Research and Development Agreement - Rohm and Haas Co. and AgraQuest Inc.


                      RESEARCH AND DEVELOPMENT AGREEMENT

     This Research and Development Agreement ("Agreement") is made this 30th day
of October 2000, between Rohm and Haas Company, a Delaware corporation, having
its principal office at 100 Independence Mall West, Philadelphia, Pennsylvania,
19106-2399, United States of America ("RandH") and AgraQuest, Inc., a Delaware
corporation, having its principal place office at 1530 Drew Avenue, Davis,
California 95616, United States of America ("AQ").

                                   ARTICLE 1
                                  BACKGROUND

1.1.      AQ has conducted research in the areas of biopesticide microbials and
          biochemicals to develop environmentally friendly natural pesticide
          products. From this microbial and biochemical research initiative, AQ
          has identified a number of product leads.
 
1.2.      RandH possesses considerable expertise in research, development,
          registration and commercialization of agricultural chemical products.
          Using this expertise, RandH is interested in assessing AQ's product
          leads to identify those materials which RandH and AQ, will develop,
          register and bring to market.
 
1.3.      To advance these goals, RandH and AQ have determined to enter into a
          commercial relationship regarding the future development, registration
          and commercialization of AQ's product leads.

                                   ARTICLE 2
                                  DEFINITIONS

2.1  "Actual Costs" means the out-of-pocket costs, including labor costs and
     indirect overhead expenses (head-count driven facilities and administrative
     allocation).

2.2. "Affiliate" means, in relation to a party to this Agreement, a body
     corporate which from time to time is directly or indirectly controlled by
     or in control of such party and, for these purposes, "control" shall
     consist of the ownership of over fifty percent (50%) of the voting stock of
     a body corporate.

2.3  "AQ's Field" means use in the areas of Animal Health which is limited to
     therapeutics and pharmaceuticals for animal diseases, products for
     controlling internal and external parasites and pests, probiotics, animal
     feed additives, Human Health which is limited to pharmaceuticals,
     therapeutics, nutritional supplements and nutriceuticals and Aquaculture
     which is limited to growth enhancers, nutritional supplements and products
     for controlling external or internal parasites and diseases of fish,
     shellfish and mollusks.


[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.



 
2.4.  "Biopesticide" means a biochemical or microbial pesticide as defined at 40
      C.F.R. (S) 158.65.

2.5.  "Confidential Information" means, as to either party and without
      limitation, the Technology Rights, and any other data, know-how, formulas,
      compositions, processes, documents, designs, sketches, photographs, plans,
      graphs, drawings, specifications, equipment, samples, reports, findings,
      inventions, ideas and information, including business information related
      to the Lead Candidates and the Project.

2.6   "Damages" means any and all losses, liabilities, obligations, costs,
      expenses, damages or judgments of any kind or nature whatsoever (including
      reasonable attorney's, accountant's and expert's fees, disbursements of
      counsel, and other costs and expenses incurred in pursuing or defending
      claims under Article 13).

2.7.  "Effective Date" means the date first written above.

2.8.  "EPA" means the United States Environmental Protection Agency.

2.9.  "Gated Process" means the research and development process set forth in
      Article 6 of this Agreement and as described in further detail in the
      Gated Process Template set forth at Exhibit D to this Agreement.

2.10. "Improvements" means any invention, improvement, modification, new
      application or enhancement whether patentable or not, relating solely to a
      specific Lead Candidate or Licensed Technology, but expressly excluding
      the combination of such Lead Candidate with any RandH product.

2.11. "Lead Candidates" means those product leads from AQ's biopesticide
      microbial and biochemical research and development (including any analogs
      and homologs, which may qualify as a Biopesticide) identified at Exhibit
      A, attached hereto and made a part hereof. Such Exhibit A may be updated
      from time to time as provided herein.

2.12. "Net Sales" means, for any given quarter, the net sales of a technical
      grade or formulated product containing a given Lead Candidate during such
      period, including products containing any Improvements, as such net sales
      are determined after deducting industry standard discounts, rebates,
      chargebacks, sales freight and taxes. With respect to RandH, Net Sales
      shall include the Net Sales to permitted sublicensees.

2.13. "Patent Prosecution" means, with respect to any Technology Right, the
      prosecution and maintenance (before the United States Patent and Trademark
      Office or the

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


 
      applicable counterpart agency in a foreign country) of any patent or
      patent application, or any divisions, continuations, extensions or
      renewals relating to such Technology Right.

2.14. "Patent Rights" means all rights under any U.S. or foreign patent or
      patent application which may issue with claims directed to a Lead
      Candidate, a method to isolate or manufacture a Lead Candidate or a method
      to use a Lead Candidate, as the case may be, in each case together with
      any divisionals, continuations, continuations-in-part, reissues, re-
      registrations or extensions thereof.

