Agreement and Plan of Merger - Gilead Sciences Inc. and NeXstar Pharmaceuticals Inc.


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                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                             GILEAD SCIENCES, INC.,

                          GAZELLE ACQUISITION SUB, INC.

                                       AND

                          NEXSTAR PHARMACEUTICALS, INC.

                          DATED AS OF FEBRUARY 28, 1999

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                                TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----
                              ARTICLE I. THE MERGER

SECTION 1.1.  The Merger.....................................................2
SECTION 1.2.  Effective Time of the Merger...................................2
SECTION 1.3.  Effects of the Merger..........................................2
SECTION 1.4.  Certificate of Incorporation of the Surviving Corporation......2
SECTION 1.5.  By-Laws of the Surviving Corporation...........................2
SECTION 1.6.  Directors and Officers of the Surviving Corporation............2

                        ARTICLE II. CONVERSION OF SHARES

SECTION 2.1.  Conversion of Shares...........................................3
       (a)  Capital Stock of Sub.............................................3
       (b)  Cancellation of Treasury Stock...................................3
       (c)  Exchange Ratio for Company Common Stock..........................3
       (d)  Cancellation of Company Common Stock.............................3
SECTION 2.2.  Surrender of Certificates......................................4
SECTION 2.3.  Fractional Shares..............................................6
SECTION 2.4.  Closing........................................................7
SECTION 2.5.  Stock Option Plans.............................................7
SECTION 2.6.  Employee Stock Purchase Plan...................................8

                   ARTICLE III. REPRESENTATIONS AND WARRANTIES

SECTION 3.1.  Representations and Warranties of the Company..................8
       (a) Due Organization, Good Standing and Power.........................8
       (b) Authorization and Validity of Agreement...........................8
       (c) Capitalization....................................................9
       (d) Consents and Approvals; No Violations............................12
       (e) Company Reports and Financial Statements; Accounting Records.....13
       (f) Absence of Certain Changes.......................................14
       (g) Regulatory Compliance............................................14
       (h) Compliance with Laws.............................................17
       (i) Litigation.......................................................19
       (j) Employee Benefit Plans...........................................19
       (k) Employment Agreements............................................22
       (l) Taxes............................................................22
       (m) Absence of Undisclosed Liabilities...............................24
       (n) Patents, Trademarks, Etc.........................................25
       (o) Transactions with Directors, Officers and Affiliates.............25
       (p) Broker's or Finder's Fee.........................................26
       (q) Opinion of Financial Advisor.....................................26
       (r) Vote Required....................................................26
       (s) Material Contracts...............................................26
       (t) Accounting Matters...............................................28


       (u) Tax Treatment....................................................28
       (v) Certain Business Practices.......................................28
       (w) Governmental Authorizations......................................28
       (x) Insurance........................................................29
       (y) Y2K Compliance...................................................29
       (z) Supply...........................................................30
       (aa) Receivables.....................................................30

SECTION 3.2.  Representations and Warranties of Parent and Sub..............31
       (a) Due Organization, Good Standing and Power........................31
       (b) Authorization and Validity of Agreement..........................31
       (c) Capitalization...................................................32
       (d) Consents and Approvals; No Violations............................33
       (e) Parent Reports and Financial Statements; Accounting Records......34
       (f) Absence of Certain Changes.......................................35
       (g) Compliance with Laws.............................................35
       (h) Litigation.......................................................37
       (i) Taxes............................................................37
       (j) Parent Employee Benefit Plans....................................39
       (k) Patents, Trademarks, Etc.........................................40
       (l) Broker's or Finder's Fee.........................................41
       (m) Accounting Matters...............................................41
       (n) Tax Treatment....................................................41
       (o) Operations of Sub................................................41
       (p) Absence of Undisclosed Liabilities...............................41
       (q) Regulatory Compliance............................................42
       (r) Certain Business Practices.......................................43
       (s) Governmental Authorizations......................................43
       (t) Y2K Compliance...................................................44

               ARTICLE IV. CONDUCT OF BUSINESS; TRANSACTIONS PRIOR
                     TO CLOSING DATE; ADDITIONAL AGREEMENTS

SECTION 4.1.  Conduct of Business of the Company............................45
SECTION 4.2.  Conduct of Business of Parent.................................47
SECTION 4.3.  Access to Information Concerning Business and Records.........47
SECTION 4.4.  Confidentiality...............................................48
SECTION 4.5.  Registration Statement/Joint Proxy Statement; Quotation
                     on Nasdaq National Market..............................48
SECTION 4.6.  Employee Benefits.............................................50
SECTION 4.7.  Stockholder Approvals; Recommendations........................50
SECTION 4.8.  Stock Options.................................................51
SECTION 4.9.  Letters of the Company's Accountants..........................52
SECTION 4.10.  Letters of Parent's Accountants..............................52
SECTION 4.11.  Notices of Certain Events....................................52
SECTION 4.12.  HSR Act......................................................53
SECTION 4.13.  Indemnification; Officers' and Directors' Insurance..........53
SECTION 4.14.  Efforts......................................................54
SECTION 4.15.  Rule 145.....................................................54
SECTION 4.16.  No Solicitation..............................................55


                                      -ii-


SECTION 4.17.  Tax Reorganization...........................................57
SECTION 4.18.  Convertible Debentures.......................................58
SECTION 4.19.  Warrants.....................................................58

                    ARTICLE V. CONDITIONS PRECEDENT TO MERGER

SECTION 5.1.  Conditions Precedent to Obligations of Parent, Sub and
                     the Company............................................58
       (a) Approval of Stockholders.........................................58
       (b) HSR Act..........................................................58
       (c) No Restraints....................................................58
       (d) Statutes.........................................................59
       (e) Nasdaq National Market Quotation.................................59
       (f) Effectiveness of Registration Statement..........................59
       (g) Market Events....................................................59
       (h) Accounting Treatment.............................................59
SECTION 5.2.  Conditions Precedent to Obligations of Parent and Sub.........59
       (a) Accuracy of Representations and Warranties.......................59
       (b) Performance by Company...........................................59
       (c) Affiliate Agreements.............................................60
       (d) Tax Opinion......................................................60
       (e) Accountants' Letters.............................................60
       (f) Consents.........................................................60
       (g) No Governmental Litigation.......................................60
SECTION 5.3.  Conditions Precedent to Obligation of the Company.............61
       (a) Accuracy of Representations and Warranties.......................61
       (b) Performance by Parent and Sub....................................61
       (c) Tax Opinion......................................................61
       (d) Registration Rights Agreement....................................61
       (e) Undertakings.....................................................61

                     ARTICLE VI. TERMINATION AND ABANDONMENT

SECTION 6.1.  Termination...................................................62
SECTION 6.2.  Effect of Termination.........................................64

                           ARTICLE VII. MISCELLANEOUS

SECTION 7.1.  Fees and Expenses.............................................64
SECTION 7.2.  Representations, Warranties and Agreements....................65
SECTION 7.3.  Extension; Waiver.............................................65
SECTION 7.4.  Public Announcements..........................................66
SECTION 7.5.  Notices.......................................................66
SECTION 7.6.  Entire Agreement..............................................67
SECTION 7.7.  Binding Effect; Benefit; Assignment...........................67
SECTION 7.8.  Amendment and Modification....................................67
SECTION 7.9.  Further Actions...............................................68
SECTION 7.10.  Headings.....................................................68
SECTION 7.11.  Counterparts.................................................68
SECTION 7.12.  Applicable Law...............................................68
SECTION 7.13.  Severability.................................................68


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SECTION 7.14.  Enforcement of Agreement.....................................68
SECTION 7.15.  "Person" Defined.............................................68
SECTION 7.16.  Submission to Jurisdiction...................................68
SECTION 7.17.  Subsidiaries.................................................69

EXHIBITS

Exhibit A   Form of Affiliate Agreement
Exhibit B   Form of Registration Rights Agreement
Exhibit C   Form of Undertaking


                                      -iv-


                          AGREEMENT AND PLAN OF MERGER

            AGREEMENT AND PLAN OF MERGER, dated as of February 28, 1999 (the
"Agreement"), by and among GILEAD SCIENCES, INC., a Delaware corporation
("Parent"), GAZELLE ACQUISITION SUB, INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and NEXSTAR PHARMACEUTICALS, INC., a
Delaware corporation (the "Company").

            WHEREAS, the respective Boards of Directors of the Company and
Parent have each determined that it is in the best interests of their respective
companies and stockholders that Parent acquire the business of the Company
pursuant to the terms and conditions set forth in this Agreement;

            WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have approved the
merger of Sub into the Company (the "Merger"), pursuant and subject to the terms
and conditions of this Agreement, whereby each issued and outstanding share of
common stock, par value $.01 per share, of the Company ("Company Common Stock")
will be converted into the right to receive shares of common stock, par value
$.001 per share, of Parent ("Parent Shares") in accordance with Section 2.1 of
this Agreement;

            WHEREAS, the respective Boards of Directors of the Company and
Parent have each determined that the Merger is fair to, and in the best
interests of, their respective companies and stockholders and have approved the
Merger, and the Board of Directors of the Company has recommended the approval
and adoption of this Agreement by the Company's stockholders;

            WHEREAS, in order to induce Parent to enter into this Agreement and
to consummate the Merger, the Company and Parent are entering into a Stock
Option Agreement of even date herewith (the "Share Option Agreement") pursuant
to which the Company is granting to Parent an option to purchase certain shares
of Company Common Stock from the Company under the circumstances specified in
the Share Option Agreement;

            WHEREAS, for United States federal income tax purposes, it is
intended that the Merger shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code"); and

            WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests under United States generally
accepted accounting principles ("US GAAP");


            NOW, THEREFORE, in consideration of the promises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:

                                   ARTICLE I.

                                   THE MERGER

            SECTION 1.1. THE MERGER. Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 2.4 hereof), a
certificate of merger (the "Certificate of Merger") effecting the merger of Sub
with and into the Company, shall be duly executed by the Company in accordance
with the Delaware General Corporation Law (the "DGCL") and shall be filed on the
Closing Date (as defined in Section 2.4 hereof). The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware or at such time thereafter as is provided in the
Certificate of Merger in accordance with the provisions and requirements of the
DGCL. The date and time when the Merger shall become effective is hereinafter
referred to as the "Effective Time."

            SECTION 1.2. EFFECTIVE TIME OF MERGER. At the Effective Time, Sub
shall be merged with and into the Company and the separate corporate existence
of Sub shall cease, and the Company shall continue as the surviving corporation
under the laws of the State of Delaware (the "Surviving Corporation").

            SECTION 1.3. EFFECTS OF THE MERGER. From and after the Effective
Time, the Merger shall have the effects set forth in Section 259(a) of the DGCL.

            SECTION 1.4. CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time, and thereafter may be amended in accordance with its terms and as provided
by law and this Agreement.

            SECTION 1.5. BY-LAWS OF THE SURVIVING CORPORATION. The By-Laws of
Sub, as in effect immediately prior to the Effective Time, shall be the By-Laws
of the Surviving Corporation.

            SECTION 1.6. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
The directors of Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
qualified.


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                                   ARTICLE II.

                              CONVERSION OF SHARES

            SECTION 2.1. CONVERSION OF SHARES. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any holder of capital stock of Sub:

            (a) CAPITAL STOCK OF SUB. Each share of capital stock of Sub then
      issued and outstanding shall become one fully paid and nonassessable share
      of common stock, $0.01 par value per share, of the Surviving Corporation.

            (b) CANCELLATION OF TREASURY STOCK. All shares of Company Common
      Stock that are owned by the Company as treasury stock shall be canceled
      and retired and shall cease to exist and no Parent Shares or other
      consideration shall be delivered in exchange therefor.

            (c) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Each issued and 
     outstanding share of Company Common Stock (other than shares to be 
     canceled in accordance with Section 2.1(b)) shall be converted into the 
     right to receive that number of Parent Shares equal to the Exchange 
     Ratio (the Parent Shares issuable upon exchange of shares of Company 
     Common Stock are referred to as the "Merger Consideration"). For 
     purposes of this Agreement: (i) "Exchange Ratio" means a fraction equal 
     to 0.4250, PROVIDED, HOWEVER, that (A) if the Parent Share Value is less 
     than $36.47, then the Exchange Ratio shall be equal to the lesser of 
     0.5000 or a fraction having a numerator equal to $15.50 and having a 
     denominator equal to the Parent Share Value, and (B) if the Parent Share 
     Value is greater than $45.88, then the Exchange Ratio shall be equal to 
     the greater of 0.3786 or a fraction having a numerator equal to $19.50 
     and having a denominator equal to the Parent Share Value; and (ii) 
     "Parent Share Value" means the average of the closing prices of the 
     Parent Shares as reported on the Nasdaq National Market for the 20 
     consecutive trading days ending on the third trading day preceding the 
     date on which the stockholders of the Company vote on the Merger at the 
     Special Meeting (as defined in Section 4.7 hereof). If between the date 
     of this Agreement and the Effective Time the outstanding Parent Shares 
     or the outstanding Company Common Stock shall be changed into a 
     different number of shares by reason of any stock dividend, subdivision, 
     reclassification, split-up, combination or the like, the Exchange Ratio 
     shall be appropriately adjusted.

            (d) RIGHTS OF FORMER HOLDERS OF COMPANY COMMON STOCK. All shares of
      Company Common Stock converted into the right to receive Merger
      Consideration pursuant to this Section 2.1 shall no longer be outstanding,
      and each holder of a 


                                      -3-


      certificate representing any such shares shall cease to have any rights
      with respect thereto, except the right to receive Merger Consideration to
      be issued in consideration therefor upon the surrender of such certificate
      in accordance with Section 2.2, without interest.

            SECTION 2.2. SURRENDER OF CERTIFICATES. (a) Concurrently with or
prior to the Effective Time, the parties hereto shall designate ChaseMellon
Shareholder Services to act as agent (the "Exchange Agent") for purposes of
exchanging certificates representing shares of Company Common Stock as provided
in Section 2.1. As soon as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail or make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive Merger Consideration pursuant to Section 2.1
a notice and letter of transmittal advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the Exchange Agent such
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock in exchange for Merger
Consideration deliverable in respect thereof pursuant to this Article II.

            (b) Each holder of shares of Company Common Stock that has been
converted into a right to receive Merger Consideration, upon surrender to the
Exchange Agent of a certificate or certificates representing such Company Common
Stock, together with a properly completed letter of transmittal covering such
shares of Company Common Stock and such other documents as may reasonably be
required by the Exchange Agent or Parent, will be entitled to receive Merger
Consideration in respect of each share of Company Common Stock surrendered.
Until so surrendered, each share of Company Common Stock shall, after the
Effective Time, represent for all purposes, only the right to receive Merger
Consideration. Such letter of transmittal shall be in customary form and contain
such provisions as Parent may reasonably specify (including a provision
confirming that delivery of the certificates which immediately prior to the
Effective Time represented shares of Company Common Stock shall be effected, and
risk of loss and title to such certificates shall pass, only upon delivery of
such certificates to the Exchange Agent).

            (c) If any Merger Consideration is to be issued to a Person (as
defined in Section 7.15 hereof) other than the registered holder of the Company
Common Stock represented by the certificate or certificates surrendered with
respect thereto, it shall be a condition to such issuance that the certificate
or certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such delivery shall pay
to the Exchange Agent any transfer or other taxes required as a result of such
issuance to 


                                      -4-


a Person other than the registered holder of such Company Common Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable. If any certificate which immediately prior to the Effective
Time represented shares of Company Common Stock shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Shares, require the owner of
such lost, stolen or destroyed certificate to provide an appropriate affidavit
and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent, Parent or the
Surviving Corporation with respect to such certificate.

            (d) As of the Effective Time, there shall be no further registration
of transfers of shares of Company Common Stock that were outstanding prior to
the Merger. After the Effective Time, certificates representing shares of
Company Common Stock presented to the Surviving Corporation for transfer shall
be canceled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article II.

            (e) At the close of business on the Effective Time, the stock ledger
of the Company with respect to the issuance of Company Common Stock shall be
closed. Six months after the Effective Time, any Merger Consideration made
available to the Exchange Agent and any portion of the Common Stock Trust (as
defined in Section 2.3) that remains unclaimed by the holders of shares of
Company Common Stock shall be returned to Parent upon demand. Any such holder
who has not delivered his certificates which immediately prior to the Effective
Time represented shares of Company Common Stock to the Exchange Agent in
accordance with Section 2.2 prior to that time shall thereafter look only to
Parent and the Surviving Corporation for issuance of Parent Shares in respect of
shares of Company Common Stock. Notwithstanding the foregoing, neither Parent
nor the Surviving Corporation shall be liable to any holder or former holder of
shares of Company Common Stock for any securities delivered or any amount paid
to a public official pursuant to applicable abandoned property laws. Any Parent
Shares remaining unclaimed by holders of shares of Company Common Stock three
years after the Effective Time (or such earlier date immediately prior to such
time as such securities would otherwise escheat to or become property of any
governmental entity or as is otherwise provided by applicable law) shall, to the
extent permitted by applicable law, be free and clear of any claims or interest
of any Person previously entitled thereto.

            (f) No dividends, interest or other distributions with respect to
securities of Parent or the Surviving Corporation issuable with respect to
Merger Consideration shall be paid to the holder of any unsurrendered
certificates which formerly 


                                      -5-


represented Company Common Stock until such certificates are surrendered as
provided in this Section. Upon such surrender, there shall be paid, without
interest, to the Person in whose name the Parent Shares representing such
securities are registered, all dividends and other distributions payable in
respect of such securities on a date subsequent to, and in respect of a record
date after, the Effective Time, subject to the effect of applicable abandoned
property laws.

            SECTION 2.3. FRACTIONAL SHARES. No fraction of a Parent Share will
be issued, and such fractional interest shall not entitle the owner thereof to
vote or to any rights as a security holder of Parent. In lieu of any such
fractional interest, each holder of certificates which immediately prior to the
Effective Time represented shares of Company Common Stock otherwise entitled to
a fraction of a Parent Share (after aggregating all fractional Parent Shares
issuable to such holder) will be entitled to receive at the time such holder
receives Parent Shares pursuant to Section 2.2(b) hereof and in accordance with
the provisions of this Section 2.3 from the Exchange Agent a cash payment
representing such holder's proportionate interest in the net proceeds
(determined after deducting all commissions, transfer taxes and other
transaction costs) from the sale by the Exchange Agent on behalf of all such
holders of the aggregate of the fractions of Parent Shares which would otherwise
be issued (the "Excess Parent Shares"). The sale of the Excess Parent Shares by
the Exchange Agent shall be executed on the Nasdaq National Market through one
or more market makers in the Parent Shares and shall be executed in round lots
to the extent practicable. Until the net proceeds of such sale or sales have
been distributed to the former holders of shares of the Company Common Stock,
the Exchange Agent will, subject to Section 2.2(e), hold such proceeds in trust
for the former holders of shares of Company Common Stock (the "Common Stock
Trust"). Parent shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation, of the
Exchange Agent incurred in connection with such sale of the Excess Parent
Shares. The Exchange Agent shall determine the portion of the Common Stock Trust
to which each former holder of shares of Company Common Stock shall be entitled,
if any, by multiplying the amount of the aggregate net proceeds comprising the
Common Stock Trust by a fraction the numerator of which is the amount of the
fractional Parent Share interest to which such former holder of shares of
Company Common Stock is entitled and the denominator of which is the aggregate
amount of fractional Parent Shares to which all former holders of shares of
Company Common Stock are entitled. As soon as practicable after the
determination of the amount of cash, if any, to be paid to former holders of
shares of Company Common Stock in lieu of any fractional Parent Shares, the
Exchange Agent shall make available such amounts to such former holders of
shares of the Company Common Stock without interest.


