (b)       propose to the Joint Research Committee Compounds for recommended
          designation as Candidates;

     (c)       propose to the Joint Research Committee Program Plans for the
          Research of Products for review as provided in Section 3.2;

     (d)       propose to the Joint Research Committee specifications for the
          manufacture of Products for Research activities;

     (e)       coordinate disclosure of inventions and preparation and filing of
          patent applications pursuant to Article 10; and

     (f)       perform such other activities as the Parties may agree in
          writing.

          The Project Team members shall attempt to resolve any issues or
disputes between the Parties relating to Research of Products after a full
discussion, except for those responsibilities allocated to the Joint Research
Committee as provided in Section 2.3. If the Project Team is unable to resolve
such issues within fifteen (15) days after all members of the Project Team
become aware of such issue or dispute, then such issue shall be submitted for
resolution by the Joint Research Committee. If the JRC is unable to resolve such
issues within fifteen (15) days after all members of the JRC become aware of
such issue or dispute, then such issue shall be submitted to the Chief Executive
Officer of each party, who shall meet within fifteen (15) days of such
submission and attempt to resolve such dispute. If the Chief Executive Officers
cannot resolve such dispute, either party shall have the right to initiate
dispute resolution pursuant to Section 14.2.

                                   ARTICLE 3
                                    PROGRAM

3.1       Program Plan

          The Parties shall perform Research activities jointly as provided in
the plan for initial non-clinical and pre-clinical Research of Products in the
Field (including manufacturing scale-up work) set forth below in Exhibit B (the
"Program Plan") and as revised from time to time pursuant to Section 3.2. Each
Party shall perform its responsibilities detailed in the Program Plan in a
professional and timely manner.
<PAGE>

                                      -9-

3.2       Updates to Program Plan

          The Program Plan for the calendar year 2001 has been agreed to by the
Parties as set forth in Section 3.1.  The Project Team shall update the Program
Plan annually beginning in the year 2002 by formulating and presenting its
proposal therefor to the Joint Research Committee prior to October 1 of each
year preceding the year covered by such proposal.  The Project Team shall make
revisions to its proposal based upon Joint Research Committee comments and
present by November 15 of such year the revised proposal to the Joint Research
Committee for final approval by December 1 of such year.  Each Program Plan
shall describe the proposed overall program of Research of Products and related
technology, including for each Class, Compound and Product, relevant Research
activities therefor.  Additionally, the Program Plan shall contain details
regarding the quantities of compounds within Classes necessary to conduct the
Program, and projections of costs to scale up manufacturing processes for which
Microcide is responsible pursuant to Section 3.7(d).

3.3       Selection of Candidates
          -----------------------

          The Parties shall jointly conduct Research on the Classes pursuant to
the Program Plan to identify which compounds included in such Class have [*] for
Development of Products based thereon. Upon completion of or during such
Research, the Project Team shall recommend to the Joint Research Committee
compounds based upon [*] from each Class for commencement of [*] studies and
subsequent studies necessary for Development of such compounds into potential
Products. After selection of the compounds, the Parties shall jointly conduct
additional Research to allow: (i) the Project Team to recommend to the Joint
Research Committee, (ii) the Joint Research Committee to recommend to Microcide,
and (iii) for Microcide to select, Candidates from Exhibit A Classes for
Development into Products.

3.4       Development
          -----------

          After selection of the Candidates, Microcide shall use reasonable
efforts to conduct development of Products in countries within the Territory
that Microcide, in its sole discretion, selects and as necessary to gain
Regulatory Approvals for such Products ("Development"). With respect to chemical
process development services in support of manufacture of small quantities of
Products, Microcide shall [*] to provide such services, on terms to be
negotiated in good faith. If, after 30 days, such agreement is not reached
between [*] to provide such services, provided that such agreements shall be
[*]. If requested by Microcide, [*] in qualifying and securing Third Party
chemical

[*] Confidential Treatment Requested
<PAGE>

                                      -10-

process development and manufacturing sources for Product. Microcide shall
[*].

3.5       Personnel and Resources
          -----------------------

          Each Party agrees to commit the personnel, facilities, expertise and
other resources reasonably needed to perform its responsibilities under the
Program Plan.  During each of the first [*] during the Program Term, [*] shall,
[*] in accordance with Section 3.7, maintain one group of [*] FTEs (the "First
Group") and a second group of [*] FTEs (the "Second Group") devoted to
performing [*] responsibilities under the Program Plan, each of whom shall be
appropriately qualified to perform such work; [*].  In addition, from time to
time upon the Parties' mutual written agreement, [*] will maintain [*]
additional FTEs committed to performance of [*] responsibilities under the
Program Plan.

3.6       Term of the Program
          -------------------

          The Program commenced as of January 15, 2001 and shall expire on the
second anniversary thereof, unless terminated earlier by either party pursuant
to the provisions of this Agreement, or extended by mutual agreement.

3.7       Program Funding
          ---------------

     (a)       Party Activities. Except as provided in Sections 3.7(b), (c) and
               ----------------
          (d), [*] shall fund all activities for Research and Development
          of Products that are conducted by [*].

     (b)       Funding for research expenses and renovations. Microcide shall
               ---------------------------------------------
          pay to NAEJA a one-time funding of US $[*] for research expenses for
          renovations and equipment to be used entirely at NAEJA's discretion.
          The forgoing payment shall be made within ten (10) days after the
          Effective Date. Any property acquired by NAEJA with such funding shall
          be the sole and absolute property of NAEJA.

     (c)       FTE Funding by [*].  [*] shall to pay [*] research
               ------------------
          funding based on the number of FTEs of [*] involved in performing [*]
          Research activities under the Program (both during [*], as determined
          under Section 3.5. For each such FTE in the First Group (as defined in
          Section 3.5), [*] shall pay [*] at an annualized rate of US $[*] per
          FTE that is [*] employee for the first year of the Program Term and US
          $[*] per FTE that is a [*] employee for the second year of the

[*]  Confidential Treatment Requested
<PAGE>

                                      -11-

          Program Term and US $[*] per FTE that is a [*] employee for the second
          year of the Program Term and any extensions thereafter. For each such
          FTE in the Second Group (as defined in Section 3.5), [*] shall pay [*]
          at an annualized rate of US $[*] per FTE that is a [*] employee during
          the Program Term and any extensions thereafter. The foregoing FTE
          payment amounts shall be adjusted upward annually effective January 1
          of each year, beginning with January 1, 2002, by a percentage equal to
          the percentage change in the Consumer Price Index for all items for
          [*] for the immediately preceding calendar year as published by [*].
          The amounts to be paid to [*] under this Section 3.7(c) shall be paid
          in advance on a semiannual basis on or before the first day of
          February, and August during the term of the Program.

     (d)       Scale-Up Costs: [*] shall pay all direct costs reasonably
               --------------
          incurred by [*] to purchase chemicals solely as required for scale-up
          work to be performed pursuant to the Program Plan for production of
          amounts of Products in excess of [*] per manufacturing run, provided
          that such costs do not exceed [*] of those estimated in the relevant
          Program Plan unless approved in advance and in writing by the Joint
          Research Committee. [*] shall invoice [*] for such costs, payable
          thirty (30) days from receipt of such invoice by [*], with supporting
          documentation for such costs attached to the invoice.