2.15. "Project" means the activities of RandH and AQ to assess, develop,
      register and commercialize the Lead Candidates as Biopesticide products,
      including the Gated Process described in Article 6 of this Agreement.

2.16. "Registration" means approval by the EPA or European Union ("EU") or Japan
      of a microbial, a substance or mixture of substances as a Biopesticide
      pursuant to the Federal Insecticide, Fungicide and Rodenticide Act
      ("FIFRA").

2.17. "Technology Rights" means any and all ideas, inventions, formulae,
      processes, trade secrets and substantial know-how, intellectual property,
      techniques, methods, specifications, practices, data and other forms of
      information relating to the processes, methods and techniques for
      manufacturing, formulating and using the Lead Candidates, whether
      patentable or not and whether or not reduced to practice, including Patent
      Rights.

                                   ARTICLE 3
                REPRESENTATIONS, WARRANTIES AND COVENANTS OF AQ

AQ hereby represents, warrants and covenants to RandH as follows:

3.1   Corporate Power and Authority.
      ----------------------------- 

      AQ has the corporate power and authority to execute and deliver this
Agreement, the Convertible Note Purchase Agreement, the Convertible Note and
perform its obligations hereunder and thereunder, and the execution, delivery
and performance of this Agreement, the Convertible Note Purchase Agreement, and
the Convertible Note have been duly and validly authorized by AQ, and upon
execution and delivery by AQ, this Agreement, the Convertible Note Purchase
Agreement, and the Convertible Note will constitute valid and binding agreements
of AQ enforceable against it in accordance with their respective terms.

3.2   No Conflict.
      ------------

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
 
     Neither the execution and delivery of this Agreement, the Convertible Note
Purchase Agreement, the Convertible Note, nor the consummation of the
transactions contemplated hereunder or thereunder, requires AQ to obtain any
permits, authorizations or consents from any governmental body or from any other
person, firm or corporation, and such execution, delivery and consummation will
not result in the breach of or give rise to any termination of any agreement or
contract to which AQ may be a party.

3.3  Compliance with Law.
     --------------------

     AQ will conduct its activities and operations in material compliance with
all applicable laws, statutes, rules or regulations.

3.4  Effort
     ------

     During the term of this Agreement, AQ shall use commercially reasonable
efforts to fulfill its obligation as set forth in this Agreement.

3.5  Patent Prosecution; Infringement.
     -------------------------------- 

     AQ is obligated to, at AQ's expense, prepare and file one or more patent
application(s) for any Lead Candidate(s) and Improvements and is obligated to
pursue Patent Prosecution of such patent application(s) and patent(s) which
issue from such application(s). AQ shall pursue any Patent Prosecution in a
manner that it in good faith believes to be scientifically and commercially
reasonable; provided, however, that (i) AQ shall determine in consultation with
the Joint Project Team the timing and manner of such Patent Prosecution and the
amount of resources, personnel, and effort, devoted by AQ to such Patent
Prosecution, patent protection or the scope of the protection afforded by any
allowed patent claim and (ii) provided that AQ diligently and in good faith
pursues Patent Prosecution of a particular Lead Candidate, AQ shall have no
liability or obligation to RandH for the failure to obtain any patent protection
relating to any Lead Candidate or the scope of the protection afforded by any
allowed patent claim. AQ shall pursue the prosecution of any actual or alleged
infringement by a third party of any of the Licensed Technology (as defined in
Section 9.1 below).

                                   ARTICLE 4
              REPRESENTATIONS, WARRANTIES AND COVENANTS OF RANDH

         RandH represents, warrants and covenants the following to AQ:

4.1  Corporate Power and Authority.
     ------------------------------

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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


 

     RandH has the corporate power and authority to execute and deliver this
Agreement and the Convertible Note Purchase Agreement, and to perform its
obligations hereunder and thereunder, and the execution, delivery and
performance of this Agreement and the Convertible Note Purchase Agreement have
been duly and validly authorized by RandH, and upon execution and delivery by
RandH, this Agreement and the Convertible Note Purchase Agreement will
constitute valid and binding agreements of RandH enforceable against it in
accordance with their respective terms.

4.2  No Conflict.
     ----------- 

     Neither the execution and delivery of this Agreement or the Convertible
Note Purchase Agreement, nor the consummation of the transactions contemplated
hereunder or thereunder, requires RandH to obtain any permits, authorizations or
consents from any governmental body or from any other person, firm or
corporation, and such execution, delivery and consummation will not result in
the breach of or give rise to any termination of any agreement or contract to
which RandH may be a party.

4.3  Source of Funds.
     --------------- 

     No payment to AQ hereunder will be made with government funds.