                                      -6-


            SECTION 2.4. CLOSING. The closing of the Merger (the "Closing")
shall take place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue,
New York, New York 10019, as soon as practicable after the last of the
conditions set forth in Article V hereof is fulfilled or waived (subject to
applicable law) but in no event later than the fifth business day thereafter, or
at such other time and place and on such other date as Parent and the Company
shall mutually agree (the "Closing Date").

            SECTION 2.5. STOCK OPTION PLANS. (a) Prior to the Effective Time,
but subject to the consummation of the Merger, the Board of Directors of the
Company and the committee appointed by the Board to administer the Company's
stock option plans shall use its best efforts to take all action reasonably
necessary or appropriate to provide that each option outstanding under the
Company's 1988 Stock Option Plan, 1993 Incentive Stock Plan, as amended, and
1995 Director Option Plan, as amended (collectively, the "Stock Option Plans"),
shall be converted into and become rights with respect to Parent Shares, and
Parent shall assume each such option in accordance with the terms (as in effect
as of the date of this Agreement) of the Stock Option Plan under which it was
issued and the stock option agreement by which it is evidenced. From and after
the Effective Time, (i) each option assumed by Parent in accordance with this
Section 2.5(a) may be exercised solely for Parent Shares, (ii) the number of
Parent Shares subject to each such option shall be equal to the number of shares
of Company Common Stock subject to such option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounding down to the nearest
whole share (with cash, less the applicable exercise price, being payable for
any fraction of a share), (iii) the per share exercise price under each such
option shall be adjusted by dividing the per share exercise price under such
option by the Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such option shall continue in full force and
effect and the term, exercisability, vesting schedule and other provisions of
such option shall otherwise remain unchanged; PROVIDED, HOWEVER, that each
option assumed by Parent in accordance with this Section 2.5(a) shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock dividend, subdivision, reclassification, split-up, combination
or the like subsequent to the Effective Time. Parent shall file with the
Commission, no later than 5 business days after the Effective Time, a
registration statement on Form S-8 relating to Parent Shares issuable with
respect to the options assumed by Parent in accordance with this Section 2.5(a).

            (b) The Company shall take all action reasonably necessary (under
the Stock Option Plans and otherwise) to effectuate the provisions of this
Section 2.5 and to ensure that, from and after the Effective Time, holders of
options have no 


                                      -7-


rights with respect thereto other than those specifically provided in this
Section 2.5.

            SECTION 2.6. EMPLOYEE STOCK PURCHASE PLAN. Prior to the Effective
Time, but subject to the consummation of the Merger, the Board of Directors of
the Company shall take all action reasonably necessary or appropriate to use the
accumulated payroll deductions in accounts of participants in the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan") to purchase shares of
Company Common Stock and immediately thereafter terminate the Stock Purchase
Plan.

                                  ARTICLE III.

                         REPRESENTATIONS AND WARRANTIES

            SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to Parent and Sub as follows:

            (a) DUE ORGANIZATION, GOOD STANDING AND POWER. Each of the Company
      and its Subsidiaries (as that term is defined in Section 7.17 hereof) is a
      corporation duly organized, validly existing and in good standing under
      the laws of the jurisdiction of its incorporation and each such
      corporation has all requisite power and authority to own, lease and
      operate its properties and to carry on its business as now being
      conducted. Each of the Company and its Subsidiaries is duly qualified or
      licensed to do business and is in good standing in each jurisdiction in
      which the property owned, leased or operated by it or the nature of the
      business conducted by it makes such qualification necessary, except in
      such jurisdictions where the failure to be so qualified or licensed and in
      good standing would not have a material adverse effect on the business,
      properties, assets, liabilities, condition (financial or otherwise),
      operations or results of operations (the "Condition") of the Company and
      its Subsidiaries taken as a whole.

            (b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company has full
      corporate power and authority to execute and deliver this Agreement and
      the Share Option Agreement, to perform its obligations hereunder and
      thereunder and, subject, in the case of this Agreement, to obtaining any
      necessary stockholder approval of the Merger, to consummate the
      transactions contemplated hereby and thereby. The execution, delivery and
      performance of this Agreement and the Share Option Agreement by the
      Company, and the consummation by it of the transactions contemplated
      hereby and thereby, have been duly authorized by all necessary corporate
      action on the part of the Company (including the authorization and
      approval of the Board of Directors of the 


                                      -8-


      Company), subject (in the case of this Agreement) to the approval of the
      Merger by the Company's stockholders in accordance with the DGCL. The
      Board of Directors of the Company (at a meeting duly called and held) has
      (a) determined that the Merger is advisable and fair and in the best
      interests of the Company and its stockholders, and (b) recommended the
      approval and adoption of this Agreement and approval of the Merger by the
      holders of Company Common Stock and directed that this Agreement and the
      Merger be submitted for consideration by the Company's stockholders at the
      Special Meeting. The Board of Directors of the Company has taken all
      action necessary to render inapplicable, as it relates to Parent, the
      provisions of Section 203 of the DGCL. No other corporate action on the
      part of the Company is necessary to authorize the execution, delivery and
      performance of this Agreement and the Share Option Agreement by the
      Company and the consummation of the transactions contemplated hereby and
      thereby (other than, in the case of this Agreement, the approval of the
      Merger by the holders of at least a majority of the outstanding Company
      Common Stock). To the Company's knowledge, no other state takeover statute
      or similar statute or regulation applies or purports to apply to the
      Merger, this Agreement, the Share Option Agreement or the transactions
      contemplated hereby and thereby. This Agreement and the Share Option
      Agreement have been duly executed and delivered by the Company and each is
      a valid and binding obligation of the Company enforceable against the
      Company in accordance with its terms, except to the extent that its
      enforceability may be subject to applicable bankruptcy, insolvency,
      reorganization, moratorium and similar laws affecting the enforcement of
      creditors' rights generally and by general equitable principles.

            (c) CAPITALIZATION. (i) The authorized capital stock of the Company
      consists of 50,000,000 shares of Company Common Stock, $0.01 par value,
      and 5,000,000 shares of preferred stock, $1.00 par value (the "Preferred
      Stock"). As of January 31, 1999, (1) 28,670,645 shares of Company Common
      Stock were issued and outstanding, (2) 3,169,785 shares of Company Common
      Stock were reserved for issuance upon the exercise of outstanding options
      granted under the Stock Option Plans, (3) 256,286 shares of Company Common
      Stock were reserved for issuance upon exercise of outstanding warrants,
      (4) 4,740,740 shares of Company Common Stock were reserved for issuance
      upon the conversion of the Company's 6 1/4% Convertible Subordinated
      Debentures Due 2004 (the "Convertible Debentures"), (5) no shares of
      Preferred Stock were issued and outstanding, and (6) no shares of Company
      Common Stock were held in the Company's treasury. All issued and
      outstanding shares of Company Common Stock have been duly authorized and
      validly issued in compliance with all applicable securities laws and are
      fully paid and 


                                      -9-


      nonassessable, and none of such shares are subject to, nor were they
      issued in violation of, any preemptive rights. None of the outstanding
      shares of Company Common Stock is subject to any right of first refusal or
      similar right of the Company or any of its Subsidiaries, and, except as
      set forth in Schedule 3.1(c)(i) delivered to Parent by the Company prior
      to the execution of this Agreement, there is no contract or arrangement
      relating to the voting or registration of, or restricting any Person from
      purchasing, selling, pledging or otherwise disposing of (or granting any
      option or similar right with respect to), any shares of Company Common
      Stock. Except as set forth in this Section 3.1(c) or on Schedule 3.1(c)(i)
      delivered to Parent by the Company prior to the execution of this
      Agreement and except for purchases pursuant to the Company's Stock
      Purchase Plan, and except for changes since January 31, 1999 resulting
      from the exercise of employee or director stock options or warrants, or
      conversion of Convertible Debentures outstanding on such date, (i) there
      are no shares of capital stock of the Company authorized, issued or
      outstanding and (ii) there are not as of the date hereof, and at the
      Effective Time there will not be, any outstanding options, warrants,
      rights, subscriptions, claims of any character, agreements, obligations,
      convertible or exchangeable securities or other commitments, contingent or
      otherwise, relating to Company Common Stock or any other shares of capital
      stock of the Company, pursuant to which the Company is or may become
      obligated to issue, sell, grant or purchase, redeem or otherwise acquire
      shares of Company Common Stock, any other shares of its capital stock or
      any securities convertible into, exchangeable for, or evidencing the right
      to subscribe for, any shares of the capital stock of the Company. Neither
      the Company nor any of its predecessors has ever adopted any stockholder
      rights plan (or similar plan commonly referred to as a "poison pill").

                  (ii) Schedule 3.1(c)(ii) delivered to Parent by the Company
      prior to the execution of this Agreement sets forth the following
      information with respect to each employee stock option and director stock
      option of the Company outstanding as of February 26, 1999: (a) the
      particular Stock Option Plan (if any) pursuant to which such option was
      granted; (b) the name of the optionee; (c) the number of shares of Company
      Common Stock subject to such option; (d) the exercise price of such
      option; (e) the date on which such option was granted; (f) the extent to
      which such option is vested and exercisable as of February 26, 1999; and
      (g) the date on which such option expires. The Company has made available
      to Parent accurate and complete copies of all stock option plans pursuant
      to which the Company or any of its predecessor entities has ever granted
      stock options, and the forms of all stock option agreements evidencing
      such options.


                                      -10-


                  (iii) Schedule 3.1(c)(iii) delivered to Parent by the Company
      prior to the execution of this Agreement sets forth the following
      information with respect to each warrant to purchase shares of Company
      Common Stock of the Company outstanding as of the date of this Agreement:
      (a) the name of the holder of such warrant; (b) the number of shares of
      Company Common Stock subject to such warrant; (c) the exercise price of
      such warrant; (d) the date on which such warrant was granted; and (e) the
      date on which such warrant expires. The Company has made available to
      Parent accurate and complete copies of all warrants outstanding as of the
      date of this Agreement, and all agreements relating thereto.

                  (iv) Schedule 3.1(c)(iv) delivered to Parent by the Company
      prior to the execution of this Agreement lists all of the Company's
      Subsidiaries (except for corporate Subsidiaries with no material assets or
      liabilities, contingent or otherwise). Except as set forth on Schedule
      3.1(c)(iv), all issued and outstanding shares of capital stock of the
      Company's Subsidiaries (other than director's qualifying shares) have been
      validly issued, are fully paid and nonassessable, are not subject to, nor
      were they issued in violation of, any preemptive rights, and are owned, of
      record and beneficially, directly or indirectly, by the Company, free and
      clear of all liens, encumbrances, options or claims whatsoever. No shares
      of capital stock of any of the Company's Subsidiaries are reserved for
      issuance and there are no outstanding or authorized options, warrants,
      rights, subscriptions, claims of any character, agreements, obligations,
      convertible or exchangeable securities, or other commitments, contingent
      or otherwise, relating to the capital stock of any of the Company's
      Subsidiaries, pursuant to which such Subsidiary, the Company or any other
      affiliate of such Subsidiary is or may become obligated to issue, sell,
      grant or purchase or otherwise acquire any shares of capital stock of such
      Subsidiary or any securities convertible into, exchangeable for, or
      evidencing the right to subscribe for, any shares of capital stock of such
      Subsidiary. Except as set forth in Schedule 3.1(c)(iv) or as provided by
      applicable law, there are no restrictions of any kind which prevent the
      payment of dividends by any of the Company's Subsidiaries. Except (A) for
      the Company's Subsidiaries listed on Schedule 3(c)(iv), (B) as otherwise
      listed on Schedule 3.1(c)(iv), (C) for ordinary course portfolio
      investments in marketable securities and cash equivalents and (D) for
      corporate Subsidiaries of the Company with no material assets or
      liabilities, contingent or otherwise, the Company does not own, directly
      or indirectly, any capital stock or other equity interest in any Person or
      have any direct or indirect equity or ownership interest in any Person and
      neither the Company nor any of its Subsidiaries is subject to any
      obligation or requirement to make any material loan, capital contribution,


                                      -11-


      investment or similar expenditure to or in any Person, except for loans,
      capital contributions, investments or similar expenditures by the Company
      or any of its Subsidiaries to any existing wholly owned Subsidiary of the
      Company or to the Company.

            (d) CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming, in the case of
      this Agreement, that (i) the filings required under the Hart-Scott-Rodino
      Antitrust Improvements Act of 1976, as amended (the "HSR Act"), are made
      and the waiting period thereunder has been terminated or has expired; (ii)
      the filing with the Securities and Exchange Commission (the "Commission")
      of a definitive joint proxy statement (the "Joint Proxy Statement")
      relating to the meetings of the Company's stockholders and Parent's
      stockholders to be held in connection with the Merger is made; (iii) the
      Registration Statement of Parent to be filed with the Commission on Form
      S-4 in connection with the issuance of Parent Shares (the "Registration
      Statement") is declared effective; (iv) the filing of the Certificate of
      Merger and other appropriate merger documents, if any, as required by the
      laws of the State of Delaware, is made; and (v) approval of the Merger by
      a majority of the outstanding Company Common Stock is obtained, the
      execution and delivery of this Agreement and the Share Option Agreement by
      the Company and the consummation by the Company of the transactions
      contemplated hereby and thereby will not: (1) violate any provision of the
      Certificate of Incorporation, as amended, or By-Laws or other charter or
      organizational documents of the Company or any of its Subsidiaries, or any
      resolution adopted by the stockholders of the Company or the Board of
      Directors of the Company or any of its Subsidiaries or any committee
      thereof; (2) to the knowledge of the Company, violate any statute,
      ordinance, rule, regulation, order or decree of any court or of any
      governmental or regulatory body, agency or authority applicable to the
      Company or any of its Subsidiaries or by which any of their respective
      properties or assets may be bound, including without limitation, any
      consent decrees, court orders or judgments; (3) require any filing with,
      or permit, consent or approval of, or the giving of any notice to, any
      governmental or regulatory body, agency or authority, domestic or foreign
      (a "Governmental Entity"), including without limitation, any Governmental
      Entity regulating the pharmaceutical business of the Company; or (4)
      except as set forth on Schedule 3.1(d)(4) delivered to Parent by the
      Company prior to the execution of this Agreement, result in a violation or
      breach of, conflict with, constitute (with or without due notice or lapse
      of time or both) a default (or give rise to any right of termination,
      cancellation, payment or acceleration) under, or result in the creation of
      any lien, security interest, charge or encumbrance upon any of the
      properties or assets of the Company or any of its Subsidiaries under, 


                                      -12-


      any of the terms, conditions or provisions of any note, bond, mortgage,
      indenture, license, franchise, permit, agreement, lease or other
      instrument or obligation to which the Company or any of its Subsidiaries
      is a party, or by which it or any of their respective properties or assets
      may be bound or under which the Company or any Subsidiary of the Company
      has or may acquire any rights, excluding from the foregoing clauses (2),
      (3) and (4) filings, permits, consents, approvals and notices the absence
      of which, and violations, breaches, conflicts, defaults and liens which,
      in the aggregate, would not have a material adverse effect on the
      Condition of the Company and its Subsidiaries taken as a whole.

            (e) COMPANY REPORTS AND FINANCIAL STATEMENTS; ACCOUNTING Records.
      (i) Since January 1, 1996, the Company has filed all forms, reports and
      documents with the Commission required to be filed by it pursuant to the
      U.S. federal securities laws and the rules and regulations promulgated
      thereunder, and, except for preliminary filings, all such forms, reports
      and documents filed with the Commission have complied in all material
      respects with all applicable requirements of the U.S. federal securities
      laws and the Commission rules and regulations promulgated thereunder. The
      Company has heretofore made available to Parent true and complete copies
      of all forms, reports, registration statements and other filings filed by
      the Company with the Commission since January 1, 1996 (such forms,
      reports, registration statements and other filings, together with any
      amendments thereto, but excluding any preliminary filings, are sometimes
      collectively referred to as the "Company Commission Filings"). As of their
      respective dates, the Company Commission Filings did not contain any
      untrue statement of a material fact or omit to state a material fact
      required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not misleading.

                  (ii) The audited consolidated financial statements and the
      unaudited interim financial statements of the Company included in the
      Company Commission Filings comply as to form in all material respects with
      applicable accounting requirements and with the rules and regulations of
      the Commission with respect thereto, were prepared in accordance with US
      GAAP (as in effect from time to time) applied on a consistent basis
      (except as may be indicated therein or in the notes or schedules thereto)
      and fairly present in all material respects the consolidated financial
      position of the Company and its consolidated Subsidiaries as of the dates
      thereof and the results of their operations and cash flows and changes in
      stockholders' equity, as the case may be, for the periods then ended
      subject, in the case of the unaudited interim financial statements, to
      normal and 


                                      -13-


      recurring year-end audit adjustments, any other adjustments described
      therein and the fact that certain information and notes have been
      condensed or omitted in accordance with the Securities Exchange Act of
      1934 (the "Exchange Act"), and the rules promulgated thereunder.

                  (iii) The unaudited consolidated financial statements of the
      Company as of and for the year ended December 31, 1998 delivered to Parent
      by the Company prior to the execution of this Agreement comply as to form
      in all material respects with applicable accounting requirements, were
      prepared in accordance with US GAAP (applied on a basis consistent with
      the basis on which the financial statements referred to in Section
      3.1(e)(ii) were prepared) and fairly present in all material respects the
      consolidated financial position of the Company and its consolidated
      Subsidiaries as of December 31, 1998, and the results of their operations
      for the year ended December 31, 1998, except that such financial
      statements do not include a consolidated statement of cash flows or
      stockholders' equity or notes.

                  (iv) The Company and its Subsidiaries keep proper accounting
      records in which all material assets and liabilities, and all material
      transactions, of the Company and its Subsidiaries are recorded in
      conformity with applicable accounting principles. Except as described on
      Schedule 3.1(e)(iv) delivered by the Company to Parent prior to the
      execution of this Agreement, no part of the Company's or any Subsidiary's
      accounting system or records, or access thereto, is under the control of a
      Person who is not an employee of the Company or such Subsidiary.

            (f) ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
      3.1(f) delivered to Parent by the Company prior to the execution of this
      Agreement, since September 30, 1998 (i) there has not been any material
      adverse change in the Condition of the Company and its Subsidiaries taken
      as a whole; (ii) the businesses of the Company and its Subsidiaries have
      been conducted in all material respects only in the ordinary course; (iii)
      the Company and its Subsidiaries have not, other than in the ordinary
      course of business, increased the compensation of any officer or granted
      any general salary or benefits increase to their employees; and (iv)
      neither the Company nor any of its Subsidiaries has taken, approved,
      authorized or agreed or committed to take any action referred to in
      Section 4.1 hereof except as expressly permitted or required thereby.

            (g) REGULATORY COMPLIANCE. (i) As to each product subject to the
      jurisdiction of the U.S. Food and Drug Administration ("FDA") under the
      Federal Food, Drug and Cosmetic Act and the regulations thereunder
      ("FDCA") (each such product, a "Pharmaceutical Product") that is


                                      -14-


      manufactured, tested, distributed and/or marketed by the Company or any of
      its Subsidiaries, such Pharmaceutical Product is being manufactured,
      tested, distributed and/or marketed in substantial compliance with all
      applicable requirements under FDCA and similar state and foreign laws and
      regulations, including but not limited to those relating to
      investigational use, premarket clearance, good manufacturing practices,
      labeling, advertising, record keeping, filing of reports and security.

                  (ii) Schedule 3.1(g)(ii) delivered by the Company to Parent
      prior to the execution of this Agreement sets forth a list of each
      Pharmaceutical Product manufactured, marketed, sold or licensed by the
      Company or any Subsidiary as of the date hereof.