3.8       NAEJA May be Requested to Perform Microcide Obligation
          ------------------------------------------------------

          Microcide may request that NAEJA perform at Microcide's cost, all or
any portion of Microcide's obligation to (i) carry out the optimization work on
its fungal efflux pump inhibitors; and (ii) carry out secondary microbiological
profiling and downstream preclinical evaluations including but not limited to ex
vivo studies, in vivo studies, and preliminary toxicology.  If NAEJA agrees to
perform such obligations, Microcide shall pay to NAEJA funding based on the
number of FTEs of NAEJA involved in performing such obligations at an annualized
rate of US $[*] per FTE that is a NAEJA employee; provided that the number of
such FTEs shall be agreed upon in writing in advance of NAEJA's performance of
such obligations. Such funding shall be paid in the manner and subject to the
adjustments contemplated in Section [*].  Microcide shall also reimburse NAEJA
for the [*] to perform such obligations; provided, however, that Microcide shall
have no obligation for such reimbursements unless [*].

3.9       Regulatory Matters
          ------------------

     (a)       Compliance with Regulations. Each Party shall conduct its efforts
               ---------------------------
          under this Agreement in compliance with all applicable regulatory
          requirements.

     (b)       Drug Approval Applications. Microcide shall be responsible for
               --------------------------

[*]  Confidential Treatment Requested
<PAGE>

                                      -12-

          preparing and filing Drug Approval Applications and seeking Regulatory
          Approvals for Products in such countries of the Territory as
          Microcide, in its sole discretion, selects, including preparing all
          reports necessary for filing a Drug Approval Application for Products
          in the such countries. Microcide shall be responsible for prosecuting
          all such Drug Approval Applications in such countries. Microcide shall
          provide to NAEJA reports regarding the status of each pending and
          proposed Drug Approval Application in the Territory. If Microcide
          desires to request the assistance of NAEJA in preparing regulatory
          filings or Drug Approval Applications for Products in the Territory,
          it shall so notify NAEJA and [*].

     (c)       Adverse Event Reporting. Each Party shall report to the other
               -----------------------
          Party, immediately upon receipt of the information by the first Party,
          any serious adverse event of which it becomes aware in connection with
          the use of a Product, and shall provide to the other Party copies of
          all reports that may be relevant to Products that are made to
          regulatory authorities concerning material safety, efficacy or quality
          matters with respect to any Products. Prior to the first Regulatory
          Approval for Product anywhere in the world, the Parties shall agree on
          a formal adverse event reporting protocol to conform with the
          respective regulatory obligations of Microcide and NAEJA, their
          Affiliates and sublicensees.

3.10      Reports
          -------

          The Parties shall communicate regarding the progress under, and data
resulting from performance of, the Program Plan via the Project Team.  In
addition, during the first two (2) years of the Program, each Party shall
provide to the Joint Research Committee reports summarizing such Party's
Research efforts for Products.  Such reports will be provided at least ten (10)
days in advance of each quarterly Joint Research Committee meeting and shall
summarize such Party's efforts after the date of its report provided pursuant to
this Section 3.10 for the previous quarter.

                                   ARTICLE 4
                            EXCLUSIVITY; DILIGENCE

4.1       Diligent Efforts
          ----------------

          The Parties shall perform their responsibilities under this Agreement,
including their responsibilities under the Program Plan and subsequent
Development of Products, [*] and shall reasonably cooperate with each other in
performing such work. The Parties shall keep the Joint Research Committee
informed of material developments relating

[*]  Confidential Treatment Requested
<PAGE>

                                      -13-

to Products.

4.2       Reversion of Rights to a Compound
          ---------------------------------

          After the Joint Research Committee recommends, and Microcide selects a
Candidate Compound from a Class, NAEJA may request, no more than twice per
calendar year, a written update on the status of Microcide's activities in
Development of the corresponding Product during the six (6) months immediately
prior to such request, which Microcide shall provide within thirty (30) days
following such request.  If Microcide fails to provide a report or if
Microcide's report indicates that neither Microcide nor its Affiliates or
licensees have performed any activity in any country during the six (6) month
period preceding the date of such report, and if such inactivity was not the
consequence of force majeure events as described in Section 14.3, then NAEJA may
terminate the licenses granted to Microcide pursuant to Article 5 with respect
to such Compound and related Product upon sixty (60) days written notice, if
Microcide or its Affiliates, as applicable, fails to commence or resume
reasonable efforts with respect to Research, Development or Commercialization of
such Compound and related Product in any country within such sixty (60) day
notice period.  In the event such licenses are terminated, Microcide shall be
deemed to have granted to NAEJA a worldwide, royalty-free, sublicensable,
exclusive license under the Program Inventions and Program Patents to research,
develop, make, have made, use, sell, offer for sale and import products
incorporating such compound in the Field ("Reversion Products") and shall
promptly provide to NAEJA all Information in its possession relating to such
Compound and such Reversion Product.  In the event Microcide's rights terminate
with respect to a Compound or Product, such Compound shall cease to be a
Compound, and the Class including such Compound shall cease to be a Class, under
this Agreement.

                                   ARTICLE 5
                                   LICENSES

5.1       Research and Development License to Microcide
          ---------------------------------------------

          Subject to the terms and conditions of the Agreement, NAEJA hereby
grants to Microcide a worldwide, exclusive, non-royalty-bearing license, with
the right to grant sublicenses, under NAEJA Patents and NAEJA Know-how, solely
to perform Microcide's Research and Development obligations under this
Agreement.

5.2       Commercialization License to Microcide
          --------------------------------------

          Subject to the terms and conditions of this Agreement, NAEJA hereby
grants to Microcide an exclusive (even as to NAEJA), royalty-bearing license,
with the right to grant sublicenses, under the NAEJA Patents and NAEJA Know-how
to make, have made, use, import, offer, sell, offer for sale and have sold
Products in the Territory.
<PAGE>

                                      -14-

5.3       License to Microcide Under NAEJA Intermediate Patents
          -----------------------------------------------------

          Subject to the terms and conditions of this Agreement, NAEJA hereby
grants to Microcide an exclusive (even as to NAEJA), royalty-free license, with
the right to grant sublicenses, under the NAEJA key intermediate [*] patent as
depicted by NAEJA patent #US application [*].

5.4       Reservation of Rights
          ---------------------

          Except as expressly provided in this Section 5, no right, title, or
interest is granted by Microcide to NAEJA or by NAEJA to Microcide.

                                   ARTICLE 6
                              MILESTONE PAYMENTS;
                        ROYALTY AND SUBLICENSE PAYMENTS

6.1       Milestone Payments
          ------------------

          Microcide shall make the following one-time milestone payments to
NAEJA within sixty (60) days after the first achievement of each of the
following milestones with respect to each Product in each Class developed by
Microcide, its Affiliate, or sublicensee:

--------------------------------------------------------------------------------
                    MILESTONE                             PAYMENT**
--------------------------------------------------------------------------------

A.       Selection of Candidate compound

      by Microcide                                      $    [*]

B.       Commencement of Phase I Clinical
      Trials for a Product in the United States* -      $    [*]

C.       Commencement of Phase III Clinical
      Trials for a Product in the United States* -      $    [*]

D.       Regulatory Approval in the United States
      of a Product -                                    $    [*]

E.       Regulatory Approval of a Product
      in a Major European Market -                      $    [*]

Total Milestones (for each Product in each Class)       $    [*]

*  Commencement of a clinical trial will be deemed to occur upon the first
dosing of the first patient in such trial.
**  Amounts provided are in United States Dollars.