4.4. Effort.
     ------ 

     During the term of this Agreement, RandH shall use commercially reasonable
efforts to fulfill its obligations under this Agreement.

4.5. Compliance with Law.
     ------------------- 

     RandH will conduct its activities and operations in material compliance
with all applicable laws, statutes, rules or regulations.

4.6. Patent Prosecution; Infringement.
     -------------------------------- 

     RandH shall cooperate with AQ's efforts regarding the Patent Prosecution,
notify AQ of any possible claims of infringement of the Licensed Technology and
cooperate with AQ in the prosecution of any actual or alleged infringement by a
third party of any of the Licensed Technology.

                                   ARTICLE 5
                              CERTAIN OBLIGATIONS
                                        
5.1. Supply of Lead Candidates.
     --------------------------

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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 

     AQ will supply the needed quantities of Lead Candidates (as determined by
the Joint Project Team) for entry into the Gated Process. Until such time as
[***] Lead Candidates are [***].

5.2. Exclusivity; Reservation of Right.
     ----------------------------------

     (a)  AQ shall not work, collaborate or coordinate with any third party to
develop a Lead Candidate or any analog or homolog of a Lead Candidate as a
Biopesticide, unless such Lead Candidate (i) has been abandoned by RandH as
provided at section 6.1(c) herein or (ii) is within AQ's Field. Any such work,
collaboration or coordination shall be considered a material breach of this
agreement.

     (b)  Notwithstanding anything herein to the contrary, AQ reserves the right
to conduct research and development in conjunction with third parties on analogs
and homologs of Lead Candidates which do not and will not qualify as
Biopesticides.

5.3. Sale of Convertible Note.
     -------------------------
 
     Concurrently with the execution of this Agreement, AQ will sell to RandH
and RandH will purchase from AQ, pursuant to a Convertible Note Purchase
Agreement attached hereto as Exhibit B, a Convertible Note (as defined therein)
                             ---------                                         
in the principal amount of five hundred thousand dollars ($500,000) made within
five (5) days of the Effective Date by wire transfer of immediately available
funds to an account designated in writing by AQ. The entire outstanding
principal balance of, and all accrued but unpaid interest on, the Convertible
Note shall be converted automatically into fully paid nonassessable shares of
the equity security (the "Next Financing Securities") sold by AQ in its next
equity financing involving the receipt by AQ of at least $3,000,000, including
the amounts received on conversion of debt (the "Next Financing"). The number of
shares of Next Financing Securities to be issued to RandH upon such conversion
shall be equal to the quotient obtained by dividing (i) the entire principal
amount of the Convertible Note by (ii) the price per share of the Next Financing
Securities multiplied by 1.2, rounded to the nearest whole share. The issuance
of such shares upon such conversion shall be upon and subject to the same terms
and conditions applicable to the Next Financing and, except as set forth in the
preceding sentence, such shares shall have the same rights and preferences as
the Next Financing Securities and such shares shall be upon and subject to terms
and conditions no less favorable than any share issued by AQ prior to the
Effective Date. If AQ does not complete a Next Financing within six months of
the Effective Date, the Convertible Note shall be converted into shares of
preferred stock of AQ (the "Next Equity Securities") at a purchase price to be
determined by AQ's Board of Directors immediately prior to such conversion.
Except as to purchase price, the Next Equity Securities will have the same
rights and preferences as the Series E Preferred Stock.


5.4. Additional Investment.
     --------------------- 

  During the Term, RandH may, [***], purchase additional shares of AQ equity
securities, subject to the approval of the Board of Directors of AQ.
 
                                   ARTICLE 6
                        GATED RESEARCH AND DEVELOPMENT
                              FOR LEAD CANDIDATES

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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.


 
 
6.1. The Gated Process and General Governing Principles for the Gated Process
     ------------------------------------------------------------------------

     (a)  RandH and AQ will assess, review, and develop the Lead Candidates
     through the Gated Process described below and as set forth in greater
     detail in the Gated Process Template at Exhibit D attached hereto and made
                                             ---------
     a part hereof.

     (b)  RandH, in its sole and exclusive discretion, will determine whether a
     particular Lead Candidate will move from one gate in the Gated Process to a
     subsequent Project Stage or gate.

     (c)  RandH reserves the right to abandon a particular Lead Candidate at any
     time in the Gated Process. Subject to the following two sentences, a Lead
     Candidate shall be considered abandoned by RandH [***]. If AQ does not
     receive written determination within sixty (60) days from the date of such
     request, such Lead Candidate shall be considered abandoned by RandH.

6.2. Project Stage 1.
     ----------------

     (a)  From time to time during the Term, RandH will evaluate the currently
     available data on the Lead Candidates and in its sole discretion select a
     Lead Candidate from Exhibit A for assessment in Project Stage 2 of the
                         ---------
     Gated Process by written notification thereof to AQ; provided, however,
     that selection of the first Lead Candidate shall occur no later than the
     [***] of the Effective Date.