                  (iii) No Pharmaceutical Products have been recalled,
      withdrawn, suspended or discontinued by the Company or any of its
      Subsidiaries in the United States and outside the United States (whether
      voluntarily or otherwise) during the period commencing January 1, 1996 and
      ending on the date hereof. No proceedings in the United States and outside
      of the United States of which the Company has knowledge (whether completed
      or pending) seeking the recall, withdrawal, suspension or seizure of any
      Pharmaceutical Product are pending against the Company or any of its
      Subsidiaries, nor have any such proceedings been pending at any time
      during the period commencing January 1, 1996 and ending on the date
      hereof.

                  (iv) Schedule 3.1(g)(iv) delivered by the Company to Parent
      prior to the execution of this Agreement sets forth a list of each of the
      Company's and its Subsidiaries' pending and approved New Drug Applications
      ("NDAs"), Investigational New Drug applications ("INDs") and similar state
      or foreign regulatory filings, as of the date hereof. True and complete
      copies of such NDAs and INDs, including all supplements, amendments, and
      annual reports, have heretofore been made available to Parent. Copies of
      correspondence from the FDA, and similar state or foreign regulatory
      authorities, and the Company's and its Subsidiaries' responses have
      heretofore been made available to Parent. As to each drug for which such
      an application has been approved, the Company and its Subsidiaries are in
      substantial compliance with 21 U.S.C. ss.ss. 355 or 21 C.F.R. Parts 312,
      314 or 430 ET SEQ., respectively, and similar state and foreign laws and
      regulations and all terms and conditions of such applications. As to each
      such drug, the Company and any relevant Subsidiary, and the officers,
      employees or agents of the Company or such Subsidiary have included in the
      application for such drug, where required, the certification described in
      21 U.S.C. ss. 335a(k)(1) or any similar state or foreign laW or regulation
      and the list 


                                      -15-


      described in 21 U.S.C. ss. 335a(k)(2) or any similar state or foreign law
      or regulation, and such certification and such list was in each case true
      and accurate when made and remained true and accurate thereafter. In
      addition, the Company and its Subsidiaries are in substantial compliance
      with all applicable registration and listing requirements set forth in 21
      U.S.C. ss. 360 and 21. C.F.R. Part 207 and all similar state and foreign
      laws and regulations.

                  (v) Each article of drug manufactured and/or distributed by
      the Company or any of its Subsidiaries is not adulterated within the
      meaning of 21 U.S.C. ss. 351 (or similar state or foreign laws or
      regulations) or misbranded within the meaning of 21 U.S.C. ss. 352 (or
      similar state or foreign laws or regulations), and is not a product that
      is in violation of 21 U.S.C. ss. 355 (or similar state or foreign laws or
      regulations).

                  (vi) Schedule 3.1(g)(vi) delivered by the Company to Parent
      prior to the execution of this Agreement sets forth a list of (A) Form
      483s, (B) Notices of Adverse Findings and (C) warning letters or other
      correspondence from the FDA or state or foreign regulatory authorities in
      which the FDA or any such authority asserted that the operations of the
      Company or any Subsidiary may not be in compliance with applicable laws,
      regulations, orders, judgments or decrees, in each case received by the
      Company or such Subsidiary from the FDA or any such authority since
      January 1, 1996 to the date hereof and the response of the Company or such
      Subsidiary to the FDA or any such authority to such notices from the FDA
      or any such authority. True and complete copies of such Form 483s, Notices
      of Adverse Findings, letters and other correspondence and the Company's or
      Subsidiary's responses have heretofore been made available to Parent.
      Except as set forth in Schedule 3.1(g)(vi), all manufacturing operations
      of the Company and its Subsidiaries have been and are being conducted in
      substantial compliance with the good manufacturing practice regulations
      set forth in 21 C.F.R. Parts 210 and 211 and similar state or foreign
      regulations.

                  (vii) Schedule 3.1(g)(vii) delivered by the Company to Parent
      prior to the execution of this Agreement sets forth Adverse Reaction
      Reports filed by the Company and its Subsidiaries with the FDA or state or
      foreign regulatory authorities during the period commencing January 1,
      1996 and ending on the date hereof.

                  (viii) Neither the Company, nor any Subsidiary, nor any
      officer, employee or agent of either the Company or any Subsidiary has
      made an untrue statement of a material fact or fraudulent statement to the
      FDA or any state or foreign regulatory authority, failed to disclose a
      material 


                                      -16-


      fact required to be disclosed to the FDA or any state or foreign
      regulatory authority, or committed an act, made a statement, or failed to
      make a statement that, at the time such disclosure was made, could
      reasonably be expected to provide a basis for the FDA or any state or
      foreign regulatory authority to invoke its policy respecting "Fraud,
      Untrue Statements of Material Facts, Bribery, and Illegal Gratuities", set
      forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy.
      Neither the Company nor any Subsidiary, nor any officer, employee or agent
      of either the Company or any Subsidiary, has been convicted of any crime
      or engaged in any conduct for which debarment is mandated by 21 U.S.C. ss.
      335a(a) or any similar state or foreign law or regulation or authorized by
      21 U.S.C. ss. 335a(b) or any similar state or foreign law or regulation.
      Schedule 3.1(g)(viii) delivered by the Company to Parent prior to the
      execution of this Agreement is an accurate representation of certain
      efficacy and safety data from the AmBisome and Abelcet comparative
      clinical trial conducted by Fujisawa Healthcare, Inc. (Study No. 034)

                  (ix) Except as disclosed in the Company Commission Filings
      filed with the Commission prior to the date hereof, neither the Company
      nor any Subsidiary has received any written notice that the FDA or any
      state or foreign regulatory authority has commenced, or threatened to
      initiate, any action to withdraw its approval or request the recall of any
      product of the Company or any Subsidiary, or commenced, or overtly
      threatened to initiate, any action to enjoin production at any facility of
      the Company or any Subsidiary.

                  (x)  The Company and its Subsidiaries are, and have at all
      times since January 1, 1996 been, in substantial compliance with the
      Medicare Anti-kickback Statute, 42 U.S.C. ss. 1320a-7b(b), and
      implementing regulations codified at 42 C.F.R. ss. 1001 and with all
      similar state or foreign laws and regulations.

            (h) COMPLIANCE WITH LAWS. (i) GENERAL. Except with respect to
      FDA-related regulatory matters (which are covered by Section 3.1(g)
      hereof) and environmental matters (which are covered by Section 3.1(h)(ii)
      below), the Company and its Subsidiaries are and at all times since
      January 1, 1996 have been in compliance with all applicable laws,
      regulations, orders, judgments and decrees, except where the failure to so
      comply would not have a material adverse effect on the Condition of the
      Company and its Subsidiaries taken as a whole. Since January 1, 1996,
      neither the Company nor any of its Subsidiaries has received any written
      notice from any Governmental Entity regarding any actual or possible
      material violation of, or material failure to comply with, any law,
      regulation, order, judgment or decree.


                                      -17-


                  (ii) ENVIRONMENTAL MATTERS. Except to the extent that the
      inaccuracy of any of the following (or the circumstances giving rise to
      such inaccuracy), individually and in the aggregate, would not reasonably
      be expected to have a material adverse effect on the Condition of the
      Company and its Subsidiaries taken as a whole (after taking into account
      any reserves therefor reflected in the consolidated balance sheet of the
      Company as of September 30, 1998 contained in its most recently filed
      Report on Form 10-Q (the "Company Balance Sheet")) or as set forth on
      Schedule 3.1(h)(ii) delivered to Parent by the Company prior to the
      execution of this Agreement (none of which scheduled items is expected to
      have a material adverse effect on the Condition of the Company and its
      Subsidiaries taken as a whole):

                              (A) the Company, its predecessor entities and its
                  Subsidiaries are and have been at all relevant times in
                  compliance with all applicable Environmental Laws and any
                  permits, authorizations, licenses and certificates issued by
                  any governmental regulatory authority or entity pursuant to
                  Environmental Laws;

                              (B) the Company and its Subsidiaries have
                  obtained, or made timely application for, all permits required
                  for their operations under Environmental Laws;

                              (C) there have been no Releases of any Hazardous
                  Materials for which the Company or any of its Subsidiaries is
                  liable or, to the Company's or any of its Subsidiaries'
                  knowledge, may be held liable, at any location, and there are
                  no uncontrolled Hazardous Materials present in the environment
                  or, to the Company's or any of its Subsidiaries' knowledge,
                  imminent threatened Releases of Hazardous Materials into the
                  environment at any of the Company's or its Subsidiaries'
                  facilities; and

                              (D) neither the Company nor its Subsidiaries have
                  received any written notice that it is or may be liable for
                  cleanup or other costs relating to environmental matters as a
                  result of (1) any Hazardous Materials in the environment at
                  any facility owned or operated by the Company or its
                  Subsidiaries or (2) the off-site disposal of Hazardous
                  Materials generated by the Company or its Subsidiaries at any
                  of its facilities.

      For purposes of this Agreement, the following terms shall have the
      following meanings:


                                      -18-


            "Environmental Laws" means all applicable federal, state, local and
      foreign statutes, rules, regulations, ordinances, orders, decrees and the
      common law relating in any manner to the contamination, pollution or
      protection of human health and safety or the environment including without
      limitation the Comprehensive Environmental Response, Compensation and
      Liability Act ("CERCLA"), the Solid Waste Disposal Act, the Resource
      Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the
      Toxic Substance Control Act, the Occupational Safety and Health Act and
      similar state laws.

            "Hazardous Materials" means all hazardous or toxic substances,
      wastes, materials or chemicals, petroleum (including crude oil or any
      fraction thereof) and petroleum products, asbestos and asbestos-containing
      materials, pollutants, contaminants, which are regulated pursuant to any
      applicable Environmental Law and such other materials and substances as
      are regulated pursuant to any applicable Environmental Laws.

            "Release" shall have the meaning set forth in CERCLA, Section
      9601(22).

            (i) LITIGATION. Except as disclosed in the Company Commission
      Filings filed with the Commission prior to the date hereof or as set forth
      on Schedule 3.1(i) delivered to Parent by the Company prior to the
      execution of this Agreement, there is no action, suit, proceeding at law
      or in equity, or any arbitration or any administrative or other proceeding
      by or before (or to the knowledge of the Company any investigation by) any
      governmental or other instrumentality or agency, pending, or, to the
      knowledge of the Company, threatened, against or affecting the Company or
      any of its Subsidiaries, or any of their properties or rights which if
      adversely determined would be reasonably likely to have a material adverse
      effect on the Condition of the Company and its Subsidiaries taken as a
      whole. Except as disclosed in the Company Commission Filings filed with
      the Commission prior to the date hereof, neither the Company nor any of
      its Subsidiaries is subject to any judgment, order or decree entered in
      any lawsuit, proceeding or arbitration which is reasonably likely to have
      a material adverse effect on the Condition of the Company and its
      Subsidiaries taken as a whole or on the ability of the Company or any
      Subsidiary of the Company to conduct its business as presently conducted.

            (j) EMPLOYEE BENEFIT PLANS. (i) Schedule 3.1(j) delivered by the
      Company to Parent prior to the execution of this Agreement sets forth: (x)
      all "employee benefit plans," as defined in Section 3(3) of the Employee
      Retirement Income Security Act of 1974, as amended 


                                      -19-


      ("ERISA"), and all other employee benefit programs and arrangements,
      including, without limitation, severance pay, salary continuation for
      disability, retirement, deferred or other executive compensation, bonus,
      stock purchase, hospitalization, medical insurance, and life insurance,
      maintained by the Company or any of its Subsidiaries or to which the
      Company or any such Subsidiary is obligated to contribute for current or
      former employees of the Company or any such Subsidiary in each case (the
      "Employee Benefit Plans "). The Company has made available to Parent true
      and complete copies of all Employee Benefit Plans, as in effect, together
      with all amendments thereto which will become effective at a later date,
      as well as the latest Internal Revenue Service ("IRS") determination
      letters obtained with respect to any Employee Benefit Plan intended to be
      qualified under Section 401(a) of the Code. True and complete copies of
      the (i) most recent annual actuarial valuation report, if any, (ii) last
      filed Form 5500 together with all applicable schedules, (iii) summary plan
      description (as defined in ERISA), if any, and all modifications thereto
      communicated to employees, (iv) most recent annual and periodic accounting
      of related plan assets, if any, and (v) such other materials with respect
      to the Employee Benefit Plans reasonably requested by Parent in each case,
      relating to the Employee Benefit Plans, have been made available to Parent
      and are correct in all material respects.

                  (ii) Except to the extent that any of the following, alone
      and in the aggregate, would not reasonably be expected to have a material
      adverse effect on the Condition of the Company and its Subsidiaries taken
      as a whole: (i) neither the Company nor any of its Subsidiaries nor, to
      the Company's knowledge, any of its or its Subsidiaries' directors,
      officers, employees or agents has, with respect to any Employee Benefit
      Plan, engaged in or been a party to any "prohibited transaction", as such
      term is defined in Section 4975 of the Code or Section 406 of ERISA, which
      could result in the imposition of either a penalty assessed pursuant to
      Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in
      each case applicable to the Company or any of its Subsidiaries, or any
      Employee Benefit Plan; (ii) all Employee Benefit Plans are and have been
      at all times in compliance in all respects with the applicable
      requirements prescribed by all statutes, orders, or governmental rules or
      regulations with respect to such Employee Benefit Plans, including, but
      not limited to, ERISA and the Code (except for such requirements that are
      not required to be adopted as of the effective date of the applicable
      requirement) and, to the knowledge of the Company, there are no pending or
      threatened claims, lawsuits or arbitrations (other than routine claims for
      benefits), relating to any of the Employee Benefit Plans, which have 


                                      -20-


      been asserted or instituted against the Company or any of its
      Subsidiaries, any Employee Benefit Plan or the assets of any trust or
      group annuity contract for any Employee Benefit Plan; (iii) each Employee
      Benefit Plan intended to be qualified under Section 401(a) of the Code has
      heretofore been determined by the IRS to be so qualified whether by
      determination letter or otherwise; (iv) neither the Company nor any of its
      Subsidiaries nor any trade or business which, together with the Company
      and its Subsidiaries, is treated as a single employer under Section 414(t)
      of the Code (an "ERISA Affiliate") has, or at any time in the last six
      years has had, an obligation to contribute to a "defined benefit plan" as
      defined in Section 3(35) of ERISA, a pension plan subject to the funding
      standards of Section 302 of ERISA or Section 412 of the Code, a
      "multiemployer plan" within the meaning of Section 3(37) or 4001(a)(13) of
      ERISA or Section 414(f) of the Code or a "multiple employer plan" within
      the meaning of Section 210(a) of ERISA or Section 413(c) of the Code; (v)
      all (A) insurance premiums required to be paid with respect to, (B)
      benefits, expenses, and other amounts due and payable under and (C)
      contributions, transfers, or payments required to be made to, any Employee
      Benefit Plan prior to the Effective Time will have been paid, made or
      accrued on or before the Effective Time;(vi) no Employee Benefit Plan
      provides benefits, including, without limitation, death or medical
      benefits, beyond termination of service or retirement other than (A)
      coverage mandated by law, (B) death or retirement benefits under any
      qualified Employee Benefit Plan, (C) deferred compensation benefits
      reflected on the books of the Company or (D) arrangements listed on
      Schedule 3.1(j); (vii) except as disclosed in Schedule 3.1(j), the
      execution and performance of this Agreement will not (A) constitute a
      stated triggering event under any Employee Benefit Plan that will result
      in any payment (whether of severance pay or otherwise) becoming due from
      the Company or any of the Company's Subsidiaries to any officer, employee,
      or former employee (or dependents of such employee or former employee), or
      (B) accelerate the time of payment to or vesting of, or increase the
      amount of, compensation due to any employee, officer or director of the
      Company or any Subsidiary of the Company; and (viii) except as disclosed
      in Schedule 3.1(j), any amount that could be received (whether in cash or
      property or the vesting of property) as a result of any of the
      transactions contemplated by this Agreement by any employee, officer or
      director of the Company or any Subsidiary of the Company or any of their
      affiliates who is a "disqualified individual" (as such term is defined in
      proposed Treasury Regulation Section 1.280G-1) under any employment,
      severance or termination agreement, other compensation arrangement or
      Employee Benefit Plan currently in effect would not be 


                                      -21-


      characterized as an "excess parachute payment" (as such term is defined in
      Section 280G(b)(1) of the Code).

            (k) EMPLOYMENT AGREEMENTS. Except as set forth on Schedule 3.1(k)
      delivered to Parent by the Company prior to the execution of this
      Agreement, there exists (i) no union, guild or collective bargaining
      agreement to which the Company or any Subsidiary is a party, (ii) no
      employment, consulting or severance agreement between the Company or any
      Subsidiary of the Company and any Person (except for consulting agreements
      that individually, and in the aggregate, are not material to the Company),
      and (iii) no employment, consulting, severance or indemnification
      agreement or other agreement or plan to which the Company or any
      Subsidiary is a party that would be altered or result in any bonus, golden
      parachute, severance or other payment or obligation to any Person, or
      result in any acceleration of the time of payment or in the provision or
      vesting of any benefits, as a result of the execution or performance of
      this Agreement or as a result of the Merger or the other transactions
      contemplated hereby.

            (l) TAXES.

                  (i) Each material Tax Return required to be filed by or on
      behalf of the Company and each material Tax Return required to be filed by
      or on behalf of the Company's Subsidiaries or any predecessor entities
      with any Governmental Entity with respect to any taxable period ending on
      or before the Closing Date (the "Company Returns") (i) has been or will be
      filed on or before the applicable due date, and (ii) has been, or will be
      when filed, prepared in all material respects in compliance with all
      applicable laws, regulations, orders, judgments and decrees. All amounts
      shown on the Company Returns to be due on or before the Closing Date have
      been or will be paid on or before the Closing Date.

                  (ii) The Company Balance Sheet fully accrues all actual and
      contingent liabilities for Taxes with respect to all periods through the
      date of the Company Balance Sheet in accordance with US GAAP. The Company
      and its Subsidiaries will establish, in the ordinary course of business
      and consistent with their past practices, reserves adequate for the
      payment of all Taxes that accrue during the period from September 30, 1998
      through the Closing Date. Since the date of the Company Balance Sheet,
      neither the Company nor any of its Subsidiaries has incurred any material
      liability (accrued, unaccrued, matured, unmatured, contingent or
      otherwise) for any Tax other than in the ordinary course of its business.


                                      -22-


                  (iii) Except as set forth on Schedule 3.1(l)(iii) delivered to
      Parent by the Company prior to the execution of this Agreement, no Company
      Return has ever been examined or audited by any Governmental Entity. No
      extension or waiver of the limitation period applicable to any Company
      Returns has been granted (by the Company, any Subsidiary of the Company or
      any other Person), and no such extension or waiver has been requested from
      the Company or any Subsidiary of the Company.