[*]  Confidential Treatment Requested
<PAGE>

                                      -15-

     (a) For the purposes of this Section 6.1, Products containing the same
     Compound, but in different formulations, shall be deemed to be [*] for
     determining Microcide's milestone payment obligations hereunder.

     (b) Microcide shall not be obligated to make payments under this Section
     6.1 with respect to achievement of a given milestone for any Product which:
     (i) is a [*] which has previously achieved that milestone; or (ii) is an
     [*] Product, nominally through preclinical and Phase I clinical trials, for
     the purpose of [*] to advance to Regulatory Approval. Microcide shall
     confer with NAEJA to establish that the circumstances described in (i)
     and/or (ii) above are in effect with respect to Products.

6.2       Royalties on Net Sales by Microcide or Affiliates
          -------------------------------------------------

          In the event Microcide or its Affiliates develops or markets a Product
on their own, Microcide shall pay NAEJA a royalty equal to [*] of Net Sales of
such Product. In the event Microcide or its Affiliates develops or markets a
product on their own, comprised of a fixed combination of a Microcide fungal
efflux pump inhibitor and a non-NAEJA azole, Microcide shall pay NAEJA a royalty
equal to [*] of Net Sales of such product.

6.3       Sublicense Revenue Payments
          ---------------------------

          In the event Microcide or its Affiliates enters into an agreement with
a Third Party for the Development or marketing of a Product, Microcide shall pay
NAEJA a royalty equal to: (i) [*] of all Sublicense Revenues for such Product
that Microcide or its Affiliates receive if such Product is a fixed combination
Azole antifungal plus fungal efflux pump inhibitor; or (ii) [*] of all
Sublicense Revenues for such Product that Microcide or its Affiliates receive if
such Product is a stand-alone Azole antifungal product.

6.4       Royalty and Sublicense Revenue Payment Term
          -------------------------------------------

          All royalty and Sublicense Revenue payments due to NAEJA pursuant to
Sections 6.2 and 6.3 shall be paid, on a country-by-country and Product-by-
Product basis from the date of the first commercial sale of such Product by
Microcide in a particular country until the expiration of the last to expire
Valid Claim covering the manufacture, use, sale, offer for sale or import of
such Product that is included in any NAEJA Patents or Program Patents in a
country within the Territory.  For the purposes of this Section 6.4, the term
"first commercial sale" means, with respect to any Product in any country, the
first sale of such Product in such country by Microcide or its Affiliates or
sublicensees to a Third Party for use or consumption by the general public after
all Regulatory Approvals have been obtained for such country.

6.5       Royalty and Sublicense Revenue Payments and Reports
          ---------------------------------------------------

[*]  Confidential Treatment Requested
<PAGE>

                                      -16-

          Microcide shall deliver a report summarizing its Net Sales and
Sublicense Revenues for any Products during preceding quarter to NAEJA within
forty five (45) days following the end of each such calendar quarter for which
royalties or payments are due.  Microcide shall pay any royalties or payments
payable to NAEJA under this Agreement within forty five (45) days following the
due date for the report.

6.6       Foreign Sales
          -------------

          The remittance of royalties and Sublicense Revenue payments payable on
sales outside the United States shall be payable in United States Dollar
equivalents at the official rate of exchange used for purchase, with United
States Dollars, of such local currency of the country from which the royalties
are payable, as quoted in the Wall Street Journal for the last business day of
the calendar semi-annual calendar period in which the royalties are payable.
Microcide shall pay royalties by wire transfer of immediately available funds to
an account designated by NAEJA.  If the transfer of or the conversion into the
United States Dollar equivalents of any such remittance in any such instance is
not lawful or possible, the payment of such part of the royalties as is
necessary shall be made by the deposit thereof, in the currency of the county
where the sale was made on which the royalty was based to the credit and account
of NAEJA or its nominee in any commercial bank or trust company of such NAEJA's
choice located in that country.

6.7       Foreign Taxes
          -------------

          Any tax required to be withheld by a Party under the laws of any
foreign country for the accounts of the other Party shall be promptly paid by
the first Party for and on behalf of the other Party to the appropriate
governmental authority, and the first Party shall use diligent efforts to
furnish the other Party with proof of payment of such tax together with official
or other appropriate evidence issued by the applicable government authority.
Any such tax that the first Party actually pays on the other Party's behalf
shall be deducted from royalty or other payments due the other Party under this
Agreement.

6.8       Record Keeping
          --------------

          During the term of this Agreement, Microcide shall keep full and
accurate books and records setting forth, for the Products, all information
reasonably necessary and in sufficient detail to allow the calculation of
payments to be paid by Microcide pursuant to this Agreement.  During the term of
this Agreement and for a period of three (3) years thereafter, Microcide shall
permit an independent certified public accounting firm of nationally recognized
standing selected by NAEJA and reasonably acceptable to Microcide, at NAEJA's
expense, to examine relevant books and records during normal business hours and
with reasonable advance written notice.  Such accounting firm shall disclose to
NAEJA only whether the reports are correct or incorrect and, if incorrect, the
amount by which such reports reveal an underpayment to NAEJA. If it is
determined that, in respect of any royalty or Sublicense Revenue payment, there
was an underpayment of amounts due to NAEJA of [*] or more, without prejudice to
any other rights NAEJA may have,

[*] Confidential Treatment Requested
<PAGE>

                                      -17-

Microcide shall promptly pay to NAEJA the balance of the amounts due and shall
also reimburse NAEJA for the reasonable Third Party costs directly related to
such verification examination. All books and records shall be maintained by
Microcide at its office in Mountain View Ca., or as otherwise agreed by the
Parties.

                                   ARTICLE 7
                            MANUFACTURE AND SUPPLY

7.1       Research Material Supply
          ------------------------

          The Program Plan sets forth the Parties' responsibilities for all
preclinical supply of compounds within Classes, Compounds and Products for non-
clinical, Research-scale studies.  In accordance with the Program Plan, NAEJA
and Microcide shall develop the process for manufacturing bulk Compound and
Products therefrom and scale-up such processes as required for the conduct of
studies under the Program Plan, which shall not require compliance to Good
Laboratory Practice requirements promulgated by the FDA (or foreign equivalent)
("GLP").  The compounds within Classes, Compounds and Product supplied under
this Section 7.1 shall conform to the agreed-upon specifications and any
relevant additional requirements specified in the Program Plan for non-clinical,
research-scale supply of Product.  In manufacturing Compounds, the Parties shall
comply with all applicable laws, rules, and regulations.  Each Party shall have
the right to have its personnel observe the manufacture and testing of Compounds
by the other Party under the Program.

7.2       Supply of Compounds and Products for Development and Commercialization
          -------------------------------------------------

          Microcide shall be responsible for the manufacture of Compounds to
meet its requirements for Development and Commercialization of Products in the
Territory, subject to Section 7.3.