     (b)  At the time that a Lead Candidate is selected to move to Project Stage
     2, RandH shall pay AQ [***] in immediately available funds to an account
     designated by AQ.

6.3. Project Stage 2.
     ----------------

     AQ will provide sufficient quantities of each Lead Candidate in order for
     RandH to evaluate the efficacy of such Lead Candidate in the laboratory. AQ
     will also provide a preliminary assessment for the novelty of the Lead
     Candidate, including dereplication with AQ's natural product database, and
     literature search of known chemistry and taxonomy.

6.4. Project Stage 3.
     ----------------

     (a)  Upon written notification by RandH to advance a Lead Candidate to
     Project Stage 3 and the concurrent advancement of [***] to AQ for
     reimbursement of Actual Costs of the Pre-Development Activities, AQ will
     immediately commence the Pre-Development Activities. If at any time AQ
     becomes aware that the Actual Costs of such development activities for any
     individual Lead Candidate will


[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 

     exceed [***], AQ shall notify RandH and obtain prior written approval from
     RandH to continue with the activities for such Lead Candidate. "Pre-
     Development Activities" means those activities identified as such in
     Project Stage 3 of the Gated Process Template.

     (b)  Upon request by RandH and as a part of AQ's obligation pursuant to the
     Gated Process, AQ will conduct fractionation/purification and
     characterization (structure elucidation) to determine the active component
     molecules of the particular Lead Candidate. If these analyses demonstrate
     that the molecules are:
 
               (i)  lipophilic compounds, RandH will pay [***] to AQ;
               (ii) water soluble compounds, RandH will pay [***] to AQ.

     Any payments made pursuant to this Section 6.4(b) and 6.4(c) shall be made
     in immediately available funds to an account designated by AQ within
     thirty (30) days of written notification thereto by AQ.

     (c)  AQ will develop an analytical method suitable for meeting Registration
     requirements for the Lead Candidate in major market countries as determined
     by the Joint Project Team. RandH will pay a total of [***] upon completion
     of such analytical method.

6.5. Project Stage 4.
     ----------------

     (a)  If AQ exercises its right of first refusal and undertakes the
     Commercial Manufacture of a Lead Candidate pursuant to Section 9.2(a)
     below, AQ in accordance with Project Stage 4 will conduct final process
     development on such Lead Candidate and manufacture [***] batches of such
     Lead Candidate to support Registration of the Lead Candidate. RandH will
     reimburse AQ for reasonable costs and expenses incurred in the process
     development under Project Stage 4 and manufacture of the [***] batches of
     the Lead Candidate within [***] days of submission of an invoice therefore.

     (b)  RandH, at RandH's expense, will prepare and file with EPA an
     application for Registration and petition for tolerance or exemption from
     tolerance, if required, of the Lead Candidate. AQ shall have the right to
     review such application for Registration prior to filing. Upon submission
     of the application for Registration and petition, if required, as a
     Biopesticide to EPA or Japan or the EU, RandH shall pay AQ [***].

     (c)  Upon issuance by EPA of a Biopesticide Registration by EPA or Japan or
     the EU for the Lead Candidate, RandH shall pay to AQ [***].

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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
 
       (d)  RandH may request AQ to continue process optimization research for a
       Lead Candidate prior to commercialization, but after the [***] analysis
       and submission for Registration. If such request is made by RandH, RandH
       will reimburse AQ for reasonable costs and expenses incurred in this
       optimization.

6.6.   Special Payment to AQ. AQ shall receive a one time, lump sum payment of
       ----------------------                                               
       [***] of RandH's Net Sales for each Lead Candidate for which Registration
       is obtained for sales of such registered Lead Candidate(s) made during
       the fifth after the first year in which a commercial sale occurs, and
       such lump sum payment will be made during the first quarter of in the
       year following.

6.7.   Audit; Inspection of Records. Each party, including a permitted
       ----------------------------                                    
       sublicensee, shall keep full and accurate books and records of its Actual
       Costs, Net Sales, and any other expenses or disbursements relating to
       this Agreement. Each party shall permit the other party, at its own
       expense, to examine such books and records at any reasonable time.

                                   ARTICLE 7
                              JOINT PROJECT TEAM

7.1. Composition and Duties of Team.
     -------------------------------

     The parties will establish a multifunctional team (the "Joint Project
Team") which will meet as needed at a mutually agreeable location to review and
direct the Project. Specifically, the Joint Project Team shall have among its
principal duties to review the status of Lead Candidates in the Gated Process
and review and discuss all draft and final data, studies and reports generated
through the Gated Process. At a minimum, the Joint Project Team will meet [***].
The Joint Project Team will be consultative in nature and, except as otherwise
set forth herein, all decisions regarding the Project will remain in the sole
and exclusive discretion of RandH.
 