                  (iv) No claim or action, suit, proceeding or arbitration is
      pending or, to the knowledge of the Company, has been threatened against
      or with respect to the Company or any Subsidiary of the Company in respect
      of any material Tax. No claim has ever been made by an authority in a
      jurisdiction where the Company or any of its Subsidiaries does not file
      Tax Returns that it is or may be subject to taxation by that jurisdiction.
      There are no unsatisfied liabilities for material Taxes (including
      liabilities for interest, additions to tax and penalties thereon and
      related expenses) with respect to any notice of deficiency or similar
      document received by the Company or any Subsidiary of the Company with
      respect to any material Tax (other than liabilities for Taxes asserted
      under any such notice of deficiency or similar document which are being
      contested in good faith by the Company or any Subsidiary of the Company
      and with respect to which adequate reserves for payment have been
      established on the Company Balance Sheet). There are no liens or other
      security interests for material Taxes upon any of the assets of the
      Company or any Subsidiary of the Company except liens for current Taxes
      not yet due and payable. Neither the Company nor any Subsidiary of the
      Company has entered into or become bound by any agreement or consent
      pursuant to Section 341(f) of the Code (or any comparable provision of
      state or foreign Tax laws). Neither the Company nor any Subsidiary of the
      Company has been, and neither the Company nor any Subsidiary of the
      Company will be, required to include any adjustment in taxable income for
      any tax period (or portion thereof) pursuant to Section 481 or 263A of the
      Code (or any comparable provision under state or foreign Tax laws) as a
      result of transactions or events occurring, or accounting methods
      employed, prior to the Closing.

                  (v) There is no contract or arrangement covering any employee
      or independent contractor or former employee or independent contractor of
      the Company or any Subsidiary of the Company that, considered individually
      or considered collectively with any other such contracts and arrangements,
      could reasonably be expected to give rise directly or indirectly to the
      payment of any amount that would not be deductible pursuant to Section 162
      of the Code (or any comparable provision under state or foreign Tax laws).


                                      -23-


      Neither the Company nor any Subsidiary of the Company is, or has ever
      been, a party to or bound by any tax indemnity agreement, tax sharing
      agreement, tax allocation agreement or similar contract or arrangement.

                  (vi) For purposes of this Agreement, the following terms shall
      have the following meanings:

                        "Tax" means any tax (including any income tax, franchise
            tax, capital gains tax, gross receipts tax, value-added tax, surtax,
            estimated tax, unemployment tax, national health insurance tax,
            excise tax, AD VALOREM tax, transfer tax, stamp tax, sales tax, use
            tax, property tax, business tax, withholding tax or payroll tax),
            levy, assessment, tariff, duty (including any customs duty) or
            deficiency, and any related charge or amount (including any fine,
            penalty or interest), imposed, assessed or collected by or under the
            authority of any Governmental Entity.

                        "Tax Return" means any return (including any information
            return), report, statement, declaration, estimate, schedule, notice,
            notification, form, election, certificate or other document or
            information filed with or submitted to, or required to be filed with
            or submitted to, any Governmental Entity in connection with the
            determination, assessment, collection or payment of any Tax or in
            connection with the administration, implementation or enforcement of
            or compliance with any applicable laws, regulations, orders,
            judgments and decrees relating to any Tax.

            (m) ABSENCE OF UNDISCLOSED LIABILITIES. Except with respect to
      environmental matters (which are covered in Section 3.1(h)(ii) hereof) and
      FDA-related regulatory matters (which are covered in Section 3.1(g)
      hereof), neither the Company nor any of its Subsidiaries has any
      indebtedness or liability, absolute or contingent, accrued, unaccrued,
      matured or unmatured, direct or indirect, except for: (a) liabilities
      identified as such in the "liabilities" column on the Company Balance
      Sheet or in the notes thereto; (b) liabilities described on Schedule
      3.1(m) delivered to Parent by the Company prior to the execution of this
      Agreement; (c) liabilities incurred or accrued in the ordinary course of
      business (including liens of current taxes and assessments not in default)
      since September 30, 1998; and (d) liabilities that, individually and in
      the aggregate, are immaterial in amount. Except as reserved on the Company
      Balance Sheet or shown in Schedule 3.1(m), neither the Company nor any of
      its Subsidiaries is directly or indirectly liable upon or with respect to
      (by discount, repurchase agreements or otherwise), or obligated in any
      other way to provide funds in respect of, or to guarantee or 


                                      -24-


      assume, any material debt, obligation or dividend of any Person, except
      endorsements in the ordinary course of business in connection with the
      deposit of items for collection.

            (n) PATENTS, TRADEMARKS, ETC. Except as referenced in Schedule
      3.1(n) delivered to Parent by the Company prior to the execution of this
      Agreement, the Company and its Subsidiaries have obtained or applied for
      all material patents, trademarks, trade names, service marks and
      copyrights, maintained all material trade secrets and obtained all
      licenses and other proprietary intellectual property rights and licenses
      as are necessary in connection with the businesses of the Company and its
      Subsidiaries. Except as referenced in Schedule 3.1(n), the Company does
      not have any knowledge of any conflict with the intellectual property
      rights of the Company or any of its Subsidiaries by others which, insofar
      as reasonably can be foreseen, could have a material adverse effect on the
      Condition of the Company and its Subsidiaries taken as a whole. Except as
      referenced in Schedule 3.1(n), the Company does not have any knowledge of
      any conflict by the Company or any of its Subsidiaries with the
      intellectual property rights of others which, insofar as reasonably can be
      foreseen, could have a material adverse effect on the Condition of the
      Company and its Subsidiaries taken as a whole.

            (o) TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
      disclosed in Schedule 3.1(o) delivered by the Company to Parent prior to
      the execution of this Agreement or in the Company Commission Filings filed
      with the Commission prior to the date hereof, since January 1, 1996, there
      have been no transactions between the Company or any of its Subsidiaries
      and any director, officer, employee, stockholder or "Affiliate" (as
      defined in Rule 405 under the Securities Act of 1933, as amended (the
      "Securities Act")) of the Company or any of its Subsidiaries, including,
      without limitation, loans, guarantees or pledges to, by or for the Company
      or any of the Company's Subsidiaries from, to, by or for any of such
      Persons. Except as disclosed in such Schedule 3.1(o) or in the Company
      Commission Filings filed with the Commission prior to the date hereof,
      since January 1, 1996, none of the officers or directors of the Company or
      any of its Subsidiaries, and no spouse or relative of any of such Persons,
      has been a director or officer of, or has had any material direct or
      indirect interest in, any Person which during such period has been a
      supplier, customer or sales agent of the Company or any of its
      Subsidiaries or has competed with or been engaged in any business of the
      kind being conducted by the Company or any of its Subsidiaries. Schedule
      3.1(o) identifies each Person who is or may be (in 


                                      -25-


      the reasonable judgment of the Company) an Affiliate of the Company as of
      the date of this Agreement.

            (p) BROKER'S OR FINDER'S FEE. Except for Morgan Stanley & Co.
      Incorporated (whose fees and expenses as financial advisors to the Company
      will be paid by the Company in accordance with the Company's agreement
      with such firm, a true and correct copy of which has been previously
      delivered to Parent by the Company), no agent, broker, Person or firm
      acting on behalf of the Company or any of its Subsidiaries is, or will be,
      entitled to any fee, commission or broker's or finder's fees from any of
      the parties hereto, or from any Person controlling, controlled by, or
      under common control with any of the parties hereto, in connection with
      this Agreement or any of the transactions contemplated hereby.

            (q) OPINION OF FINANCIAL ADVISOR. The Company has received the
      opinion of Morgan Stanley & Co. Incorporated, dated the date hereof, to
      the effect that, as of such date, the Merger Consideration is fair from a
      financial point of view to the holders of Company Common Stock.

            (r) VOTE REQUIRED. The approval of the Merger by the affirmative
      vote of a majority of the votes that holders of the outstanding shares of
      Company Common Stock are entitled to cast is the only vote of the holders
      of any class or series of the Company's capital stock necessary to approve
      the transactions contemplated hereby. Holders of Company Common Stock will
      not have any appraisal rights or similar rights in connection with the
      Merger or any of the other transactions contemplated hereby.

            (s) MATERIAL CONTRACTS. Schedule 3.1(s) delivered to Parent by the
      Company prior to the execution of this Agreement lists all material
      contracts and agreements to which, as of the date hereof, the Company or
      any Subsidiary is a party or by which the Company or any Subsidiary is
      bound or under which the Company or any Subsidiary has or may acquire any
      rights, which were not filed prior to the date hereof as exhibits to the
      Company Commission Filings, which involve or relate to (i) obligations of
      the Company or any Subsidiary for borrowed money or other indebtedness
      where the amount of such obligations exceeds $100,000 individually, (ii)
      the lease by the Company or any Subsidiary, as lessee or lessor, of real
      property for rent of more than $100,000 per annum, (iii) the purchase or
      sale of goods (other than raw material to be purchased by the Company on
      terms that are customary and consistent with the past practice of the
      Company and in amounts and at prices substantially consistent with past
      practices of the Company) or services with an aggregate minimum purchase
      price of more than $100,000 per annum, (iv) rights to manufacture and/or


                                      -26-


      distribute any Pharmaceutical Product which accounted for more than
      $100,000 of the consolidated revenues of the Company and its Subsidiaries
      during the fiscal year ended December 31, 1998 or under which the Company
      or any Subsidiary received or paid license or other fees in excess of
      $100,000 during any year, (v) the purchase or sale of assets or properties
      not in the ordinary course of business having a purchase price in excess
      of $100,000, (vi) the right (whether or not currently exercisable) to use,
      license (including any "in-license" or "outlicense"), sublicense or
      otherwise exploit any intellectual property right or other proprietary
      asset of the Company or of any of Subsidiary of the Company or any other
      Person which, when considered together with all such other rights, is
      material to the Company; (vii) any material collaboration or joint venture
      or similar arrangement; (viii) the restriction on the right or ability of
      the Company or any Subsidiary of the Company (A) to compete with any other
      Person, (B) to acquire any product or other asset or any services from any
      other Person, (C) to solicit, hire or retain any Person as an employee,
      consultant or independent contractor, (D) to develop, sell, supply,
      distribute, offer, support or service any product or any technology or
      other asset to or for any other Person, (E) to perform services for any
      other Person, or (F) to transact business or deal in any other manner with
      any other Person; (ix) any currency hedging; or (x) individual capital
      expenditures or commitments in excess of $100,000. All such contracts and
      agreements are duly and validly executed by the Company or such
      Subsidiary, and are in full force and effect. Neither the Company nor any
      of its Subsidiaries has violated or breached, or committed any default
      under, any contract or agreement, and, to the knowledge of the Company, no
      other Person has violated or breached, or committed any default under, any
      contract or agreement, which violation, breach or default (alone or in
      combination with other violations, breaches or defaults under such
      contract or agreement or under other contracts or agreements) has had or
      may reasonably be expected to have a material adverse effect on the
      Company and its Subsidiaries taken as a whole. No event has occurred
      which, after notice or the passage of time or both, would constitute a
      default by the Company or any Subsidiary of the Company under any contract
      or agreement or give any Person the right to (A) declare a default or
      exercise any remedy under any contract or agreement, (B) receive or
      require a rebate, chargeback, penalty or change in delivery schedule under
      any contract or agreement, (C) accelerate the maturity or performance of
      any contract or agreement, or (D) cancel, terminate or modify any contract
      or agreement, in each case which, together with all other events of the
      types referred to in clauses (A), (B), (C) and (D) of this sentence has
      had or may reasonably be expected to have a material adverse effect on the
      Company or any of its Subsidiaries taken as a whole. Except as 


                                      -27-


      disclosed on Schedule 3.1(s), all such contracts and agreements will
      continue, after the Effective Time, to be binding in accordance with their
      respective terms until their respective expiration dates. As soon as
      practicable after the date hereof, the Company shall provide Parent with a
      list of all leases for real property for rent of more than $30,000 per
      annum which are not listed on Schedule 3.1(s).

            (t) ACCOUNTING MATTERS. The Company knows of no reasons why the
      Merger will not be capable of being treated as a pooling of interest
      transaction under APB 16. Neither the Company nor any of its Subsidiaries
      nor (to the Company's knowledge) any other Affiliate of the Company has
      taken any action that will prevent the Merger from being recorded as a
      pooling of interest transaction under APB 16.

            (u) TAX TREATMENT. Neither the Company nor any of its Subsidiaries
      has taken or agreed to take any action that would prevent the Merger from
      qualifying as a reorganization within the meaning of Section 368(a) of the
      Code.

            (v) CERTAIN BUSINESS PRACTICES. Neither the Company nor any of its
      Subsidiaries nor (to the knowledge of the Company) any director, officer,
      agent or employee of the Company or any of its Subsidiaries has (i) used
      any funds for unlawful contributions, gifts, entertainment or other
      unlawful expenses relating to political activity, (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to
      foreign or domestic political parties or campaigns or violated any
      provision of the Foreign Corrupt Practices Act of 1977, as amended, or
      (iii) made any other unlawful payment.

            (w) GOVERNMENTAL AUTHORIZATIONS. The Company and its Subsidiaries
      hold all permits, consents, approvals, variances, licenses, registrations
      and other governmental authorizations necessary to enable them to conduct
      their respective businesses in the manner in which such businesses are
      currently being conducted, except where the failure to hold such permits,
      consents, approvals, variances, licenses, registrations and other
      governmental authorizations, when considered together with all such other
      failures, has not had and would not reasonably be expected to have a
      material adverse effect on the Condition of the Company and its
      Subsidiaries taken as a whole. All such permits, consents, approvals,
      variances, licenses, registrations and other governmental authorizations
      are valid and in full force and effect except where the failure to be
      valid and in full force and effect, when considered together with all
      other such failures, has not had and would not reasonably be expected to
      have a material adverse effect on the Company and its Subsidiaries taken
      as a whole. The Company and its Subsidiaries are, and at all times since
      January 1, 1996 


                                      -28-


      have been, in substantial compliance with the terms and requirements of
      such permits, consents, approvals, variances, licenses, registrations and
      other governmental authorizations, except where the failure, when
      considered together with all such other failures, to be in compliance with
      the terms and requirements of such permits, consents, approvals,
      variances, licenses, registrations and other governmental authorizations
      has not had and would not reasonably be expected to have a material
      adverse effect on the Condition of the Company and its Subsidiaries taken
      as a whole. Neither the execution, delivery or performance of this
      Agreement or the Share Option Agreement, nor the consummation of the
      Merger or any of the other transactions contemplated by this Agreement and
      the Share Option Agreement will (with or without notice or lapse of time)
      give any Governmental Entity or other Person the right to revoke,
      withdraw, suspend, cancel, terminate or modify: (i) any material grant,
      incentive, subsidy, provided to the Company or any of its Subsidiaries; or
      (ii) any material permit, consent, approval, variance, license,
      registration or other governmental authorization.

            (x) INSURANCE. The Company has made available to Parent a summary of
      all material insurance policies and all material self insurance programs
      and arrangements relating to the business, assets and operations of the
      Company and its Subsidiaries. Each of such insurance policies is in full
      force and effect. Since January 1, 1996, neither the Company nor any of
      its Subsidiaries has received any notice or other communication regarding
      any actual or possible (i) cancellation or invalidation of any material
      insurance policy, (ii) refusal of any coverage or rejection of any
      material claim under any insurance policy, or (iii) material adjustment in
      the amount of the premiums payable with respect to any insurance policy.
      Except as set forth in Schedule 3.1(x) delivered to Parent by the Company
      prior to the execution of this Agreement, there is no pending workers'
      compensation or other claim under or based upon any insurance policy of
      the Company or any of its Subsidiaries other than claims incurred in the
      ordinary cause of business.

            (y) Y2K COMPLIANCE. To the knowledge of the Company and its
      Subsidiaries, except as set forth in Schedule 3.1(y) delivered to Parent
      by the Company prior to the execution of this Agreement, each computer,
      computer program and other item of software (whether installed on a
      computer or on any other piece of equipment, including firmware) that is
      owned, licensed or used by the Company or any of its Subsidiaries for its
      internal business operations is Year 2000 Compliant. Except as set forth
      in Schedule 3.1(y) delivered to Parent by the Company prior to the
      execution of this Agreement, the Company and each of its Subsidiaries has
      conducted 


                                      -29-


      sufficient Year 2000 compliance testing for each computer, computer
      program and item of software referred to in the preceding sentence to be
      able to determine whether such computer, computer program or item of
      software is Year 2000 Compliant, and to the Company's knowledge, each of
      the Company's principal suppliers' products or services provided by such
      suppliers to the Company and its Subsidiaries is Year 2000 Compliant
      except, in each case where the failure to be Year 2000 Compliant, when
      considered together with all such other failures, would not reasonably be
      expected to have a material adverse effect on the Company and its
      Subsidiaries taken as a whole. A computer, computer program or other item
      of software will be deemed "Year 2000 Compliant" only if: (i) the
      functions, calculations, and other computing processes of such computer,
      program or software (collectively, "Processes") perform in a consistent
      and correct manner without interruption regardless of the date on which
      the Processes are actually performed and regardless of the date input to
      the applicable computer system (whether before, on, or after January 1,
      2000); (ii) such computer, program or software accepts, calculates,
      compares, sorts, extracts, sequences, and otherwise processes date inputs
      and date values, and returns and displays date values, in a consistent and
      correct manner regardless of the dates used (whether before, on, or after
      January 1, 2000); (iii) such computer, program or software accepts and
      responds to year input, if any, in a manner that resolves any ambiguities
      as to century in a defined, predetermined and appropriate manner; (iv)
      such computer, program or software stores and displays date information in
      ways that are unambiguous as to the determination of the century; and (v)
      leap years are determined by the following standard: (A) if dividing the
      year by 4 yields an integer, it is a leap year, except for years ending in
      00, but (B) a year ending in 00 is a leap year if dividing it by 400
      yields an integer.

            (z) SUPPLY. To the knowledge of the Company, there are no
      circumstances or facts concerning third party suppliers of active
      ingredients, bulk product and finished product to the Company or any of
      its Subsidiaries (as they relate to DaunoXome, AmBisome or MiKasome) that
      would have a material adverse effect on the continued and timely supply of
      such materials.

            (aa) RECEIVABLES. Except as set forth in Schedule 3.1(aa) delivered
      to Parent by the Company prior to the execution of this Agreement, all
      existing accounts receivable of the Company and its Subsidiaries
      (including those accounts receivable reflected on the Company Balance
      Sheet that have not yet been collected and those accounts receivable that
      have arisen since September 30, 1998 and have not yet been collected)
      represent valid obligations of 


                                      -30-


      customers of the Company and its Subsidiaries arising from bona fide
      transactions entered into in the ordinary course of business. Annexed to
      such Schedule 3.1(aa) is an accounts receivable aging report as of
      December 31, 1998 which report is true and complete in all material
      respects.

            SECTION 3.2.  REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
Parent and Sub represent and warrant to the Company as follows:

            (a) DUE ORGANIZATION, GOOD STANDING AND POWER. Each of Parent and
      its Subsidiaries (including Sub) is a corporation duly organized, validly
      existing and in good standing (where applicable) under the laws of its
      jurisdiction of incorporation and each such corporation has all requisite
      power and authority to own, lease and operate its properties and to carry
      on its business as now being conducted. Each of Parent and its
      Subsidiaries is duly qualified or licensed to do business and is in good
      standing (where applicable) in each jurisdiction in which the property
      owned, leased or operated by it or the nature of the business conducted by
      it makes such qualification necessary, except in such jurisdictions where
      the failure to be so qualified or licensed and in good standing (where
      applicable) would not have a material adverse effect on the Condition of
      Parent and its Subsidiaries taken as a whole.