7.3       NAEJA Right of Offer to Manufacture or Have Manufactured Supply of
          ------------------------------------------------------------------
          Compounds for Development and Commercialization
          -----------------------------------------------

     (a)       NAEJA shall have a right of offer to manufacture or have
          manufactured and supply Compounds for further manufacture into
          Products for Development and for Commercialization of Products within
          the Territory, provided that NAEJA demonstrates that it, and its
          Affiliates or sublicensees, if and as applicable, can meet the
          quality, scale, regulatory, cost and timeline requirements, as
          reasonably determined by Microcide. Microcide shall notify NAEJA at
          least [*] prior to the date upon which it expects to commence
          manufacture of Compounds for both Development and for
          Commercialization of Products. If NAEJA desires to manufacture or have
          manufactured Compounds for Microcide, its Affiliates or sublicensees,
          and can demonstrate that it can meet the foregoing criteria for supply
          of Compound for Development or Commercialization of such Product, then
          it shall promptly (but in no event later than ten (10) days following
          its receipt of Microcide's notice) so notify Microcide, and provide to
          Microcide such

[*] Confidential Treatment Requested
<PAGE>

                                      -18-

      information as Microcide shall reasonably request to determine whether
      NAEJA can meet Microcide's criteria for the manufacture of such Compound
      for such purpose. Microcide shall, within the thirty (30) day period
      following NAEJA's notice of interest in manufacturing or having
      manufactured a Compound for Development or Commercialization pursuant to
      this Agreement, notify NAEJA whether Microcide desires to negotiate with
      NAEJA the terms of an agreement for the manufacture and supply of
      Compounds for either Development or Commercialization of Products in the
      Territory, as applicable (either a "Development Supply Agreement" or a
      "Commercial Supply Agreement", respectively; the term "Supply Agreement"
      shall refer to either a Development Supply Agreement or a Commercial
      Supply Agreement, as applicable).

(b)       If Microcide determines that NAEJA has demonstrated its ability to
      meet Microcide's requirement for the manufacture of a Compound for
      Development or Commercialization, as applicable, and so notifies NAEJA
      within the thirty (30) day period following its receipt of NAEJA's notice
      of interest, the Parties shall negotiate the terms of a Supply Agreement
      therefor, as provided in Section 7.3(a) during the sixty (60) day period
      following, Microcide's notice of interest in so negotiating with NAEJA
      (the "Negotiation Period"). Any such Supply Agreement between the Parties
      for supply of a Compound for Development or Commercialization of Products
      shall contain [*]. Nothing in this Agreement shall be construed to
      obligate either Party to enter into a Supply Agreement with the other
      Party.

(c)       If Microcide notifies NAEJA that it has determined that NAEJA does not
      meet its criteria for manufacturing Compound for Development or
      Commercialization of Products in the Territory, or if the Parties do not
      enter into a Supply Agreement within the Negotiation Period, NAEJA's right
      of offer to manufacture and supply a Compound for either Development or
      Commercialization, as applicable, of a Product in the Territory shall
      terminate, and Microcide shall retain the right to manufacture or have
      manufactured such Compound for such purpose without obligation to NAEJA.

(d)       NAEJA's right of offer to manufacture or have manufactured Compounds
      hereunder shall apply on a Compound by Compound basis. Microcide shall
      retain the right to manufacture or have manufactured Compound for Product
      whether or not NAEJA and Microcide enter into a Supply Agreement pursuant
      to this Section 7.3.

[*] Confidential Treatment Requested
<PAGE>

                                      -19-

7.4       Cooperation
          -----------

          Each Party shall make all reasonable, good faith efforts to record,
deliver and communicate all Information necessary or useful to the manufacture
of Compound in compliance with the specifications during the Program, and with
current Good Manufacturing Practices, where applicable, and shall reasonably
assist in the transfer of technology to the other Party, its Affiliates,
sublicensees, and Third Party suppliers to enable such entity to manufacture
Compound for use pursuant to this Agreement.  Any Party providing assistance to
the other Party pursuant to this Section 7.4 shall be compensated for its
reasonable efforts on a time-and-materials basis, at rates such Party
customarily charges for similar work, if such assistance is provided after
expiration of the Program Term.

7.5       Territory Manufacture and Supply by Microcide or Third Parties
          --------------------------------------------------------------

          Microcide shall have the right to manufacture or have manufactured
finished Products from Compounds for Development and for Commercialization of
Products within the Territory, and shall have the right to manufacture or have
manufactured bulk Compound for Development and Commercialization of Products
within the Territory, notwithstanding NAEJA's right of offer provided in Section
7.3.

7.6       Packaging and Shipping
          ----------------------

          Microcide, its Affiliates and sublicensees shall be responsible for
final packaging, labeling and shipment of Products for Development and
Commercialization within the Territory.

                                   ARTICLE 8
                               COMMERCIALIZATION

8.1       General
          -------

          Microcide, its Affiliates and sublicensees shall be responsible for
Commercialization of Products within the Territory.

8.2       Efforts
          -------

          Microcide will Commercialize the Products in such countries in the
Territory as Microcide, in its sole discretion, determines and after Microcide
obtains Regulatory Approval for such Products in such countries, [*].
<PAGE>

                                      -20-

                                   ARTICLE 9
                                CONFIDENTIALITY

9.1       Confidentiality; Exceptions
          ---------------------------

          Except to the extent expressly authorized by this Agreement or
otherwise agreed in writing, the Parties agree that, for the term of this
Agreement and thereafter, the receiving Party shall keep confidential and shall
not publish or otherwise disclose or use for any purpose other than as provided
for in this Agreement any Information and other information and materials
furnished to it by the other Party pursuant to this Agreement, or any provisions
of this Agreement other than those that may become publicly available in
connection with filings made in compliance with requirements of the Securities
and Exchange Commission (collectively referred to as "Confidential Information")
and subject to Section 9.2, except to the extent that it can be established by
the receiving Party that such Confidential Information:

     (a)       was already known to the receiving Party, other than under an
          obligation of confidentiality, at the time of disclosure by the other
          Party;

     (b)       was generally available to the public or otherwise part of the
          public domain at the time of its disclosure to the receiving Party;

     (c)       became generally available to, the public or otherwise part of
          the public domain after its disclosure and other than through any act
          or omission of the receiving Party in breach of this Agreement; or

     (d)       was disclosed to the receiving Party, other than under an
          obligation of confidentiality, by a Third Party who had no obligation
          to the disclosing Party not to disclose such information to others.

9.2       Authorized Disclosure
          ---------------------

          Each Party may disclose Confidential Information hereunder to the
extent such disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with applicable
governmental regulations or conducting pre-clinical or clinical trials, provided
that if a Party is required by law or regulation to make any such disclosure of
the other Party's Confidential Information it will, except where impracticable
for necessary disclosures (for example in the event of medical emergency), give
reasonable advance notice to the other Party of such disclosure requirement and,
except to the extent inappropriate in the case of patent applications, will use
its reasonable efforts to secure confidential treatment of such Confidential
Information required to be disclosed.  In addition, each Party shall be entitled
to disclose, under a binder of confidentiality containing provisions as
protective as those of this Article 9, Confidential Information to any Third
Party for the purpose of carrying out activities expressly authorized
<PAGE>

                                      -21-

under this Agreement, including disclosures to sublicensees, and to potential
investors, corporate partners, permitted Third Party manufacturers, or
investment bankers. Each Party acknowledges that if the other Party files a
registration statement covering the sale of its securities with a regulatory
authority in a country, such other party may be required to file a copy of this
Agreement with its public disclosure statement. The Party filing such a copy
agrees to seek confidential treatment of at least the economic terms of this
Agreement with respect to any such filing and to comply with this Section 9.2.

9.3       Survival
          --------

          This Article 9 shall survive the termination or expiration of this
Agreement.

9.4       Termination of Prior Agreement
          ------------------------------

          This Agreement supersedes the Confidentiality Agreements between NAEJA
and Microcide dated March 3, 2000.  All Information exchanged between the
Parties under that Agreement shall be deemed Confidential Information and shall
be subject to the terms of this Article 9, and shall be included within the
definitions of NAEJA Know-how and Microcide Know-how.