7.2. Obligations of the Parties.
     ---------------------------

     Each party to this Agreement working through the Joint Project Team will
have the responsibility and obligation to supply appropriate personnel and all
relevant data and other information needed to implement and accomplish the
objectives of the Project.

                                   ARTICLE 8
             PROPRIETARY RIGHTS, RIGHTS TO STUDIES, REGISTRATIONS,
                       REGISTRATION DATA AND TRADEMARKS

8.1. Proprietary Rights.
     ------------------ 

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
 
     Except as expressly provided to the contrary herein, as between the
parties, all proprietary rights, title, and interest with respect to the Lead
Candidates, including the Technology Rights and Improvements as set forth in
Section 10.1 shall be and remain solely with AQ.

8.2. RandH Data.
     ---------- 
 
     All data and studies obtained, conducted or paid for by RandH for each
individual Lead Candidate shall remain the exclusive property of RandH;
provided, however, that notwithstanding anything else in this Agreement, AQ
shall have access to all filings and all information and data relevant thereto
for use by AQ in AQ's Field. If AQ uses such data or study in AQ's Field, AQ
shall pay RandH [***] of the Actual Costs incurred by RandH in the generation of
such data or study within thirty (30) days of receipt of supporting
documentation therefor. The parties agree however that AQ, with prior written
approval from RandH, may use the data or studies without payment to RandH solely
for the purpose of providing information to its current or prospective investors
, and such approval shall not unreasonably withheld or delayed.

     Notwithstanding the foregoing, if for any reason and at any time during the
Gated Process described in Article 6, RandH determines to abandon a Lead
Candidate as set forth in Section 6.1(c) of this Agreement, RandH will provide
AQ with a copy of all data and studies generated by or on behalf of RandH in the
Gated Process up to the date of RandH's notice of abandonment. However, if AQ at
any time receives an economic benefit from the commercial sale of such abandoned
Lead Candidate, AQ will [***].
 
8.3  Lead Candidate Registrations.
     ---------------------------- 

     RandH shall be entitled to submit all regulatory filings in its name and
shall own all such filings and Registrations, and subject to Section 8.2, AQ
shall have access to all filings and all information and data relevant thereto.

8.4. RandH Trademarks.
     -----------------

     RandH will obtain and maintain trademarks for the Lead Candidates as RandH
sees fit in RandH's sole discretion and at its own expense. RandH will retain
sole and exclusive ownership of such trademarks at all times. Nothing in this
Agreement shall be construed as conferring on AQ the right to use in
advertising, publicity or other promotional activities any name, trademark or
tradename of RandH or its existing products.

8.5. AQ Trademarks.
     ------------- 

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
     Nothing in this Agreement shall be construed as conferring on RandH the
right to use in advertising, publicity or other promotional activities any name,
trademark or tradename of AQ or its existing products.

                                   ARTICLE 9
                        LICENSE AND MANUFACTURING RIGHTS

9.1. License Grant.
     --------------
 
     AQ hereby grants an exclusive, worldwide, non-cancellable right and 
license in and to the Technology Rights to make, use, offer for sale, import,
export and distribute any and all Lead Candidates of products embodying a Lead
Candidate for all uses except in AQ's Field (the "Licensed Technology"). Such
license includes the right to sublicense; provided, however, that such
sublicense (i) is subject to any restrictions set forth in this Agreement and
(ii) prior to such sublicense, RandH provides written notification to AQ of its
intent to effect such sublicense and a copy of such sublicensing agreement. The
license described herein shall be in effect until such time as the Lead
Candidate that is the subject of the license is abandoned as set forth in
Section 6.1(c) or until such time as the latest of any patent relating to such
Lead Candidate expires, at which time RandH shall have a [***].

9.2. Commercial Manufacture.
     ---------- ------------

     (a)  "Commercial Manufacture" means the manufacture of a Lead Candidate for
     the purpose of commercial sale of such Lead Candidate, whether in its
     technical form or in a product formulation.

     (b)  RandH hereby grants AQ the right of first refusal to the Commercial
     Manufacture of the Lead Candidates by AQ at a facility owned or leased and
     operated by AQ ( "AQ's Manufacturing Right"); provided, however, that AQ
     must advise RandH of its decision to exercise AQ's Manufacturing Right
     within thirty (30) days of RandHs determination to advance a Lead Candidate
     to Project Stage 4. If AQ exercises AQ's Manufacturing Right, the Total
     Costs (as defined in Section 9.3(a)) shall be paid by RandH to AQ within
     thirty (30) days of submission of an invoice for such costs and expenses.
     AQ represents and warrants that if AQ exercises AQ's Manufacturing Right,
     AQ will manufacture the Lead Candidate at the lowest commercially
     reasonable cost possible.