            (b) AUTHORIZATION AND VALIDITY OF AGREEMENT. Each of Parent and Sub
      has full power and authority to execute and deliver this Agreement, to
      perform its obligations hereunder and, subject to obtaining any necessary
      stockholder approval of the issuance of Parent Shares in the Merger, to
      consummate the transactions contemplated hereby. The execution, delivery
      and performance of this Agreement by each of Parent and Sub, and the
      consummation by it of the transactions contemplated hereby, have been duly
      authorized by all necessary corporate action on the part of Parent and
      Sub, subject to the approval of the issuance of Parent Shares in the
      Merger by Parent's stockholders in accordance with the rules of the
      National Association of Securities Dealers, Inc., and no other corporate
      action on the part of either of Parent or Sub is necessary to authorize
      the execution, delivery and performance of this Agreement by each of
      Parent and Sub and the consummation of the transactions contemplated
      hereby (other than the approval of the issuance of Parent Shares in the
      Merger in accordance with the rules of the National Association of
      Securities Dealers, Inc.). This Agreement has been duly executed and
      delivered by each of Parent and Sub and is a valid and binding obligation
      of each of Parent and Sub, enforceable against each of Parent and Sub in
      accordance with its terms, except to the extent that its enforceability
      may be subject to applicable bankruptcy, insolvency, reorganization,


                                      -31-


      moratorium and similar laws affecting the enforcement of creditors' rights
      generally and by general equitable principles.

            (c) CAPITALIZATION. (i) The authorized capital stock of Parent
      consists of 5,000,000 shares of preferred stock (of which 400,000 shares
      have been designated Series A Junior Participating Preferred Stock and
      1,133,786 shares have been designated Series B Preferred Stock) and
      60,000,000 Parent Shares. As of January 31, 1999, (i) there were no shares
      of Series A Junior Participating Preferred Stock, 1,133,786 shares of
      Series B preferred stock and 30,775,227 Parent Shares issued and
      outstanding and (ii) options to subscribe for an aggregate of 4,518,120
      Parent Shares were outstanding. All such issued and outstanding Parent
      Shares and all Parent Shares issued in connection with the Merger have
      been, or will be, as the case may be, duly authorized and validly issued
      in compliance with applicable securities laws as fully paid or credited as
      fully paid and were not and, in the case of Parent Shares issued in
      connection with the Merger, will not have been, issued in violation of any
      preemptive right. None of the outstanding shares of Parent Common Stock is
      subject to any right of first refusal or similar right of Parent or any of
      its Subsidiaries, and, except as set forth in Schedule 3.2(c) delivered to
      the Company by Parent prior to the execution of this Agreement, there is
      no contract or arrangement relating to the voting or registration of, or
      restricting any Person from purchasing, selling, pledging or otherwise
      disposing of (or granting any option or similar right with respect to),
      any Parent Shares and Parent is under no obligation, nor is it bound by
      any contract or arrangement pursuant to which it may become obligated, to
      repurchase, redeem or otherwise acquire any outstanding Parent Shares.
      Except as set forth in this Section 3.2(c) or on Schedule 3.2(c) delivered
      to the Company by Parent and except for changes since January 31, 1999
      resulting from the granting or exercise of options or stock purchase
      rights under any applicable Parent Employee Benefit Plan (defined below)
      or the conversion of shares of convertible preferred stock into Parent
      Shares, (i) there is no capital stock of Parent authorized, issued or
      outstanding and (ii) there are not as of the date hereof, and at the
      Effective Time there will not be, any outstanding options, warrants,
      rights, subscriptions, claims of any character, agreements, obligations,
      convertible or exchangeable securities, or other commitments, contingent
      or otherwise, relating to Parent Shares or any other capital stock of
      Parent, pursuant to which Parent is or may become obligated to issue,
      sell, grant or purchase, redeem or otherwise acquire Parent Shares or any
      other capital stock or securities convertible into, exchangeable for, or
      evidencing the right to subscribe for, any capital stock of Parent.


                                      -32-


                  (ii) All of the outstanding shares of capital stock of each
      of Parent's Subsidiaries (other than directors' qualifying shares), except
      for corporate Subsidiaries with no material assets or liabilities,
      contingent or otherwise, have been validly issued as fully paid or
      credited as fully paid, were not issued in violation of any preemptive
      rights and are beneficially owned, directly or indirectly, by Parent, free
      and clear of all liens, encumbrances, options or claims whatsoever.

            (d) CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming that (i) the
      filings required under the HSR Act are made and the waiting period
      thereunder has been terminated or has expired; (ii) the filing of the
      Joint Proxy Statement is made; (iii) the Registration Statement is
      declared effective; (iv) the filing of the Certificate of Merger and other
      appropriate merger documents, if any, as required by the laws of the State
      of Delaware is made; (v) approval of the issuance of Parent Shares in the
      Merger by a majority of the total votes cast at the Parent Stockholders'
      Meeting (as defined in Section 4.7(b)) is obtained; and (vi) any
      applicable state securities or Blue Sky laws are complied with, the
      execution and delivery of this Agreement by Parent and Sub and the
      consummation by Parent and Sub of the transactions contemplated hereby
      will not: (1) violate any provision of the Certificate of Incorporation or
      Bylaws of Parent or the Certificate of Incorporation or By-Laws of Sub, or
      any resolution adopted by the stockholders of Parent or the Board of
      Directors of Parent or Sub or any committee thereof; (2) to the knowledge
      of Parent and Sub, violate any statute, ordinance, rule, regulation, order
      or decree of any court or of any governmental or regulatory body, agency
      or authority applicable to Parent or any of its Subsidiaries or by which
      any of their respective properties or assets may be bound, including,
      without limitation, any consent decrees, court orders or judgments; (3)
      require any filing with, or permit, consent or approval of, or the giving
      of any notice to any Governmental Entity; or (4) except as set forth on
      Schedule 3.2(d) delivered to the Company by Parent prior to the execution
      of this Agreement, result in a violation or breach of, conflict with,
      constitute (with or without due notice or lapse of time or both) a default
      (or give rise to any right of termination, cancellation or acceleration)
      under, or result in the creation of any lien, security interest, charge or
      encumbrance upon any of the properties or assets of Parent or any of its
      Subsidiaries under, any of the terms, conditions or provisions of any
      note, bond, mortgage, indenture, license, franchise, permit, agreement,
      lease or other instrument or obligation to which Parent or any of its
      Subsidiaries is a party, or by which it or any of their respective
      properties or assets may be bound or under which Parent or any of its
      Subsidiaries has or may acquire any rights, excluding from the foregoing
      clauses (2), (3) 


                                      -33-


      and (4) filings, permits, consents, approvals and notices, the absence of
      which, and violations, breaches, defaults, conflicts and liens which, in
      the aggregate, would not have a material adverse effect on the Condition
      of Parent and its Subsidiaries taken as a whole.

            (e) PARENT REPORTS AND FINANCIAL STATEMENTS; ACCOUNTING Records. (i)
      Since January 1, 1996, Parent has filed all forms, reports and documents
      with the Commission required to be filed by it pursuant to the U.S.
      federal securities laws and the rules and regulations promulgated
      thereunder, and, except for preliminary filings, all such forms, reports
      and documents filed with the Commission have complied in all material
      respects with all applicable requirements of the U.S. federal securities
      laws and the Commission rules and regulations promulgated thereunder.
      Parent has heretofore made available to the Company true and complete
      copies of all forms, reports, registration statements and other filings
      filed by the Company with the Commission since January 1, 1996 (such
      forms, reports, registration statements and other filings, together with
      any amendments thereto, but excluding any preliminary filings, are
      sometimes collectively referred to as the "Parent Commission Filings"). As
      of their respective dates, the Parent Commission Filings did not contain
      any untrue statement of a material fact or omit to state a material fact
      required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not misleading.

                  (ii) The audited consolidated financial statements included
      in the Parent Commission Filings comply as to form in all material
      respects with applicable accounting requirements and with the rules and
      regulations of the Commission with respect thereto, were prepared in
      accordance with US GAAP (as in effect from time to time), applied on a
      consistent basis (except as may be indicated therein or in the notes or
      schedules thereto) and fairly present in all material respects the
      consolidated financial position of Parent and 


                                      -34-


      its consolidated Subsidiaries as of the dates thereof and the results of
      their operations and cash flows and changes in stockholders' equity, as
      the case may be, for the periods then ended. The unaudited interim
      financial statements included in the Parent Commission Filings comply as
      to form in all material respects with applicable accounting regulations
      and with the rules and regulations of the Commission with respect thereto,
      were prepared in accordance with US GAAP (as in effect from time to time)
      applied on a basis consistent with the basis on which the audited
      financial statements referred to in the preceding sentence were prepared
      (except as may be indicated therein or in the notes or schedules thereto)
      and fairly present the consolidated financial position of Parent and its
      consolidated Subsidiaries as of the dates thereof and the results of their
      operations and cash flows and changes in stockholders' equity, as the case
      may be, for the periods then ended subject to normal and recurring
      year-end audit adjustments and any other adjustments described therein and
      the fact that certain information and notes have been condensed or omitted
      in accordance with the Exchange Act and the rules promulgated thereunder.

                  (iii) The audited consolidated financial statements of Parent
      as of and for the year ended December 31, 1998 delivered to the Company by
      Parent prior to the execution of this Agreement comply as to form in all
      material respects with applicable accounting requirements, were prepared
      in accordance with US GAAP applied on a basis consistent with the basis on
      which the financial statements referred to in Section 3.2(e)(ii) were
      prepared and fairly present in all material respects the consolidated
      financial position of Parent and its consolidated Subsidiaries as of
      December 31, 1998, and the results of their operations and cash flows and
      changes in stockholders' equity for the year ended December 31, 1998.

                  (iv) Parent and its Subsidiaries keep proper accounting
      records in which all material assets and liabilities, and all material
      transactions, of Parent and its Subsidiaries are recorded in conformity
      with applicable accounting principles. No part of Parent's or any
      Subsidiary's accounting system or records, or access thereto, is under the
      control of a Person who is not an employee of Parent or such Subsidiary.

            (f) ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
      3.2(f) delivered to the Company by Parent, since December 31, 1998: (i)
      there has not been any material adverse change in the Condition of Parent
      and its Subsidiaries taken as a whole; (ii) the businesses of Parent and
      its Subsidiaries have been conducted in all material respects only in the
      ordinary course; and (iii) Parent and its Subsidiaries have not, other
      than in the ordinary course of business, increased the compensation of any
      officer or granted any general salary or benefits increase to their
      employees.

            (g) COMPLIANCE WITH LAWS. (i) GENERAL. Except with respect to
      FDA-related regulatory matters (which are covered by Section 3.2(q)
      hereof) and environmental matters (which are covered by Section 3.2(g)(ii)
      below), Parent and its Subsidiaries are, and at all times since January 1,
      1996 have been, in compliance with all applicable laws, regulations,
      orders, judgments and decrees, except where the failure to so comply would
      not have a material adverse effect on the Condition of Parent and its
      Subsidiaries taken 


                                      -35-


      as a whole. Since January 1, 1996, neither Parent nor any of its
      Subsidiaries has received any notice or other communication from any
      Governmental Entity or other Person regarding any actual or possible
      material violation of, or material failure to comply with, any law,
      regulation, order, judgment or decree.

                  (ii) ENVIRONMENTAL MATTERS. Except to the extent that the
      inaccuracy of any of the following (or the circumstances giving rise to
      such inaccuracy), individually or in the aggregate, would not reasonably
      be expected to have a material adverse effect on the Condition of Parent
      and its Subsidiaries taken as a whole (after taking into account any
      reserves therefor reflected in the audited consolidated balance sheet of
      Parent as of December 31, 1998) or as set forth on Schedule 3.2(g)(ii)
      delivered to the Company by Parent prior to the execution of this
      Agreement (none of which scheduled items are expected to have a material
      adverse effect on the Condition of the Parent and its Subsidiaries taken
      as a whole):

                              (A) Parent and its Subsidiaries are and have been
                  at all relevant times in compliance with all applicable
                  Environmental Laws and any permits, authorizations, licenses
                  and certificates issued by any governmental regulatory
                  authority or entity pursuant to Environmental Laws;

                              (B) Parent and its Subsidiaries have obtained, or
                  made timely application for, all permits required for their
                  operations under Environmental Laws;

                              (C) there have been no Releases of any Hazardous
                  Materials for which the Parent or any of its Subsidiaries is
                  liable or, to Parent's or any of its Subsidiaries' knowledge,
                  may be held liable, at any location, and there are no
                  uncontrolled Hazardous Materials present in the environment
                  or, to Parent's or any of its Subsidiaries' knowledge,
                  imminent threatened Releases of Hazardous Materials into the
                  environment at any of Parent's or its Subsidiaries'
                  facilities; and

                              (D) neither Parent nor its Subsidiaries have
                  received any written notice that it is or may be liable for
                  cleanup or other costs relating to environmental matters as a
                  result of (1) any Hazardous Materials in the environment at
                  any facility owned or operated by Parent or its Subsidiaries
                  or (2) the off-site disposal of 


                                      -36-


                  Hazardous Materials generated by Parent or its Subsidiaries at
                  any of its facilities.

            (h) LITIGATION. Except as disclosed in Parent Commission Filings
      filed with the Commission prior to the date hereof or as set forth on
      Schedule 3.2(h) delivered to the Company by Parent, there is no action,
      suit or proceeding at law or in equity, or any arbitration or any
      administrative or other proceeding by or before (or to the knowledge of
      Parent any investigation by) any governmental or other instrumentality or
      agency, pending, or, to the knowledge of Parent, threatened, against or
      affecting Parent or any of its Subsidiaries, or any of their properties or
      rights which if adversely determined would be reasonably likely to have a
      material adverse effect on the Condition of Parent and its Subsidiaries
      taken as a whole. Except as disclosed in Parent Commission Filings filed
      with the Commission prior to the date hereof, neither Parent nor any of
      its Subsidiaries is subject to any judgment, order or decree entered in
      any lawsuit, proceeding or arbitration which is reasonably likely to have
      a material adverse effect on the Condition of Parent and its Subsidiaries
      taken as a whole or on the ability of Parent or any Subsidiary of Parent
      to conduct its business as presently conducted.

            (i) TAXES. Each material Tax Return required to be filed by or
      on behalf of Parent and each material Tax Return required to be filed by
      or on behalf of Parent's Subsidiaries with any Governmental Entity with
      respect to any taxable period ending on or before the Closing Date (the
      "Parent Returns") (a) has been or will be filed on or before the
      applicable due date, and (b) has been, or will be when filed, prepared in
      all material respects in compliance with all applicable laws, regulations,
      orders, judgments and decrees. All amounts shown on the Parent Returns to
      be due on or before the Closing Date have been or will be paid on or
      before the Closing Date.

                  (ii) Parent's audited consolidated balance sheet as of
      December 31, 1998 (the "Parent Balance Sheet") fully accrues all actual
      and contingent liabilities for Taxes with respect to all periods through
      December 31, 1998 in accordance with US GAAP. Parent and its Subsidiaries
      will establish, in the ordinary course of business and consistent with
      their past practices, reserves adequate for the payment of all Taxes that
      accrue during the period from December 31, 1998 through the Closing Date.
      Since December 31, 1998, neither Parent nor any of its Subsidiaries has
      incurred any material liability (accrued, unaccrued, matured, unmatured,
      contingent or otherwise) for any Tax other than in the ordinary course of
      its business.


                                      -37-


                  (iii) No material Parent Return has ever been examined or
      audited by any Governmental Entity. No extension or waiver of the
      limitation period applicable to any material Parent Returns has been
      granted (by Parent, any Subsidiary of Parent or any other Person), and no
      such extension or waiver has been requested from Parent or any Subsidiary
      of Parent.

                  (iv) No claim or action, suit, proceeding or arbitration is
      pending or, to the knowledge of Parent, has been threatened against or
      with respect to Parent or any Subsidiary of Parent in respect of any
      material Tax. No claim has ever been made by an authority in a
      jurisdiction where Parent or any of its Subsidiaries does not file Tax
      Returns that it is or may be subject to taxation by that jurisdiction.
      There are no unsatisfied liabilities for material Taxes (including
      liabilities for interest, additions to tax and penalties thereon and
      related expenses) with respect to any notice of deficiency or similar
      document received by Parent or any Subsidiary of Parent with respect to
      any material Tax (other than liabilities for Taxes asserted under any such
      notice of deficiency or similar document which are being contested in good
      faith by Parent or any Subsidiary of Parent and with respect to which
      adequate reserves for payment have been established on the Parent Balance
      Sheet). There are no liens or other security interests for material Taxes
      upon any of the assets of Parent or any Subsidiary of Parent except liens
      for current Taxes not yet due and payable. Neither Parent nor any
      Subsidiary of Parent has entered into or become bound by any agreement or
      consent pursuant to Section 341(f) of the Code (or any comparable
      provision of state or foreign Tax laws). Neither Parent nor any Subsidiary
      of Parent has been, and neither Parent nor any Subsidiary of Parent will
      be, required to include any adjustment in taxable income for any tax
      period (or portion thereof) pursuant to Section 481 or 263A of the Code
      (or any comparable provision under state or foreign Tax laws) as a result
      of transactions or events occurring, or accounting methods employed, prior
      to the Closing.

                  (v) There is no contract or arrangement covering any employee
      or independent contractor or former employee or independent contractor of
      Parent or any Subsidiary of Parent that, considered individually or
      considered collectively with any other such contracts and arrangements,
      could reasonably be expected to give rise directly or indirectly to the
      payment of any amount that would not be deductible pursuant to Section 162
      of the Code (or any comparable provision under state or foreign Tax laws).
      Neither Parent nor any Subsidiary of Parent is, or has ever been, a party
      to or bound by any tax indemnity agreement, tax sharing 


                                      -38-


      agreement, tax allocation agreement or similar contract or arrangement.

            (j) PARENT EMPLOYEE BENEFIT PLANS. Except to the extent that any of
      the following, either alone or in the aggregate, would not reasonably be
      expected to have a material adverse effect on the Condition of Parent and
      its Subsidiaries taken as a whole: (i) neither Parent nor its Subsidiaries
      nor, to Parent's knowledge, any of its or its Subsidiaries' directors,
      officers, employees or agents, with respect to any employee benefit plan,
      as defined in Section 3(3) of ERISA, and all other employee benefit
      programs and arrangements, including, without limitation, severance pay,
      salary continuation for disability, retirement, deferred or other
      executive compensation, bonus, stock purchase, hospitalization, medical
      insurance, and life insurance, maintained by Parent or its Subsidiaries or
      to which Parent or any such Subsidiary is obligated to contribute
      thereunder for current or former employees of Parent or its Subsidiaries
      (the "Parent Employee Benefit Plans") has engaged in or been a party to
      any "prohibited transaction", as such term is defined in Section 4975 of
      the Code or Section 406 of ERISA, which could result in the imposition of
      either a penalty assessed pursuant to Section 502(i) of ERISA or a tax
      imposed by Section 4975 of the Code, in each case applicable to Parent or
      any of its Subsidiaries or any Parent Employee Benefit Plan; (ii) except
      as disclosed on Schedule 3.2(j) delivered to the Company by Parent prior
      to the execution of this Agreement, all Parent Employee Benefit Plans are
      and have been at all times in compliance in all respects with the
      applicable requirements prescribed by all statutes, orders, or
      governmental rules or regulations with respect to such Parent Employee
      Benefit Plans, including, but not limited to, ERISA and the Code (except
      for such requirements that are not required to be adopted as of the
      effective date of the applicable requirement) and, to the knowledge of
      Parent, there are no pending or threatened claims, lawsuits or
      arbitrations (other than routine claims for benefits), relating to any of
      the Parent Employee Benefit Plans, which have been asserted or instituted
      against Parent or any of its Subsidiaries, any Parent Employee Benefit
      Plan or the assets of any trust or group annuity contract for any Parent
      Employee Benefit Plan; (iii) each Parent Employee Benefit Plan intended to
      be qualified under Section 401(a) of the Code has heretofore been
      determined by the IRS to be so qualified whether by determination letter
      or otherwise; (iv) neither Parent nor any of its Subsidiaries or any trade
      or business which, together with Parent and its Subsidiaries, is treated
      as a single employer under Section 414(t) of the Code (a "Parent ERISA
      Affiliate") has, or at any time within the last six years has had, an
      obligation to contribute to a "defined benefit plan" as defined in Section
      3(35) of ERISA, a 


                                      -39-


      pension plan subject to the funding standards of Section 302 of ERISA or
      Section 412 of the Code, a "multiemployer plan" within the meaning of
      Section 3(37) or 4001(a)(13) of ERISA or Section 414(f) of the Code or a
      "multiple employer plan" within the meaning of Section 210(a) of ERISA or
      Section 413(c) of the Code; (v) all (A) insurance premiums required to be
      paid with respect to, (B) benefits, expenses, and other amounts due and
      payable under and (C) contributions, transfers, or payments required to be
      made to, any Parent Employee Benefit Plan prior to the Effective Time will
      have been paid, made or accrued on or before the Effective Time;(vi) no
      Parent Employee Benefit Plan provides benefits, including, without
      limitation, death or medical benefits, beyond termination of service or
      retirement other than (A) coverage mandated by law, (B) death or
      retirement benefits under any qualified Parent Employee Benefit Plan, or
      (C) deferred compensation benefits reflected on the books of Parent or (D)
      arrangements listed on Schedule 3.2(j); (vii) except as disclosed in
      Schedule 3.2(j), the execution and performance of this Agreement will not
      (A) constitute a stated triggering event under any Parent Employee Benefit
      Plan that will result in any payment (whether of severance pay or
      otherwise) becoming due from Parent or any of Parent's Subsidiaries to any
      officer, employee, or former employee (or dependents of such employee), or
      (B) accelerate the time of payment or vesting, or increase the amount of
      compensation due to any employee, officer or director of Parent or any
      Subsidiary of Parent; and (viii) except as disclosed in Schedule 3.2(j),
      any amount that could be received (whether in cash or property or the
      vesting of property) as a result of any of the transactions contemplated
      by this Agreement by any employee, officer or director of Parent or any
      Subsidiary of Parent or any of its affiliates who is a "disqualified
      individual" (as such term is defined in proposed Treasury Regulation
      Section 1.280G-1) under any employment, severance or termination
      agreement, other compensation arrangement or Parent Employee Benefit Plan
      currently in effect would not be characterized as an "excess parachute
      payment" (as such term is defined in Section 280G(b)(1) of the Code).