9.5       Publications
          ------------

          Except as required by law, each of the Parties agrees that it shall
not publish or present Information relating to the Products or Compounds without
the prior written consent of the other Party.  If a Party desires to publish or
present such Information it shall provide to the other Party the opportunity to
review such proposed publication or presentation (including information to be
presented orally) as early as reasonably practical, but not later than forty
five (45) days prior to the anticipated date of submission or disclosure to a
Third Party.  The receiving party shall respond to the Party wishing to publish
with comments thereon to be incorporated or a denial of the request for
publication within fifteen (15) days of receiving such materials from the Party
wishing to publish.  A Party shall not submit such abstract or manuscript for
publication or make such presentation until and unless it incorporates all of
the other Party's comments in such publication or presentation and receives the
other Party's written consent for such publication or presentation.
Notwithstanding the foregoing provisions of this Section 9.5, Microcide shall
have the right to prepare and distribute any materials and Information used in
the marketing of Products, provided only that disclosure of such materials and
Information does not violate Microcide's obligations under Section 9.1.

9.6       Press Release

          Except to the extent required by law or as otherwise permitted in
accordance with this Section 9.6, neither Party will make any public
announcements concerning this Agreement or the terms hereof without the prior
written consent of the other, which will not
<PAGE>

                                      -22-

be unreasonably withheld or delayed. Notwithstanding the foregoing, the Parties
may issue a joint press release announcing the execution of this Agreement and
agree that each Party may desire or be required to issue subsequent press
releases relating to the Agreement or activities hereunder, and the Parties
agree to consult with each other reasonably and in good faith with respect to
the text and timing of such press releases prior to the issuance thereof,
provided that a Party may not unreasonably withhold consent to such releases,
and that either Party may issue such press releases as it determines, based on
advice of counsel, are reasonably necessary to comply with laws or regulations
or for appropriate market disclosure.

                                  ARTICLE 10
                           OWNERSHIP OF INTELLECTUAL
                          PROPERTY AND PATENT RIGHTS

10.1      Inventorship and Ownership
          --------------------------

     (a)  Determination of Inventorship.  Inventorship of any inventions made in
          -----------------------------
          the course of performing work under this Agreement shall be determined
          in accordance with United States patent law.

     (b)  Microcide Ownership of Program Inventions and Patents.  Microcide
          -----------------------------------------------------
          shall solely own any inventions that relate to the composition of
          matter, use or manufacture of compounds within the Classes that are
          made by either Party, its Affiliates, employees, agents or independent
          contractors, solely or jointly with the other Party, its Affiliates,
          employees, agents or independent contractors, in the course of
          performing work under the Program ("Program Inventions").  Microcide
                                              ------------------
          shall solely own and have the sole right to file, prosecute, maintain
          and own all Patents claiming Program Inventions ("Program Patents").
                                                            ---------------

     (c)       Other Inventions. Ownership of inventions made by the Parties,
               ----------------
          their Affiliates, employees, agents or independent contractors during
          the course of performing under the Program other than Program
          Inventions shall be determined in accordance with the inventorship of
          such inventions pursuant to Section 10.1(a). Any such inventions made
          jointly by both Parties' Affiliates, employees, agents, or independent
          contractors shall be "Joint Patents" for the purposes of this Article
                                -------------
          10.

     (d)       Assignments, Assignment of Inventions. NAEJA shall, and hereby
               -------------------------------------
          does, assign to Microcide all of NAEJA's right, title and interest in
          and to Program Inventions and Program Patents solely to the extent
          necessary to achieve the allocation of ownership of inventions and
          intellectual property rights provided in this Section 10.1. NAEJA
          agrees to provide [*] to Microcide, [*], in obtaining and from time to
          time enforcing and defending Microcide's rights as set forth in this
          Section 10.1 to Program Inventions and Program Patents, including
          without limitation and as applicable, preparing documentation for the
          assignment to Microcide

[*] Confidential Treatment Requested
<PAGE>

                                      -23-

          of all or part of the right, title and interest of its Affiliates,
          employees, agents or independent contractors in and to such Program
          Inventions and Program Patents, to achieve the allocation of ownership
          provided in this Section 10.1. If Microcide is unable, after
          reasonable effort, to secure the signature of any NAEJA employee,
          agent or independent contractor on any document needed to apply for,
          prosecute or defend any patent or other intellectual property right or
          protection relating to Program Inventions, NAEJA hereby designates and
          appoints Microcide and its duly authorized officers and agents as its
          agent and attorney in fact to execute, verify and file applications,
          and to do all other lawfully permitted acts necessary to protect
          Microcide's rights therein with the same legal force and effect as if
          executed by NAEJA.

     (e)       Consultation with Counsel; Project Team Oversight. If during the
               -------------------------------------------------
          course of planning the filing and prosecution of patent applications
          and maintenance of patents pursuant to this Section 10.1, either the
          Party responsible for filing such application or maintaining, such
          Patent, or the Project Team determines that to obtain optimal scope of
          patent protection, ownership of a particular Patent should vest in a
          Party other than the Party that would otherwise own such Patent under
          this Section 10.1, then the Project Team shall confer to discuss and
          recommend to the Parties whether to vary the allocation of ownership
          rights and responsibilities under this Section 10.1 with respect to
          such Patent; provided, however, that the ownership terms set forth in
          this Agreement shall not be amended except by mutual written agreement
          executed by both Parties.

     (f)       Joint Project Team. The Project Team shall coordinate the
               ------------------
          Parties' activities, and attempt to resolve disputes between the
          Parties with respect to the allocation of rights and obligations,
          under this Section 10.1.

     (g)       Assignment of Joint Patents. Notwithstanding the foregoing, in
          the event that Microcide determines, in its sole discretion, that it
          will not proceed with Development of a Product incorporating or
          comprising an invention claimed by any and/or all Joint Patents
          related solely to the Azole antifungals alone, Microcide agrees to
          assign its right, title and interest in and to such Joint Patents to
          NAEJA.

10.2      Disclosure of Patentable Inventions
          -----------------------------------

          Promptly after becoming aware of an invention made by its Affiliates,
employees, agents or independent contractors during the course of its
performance of the Program, each Party shall notify the other Party of such
invention, including with such notice a description of such invention.  In
advance of filing a patent application on such inventions, each Party shall
provide to the other Party any a copy of such patent application reasonably in
advance of the intended date for submission of such application to a
governmental Patent authority for review and comment by the other Party.

10.3      Patent Filings
          --------------
<PAGE>

                                      -24-

     (a)       The Project Team. The Project Team will coordinate the filing of
               ----------------
          patent applications and related filings solely for Joint Patents with
          government Patent authorities pursuant to this Section 10.3. The
          Project Team shall determine which Party shall file, prosecute and
          maintain Joint Patents. [*] shall bear all reasonable expenses
          related to the filing, prosecution and maintenance of Joint Patents.

     (b)       Program Patents Responsibilities. Microcide shall, at its sole
          discretion, prepare, file, prosecute and maintain all Microcide
          Patents worldwide. During the term that this Agreement is in effect,
          Microcide shall keep NAEJA informed of the status of each such
          Microcide Patent (including without limitation notifying NAEJA
          reasonably in advance of the filing of any application therein to
          allow NAEJA to exercise its rights under Section 10.3(c)) and shall
          give [*] concerning the preparation, filing, prosecution and
          maintenance thereof. Microcide shall bear [*] incurred for preparing,
          filing, prosecuting, and maintaining Microcide Patents, pursuant to
          this Section 10.3(b).