     (c)  If AQ decides to exercise AQ's Manufacturing Right, RandH and AQ agree
     to negotiate in good faith a Supply Agreement for such Lead Candidate.

     (d)  If AQ decides not to exercise AQ's Manufacturing Right  (i) RandH has
     [***] to Commercial Manufacture of the Lead Candidate; (ii) AQ will provide
     RandH with any and all data and information it possesses pertaining to the
     Lead Candidate to be manufactured, including but not limited to all
     information about the Commercial Manufacture of such Lead Candidate and;
     (iii) AQ will provide any advice and consultation reasonably requested by
     RandH pertaining to the Commercial

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
       Manufacture of such Lead Candidate. The parties agree that the
       information and advice provided pursuant to this Section 9.2(d)
       constitutes "Confidential Information" and all process information and
       rights remain the property of AQ.

9.3.   Total Gross Margin Split.
       -------------------------

       (a)  If AQ exercises AQ's Manufacturing Right and the parties enter into
       a Supply Agreement as set forth in Section 9.2(c), RandH will pay to AQ
       [***], which shall be defined as the difference between (i) Net Sales and
       (ii) Total Costs. Total Costs shall mean the fully allocated costs
       associated with the Commercial Manufacture by AQ of Lead Candidates,
       including but not limited to labor, fermentation, recovery, formulation
       and packaging expenses, raw materials, taxes, direct depreciation and the
       allocable portion of utilities.

       (b)  With respect to a Lead Candidate manufactured pursuant to Section
       9.2(d), RandH shall pay to AQ a royalty of [***] on RandH's Net Sales of
       such Lead Candidate.

       (c)  Any payments made pursuant to this Section 9.3 shall be made by
       RandH in immediately available funds to an account designated by AQ
       within thirty (30) days of the end of RandH's fiscal quarter.

                                  ARTICLE 10
                 INVENTIONS, IMPROVEMENTS OR NEW APPLICATIONS

10.1.  By AQ.
       ------
 
       AQ shall promptly inform RandH in writing of any Improvements made by AQ.
Such Improvements shall be the sole property of AQ; provided, however, that such
Improvements shall be included within the meaning of the "Licensed Technology"
licensed to RandH hereunder.

10.2   By RandH.
       ---------
 
       RandH shall promptly inform AQ in writing of any Improvements, whether
patentable or not, made by RandH relating solely to a specific Lead Candidate or
Licensed Technology. Such Improvements shall be the sole property of RandH;
provided, however, that RandH hereby grants to AQ an exclusive (except as to
RandH), royalty-free, worldwide, non-cancellable right and license, with the
right to sublicense, to make, use, sell, offer for sale, import, export and
distribute such Improvements in AQ's Field.
 
10.3.  Joint Improvements.
       -------------------

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
       Any Improvements, whether patentable or not, made jointly by the parties
shall be jointly owned by RandH and AQ ("Joint Improvements").  The parties will
mutually agree in good faith which party will be responsible for development and
Patent Prosecution of such Joint Improvement.
 
                                   ARTICLE 11
                                CONFIDENTIALITY

11.1   Scope.  During the period of this Agreement and for ten (10) years 
       -----    
thereafter, RandH and AQ agree: (a) not to disclose to any third party, except
as specifically allowed by this Agreement, any Confidential Information, (b) to
limit disclosure of Confidential Information within its own organization to
individuals whose duties justify the need to know such information and who are
legally obligated to comply with the terms of this Agreement.

       (a) To the extent practical, Confidential Information shall be disclosed
       in tangible form and marked "Confidential". Information disclosed in non-
       tangible form, such as orally or by visual inspection, shall not be
       considered confidential unless the disclosing party confirms in writing
       the fact and general nature of the disclosure within one (1) month after
       it is made.

       (b) The recipient of Confidential Information shall be under no
       obligation with respect to any information which: (i) at the time of
       disclosure is available to the public (ii) after disclosure becomes
       available to the public through no fault of the recipient, provided that
       the obligation of the recipient shall cease only after the date on which
       such information has become available to the public (iii) the recipient
       can demonstrate through tangible evidence was in its possession before
       receipt from the disclosing party (iv) is disclosed to the recipient
       without restriction on disclosure by a third party who has the lawful
       right to disclose such information. Confidential Information shall not be
       deemed to be within the foregoing exceptions merely because it is (i)
       specific and embraced by more general information in the public domain or
       the recipient's possession or (ii) a combination which can be pieced
       together to reconstruct the Confidential Information from multiple
       sources, none of which shows the whole combination, its principle of
       operation, or method of use.