            (k) PATENTS, TRADEMARKS, ETC. Except as referenced in Schedule
      3.2(k) provided by Parent to the Company prior to the execution of this
      Agreement, Parent and its Subsidiaries have obtained or applied for all
      material patents, trademarks, trade names, service marks and copyrights,
      maintained all material trade secrets and obtained all material licenses
      and other proprietary intellectual property rights and licenses and other
      proprietary intellectual property rights as are necessary in connection
      with the businesses of Parent and its Subsidiaries. Except as referenced
      in Schedule 3.2(k), Parent does not have any knowledge of any conflict
      with the intellectual property 


                                      -40-


      rights of Parent or any of its Subsidiaries by others or any knowledge of
      any conflict by Parent or any of its Subsidiaries with the intellectual
      property rights of others which, insofar as reasonably can be foreseen,
      could have a material adverse effect on the Condition of Parent and its
      Subsidiaries taken as a whole.

            (l)   BROKER'S OR FINDER'S FEE.  Except for J.P. Morgan
      Securities, Inc. (whose fees and expenses as financial advisor to
      Parent will be paid by Parent in accordance with Parent's agreement
      with such firm), no agent, broker, Person or firm acting on behalf of
      Parent or Sub is, or will be, entitled to any fee, commission or
      broker's or finder's fees from any of the parties hereto, or from any
      Person controlling, controlled by, or under common control with any of
      the parties hereto, in connection with this Agreement or any of the
      transactions contemplated hereby.

            (m) ACCOUNTING MATTERS. Parent knows of no reason why the Merger
      will not be capable of being treated as a pooling of interest transaction
      under APB 16. Neither Parent nor any of its Subsidiaries nor to its
      knowledge any other Affiliate of Parent has taken any action that will
      prevent the Merger from being recorded as a pooling of interest
      transaction under APB 16.

            (n) TAX TREATMENT. Neither Parent nor any of its Subsidiaries has
      taken or agreed to take any action that would prevent the Merger from
      qualifying as a reorganization within the meaning of Section 368(a) of the
      Code.

            (o) OPERATIONS OF SUB. Sub was formed solely for the purpose of
      engaging in the transactions contemplated hereby, has engaged in no other
      material business activities and has conducted its operations only as
      contemplated hereby.

            (p) ABSENCE OF UNDISCLOSED LIABILITIES. Except with respect to
      environmental matters (which are covered in Section 3.2 (g)(ii) hereof)
      and FDA-related regulatory matters (which are covered in Section 3.2(q)
      hereof), Parent does not have any indebtedness or liability except for (a)
      liabilities identified as such in the "liabilities" column on the Parent
      Balance Sheet or in the notes thereto; (b) liabilities described in Parent
      Commission Filings filed with the Commission prior to the date hereof or
      on Schedule 3.2(p) delivered to the Company by Parent prior to the
      execution of this Agreement; (c) liabilities incurred or accrued in the
      ordinary course of business (including liens of current taxes and
      assessments not in the default) since December 31, 1998; and (d)
      liabilities that, individually and in the aggregate, are immaterial in
      amount. Except as reserved on the Parent Balance Sheet or shown in
      Schedule 3.2(p), neither Parent nor Sub is directly or indirectly 


                                      -41-


      liable upon or with respect to (by discount, repurchase agreements or
      otherwise), or obligated in any other way to provide funds in respect of,
      or to guarantee or assume, any material debt, obligation or dividend of
      any Person, except endorsements in the ordinary course of business in
      connection with the deposit of items for collection.

            (q) REGULATORY COMPLIANCE. (i) As to each Pharmaceutical Product
      that is manufactured, tested, distributed and/or marketed by Parent or any
      of its Subsidiaries, such product is being manufactured, tested,
      distributed and/or marketed in substantial compliance with all applicable
      requirements under FDCA and similar state and foreign laws and
      regulations, including but not limited to those relating to
      investigational use, premarket clearance, good manufacturing practices,
      labeling, advertising, record keeping, filing of reports and security.

                  (ii) As to each drug manufactured, marketed, sold or
      licensed by Parent in the United States for which an NDA and similar state
      or foreign regulatory filings, has been approved or an IND has been
      submitted to the FDA and become effective, Parent and its Subsidiaries are
      in substantial compliance with 21 U.S.C. ss.ss. 355 or 357 or 21 C.F.R.
      Parts 312, 314 or 430 ET SEQ., 512, or 514 ET SEQ., respectively, and
      similar state and foreign laws and regulations and all terms and
      conditions of such applications. As to each such drug, Parent and any
      relevant Subsidiary, and the officers, employees or agents of Parent or
      such Subsidiary have included in the application for such drug, where
      required, the certification described in 21 U.S.C. ss. 335a(k)(1) or any
      similar state or foreign law or regulation and the list described in 21
      U.S.C. ss. 335a(k)(2) or any similar state or foreign law or regulation,
      and such certification and such list was in each case true and accurate
      when made and remained true and accurate thereafter. In addition, Parent
      and its Subsidiaries are in substantial compliance with all applicable
      registration and listing requirements set forth in 21 U.S.C. ss. 360 and
      21 C.F.R. Part 207 and all similar state and foreign laws and regulations.

                  (iii) Each article of drug manufactured and/or distributed by
      Parent or any of its Subsidiaries is not adulterated within the meaning of
      21 U.S.C. ss. 351 (or similar state or foreign laws or regulations) or
      misbranded within the meaning of 21 U.S.C. ss. 352 (or similar state or
      foreign laws or regulations), and is not a product that is in violation of
      21 U.S.C. ss. 355 (or similar state or foreign laws or regulations).

                  (iv) Except as set forth in Schedule 3.2(q)(iv) delivered to
      the Company by Parent prior to the execution of this Agreement, all
      manufacturing operations of Parent and 


                                      -42-


      its Subsidiaries in the United States have been and are being conducted in
      substantial compliance with the good manufacturing practice regulations
      set forth in 21 C.F.R. Parts 210 and 211 and similar state or foreign
      regulations.

                  (v) Except as disclosed in the Parent Commission Filings filed
      with the Commission prior to the date hereof, neither Parent nor any of
      its Subsidiaries has received any written notice that the FDA or any other
      state or foreign regulatory authority has commenced, or threatened to
      initiate, any action to withdraw its approval or request the recall of any
      product of Parent or any of its Subsidiaries, or commenced, or overtly
      threatened to initiate, any action to enjoin production at any facility of
      Parent or any of its Subsidiaries.

                  (vi) Neither Parent, nor any of its Subsidiaries, nor any
      officer, employee or agent of either Parent or any of its Subsidiaries has
      made an untrue statement of a material fact or fraudulent statement to the
      FDA or any state or foreign regulatory authority, failed to disclose a
      material fact required to be disclosed to the FDA or any state or foreign
      regulatory authority, or committed an act, made a statement, or failed to
      make a statement that, at the time such disclosure was made, could
      reasonably be expected to provide a basis for the FDA or any state or
      foreign regulatory authority to invoke its policy respecting "Fraud,
      Untrue Statements of Material Facts, Bribery, and Illegal Gratuities", set
      forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy.
      Neither Parent nor any of its Subsidiaries, nor any officer, employee or
      agent of either Parent or any of its Subsidiaries, has been convicted of
      any crime or engaged in any conduct for which debarment is mandated by 21
      U.S.C. ss. 335a(a) or any similar state or foreign law or regulation or
      authorized by 21 U.S.C. ss. 335a(b) or any similar state or foreign law or
      regulation.

            (r) CERTAIN BUSINESS PRACTICES. Neither Parent nor any of its
      Subsidiaries nor (to the knowledge of Parent) any director, officer, agent
      or employee of Parent or any of its Subsidiaries has (i) used any funds
      for unlawful contributions, gifts, entertainment or other unlawful
      expenses relating to political activity, (ii) made any unlawful payment to
      foreign or domestic government officials or employees or to foreign or
      domestic political parties or campaigns or violated any provision of the
      Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
      unlawful payment.

            (s) GOVERNMENTAL AUTHORIZATIONS. Parent and its Subsidiaries hold
      all permits, consents, approvals, variances, licenses, registrations and
      other governmental authorizations necessary to enable them to conduct
      their 


                                      -43-


      respective businesses in the manner in which such businesses are currently
      being conducted, except where the failure to hold such permits, consents,
      approvals, variances, licenses, registrations and other governmental
      authorizations has not had and would not reasonably be expected to have a
      material adverse effect on the Condition of Parent and its Subsidiaries
      taken as a whole. All such permits, consents, approvals, variances,
      licenses, registrations and other governmental authorizations are valid
      and in full force and effect except where the failure to be valid and in
      full force and effect, when considered together will all other such
      failures, has not had and would not reasonably be expected to have a
      material adverse effect on the Condition of Parent and its Subsidiary
      taken as a whole. Parent and its Subsidiaries are, and at all times since
      January 1, 1996 have been, in substantial compliance with the terms and
      requirements of such permits, consents, approvals, variances, licenses,
      registrations and other governmental authorizations, except where the
      failure to be in compliance with the terms and requirements of such
      permits, consents, approvals, variances, licenses, registrations and other
      governmental authorizations has not had and would not reasonably be
      expected to have a material adverse effect on the Condition of Parent and
      its Subsidiaries taken as a whole. Neither the execution, delivery or
      performance of this Agreement nor the consummation of the Merger or any of
      the other transactions contemplated by this Agreement will (with or
      without notice or lapse of time) give any Governmental Entity or other
      Person the right to revoke, withdraw, suspend, cancel, terminate or
      modify: (i) any material grant, incentive, subsidy provided to Parent or
      any of its Subsidiaries or (ii) any material permit, consent, approval,
      variance, license, registration or other governmental authorization.

            (t) Y2K COMPLIANCE. To the knowledge of Parent and its Subsidiaries,
      except as set forth in Schedule 3.2(t) delivered to the Company by Parent
      prior to the execution of this Agreement, each computer, computer program
      and other item of software (whether installed on a computer or on any
      other piece of equipment, including firmware) that is owned, licensed or
      used by Parent or any of its Subsidiaries for its internal business
      operations is Year 2000 Compliant. Except as set forth in Schedule 3.2(t)
      delivered to the Company by Parent prior to the execution of this
      Agreement, Parent and each of its Subsidiaries has conducted sufficient
      Year 2000 compliance testing for each computer, computer program and item
      of software referred to in the preceding sentence to be able to determine
      whether such computer, computer program or item of software is Year 2000
      Compliant, and to Parent's knowledge each of Parent's principal supplier's
      products or services provided by such suppliers to Parent and its
      Subsidiaries is Year 2000 Compliant 


                                      -44-


      except, in each case where the failure to be Year 2000 Compliant would not
      reasonably be expected to have a material adverse effect on the Condition
      of Parent and its Subsidiaries taken as a whole.

                                   ARTICLE IV.

                     CONDUCT OF BUSINESS; TRANSACTIONS PRIOR

                     TO CLOSING DATE; ADDITIONAL AGREEMENTS

            SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY. The Company agrees
that, except as expressly permitted, required or contemplated by this Agreement
or otherwise consented to or approved in writing by Parent, during the period
commencing on the date hereof and ending on the Closing Date:

            (a) The Company and each of its Subsidiaries will conduct their
      respective operations in all material respects only according to their
      ordinary and usual course of business and will use their reasonable
      efforts to preserve intact their respective business organizations, keep
      available the services of their directors, officers and employees,
      preserve in full force and effect all material licenses and approvals held
      by them and maintain satisfactory relationships with suppliers,
      distributors, clients and others having material business relationships
      with them;

            (b) Neither the Company nor any of its Subsidiaries will (i) make
      any change in or amendment to its Certificate of Incorporation or By-Laws
      or other charter or organizational documents; (ii) issue or sell any
      shares of its capital stock or share capital (other than in connection
      with the exercise of options granted under the Stock Option Plans and
      warrants or convertible securities outstanding on the date hereof or
      pursuant to the Stock Purchase Plan) or any other securities, or issue,
      sell or grant any securities exchangeable for or convertible into, or
      options (other than employee stock options to purchase no more than a
      total of 250,000 shares of Company Common Stock, which may be granted to
      employees in the ordinary course of business), warrants or rights to
      purchase or subscribe to, or enter into any arrangement or contract with
      respect to the issuance, grant or sale of, any shares of its capital stock
      or any of its other securities, or make any other changes in its capital
      structure; (iii) declare, pay or make any dividend or other distribution
      or payment with respect to, or split, combine, redeem or reclassify, any
      shares of its capital stock or other securities; (iv) make or authorize
      any capital expenditures in excess of those set forth in Schedule 4.1(b)
      delivered to Parent by the Company prior to the execution of


                                      -45-


      this Agreement or in excess of $200,000, individually, or $1,000,000, in
      the aggregate; (v) enter into or amend in any material respect any other
      material contracts or commitments except for contracts and amendments made
      in the ordinary course of business, consistent with past practice and
      containing only normal and customary terms; (vi) acquire, lease or license
      any rights or other assets (other than as contemplated by clause (iv)
      above), other than in the ordinary course of business and consistent with
      past practice, or acquire, lease or license any rights or other assets
      having a value in an amount in excess of $200,000, individually, or
      $1,000,000, in the aggregate, or dispose of (including by way of sale,
      lease, license or encumbrance), other than in the ordinary course of
      business and consistent with past practice, a material amount of assets or
      release, relinquish or assign any material rights under any material
      contract; (vii) except as contemplated by this Agreement (including
      Section 2.5 hereof) or as may be required by law, establish, adopt, enter
      into, accelerate the vesting under or amend any employee or non-employee
      benefit plan or program, employment agreement, option, license agreement
      or retirement agreement, or pay any bonus or contingent compensation
      (except any bonuses or other payments required under any existing
      compensation programs or benefit plans or arrangements and severance
      payments under any existing severance plans in each case listed on
      Schedule 3.1(j)), or increase the amount of the wages, salary,
      commissions, fringe benefits or other compensation or remuneration payable
      to any of its directors, officers or employees (except that the Company
      may provide routine, reasonable salary increases to its non-officer
      employees in connection with the Company's customary employee review
      process); (viii) hire any employee with an annual base salary in excess of
      $100,000; (ix) change any of its sales policies, revenue recognition
      policies, product return policies, personnel policies or other business
      policies outside the ordinary course of business; (x) take or permit to be
      taken any action that would adversely affect its ability to consummate the
      Merger or the other transactions contemplated hereby or could preclude
      Parent from accounting for the Merger as a "pooling of interests"; (xi)
      take or permit to be taken any action that could reasonably be expected to
      prevent the Merger from constituting a reorganization within the meaning
      of Section 368(a) of the Code; (xii) make any material Tax election;
      (xiii) form or acquire any Subsidiary; (xiv) enter into any hedging,
      option or derivative or other similar transaction or any foreign exchange
      position or contract for the exchange of currency outside the ordinary
      course of business or inconsistent with past practices; (xv) suspend,
      terminate or otherwise discontinue or materially modify (except as
      required by a Governmental Entity) any planned or ongoing clinical trials
      or similar activities relating to DaunoXome, AmBisome, 


                                      -46-


      MiKasome, NX211 or NX1838; (xvi) lend money to any Person or incur any
      indebtedness for borrowed money (other than by drawing under current
      revolving credit agreements (as such agreements are in effect on the date
      hereof and without giving effect to any waivers of any of the provisions
      of such agreements)) or guarantee any indebtedness or issue or sell any
      debt securities or warrants or rights to acquire any debt securities of
      the Company or any of its Subsidiaries or guarantee any debt securities of
      others; (xvii) agree, in writing or otherwise, to take any of the
      foregoing actions; (xviii) make any material change in its method of
      accounting or record keeping not otherwise required by US GAAP; or (xix)
      commence or agree to the settlement of any material litigation;

            (c) The Company will not, nor will the Company permit any of its
      Subsidiaries to, purchase or acquire, or offer to purchase or acquire, any
      shares of its capital stock; and

            (d) The Company will deliver to Parent all of the Company's monthly
      and quarterly, if any, financial statements for periods and dates
      subsequent to December 31, 1998, as soon as practicable after the same are
      available to the Company.

            SECTION 4.2. CONDUCT OF BUSINESS OF PARENT. Parent agrees that,
except as set forth on Schedule 4.2, and except as expressly permitted, required
or contemplated by this Agreement, or otherwise consented to or approved in
writing by the Company, during the period commencing on the date hereof and
ending on the Closing Date, Parent and each of its Subsidiaries will conduct
their respective operations in all material respects only according to their
ordinary and usual course of business and will use their reasonable efforts to
preserve intact their respective business organizations, keep available the
services of their directors, officers and employees, preserve in full force and
effect all material licenses and approvals held by them and maintain
satisfactory relationships with suppliers, distributors, clients and others
having material business relationships with them.

            SECTION 4.3. ACCESS TO INFORMATION CONCERNING BUSINESS AND RECORDS.
(a) During the period commencing on the date hereof and ending on the Closing
Date, the Company shall, upon reasonable notice, afford to Parent and Parent's
counsel, accountants and other authorized representatives, reasonable access
during normal business hours to the properties, personnel, advisors, books and
records of the Company and its Subsidiaries in order that they may have the
opportunity to make such investigations as they shall desire of the affairs of
the Company and its Subsidiaries; such investigation shall not, however, affect
the representations and warranties made in this Agreement. The Company agrees to
cause its officers and employees to furnish 


                                      -47-


such additional financial and operating data and other information and respond
to such inquiries as Parent shall from time to time request.