     (c)       Coordination of Filing and Prosecution of Patents Covering
               ----------------------------------------------------------
          Manufacturing or Synthesis Intermediates. If either Party intends to
          ----------------------------------------
          file a patent application pursuant to this Section 10.3 that claims or
          discloses an Intermediate (the "Filing Party"), it shall so notify the
          other Party and the Project Team and provide to the other Party a copy
          of the proposed specification of such patent application at least
          twenty (20) days before filing such application. If the other Party
          has the right under this Section 10.3, and intends to file a patent
          application claiming or disclosing an Intermediate claimed or
          disclosed in the specification provided by the Filing Party, then it
          shall so notify the Filing Party within ten (10) days of receiving
          such specification from the Filing Party and neither Party may file
          its respective patent application claiming or disclosing such
          Intermediate except as provided in this Section 10.3(c). Promptly
          following the Filing Party's receipt of a notice from the other Party
          pursuant to the foregoing sentence, the Project Team shall coordinate
          and oversee the Parties' preparation of patent applications having
          identical specifications disclosing such Intermediate(s), with each
          Party's patent application claiming inventions owned by such Party
          pursuant to Section 10.1. The Project Team shall also coordinate and
          oversee the filing of such patent applications with relevant Patent
          authorities on the same day.

     (d)       Cooperation. The Parties shall cooperate reasonably in the filing
               -----------
          prosecution of Patents under this Section 10.3 and shall share all
          material Information relating thereto promptly after receipt of such
          Information.

     (e)       Backup Rights. In the event that Microcide, having the
               -------------
          responsibility to file, prosecute or maintain a Patent under Section
          10.3(b) decides not to

[*]  Confidential Treatment Requested
<PAGE>

                                      -25-

          proceed with the filing, prosecution or maintenance thereof, it shall
          so notify NAEJA promptly (but in no event later than thirty (30) days
          prior to any relevant deadline for filing such documents or paying
          such fees) and NAEJA shall have the right but not the obligation to
          file, prosecute or maintain such Patent, at its expense; provided,
          however, that Microcide shall remain the sole owner of such Patent.

10.4      Third Party Patent Rights
          -------------------------

          Except as expressly provided in Article 12, neither Party makes any
warranty with respect to the validity, perfection or dominance of any Patent or
other proprietary right or with respect to the absence of rights in Third
Parties which may be infringed by the manufacture or sale of Product.  Each
Party agrees promptly to bring to the attention of the other Party any patent or
patent application it discovers, or has discovered, and which relates to the
subject matter of this Agreement.

10.5      Enforcement Rights
          ------------------

     (a)       Infringement by Third Parties' Competitive Products. If any
          Microcide Patent is infringed in any manner by a Third Party, or if
          any Joint Patent is infringed by a Third Party in connection with the
          manufacture, use, sale, offer for sale or import of a product
          competitive with a Product ("Competitive Product Infringement"), the
          Party to this Agreement first having knowledge of such infringement
          shall promptly notify the other Party in writing. The notice shall set
          forth the facts of that infringement in reasonable detail. Microcide
          shall have the primary right, but not the obligation, to institute,
          prosecute or control any action or proceeding with respect to such
          infringement within the Territory, by counsel of its own choice.
          Microcide shall be the "Lead Party" and NAEJA shall be the "Secondary
          Party". The Secondary Party shall have the right, but not the
          obligation, to participate in any such action with respect to its
          interest in the Joint Patents and to be represented by counsel of its
          own choice. If the Lead Party fails to bring an action or proceeding
          to enforce a Patent Controlled by the Secondary Party within a period
          of one hundred twenty (120) days after having knowledge of
          infringement of such Patent, then the Secondary Party shall have the
          right to bring and control any such action by counsel of its own
          choice, and the Lead Party shall have the right to participate in such
          action and be represented by counsel of its own choice. If a Party
          brings any such action or proceeding hereunder, the other Party shall
          have the right, but not the obligation, to join such action or
          proceeding as a party plaintiff and to give the first Party reasonable
          assistance and authority to control, file and prosecute the suit as
          necessary. The costs and expenses of the Party(ies) bringing suit
          under this Section 10.5(a) shall be [*] in favor of the Parties,
          and any remaining damages shall be treated as [*], if NAEJA

[*] Confidential Treatment Requested
<PAGE>

                                      -26-

          controlled the action. No settlement or consent judgment or other
          voluntary final disposition of a suit under this Section 10.5(a)
          relating to a Patent Controlled by a Party shall be entered into
          without the consent of such Party, not to be unreasonably withheld.

     (b)       Defense and Settlement of Third Party Claims against Products If
          a Third Party asserts that a patent or other right owned by it is
          infringed by the manufacture, use, sale, offer for sale or import of
          any Product, the Party first obtaining knowledge of such a claim shall
          immediately provide the other Party notice of such claim and the
          related facts in reasonable detail. Defense of any such claim in the
          Territory shall be controlled by Microcide; provided that NAEJA shall
          have the right to participate in such defense and to be represented in
          any such action by counsel of its selection at its sole discretion.

     (c)       Expenses Incurred Pursuant to Section 10.5(b) The expenses of
          patent infringement defense, settlements and judgments pursuant to
          Section 10.5(b) with respect to Products shall be borne [*]; provided,
          however, that [*].

     (d)       Infringement by Third Parties of Joint Patents If any Joint
          Patent is infringed by a Third Party other than by reason of
          Competitive Product Infringement, the Party to this Agreement first
          having knowledge of such infringement shall promptly notify the other
          Party in writing. The notice shall set forth the facts of that
          infringement in reasonable detail. Microcide shall have the primary
          right, but not the obligation, to institute, prosecute or control any
          action or proceeding with respect to such infringement, by counsel of
          its own choice. NAEJA shall have the right, but not the obligation, to
          participate in any such action with respect to Joint Patents and to be
          represented by counsel of its own choice. If Microcide fails to bring
          an action or proceeding to enforce a Joint Patent under this Section
          10.5(d) within a period of one hundred twenty (120) days after having
          knowledge of infringement of such Joint Patent, then NAEJA shall have
          the right to bring and control any such action by counsel of its own
          choice, and Microcide shall have the right to participate in such
          action and be represented by counsel of its own choice. If a Party
          brings any such action or proceeding hereunder, the other Party shall
          have the right but not the obligation to join such action or
          proceeding as a party plaintiff and to give the first Party reasonable
          assistance and authority to control, file and prosecute the suit as
          necessary. The costs and expenses of the Party bringing suit under
          this Section 10.5(f) shall be [*] in favor of the Parties, and any
          remaining damages shall be [*]. No settlement or consent judgment or
          other voluntary final disposition of a suit under this Section 10.5(d)
          may be entered into without [*].

[*] Confidential Treatment Requested
<PAGE>

                                      -27-

10.6      Patent Marking

          Microcide shall mark Products with appropriate patent numbers or
indicia as necessary to maintain the enforceability of NAEJA Patents, Joint
Patents and Microcide Patents.