                                   ARTICLE 12
                              TERM AND TERMINATION

12.1.  Term.
       -----

       The term of this Agreement shall be for a period of [***] from the
Effective Date (the "Term"); provided, however, that for any Lead Candidate(s)
that has proceeded beyond Gate 2 of the Gated Process Template, the terms and
conditions of this Agreement shall remain in effect solely with respect to such
Lead Candidate(s) until such time as (i) RandH 

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
has abandoned such Lead Candidate(s) as set forth in Section 6.1(c); (ii) a
Biopesticide Registration for such Lead Candidate is issued by EPA or EU.

12.2.  Material Breach.
       ----------------
 
       Should either RandH or AQ, at any time during the term of this Agreement,
commit a material breach of any provision hereunder, and fail to rectify such
breach within sixty (60) days from receipt of written notice from the other
party, such other party may terminate this Agreement by notice in writing to the
breaching party provided that such notifying party is not in material breach of
this Agreement.  Failure to make any payment under this Agreement when due shall
constitute a material breach of the Agreement.  Upon termination, provision for
clearance of unsold stocks and related issues would be made in good faith
between the parties.

12.3.  Proceedings in Bankruptcy.
       --------------------------

       Should either party be adjudicated bankrupt or petition for or consent
to any relief under any bankruptcy, reorganization, receivership, liquidation,
compromise or arrangement or any moratorium statute whether now or hereinafter
in effect, or should either party make an assignment for the benefit of its
creditors, or petition for the appointment of a receiver, liquidator, trustee or
custodian for all or a substantial part of its assets, or should a receiver,
liquidator, trustee or custodian be appointed for all or a substantial part of
such party's assets, the other party to this Agreement shall have the right to
immediately terminate this Agreement.  Notwithstanding any proceedings in
bankruptcy, it is the express intent of the parties that each party shall retain
any and all rights granted to such party in Articles 9 and 10 of this Agreement.

12.4   Survival.
       ---------

       Termination or expiration of this Agreement shall be without prejudice to
any accrued rights or obligations of either party. Notwithstanding any provision
in this Agreement, the provisions of Articles 8, 9, 10 and 11 shall survive any
termination of this Agreement.

                                  ARTICLE 13
                                INDEMNIFICATION

13.1   Indemnification.  Subject to Section 13(c) below:
       ---------------                                  

       (a) RandH hereby agrees to defend, indemnify and hold harmless AQ and
       each of its officers, directors, shareholders, employees, agents,
       representatives, attorneys, or advisors from and against any Damages
       arising out of or resulting from (i) RandH's failure to perform any of
       its obligations hereunder, (ii) any 

                                   14 of 18


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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
       breach of or inaccuracy in any representation or warranty made by RandH
       herein, (iii) the use or commercialization by RandH (or its sublicensees
       and assignees) of the Licensed Technology, or (iv) the conduct of RandH's
       business.

       (b) AQ agrees to defend, indemnify and hold harmless RandH and each of
       its officers, directors, shareholders, employees, agents,
       representatives, attorneys, or advisors from and against any Damages
       arising out of or resulting from (i) AQ's failure to perform any of its
       obligations hereunder or (ii) any breach of or inaccuracy in any
       representation or warranty made by AQ herein and (iii) the conduct of
       AQ's business.

       (c) LIMITATIONS ON LIABILITY.  EXCEPT TO THE EXTENT SET FORTH ABOVE (WITH
           ------------------------                                             
       RESPECT TO DAMAGES ASSERTED BY THIRD PARTIES), IN NO EVENT SHALL EITHER
       PARTY (OR ITS AGENTS, EMPLOYEES, REPRESENTATIVES, OFFICERS, DIRECTORS,
       SHAREHOLDERS, ATTORNEYS OR ADVISORS) BE LIABLE TO THE OTHER PARTY (OR ITS
       AGENTS, REPRESENTATIVES, OFFICERS, DIRECTORS OR SHAREHOLDERS) OR ANY
       THIRD PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
       DAMAGES RESULTING FROM THE USE, OR INABILITY TO USE, THE LICENSED
       TECHNOLOGY, THE COMMERCIALIZATION OF THE LICENSED TECHNOLOGY OR OTHERWISE
       ARISING OUT OF THIS AGREEMENT.

                                   ARTICLE 14
                                 MISCELLANEOUS

14.1.  Governing Law.
       --------------
 
       This Agreement shall be governed by the laws of the state of Delaware.

14.2.  Assignment.
       -----------

       RandH and AQ shall have the right to assign this Agreement without
consent of the other party; provided, however, that the assigning party will use
its best efforts to provide the earliest notification possible to the non-
assigning party.