            (b) During the period commencing on the date hereof and ending on
the Closing Date, Parent shall, upon reasonable notice, afford to the Company
and the Company's counsel, accountants and other authorized representatives,
reasonable access during normal business hours to the properties, personnel,
advisors, books and records of Parent and its Subsidiaries in order that they
may have the opportunity to make such investigations as they shall desire of the
affairs of Parent and its Subsidiaries; such investigation shall not, however,
affect the representations and warranties made in this Agreement. Parent agrees
to cause its officers and employees to furnish such additional financial and
operating data and other information and respond to such inquiries as the
Company shall from time to time request.

            SECTION 4.4. CONFIDENTIALITY. Information obtained by Parent and the
Company pursuant to this Agreement shall be subject to the provisions of the
Confidential Disclosure Agreement between the Company and Parent dated as of May
21, 1997, as amended (the "Confidential Disclosure Agreement").

            SECTION 4.5. REGISTRATION STATEMENT/JOINT PROXY STATEMENT; QUOTATION
ON NASDAQ NATIONAL MARKET. (a) As promptly as practicable after the execution of
this Agreement, the Company and Parent shall prepare and file with the
Commission preliminary proxy materials which shall constitute the preliminary
Joint Proxy Statement and a preliminary prospectus with respect to the Parent
Shares to be issued in connection with the Merger. In connection with the Joint
Proxy Statement, counsel to the Company and counsel to Parent shall each provide
their opinion with respect to the tax disclosure contained therein for filing as
exhibits to the Registration Statement. At or prior to the filing of the
preliminary Joint Proxy Statement, the Company and Parent shall provide to such
counsel such tax representation letters as may be reasonably requested. As
promptly as practicable after comments are received from the Commission with
respect to the preliminary proxy materials and after the furnishing by the
Company and Parent of all information required to be contained therein
(including, without limitation, financial statements and supporting schedules
and certificates and reports of independent public accountants), the Company and
Parent shall file with the Commission the definitive Joint Proxy Statement and
Parent shall file with the Commission the Registration Statement, which Joint
Proxy Statement and Registration Statement shall each comply in all material
respects with the applicable requirements of the Exchange Act and Securities
Act, respectively, and the applicable rules and regulations of the Commission
thereunder. Parent and the Company shall use their reasonable efforts to cause
the Registration Statement to become effective as soon 


                                      -48-


thereafter as practicable. The definitive Joint Proxy Statement shall contain
the opinion of Morgan Stanley & Co. Incorporated referred to in Section 3.1(q)
of this Agreement.

            (b) The Company and Parent shall cause the Joint Proxy Statement to
be mailed to their respective stockholders and, if necessary, after the Joint
Proxy Statement shall have been so mailed, promptly circulate amended,
supplemental or supplemented proxy material and, if required in connection
therewith, resolicit proxies.

            (c) Each of Parent and Sub, on the one hand, and the Company, on the
other hand, warrants to the other that the information provided and to be
provided by Parent and Sub and the Company, respectively (or incorporated by
reference to filings made with the Commission by Parent and the Company,
respectively), for use in each of the Registration Statement, on the date the
Registration Statement becomes effective, and the Joint Proxy Statement, on the
date the Joint Proxy Statement is filed with the Commission and on the date it
is first mailed to the Company's stockholders and the date it is first mailed to
Parent's stockholders, shall not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of Parent and Sub, on the one hand, and the Company, on the
other, shall notify the other parties promptly of the receipt of any comments by
the Commission and of any request by the Commission for amendments or
supplements to the preliminary Joint Proxy Statement, the Joint Proxy Statement
or the Registration Statement or for additional information, and shall supply
one another with copies of all correspondence with the Commission with respect
to any of the foregoing. If at any time prior to the Special Meeting, any event
should occur relating to Parent or Sub (or any of their respective affiliates,
directors or officers) which should be described in an amendment or supplement
to the Joint Proxy Statement or the Registration Statement, Parent shall
promptly inform the Company. If at any time prior to the Parent Stockholders'
Meeting, any event should occur relating to the Company, its Subsidiaries or any
of their respective affiliates, directors or officers which should be described
in an amendment or supplement to the Joint Proxy Statement or the Registration
Statement, the Company shall promptly inform Parent. Whenever any event occurs
which should be described in an amendment or supplement to the Joint Proxy
Statement or the Registration Statement, Parent and the Company shall, upon
learning of such event, cooperate with each other promptly to file and clear
with the Commission and, if applicable, mail such amendment or supplement to the
stockholders of the Company and Parent.

            (d) Parent shall use its best efforts to obtain approval for
quotation on the Nasdaq National Market, upon 


                                      -49-


official notice of issuance, of the Parent Shares to be issued pursuant to the
Merger.

            (e) Parent and the Company shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder and under applicable blue sky or similar laws
and shall use their reasonable efforts to obtain required approvals and
clearances with respect thereto; PROVIDED, HOWEVER, that Parent shall not be
required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (ii) to file a general consent
to service of process in any jurisdiction in which it is not now required to do
so.

            SECTION 4.6. EMPLOYEE BENEFITS. Immediately after the Effective
Time, Parent or the Surviving Corporation shall cause to be provided to the
Surviving Corporation's employees for not less than one year from and after the
Closing Date Current Benefits (as defined below) that are, in the aggregate,
substantially as favorable to such employees as the Current Benefits available
to them as of the date of this Agreement under the Employee Benefit Plans.
Without limiting the generality of the foregoing, for not less than one year
from and after the Closing Date (a) all Surviving Corporation employees will
continue to be provided with the same level of severance benefits provided to
them immediately prior to the date of this Agreement under those severance plans
specified in Schedule 3.1(j) delivered to Parent by the Company prior to the
execution of this Agreement, of which the Company has provided Parent with
accurate and complete copies prior to the date hereof and (b) to the extent that
any employee of the Surviving Corporation participates in any Parent Employee
Benefit Plan after the Effective Time, Parent shall use reasonable efforts to
ensure (i) that such employee receives credit for his or her service with the
Company, to the same extent as such service was credited under any similar
Employee Benefit Plan immediately prior to the Effective Time, for purposes of
determining eligibility to participate in and vesting under, and for purposes of
calculating the benefits under, such Parent Employee Benefit Plan, (ii) that any
pre-existing condition limitations, waiting periods or similar limitations under
such Parent Employee Benefit Plan are waived, and (iii) that such employee
receives credit for any co-payments previously made and any deductible
previously satisfied under any similar Employee Benefit Plan. For purposes of
this Section 4.6, "Current Benefits" shall refer to benefits available under
Employee Benefit Plans or Parent Employee Benefit Plans, other than benefits
available under stock option plans, stock purchase plans and other equity-based
benefit plans.

            SECTION 4.7. STOCKHOLDER APPROVALS; RECOMMENDATIONS. (a) The
Company, acting through its Board of Directors, shall (i) call, give notice of,
convene and hold a special meeting of the holders of Company Common Stock for
the purpose of voting 


                                      -50-


upon this Agreement and the Merger (the "Special Meeting") and (ii) subject to
Section 4.16(b), include in the Joint Proxy Statement the recommendation of its
Board of Directors that holders of Company Common Stock approve and adopt this
Agreement and approve the Merger at the Special Meeting. The Special Meeting
will be held as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. The Company shall ensure that the
Special Meeting is called, noticed, convened, held and conducted, and that all
proxies solicited, in connection with the Special Meeting are solicited in
compliance with all applicable laws, regulations, orders, judgments and decrees.
The Company's obligation to call, give notice of, convene and hold the Special
Meeting in accordance with this Section 4.7(a) shall not be limited or otherwise
affected by the disclosure, announcement, commencement, submission or making of
any Superior Proposal or other Takeover Proposal, or by any withdrawal or
modification of the recommendation of the Board of Directors of the Company with
respect to the Merger. The Company shall not be permitted to delay, adjourn,
postpone or reschedule the Special Meeting, or delay the vote of the Company's
stockholders on the Merger, without Parent's prior written consent (which
consent will not be unreasonably withheld or delayed if the need for the delay,
adjournment, postponement or rescheduling of the Special Meeting or the delay in
such vote is attributable solely to factors outside the Company's control).

            (b) Parent, acting through its Board of Directors, shall (i) call,
give notice of, convene and hold a special meeting of its stockholders for the
purpose of voting upon the issuance of Parent Shares in the Merger (the "Parent
Stockholders' Meeting"), and (ii) include in the Joint Proxy Statement the
recommendation of its Board of Directors that its stockholders vote in favor of
the issuance of Parent Shares in the Merger at the Parent Stockholders' Meeting.
The Parent Stockholders' Meeting will be held as promptly as practicable after
(and, to the extent feasible, on the same day as) the Special Meeting. Parent
shall ensure that the Parent Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited in connection with the Parent
Stockholders' Meeting are solicited, in compliance with all applicable laws,
regulations, orders, judgments and decrees.

            (c) Notwithstanding anything to the contrary contained in this
Section 4.7, the Company's Board of Directors shall be permitted to withdraw or
modify its recommendation in favor of the Merger only in accordance with the
provisions of Section 4.16(b).

            SECTION 4.8.  STOCK OPTIONS.  The Company shall take such actions
as may be permitted under the Stock Option Plans to effect the actions
described in Section 2.5.


                                      -51-


            SECTION 4.9. LETTERS OF THE COMPANY'S ACCOUNTANTS. The Company shall
diligently seek to cause to be delivered to Parent a letter of Ernst & Young
LLP, the Company's independent auditors, dated a date within two business days
before the date of the Proxy Statement and a second bring-down letter, dated a
date within two business days before the Effective Time, in each case addressed
to Parent and its board of directors, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. The Company shall diligently
seek to cause Ernst & Young LLP to deliver to Parent and the Company a letter
(which may contain customary qualifications and assumptions), dated as of the
Closing Date, confirming the concurrence of Ernst & Young LLP with the Company's
management's conclusion that no conditions exist related to the Company that
would preclude Parent from accounting for the Merger as a pooling of interests
if the Merger is consummated in accordance with this Agreement.

            SECTION 4.10. LETTERS OF PARENT'S ACCOUNTANTS. Parent shall
diligently seek to cause to be delivered to the Company a letter of Ernst & Young LLP, Parent's independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and a
second bring-down letter, dated a date within two business days before the
Effective Time, in each case addressed to the Company and its board of
directors, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement. Parent and the Company shall diligently seek to cause
Ernst & Young LLP to deliver the letter referred to in Section 5.1(h).

            SECTION 4.11. NOTICES OF CERTAIN EVENTS. Each party hereto shall
promptly notify the other parties of:

            (a) the receipt by such party or any of such party's Subsidiaries of
      any notice or other communication from any Person alleging that the
      consent of such Person is or may be required in connection with the
      transactions contemplated by this Agreement;

            (b) the receipt by such party or any of such party's Subsidiaries of
      any notice or other communication from any Governmental Entity in
      connection with the transactions contemplated by this Agreement;

            (c) such party's obtaining knowledge of any actions, suits, claims,
      investigations or proceedings commenced or threatened against, relating to
      or involving or otherwise affecting any of Parent, Sub or the Company, as
      the case may 


                                      -52-


      be, or any of their respective Subsidiaries which relate to the
      consummation of the transactions contemplated by this Agreement; and

            (d) such party's obtaining knowledge of the occurrence, or failure
      to occur, of any event which occurrence or failure to occur will be likely
      to cause (A) any representation or warranty contained in this Agreement to
      be untrue or inaccurate in any material respect, or (B) any material
      failure of any party to comply with or satisfy any covenant, condition or
      agreement to be complied with or satisfied by it under this Agreement;
      PROVIDED, HOWEVER, that no such notification shall affect the
      representations, warranties or obligations of the parties or the
      conditions to the obligations of the parties hereunder.

            SECTION 4.12. HSR ACT. The Company and Parent shall, as soon as
practicable after the date of this Agreement, file Notification and Report Forms
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
shall use their reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.

            SECTION 4.13. INDEMNIFICATION; OFFICERS' AND DIRECTORS' Insurance.
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless each person who is now, or who becomes prior
to the Effective Time, an officer or director of the Company (the "Indemnified
Parties") against all losses, expenses, claims, damages, liabilities, costs,
expenses, judgments or amounts that are paid in settlement with the approval of
the indemnifying party (which approval will not be unreasonably withheld)
arising out of any action or omission of such Indemnified Party in his or her
capacity as an officer or director of the Company in connection with the
transactions contemplated by this Agreement to the fullest extent provided for
under the Company's Certificate of Incorporation and By Laws as in effect as of
the date hereof or permitted or required by applicable law, including without
limitation the advancement of expenses. Parent agrees that all rights to
indemnification existing in favor of the Indemnified Parties as provided in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time, and Parent hereby guarantees
the due and prompt performance in full of such indemnification obligations of
the Surviving Corporation. Parent agrees to use its best efforts to cause the
Surviving Corporation to maintain in effect for not less than three years after
the Effective Time the current policies of directors' and officers' liability
insurance maintained by the 


                                      -53-


Company with respect to matters occurring prior to the Effective Time; PROVIDED,
HOWEVER, that (i) the Surviving Corporation may substitute therefor policies of
at least the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to the
Indemnified Parties and (ii) the Surviving Corporation shall not be required to
pay a premium at a rate for such insurance in excess of 200% of the annual
premium rate represented by the last premium paid prior to the date hereof, but
in such case shall purchase as much coverage as possible for such amount and
(iii) any or all of the Indemnified Parties shall have the right to provide
funds to the Surviving Corporation to fund premiums to the extent they exceed
such 200% level.

            (b) The provisions of this Section 4.13 are intended for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
personal representatives.

            SECTION 4.14. EFFORTS. Each of the Company, Parent and Sub shall,
and shall cause each of their respective Subsidiaries to, cooperate and use
their reasonable efforts to take, or cause to be taken, all appropriate action,
and to make, or cause to be made, all filings necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
their reasonable efforts to (i) obtain, prior to the Closing Date, all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
Subsidiaries and Parent and its Subsidiaries and (ii) defend against and respond
to any action, suit, proceeding or investigation relating to the transactions
contemplated by this Agreement, in each case as are necessary for consummation
of the transactions contemplated by this Agreement and to fulfill the conditions
to the Merger.

            SECTION 4.15. RULE 145. Contemporaneously with the execution and
delivery of this Agreement, the Company is delivering to Parent a list of names
and addresses of those persons who are, in the Company's reasonable judgment,
"affiliates" (each such person, an "Affiliate") of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act. The Company shall use all reasonable efforts to deliver or cause
to be delivered to Parent, from each of the Affiliates of the Company identified
in the foregoing list (and from any Person who becomes, or could reasonably be
deemed to be, an Affiliate after the date of this Agreement), as promptly as
practicable after the date hereof (with respect to Persons identified on such
list), and no later than the date such Person becomes an Affiliate (with respect
to Persons who become Affiliates after the date hereof), an Affiliate Agreement
in the form attached hereto as Exhibit A (an "Affiliate Agreement"). Parent
shall be entitled to place 


                                      -54-


legends as specified in such Affiliate Agreements on the certificates evidencing
any Parent Shares to be received by such Affiliates pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Shares, consistent with the terms of such
Affiliate Agreements.

            SECTION 4.16. NO SOLICITATION. (a) The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any
officer or director of, or any investment banker, attorney or other advisor or
representative ("Representative") of, the Company or any of its Subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission or
announcement of any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect or
in response to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal; PROVIDED, HOWEVER, that if (1) neither the Company
nor any Subsidiary or Representative of the Company or any Subsidiary shall have
violated any of the restrictions set forth in this Section 4.16, (2) the Board
of Directors of the Company determines in good faith, based upon the advice of
outside counsel, that such action is required in order for the Board of
Directors of the Company to comply with its fiduciary duties to the Company's
stockholders under applicable law, and (3) the Company has given Parent the
notice referred to in Section 4.16(c) and at least two business days have
elapsed since the delivery to Parent of the notice and information referred to
in Section 4.16(c), then the Company may, prior to the adoption and approval of
this Agreement by the stockholders of the Company, in response to a Takeover
Proposal that has not been withdrawn and that (but for the inclusion of a "due
diligence condition" as part of such Takeover Proposal) constitutes a Superior
Proposal (as defined in Section 4.16(b)), furnish information with respect to
the Company to the Person who made such Takeover Proposal (but only information
that has been previously furnished by the Company to Parent or that the Company
simultaneously furnishes to both such Person and Parent) pursuant to a customary
confidentiality agreement (containing terms and provisions that are no less
favorable to and protective of the Company than the terms and provisions of the
Confidential Disclosure Agreement) and participate in discussions or
negotiations with such Person regarding such Takeover Proposal. Without limiting
the foregoing, it is understood that any violation of the restrictions set forth
in the preceding sentence by any officer or director of the Company or any of
its Subsidiaries or any investment banker, attorney or other advisor or other
Representative of the Company or any of its Subsidiaries, whether or not such
Person is purporting to act on behalf of the Company or any of its Subsidiaries
or otherwise, shall be deemed to be a breach of this Section 4.16(a) by the
Company. The Company shall immediately cease and cause to be 


                                      -55-


terminated any existing discussions or negotiations with any Person that relate
to any Takeover Proposal. For purposes of this Agreement, "Takeover Proposal"
means any (i) offer, inquiry or proposal for, relating to or contemplating a
merger, consolidation, amalgamation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer
or other similar transaction or series of transactions (A) in which the Company
or any of its material Subsidiaries is a constituent company, (B) in which a
Person or "group" (as defined in the Exchange Act and the rules promulgated
thereunder) of Persons directly or indirectly acquires the Company or any
material Subsidiary of the Company or more than 20% of the Company's business or
directly or indirectly acquires beneficial or record ownership of securities
representing, or exchangeable for or convertible into, more than 20% of the
outstanding securities of any class of voting securities of the Company or any
material Subsidiary of the Company, or (C) in which the Company or any material
Subsidiary of the Company issues securities representing more than 20% of the
outstanding securities of any class of voting securities of the Company or such
material Subsidiary of the Company, or (ii) offer, inquiry or proposal for,
relating to or contemplating a transaction (including any joint venture,
collaboration or similar transaction) involving the sale, lease, exchange,
transfer, license, acquisition or disposition or sharing of control of any
material portion of the intellectual property rights or other rights or assets
of the Company or any material Subsidiary of the Company, other than the
transactions contemplated by this Agreement.