                                  ARTICLE 11
                             TERM AND TERMINATION

11.1      Term

          Except as otherwise provided herein, the term of this Agreement shall
commence on the Effective Date and, shall expire on January 15, 2003.  The term
of this Agreement may be extended by mutual written agreement of the Parties.
If a Party desires to extend this Agreement, it shall notify the other Party no
later than ninety (90) days prior to the expiration of this Agreement.
Thereafter, the Parties may commence negotiations concerning an extension.
Nothing in this Agreement shall be construed to obligate either Party to enter
into an agreement to extend the term of this Agreement.

11.2      Termination for Cause

          Either Party may terminate this Agreement upon (i) twenty (20) days
written notice upon or after the failure to pay money to the other Party as
required by this Agreement, if the breaching party has not cured such breach
within the twenty (20) day period following written notice of termination by the
other Party; and (ii) upon sixty (60) days written notice upon or after the
material breach of any other material provision of this Agreement by the other
Party, if the breaching Party has not cured such breach within the sixty (60)
day period following written notice of termination by the other Party.

11.3      Effect of Termination

     (a)       Without limiting NAEJA's right to pursue such other remedies as
          provided by law or equity, upon termination of this Agreement by NAEJA
          pursuant to Section 11.2 or Section 14.8: (i) all rights and licenses
          granted to Microcide under Article 5 shall terminate; (ii) Microcide
          shall pay all sums accrued hereunder which are then due (except as
          expressly otherwise provided in this Agreement); (iii) Microcide shall
          return to NAEJA, or at NAEJA's request destroy, all NAEJA Information
          and any supplies of compounds provided by NAEJA for Research under the
          Program;

     (b)       Without limiting Microcide's right to pursue such other remedies
          as provided by law or equity, upon termination of this Agreement by
          Microcide pursuant to Section 11.2 or Section 14.8: (i) all rights and
          licenses granted to NAEJA with respect to the Product under Article 5
          shall terminate; (ii) NAEJA shall return to Microcide, or at
          Microcide's request destroy, all
<PAGE>

                                      -28-

          Microcide Information, and any supplies of compounds and Product
          provided by Microcide for Research under the Program.

11.4      Accrued Rights, Surviving Obligations

          Termination of this Agreement shall not affect any accrued rights and
remedies of either Party.

                                  ARTICLE 12
                        REPRESENTATIONS AND WARRANTIES

12.1      Representations and Warranties

          Each Party hereby represents and warrants to the other Party as
follows:

     (a)       Corporate Power. It is duly organized and validly existing under
          the laws of the state, province or country of its incorporation and
          has full corporate power and authority to enter into this Agreement
          and to carry out the provisions hereof.

     (b)       Due Authorization. It is duly authorized to execute and deliver
          this Agreement and to perform its obligations hereunder.

     (c)       Binding Agreement. This Agreement is a legal and valid obligation
          binding upon it and enforceable in accordance with its terms. The
          execution, delivery and performance of this Agreement by it does not
          conflict with any agreement, instrument or understanding, oral or
          written, to which it is a party or by which it may be bound, nor
          violate any law or regulation of any court, governmental body or
          administrative or other agency having jurisdiction over it.

     (d)       Title. To the best of its knowledge, it has sufficient legal
          and/or beneficial title under its intellectual property rights
          necessary to perform activities contemplated under this Agreement and
          to grant the licenses contained in Article 5 and other ownership
          rights conveyed pursuant to this Agreement.

     (e)       No Conflict. It has not entered into any agreement with any Third
          Party which is in conflict with the rights granted to the other Party
          under this Agreement, and shall not have taken any action that would
          in any way prevent it from granting the rights granted to the other
          Party under this Agreement, or that would otherwise materially
          conflict with or adversely affect the rights granted to the other
          Party under this Agreement.

     (f)       Employees and Consultants. All of its employees, agents and
          independent contractors have executed agreements requiring assignment
          to it of all inventions made during the course of and as a result of
          their association
<PAGE>

                                      -29-

          with it and obligating the individual to maintain as confidential the
          Confidential Information of such Party.

     (g)       [*]

     (h)       Accurate Information. It is not aware of any data or information
          given to the other Party relating to the Classes or the activities to
          be conducted pursuant to this Agreement which is untrue or inaccurate
          or of any other data or information which is necessary to make the
          data and information provided to the other Party complete and not
          misleading.

     (i)       Sufficient Resources. It has and will maintain sufficient
          expertise and resources to fulfill its obligations under this
          Agreement.

12.2      Disclaimer of Warranties.  The Parties understand that the activities
to be undertaken pursuant to this Agreement will involve technologies and
products that have not been approved by any regulatory authority and that
neither Party in any way whatsoever, represents or warrants guarantees the
safety or usefulness of the Products.  EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY
OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

                                  ARTICLE 13
                                INDEMNIFICATION

13.1      Indemnification by NAEJA

          NAEJA hereby agrees to indemnify, hold harmless and defend Microcide,
its Affiliates, employees, agents and independent contractors against any and
all expenses, costs of defense (including without limitation reasonable
attorneys' fees, witness fees, damages, judgments, fines and amounts paid in
settlement) and any amounts Microcide becomes legally obligated to pay because
of any Third Party claim or claims against it to the extent that such claim or
claims result from [*].

13.2      Indemnification by Microcide

[*] Confidential Treatment Requested
<PAGE>

                                      -30-

          Microcide hereby agrees to indemnify, hold harmless and defend NAEJA,
its Affiliates, employees, agents and independent contractors against any and
all expenses, costs of defense (including without limitation reasonable
attorneys' fees, witness fees, damages, judgments, fines and amounts paid in
settlement) and any amounts NAEJA becomes legally obligated to pay because of
any Third Party claim or claims against it to the extent that such claim or
claims arise out of [*].

13.3      Conditions to Indemnification

          As a condition to a Party's right to receive indemnification under
this Article 13, such Party will: (i) promptly notify the other Party as soon as
it becomes aware of a claim or action for which indemnification may be sought
pursuant hereto; (ii) cooperate with the indemnifying Party in the defense of
such claim or suit, at the expense of the indemnifying Party; and (iii) permit
the indemnifying Party to control the defense of such claim or suit, including
without limitation the right to select defense counsel.  In no event, however,
may the indemnifying Party compromise or settle any claim or suit in a manner
which admits fault or negligence on the part of or that otherwise materially
affects the indemnified Party's rights under this Agreement without the prior
written consent of the indemnified Party.  The indemnifying Party will have no
liability under this Article 13 with respect to claims or suits settled or
compromised without its prior written consent.

                                  ARTICLE 14
                                 MISCELLANEOUS

14.1      Assignment

     (a)       Except as expressly provided herein, neither this Agreement nor
          any interest hereunder will be assignable, nor any other obligation
          delegable, by a Party without the prior written consent of the other;
          provided, however, that a Party may assign this Agreement without
          consent to any Affiliate or to any successor in interest by way of
          merger or sale of all or substantially all of its assets in a manner
          such that the assignor will remain liable and responsible for the
          performance and observance of all such Party's duties and obligations
          hereunder, except that no intellectual property of any Third Party
          acquiror of such Party will be included in the licenses granted
          hereunder. This Agreement will be binding upon the successors and
          permitted assigns of the Parties. Any assignment not in accordance
          with this Section 14.1 will be null and void.

[*] Confidential Treatment Requested
<PAGE>

                                      -31-

     (b)       This Agreement shall survive any merger or reorganization of
          either Party with or into, or such sale of assets to, another party
          and no consent for such merger, reorganization or sale shall be
          required hereunder.