14.3.  Notices.
       --------

       All notices, requests or consents required or permitted under this
Agreement shall be made in writing and shall be given to the other party by
personal delivery, registered or certified mail (with return receipt), overnight
air courier (with receipt signature) or facsimile transmission (with
"answerback" confirmation of transmission), sent to such party's address or
telecopy numbers set forth below, or such other addresses or telecopy numbers of
which 


                                   15 of 18


[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
the parties have given notice pursuant to this section 14.3. Each such notice,
request or consent shall be deemed effective upon the date of actual receipt,
receipt signature or confirmation of transmission, as applicable.

                         If to RandH:

                         Rohm and Haas Company
                         100 Independence Mall West                 
                         Philadelphia, PA 19106-2399                
                         USA                                        
                         Attn: Dr. James B. Ryan                    
                         Phone: (215) 641-7397                      
                         Facsimile: (215) 619-1614                  
                                                                    
                         If to AQ;                                  
                                                                    
                         AgraQuest, Inc.                            
                         1530 Drew Avenue                           
                         Davis, California, 95616                   
                         Attn: Dr. Pamela Marrone                   
                         Phone:  (530) 750-0150                     
                         Facsimile:  (530) 750-0153                  

14.4.  Entire Agreement.
       ---------------- 
 
       This Agreement constitutes the entire agreement of the parties with
respect to the subject matter herein, supersedes all prior agreements with
respect thereto, and may be amended only in writing signed by both parties.

14.5.  Severability.
       ------------ 
 
       If a court or regulatory authority of competent jurisdiction determines
that one or more of the paragraphs or provisions of this Agreement are or may be
invalid or unenforceable such decision shall not affect the remainder of the
Agreement.

14.6.  Force Majeure.
       --------------
 
       The parties shall not be liable for any delay in or failure of
performance hereunder due to any contingency beyond its reasonable control
including but not limited to an act of God, war, mobilization, insurrection,
rebellion, civil commotion, riot, act of extremist or public enemy, sabotage,
labor dispute, lockout, strike explosion, fire, flood, storm, accident, drought,
equipment failure, power failure, shortage of cars, delay of carrier, embargo,
law, 

                                   16 of 18


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Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
ordinance, rule or regulation, whether valid or invalid, including priority
requisition, allocation, or price control.

14.7.  Waiver.
       -------
 
       Failure by either party hereto to exercise or enforce any rights
conferred upon it by this Agreement shall not be deemed to be a waiver of any
such rights or operate so as to bar the exercise or enforcement thereof or of
any other rights at any subsequent time or times.

14.8.  Status of the Parties.
       ----------------------

       Nothing in this Agreement shall be construed as to constitute a
partnership or joint venture between the parties or authorize either to
represent the other party or contract any liability on behalf of the other
party.

14.9.  Dispute Resolution; Arbitration.
       --------------------------------
 
       The parties failure to comply with the terms of the license grant in
Sections 9.1, 10.1 or 10.2 shall constitute a material breach of this Agreement
for which the parties respectively will be entitled to injunctive relief from a
court of competent jurisdiction.  In the event of a dispute between the parties
as to any matter arising in connection with this Agreement, such matter shall be
referred to the Vice President, Agricultural Chemicals Business Unit Director at
RandH and Chief Executive Officer at AQ for resolution.  If the dispute cannot
be settled amicably through negotiation by these individuals, then the parties
agree in good faith to submit the dispute to mediation in accordance with the
Center for Public Resources Model Procedure for Mediation of Business Disputes.
If the dispute cannot be settled through mediation, the parties agree to submit
the dispute to binding arbitration in accordance with Title 9 of the United
States Code and the Commercial Arbitration Rules of the American Arbitration
Association (the "Association").  If the parties are unable to agree upon a
single arbitrator, the arbitrator shall be a single, independent arbitrator
selected by the Association.  Arbitration shall take place  at a location
mutually agreeable to the parties. The fees and expenses of the mediator and
arbitrator shall be paid equally by the parties to such mediation or
arbitration.
 
14.10  Joint Press Release.
       --------------------

       Upon execution of this Agreement or as soon as practicable thereafter,
the parties will issue a joint press release, the text of which shall be
mutually acceptable to the parties.


Agreed to by:

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[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.

 
 AGRAQUEST, INC.                          ROHM AND HAAS COMPANY

By: /s/ Pamela G. Marrone                 By: /s/ Carlos A. Estevez
    ---------------------                     ---------------------
Name:  Dr. Pam Marrone                    Name:  Carlos A. Estevez
Title: President & CEO                    Title: Vice-President and World Wide
Agricultural                              Chemicals Business Unit Director

                                   18 of 18


[***] Confidential information has been omitted and filed separately with the 
Securities and Exchange Commission pursuant to 17 C.F.R. Section 230.406.