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

14.2      Dispute Resolution

     (a)       The Parties recognize that disputes as to certain matters may
          from time to time arise during the term of this Agreement which relate
          to either Party's rights and/or obligations hereunder. It is the
          objective of the Parties to establish procedures to facilitate the
          resolution of disputes arising under this Agreement in an expedient
          manner by mutual cooperation. To accomplish this objective, the
          Parties agree to follow the procedures set forth in this Section 14.2
          if and when a dispute arises under this Agreement.

          Unless otherwise specifically provided in this Agreement, disputes
          among the Parties will be resolved by reference first to the Project
          Team and the Joint Research Committee.  Disputes that are unresolved
          by the Joint Research Committee shall be submitted to the Parties'
          respective executive officers designated below or their successors,
          for attempted resolution by good faith negotiations within fifteen
          (15) days after such notice is received.  Such designated officers are
          as follows:

          For Microcide:            Chief Executive Officer

          For NAEJA:                Chief Executive Officer

          In the event the designated executive officers are not able to resolve
          such dispute, either Party may at anytime after the fifteen (15) day
          period seek to resolve the dispute through the means provided in
          Section 14.2(b).

     (b)       Any claim or controversy arising out of or related to this
          Agreement or any breach hereof that is not resolved by the designated
          committee and/or officer as provided in this Agreement shall be
          submitted to a court of competent jurisdiction as follows: (a) if such
          suit or proceeding is initiated by NAEJA, in the Superior Court of the
          County of Santa Clara, California or the United States District Court
          for the Northern District of California; (b) if such suit or
          proceeding is initiated by Microcide, in the Province of Alberta,
          Canada. The Parties hereby consent to the jurisdiction and venue of
          such courts for such claims and controversies. Notwithstanding the
          foregoing, disputes between the Parties regarding the validity, scope
          or enforceability of patents issued outside the United States shall be
          submitted to a court of competent jurisdiction in the country where
          such patent has issued.
<PAGE>

                                      -32-

14.3      Force Majeure

          Neither Party shall lose any rights hereunder or be liable to the
other Party for damages or losses on account of failure of performance by the
defaulting Party if the failure is occasioned by government action, war, fire,
explosion, flood, strike, lockout, earthquake, embargo, act of God, or any other
similar cause beyond the control of the defaulting Party, provided that the
Party claiming force majeure has exerted all reasonable efforts to avoid or
remedy such force majeure.  Notwithstanding the foregoing, no Party shall be
entitled to claim force majeure in respect of its obligations to pay money.

14.4      Compliance with Law

          Each Party hereto shall comply with all applicable laws, rules,
ordinances, guidelines, consent decrees and regulations of any applicable
federal, state, provincial or other governmental authority.

14.5      Governing Law

          This Agreement is deemed to have been entered into in the State of
California and its interpretation, construction, and the remedies for its
enforcement or breach are to be applied pursuant to and in accordance with the
laws of the State of California, without regard to its rules and principles of
conflicts of law.

14.6      Entire Agreement

          This Agreement, including all Exhibits attached hereto, and all
documents delivered concurrently herewith, set forth all the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersede and terminate all prior and
contemporaneous  agreements and understandings between the Parties.  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.  The Letter Agreement and the
Amendment, shown as Exhibit C and Exhibit D respectively, which shall not be
deemed part of this Agreement, are considered by the Parties to be consistent in
all respects with this Agreement.  The Parties agree that in the case of any
ambiguity in this agreement, such ambiguity shall, if possible, be resolved in a
manner which is consistent with the Letter Agreement and the Amendment.  In case
of any conflict between the Letter Agreement, the Amendment and this Agreement,
this Agreement (without Exhibits C and D) will govern.

14.7      Relationship of the Parties

          Nothing hereunder shall be deemed to authorize either Party to act
for,
<PAGE>

                                      -33-

          represent or bind the other except as expressly provided in this
          Agreement.

14.8      Bankruptcy

          Notwithstanding Section 11.2, either Party may terminate this
Agreement upon written notice if the other Party is not paying its debts as they
become due, becomes insolvent, files or has a petition in bankruptcy or any such
similar petition or process under the insolvency laws of Canada or any other
jurisdiction, proposes dissolution, liquidation, financial reorganization or
recapitalization with creditors, makes an assignment or trust agreement for the
benefit of creditors, or, if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business of such
Party.

14.9      Notices

          All notices hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (receipt verified), mailed by
registered or certified mail (return receipt requested), postage prepaid, or
sent by express courier service, to the Parties at the following addresses (or
at such other address for a Party as shall be specified by like notice;
provided, that notices of a change of address shall be effective only upon
receipt thereof).

If to NAEJA,
addressed to:                                   NAEJA PHARMACEUTICAL INC.

                                                          #2, 4290 9 1 A Street
                                                             Edmonton, Alberta,
                                                                 Canada T6E 5V2
                                             Attention: Chief Executive Officer
                                                      Telephone: (780) 462-4044
                                                       Telecopy- (780) 461-0196

With copy to:
                                                                   Lorna Melnyk
                                                         133 Esquire Lewis Road
                                                            Humboldt, TN, 38343
                                                                         U.S.A.
                                                      Telephone: (901) 784-5725
If to Microcide,
addressed to:                                   MICROCIDE PHARMACEUTICALS, INC.

                                                               850 Maude Avenue
                                                        Mountain View, CA 94043
                                             Attention: Chief Executive Officer
                                                      Telephone: (650) 428-1550
                                                        Telecopy:(650) 428-3545
<PAGE>

                                      -34-

With copy to:                                                  Latham & Watkins
                                                         135 Commonwealth Drive
                                                           Menlo Park, CA 94025
                                             Attention: Alan C. Mendelson, Esq.
                                                      Telephone: (650) 328-4600
                                                        Telecopy:(650) 463-2600

14.10     Waiver

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

14.11     Severability

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

14.12     Headings

          The Section and paragraph headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections or paragraphs.

14.13     Counterparts

          This Agreement may be executed in two or more Counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>

                                     -35-

          IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the Effective Date.

                              NAEJA PHARMACEUTICAL INC.

                              By:

                              Chief Executive Officer

                              MICROCIDE PHARMACEUTICALS, INC.

                              By:

                              Chief Executive Officer
<PAGE>

                                   Exhibit A

                                    CLASSES

The Program Plan of this agreement includes and is restricted to research on the
Azole antifungal agents, as exemplified by NAEJA's proprietary compounds [*] and
[*], and which have the following general formula I:

                                      [*]

                                      [*]

                                      [*]

                                    Wherein
                                      [*]
                                      [*]
                                      [*]
                                      [*]

[*] Confidential Treatment Requested
<PAGE>

                                   Exhibit B

                                 PROGRAM PLAN

NAEJA shall: (i) [*] compounds [*]; and (ii) [*] evaluation [*]. Subject to
Section 3.8, Microcide and NAEJA shall: (i) [*]; and (ii) [*] profiling and
downstream preclinical evaluations [*]. Preliminary microbiological evaluation
of the compounds and combination will be carried out by both Parties, while
follow-up microbiology and pharmacology will be performed by Microcide. The
Joint Research Committee will evaluate the progress of each element of the
Program Plan and provide such evaluation to Microcide. Microcide will decide, in
its sole discretion, whether to undertake all or any of the following: (i) [*];
(ii) [*]; (iii) [*]; and (iv) [*]

[*] Confidential Treatment Requested

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