            (b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose or resolve to withdraw or
modify, in a manner adverse to Parent or Sub, the approval or recommendation by
such Board of Directors or any such committee of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Takeover
Proposal or (iii) enter into any agreement or letter of intent with respect to
any Takeover Proposal. Notwithstanding the foregoing, in the event that, prior
to the adoption and approval of this Agreement by the stockholders of the
Company, (i) the Board of Directors of the Company receives a Superior Proposal
that is not withdrawn, (ii) neither the Company nor any Subsidiary or
Representative of the Company or any Subsidiary shall have violated any of the
restrictions set forth in this Section 4.16, (iii) the Board of Directors of the
Company concludes in good faith, based upon the advice of its outside counsel,
that, in light of such Superior Proposal, the withdrawal or modification of such
recommendation is required in order for the Board of Directors of the Company to
comply with its fiduciary obligations to the Company's stockholders under
applicable law, (iv) the Company shall have provided Parent with at least two
business days' prior notice of any meeting of the Company's Board of Directors
at which such Board of Directors is 


                                      -56-


expected to consider such Superior Proposal, and (v) the Company's Board of
Directors does not withdraw or modify its recommendation in favor of the Merger
for at least two business days after the Company provides Parent with the name
of the Person making such Superior Proposal and a copy of such Superior
Proposal, then the Board of Directors may appropriately withdraw or modify its
approval or recommendation of this Agreement or the Merger. Nothing contained in
this Section 4.16 shall limit the Company's obligation to call, give notice of,
convene and hold the Special Meeting (regardless of whether the recommendation
of the Board of Directors of the Company shall have been withdrawn or modified).
For purposes of this Agreement, a "Superior Proposal" means any unsolicited bona
fide written offer made by a third party (1) to enter into a merger or business
combination with the Company whereby the shares of Company Common Stock and
other equity securities of the Company that are outstanding immediately before
such merger or business combination shall be exchanged for or converted into
shares of common stock and other equity securities of such third party that (on
a fully diluted basis) represent less than 50% of the common stock of such third
party outstanding immediately after such merger or business combination or (2)
to purchase for cash or a combination of cash and securities more than 50% of
the outstanding shares of Company Common Stock (provided that, in cases in which
holders of Company Common Stock receive common stock or other equity securities
of a third party, such common stock and other securities represent less than 50%
of the common stock (on a fully diluted basis) of such third party outstanding
immediately after such transaction), in either case on terms which the Board of
Directors of the Company determines in its good faith reasonable judgment (based
upon the written opinion of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger;
PROVIDED, HOWEVER, that any such offer shall not be deemed to be a "Superior
Proposal" if any financing required to consummate the transaction contemplated
by such offer is not committed and is not likely to be obtained by such third
party on a timely basis.

            (c) In addition to the obligations of the Company set forth in
Sections 4.16(a) and (b) above, the Company shall promptly advise Parent orally
and in writing of any request for information or of any Takeover Proposal, or
any inquiry with respect to or which could reasonably be expected to lead to any
Takeover Proposal, the material terms and conditions of such request, Takeover
Proposal or inquiry, and the identity of the Person making any such Takeover
Proposal or inquiry. The Company shall use its best efforts to keep Parent fully
informed of the status and details of any such request, Takeover Proposal or
inquiry.

            SECTION 4.17. TAX REORGANIZATION. Prior to the Closing Date, each
party shall use its best efforts to cause the Merger to qualify as a
reorganization within the meaning of 


                                      -57-


Section 368(a) of the Code, and will not take any action reasonably likely to
cause the Merger not to so qualify.

            SECTION 4.18. CONVERTIBLE DEBENTURES. From and after the Effective
Time, Parent shall cause the Surviving Corporation to comply with the provisions
of the indenture dated as of July 31, 1997 between the Company and IBJ Schroder
Bank & Trust Company, a New York banking corporation, as trustee, in its
entirety, including without limitation Sections 1311 and 1401 therein.

            SECTION 4.19. WARRANTS. Prior to the Closing Date, the Company shall
comply with the provisions of each outstanding warrant to purchase Company
Common Stock. Without limiting the generality of the foregoing, the Company
shall, on a timely basis, provide all notices required under each such warrant.

                                   ARTICLE V.

                         CONDITIONS PRECEDENT TO MERGER

            SECTION 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT, SUB AND
THE COMPANY. The respective obligations of Parent and Sub, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the Effective
Time of each of the following conditions:

            (a) APPROVAL OF STOCKHOLDERS. This Agreement, the Merger and related
      transactions shall have been approved and adopted by the requisite vote or
      consent of the stockholders of the Company in accordance with applicable
      law and the Company's Certificate of Incorporation and By-Laws, and the
      issuance of Parent Shares in the Merger shall have been duly approved by
      the requisite vote or consent of the stockholders of Parent in accordance
      with the applicable rules of the National Association of Securities
      Dealers, Inc.

            (b) HSR ACT. Any waiting period (and any extension thereof) under
      the HSR Act applicable to the Merger shall have expired or been
      terminated.

            (c) NO RESTRAINTS. No preliminary or permanent injunction or other
      order shall have been issued by any court or by any governmental or
      regulatory agency, body or authority which enjoins, restrains or prohibits
      the transactions contemplated hereby, including the consummation of the
      Merger, or has the effect of making the Merger illegal and which is in
      effect at the Effective Time (each party agreeing to use its reasonable
      efforts to have any such injunction or order lifted).


                                      -58-


            (d) STATUTES. No statute, rule, regulation, executive order, decree
      or order of any kind shall have been enacted, entered, promulgated or
      enforced by any court or governmental authority which prohibits the
      consummation of the Merger or has the effect of making the Merger illegal
      and which remains in effect at the Effective Time.

            (e) NASDAQ NATIONAL MARKET QUOTATION. The Parent Shares issuable to
      Company stockholders pursuant to this Agreement shall have been approved
      for quotation on the Nasdaq National Market upon official notice of
      issuance.

            (f) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
      Statement shall have become effective in accordance with the provisions of
      the Securities Act and shall not be the subject of any stop order or
      proceedings seeking a stop order.

            (g) MARKET EVENTS. There shall not have occurred and be continuing
      any general suspension or limitation of trading in the Parent Shares
      (exclusive, however, of any temporary suspension or pending and ensuing
      public announcement) or in securities generally on the Nasdaq National
      Market.

            (h) ACCOUNTING TREATMENT. Parent shall have received a letter from
      Ernst & Young LLP (which may contain customary qualifications and
      assumptions) confirming the concurrence of Ernst & Young LLP with Parent's
      management's conclusion as to the appropriateness of accounting for the
      Merger as a pooling of interests if the Merger is consummated in
      accordance with this Agreement.

            SECTION 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB.
The obligations of Parent and Sub to effect the Merger are also subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:

            (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
      and warranties of the Company contained herein shall be true and correct
      in all material respects as of the date hereof and at and as of the
      Closing, with the same force and effect as though made on and as of the
      Closing Date unless the failure of such representations and warranties to
      be true and correct in all material respects does not, individually or in
      the aggregate, materially and adversely affect the value of the Company
      and its Subsidiaries taken as a whole, and Parent and Sub shall have
      received a certificate to this effect from a senior financial officer of
      the Company.

            (b) PERFORMANCE BY COMPANY. Except as otherwise agreed in writing,
      the Company shall have performed in all 


                                      -59-


      material respects all obligations and agreements, and complied in all
      material respects with all covenants, contained in this Agreement to be
      performed or complied with by it on or prior to the Closing Date, and
      Parent and Sub shall have received a certificate to this effect from a
      senior financial officer of the Company.

            (c) AFFILIATE AGREEMENTS. Each Person who could reasonably be deemed
      to be an "affiliate" of the Company (as that term is used in Rule 145
      under the Securities Act) shall have executed and delivered to Parent an
      Affiliate Agreement.

            (d) TAX OPINION. Parent shall have received the opinion of Cooley
      Godward LLP, counsel to Parent, to the effect that the Merger will be
      treated for United States federal income tax purposes as a reorganization
      within the meaning of Section 368(a) of the Code; PROVIDED, HOWEVER, that
      if Cooley Godward LLP does not render such opinion or withdraws or
      modifies such opinion, the condition set forth in this Section 5.2(d)
      shall nonetheless be deemed to be satisfied if Willkie Farr & Gallagher
      renders such opinion to Parent. In delivering its opinion, counsel shall
      be entitled to rely on the tax representation letters delivered pursuant
      to Section 4.5(a).

            (e) ACCOUNTANTS' LETTERS. Parent shall have received from Ernst & Young LLP the letters referred to in Section 4.9.

            (f) CONSENTS. All material consents required to be obtained (from
      Governmental Entities or other Persons) in connection with the Merger and
      the other transactions contemplated by this Agreement (including, without
      limitation, the consents identified in Schedule 3.1(d)(4)) shall have been
      obtained and shall be in full force and effect.

            (g) NO GOVERNMENTAL LITIGATION. There shall not be pending and there
      shall not have been threatened any action, suit or proceeding in which a
      Governmental Entity is or is threatened to become a party or is otherwise
      involved: (a) challenging or seeking to restrain or prohibit the
      consummation of the Merger or any of the other transactions contemplated
      by this Agreement; (b) relating to the Merger and seeking to obtain from
      Parent or any of its Subsidiaries, or the Company or any of the Company's
      Subsidiaries, any damages or other relief that are or are likely to be
      material to Parent; (c) seeking to prohibit or limit in any material
      respect Parent's ability to vote, receive dividends with respect to or
      otherwise exercise ownership rights with respect to the stock of the
      Surviving Corporation; or (d) which would materially and adversely 


                                      -60-


      affect the right of Parent, the Surviving Corporation or any of the
      Surviving Corporation's Subsidiaries to own the assets or operate the
      business of the Surviving Corporation and the Surviving Corporation's
      Subsidiaries.

            SECTION 5.3. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:

            (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
      and warranties of Parent and Sub contained herein shall be true and
      correct in all material respects as of the date hereof and at and as of
      the Closing, with the same force and effect as though made on and as of
      the Closing Date unless the failure of such representations and warranties
      to be true and correct in all material respects does not, individually or
      in the aggregate, materially and adversely affect the value of Parent and
      its Subsidiaries taken as a whole, and the Company shall have received a
      certificate to this effect from a senior financial officer of Parent.

            (b) PERFORMANCE BY PARENT AND SUB. Except as otherwise agreed in
      writing, each of Parent and Sub shall have performed in all material
      respects all obligations and agreements, and complied in all material
      respects with all covenants, contained in this Agreement to be performed
      or complied with by it on or prior to the Closing Date, and the Company
      shall have received a certificate to this effect from a senior financial
      officer of Parent.

            (c) TAX OPINION. The Company shall have received the opinion of
      Willkie Farr & Gallagher, counsel to the Company, to the effect that the
      Merger will be treated for United States federal income tax purposes as a
      reorganization within the meaning of Section 368(a) of the Code; PROVIDED,
      HOWEVER, that if Willkie Farr & Gallagher does not render such opinion or
      withdraws or modifies such opinion, the condition set forth in this
      Section 5.3(c) shall nonetheless be deemed to be satisfied if Cooley
      Godward LLP renders such opinion to the Company. In delivering its
      opinion, counsel shall be entitled to rely on the tax representation
      letters delivered pursuant to Section 4.5(a).

            (d)   REGISTRATION RIGHTS AGREEMENT.  At or prior to the
      Effective Time, Parent shall have executed and delivered a Registration
      Rights Agreement substantially in the form of Exhibit B hereto with
      Warburg, Pincus Investors, L.P. and Warburg, Pincus Capital Partners
      Liquidating Trust.

            (e) UNDERTAKINGS. Parent shall have delivered to the Company copies
      of undertakings executed by each of its 


                                      -61-


      executive officers and directors in substantially the form of Exhibit C
      hereto.

                                   ARTICLE VI.

                           TERMINATION AND ABANDONMENT

            SECTION 6.1. TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of the Company:

            (a) by mutual consent of the Company, on the one hand, and of Parent
      and Sub, on the other hand;

            (b) by either Parent or the Company, if the Effective Time shall not
      have occurred by September 30, 1999 (unless the failure to consummate the
      Merger is attributable to a failure on the part of the party seeking to
      terminate this Agreement to perform any material obligation required to be
      performed by such party at or prior to the Effective Time);

            (c) by Parent, if the required approval of the Company's
      stockholders shall not have been obtained by reason of the failure to
      obtain the required vote at a duly held meeting of stockholders or at any
      adjournment thereof;

            (d) by either Parent or the Company if the required approval of
      Parent's stockholders of the issuance of Parent Shares in the Merger shall
      not have been obtained by reason of the failure to obtain the required
      vote at a duly held meeting of stockholders or at any adjournment thereof;

            (e) by either Parent or the Company, if there shall be any law or
      regulation of any Governmental Entity that makes consummation of the
      Merger illegal or otherwise prohibited or if any judgment, injunction,
      order or decree of any Governmental Entity prohibiting such transaction is
      entered and such judgment, injunction, order or decree shall have become
      final and nonappealable;

            (f) by either Parent or the Company, if there has been a breach of
      any covenant or a breach of any representation or warranty on the part of
      the other, such that the condition set forth in Section 5.2(a) or Section
      5.2(b) (in the case of any termination by Parent) or the condition set
      forth in Section 5.3(a) or Section 5.3(b) (in the case of any termination
      by the Company) would not be satisfied; PROVIDED that any such breach of a
      covenant or representation or warranty has not been cured within 15


                                      -62-


      business days following receipt by the breaching party of notice hereunder
      of such breach;

            (g) by Parent, if the Special Meeting is canceled or is otherwise
      not held or if a final vote of the Company's stockholders has not been
      taken with respect to the Merger prior to September 15, 1999, except as a
      result of a judgment, injunction, order or decree of any competent
      authority or events or circumstances beyond the reasonable control of the
      Company; PROVIDED, HOWEVER, that such termination under this clause (g)
      shall not relieve the Company of its fee obligations under Section 7.1(c)
      hereof; or

            (h) by Parent, if (i) the Board of Directors of the Company shall
      have withdrawn or modified in a manner adverse to Parent its approval or
      recommendation to the Company's stockholders of this Agreement or the
      Merger; (ii) the Company shall have failed to include in the Joint Proxy
      Statement the recommendation of the Board of Directors of the Company in
      favor of the adoption and approval of this Agreement and the approval of
      the Merger; (iii) the Board of Directors of the Company shall have
      approved, endorsed or recommended any Takeover Proposal; (iv) a tender or
      exchange offer relating to securities of the Company shall have been
      commenced and the Company shall not have sent to its security holders,
      within ten business days after the commencement of such tender or exchange
      offer, a statement disclosing that the Company recommends rejection of
      such tender or exchange offer; (v) the Company breaches any of its
      obligations under Section 4.16 of this Agreement; (vi) subsequent to the
      date of this Agreement, a Person or "group" (as defined in the Exchange
      Act and the rules promulgated thereunder) of Persons directly or
      indirectly becomes the beneficial or record owner of securities
      representing, or exchangeable for or convertible into, at least 20% of the
      outstanding securities of any class of voting securities of the Company or
      any material Subsidiary of the Company; (vii) a Person or group of Persons
      that, as of the date of this Agreement, directly or indirectly is the
      beneficial or record owner of securities representing, or exchangeable for
      or convertible into, 20% or more of the outstanding securities of any
      class of voting securities of the Company or any material Subsidiary of
      the Company, directly or indirectly acquires beneficial or record
      ownership of an additional 5% of the outstanding securities of any class
      of voting securities of the Company or any material Subsidiary of the
      Company; or (viii) the Company or the Company's Board of Directors or any
      committee thereof shall have resolved to do or permit any of the
      foregoing; PROVIDED, HOWEVER, that such termination under this clause (h)
      shall not relieve the Company of its fee obligations under Section 7.1(c)
      hereof. For purposes of clause (vii) 


                                      -63-


      of this Section 6.1(h), a group shall be deemed to include, without
      limitation, all Persons who file a Statement or Statements on Schedule 13D
      as a group, whether or not such Persons disclaim the existence of a group
      and whether or not such Persons disclaim beneficial ownership of any
      securities.

            SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination
of this Agreement pursuant to Section 6.1 hereof by Parent or Sub, on the one
hand, or the Company, on the other hand, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement shall become void and have
no effect, and there shall be no liability hereunder on the part of Parent, Sub
or the Company, except that Sections 3.1(p), 3.2(l), 4.4, this Section 6.2 and
Article VII hereof shall survive any termination of this Agreement. Nothing in
this Section 6.2 shall relieve any party to this Agreement of liability for
breach of this Agreement or for representations which were incorrect when made.

                                  ARTICLE VII.

                                  MISCELLANEOUS

            SECTION 7.1. FEES AND EXPENSES. (a) Except as provided below in this
Section 7.1, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party (the Company, on the one hand, or Parent and Sub, on the other hand)
incurring such fees or expenses, whether or not the Merger is consummated;
PROVIDED, HOWEVER, that (i) Parent and the Company shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with (A) the
filing, printing and mailing of the Registration Statement and the Joint Proxy
Statement and any amendments or supplements thereto and (B) the filing by Parent
and the Company of the premerger notification and report forms relating to the
Merger under the HSR Act.

            (b) If this Agreement is terminated by Parent pursuant to
Sections 6.1(c), 6.1(f), 6.1(g) or 6.1(h), the Company shall pay, or cause to be
paid, in same day funds to Parent upon demand, all actual out-of-pocket costs
and expenses of Parent and Sub incurred in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, legal,
professional and service fees and expenses. If this Agreement is terminated by
the Company pursuant to Section 6.1(f), Parent shall pay, or cause to be paid,
in same day funds to the Company upon demand, all actual out-of-pocket costs and
expenses of the Company incurred in connection with this Agreement and the
transactions contemplated hereby, 


                                      -64-


including, without limitation, legal, professional and service fees and
expenses.

            (c) The Company shall pay, or cause to be paid, in same day funds to
Parent upon demand (in addition to any amount required to be paid pursuant to
Section 7.1(a) or 7.1(b)) a fee of $18,000,000 if:

            (i) this Agreement is terminated pursuant to Section 6.1(c) and at
or prior to the time of such termination a Takeover Proposal shall have been
disclosed, announced, commenced, submitted or made; or

            (ii) this Agreement is terminated by Parent pursuant to Section
6.1(g) or 6.1(h).

            (d) Parent shall pay, or cause to be paid, in same day funds to the
Company upon demand (in addition to any amount required to be paid pursuant to
Section 7.1(a)) a fee of $5,000,000 if (i) this Agreement is terminated by the
Company pursuant to Section 6.1(d) and (ii) there shall not have occurred, and
no facts, events or circumstances shall have been publicly announced that are
likely to result in, a material adverse change in the Condition of the Company
and its Subsidiaries taken as a whole.

            SECTION 7.2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
respective representations and warranties of the Company, on the one hand, and
Parent and Sub, on the other hand, contained herein or in any certificates or
other documents delivered prior to or at the Closing shall not be deemed waived
or otherwise affected by any investigation made by any party. Each and every
such representation and warranty and all agreements contained herein shall
expire with, and be terminated and extinguished by, the Closing and thereafter
none of the Company, Parent or Sub shall be under any liability whatsoever with
respect to any such representation or warranty or agreement except those
contained in Sections 2.2, 2.3, 2.5, 4.4, 4.13 and Article VII. This Section 7.2
shall have no effect upon any other obligation of the parties hereto, whether to
be performed before or after the Effective Time.

            SECTION 7.3. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken by or on behalf of the respective
Boards of Directors of the Company, Parent or Sub, may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (iii)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid 


                                      -65-


only if set forth in an instrument in writing signed on behalf of such party.
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.

            SECTION 7.4. PUBLIC ANNOUNCEMENTS. The Company, on the one hand, and
Parent and Sub, on the other hand, agree to consult promptly with each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation and
review by the other party of a copy of such release or statement (the comments
of such party to be given reasonable consideration), unless such disclosure is
required by applicable law or the rules or regulations of any applicable
securities exchange or the Nasdaq National Market.

            SECTION 7.5. NOTICES. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
Person or mailed, certified or registered mail with postage prepaid, or sent by
telex, telegram or telecopier, as follows:

            if to the Company, to it at:

                  NeXstar Pharmaceuticals, Inc.
                  3035 Centre Green Drive
                  Boulder, CO 80301
                  Attention:  Chief Financial Officer
                  Telecopy No.:  (303) 413-5311

            with a copy to:

                  Willkie Farr & Gallagher
                  787 Seventh Avenue
                  New York, New York 10019
                  Attention: Peter H. Jakes, Esq.
                  Telecopy No.: (212) 728-8111

            if to either Parent or Sub, to it at:

                  Gilead Sciences, Inc.
                  333 Lakeside Drive
                  Foster City, CA 94404
                  Attention: General Counsel
                  Telecopy No.: (650) 522-5622


                                      -66-


            with a copy to:

                  Cooley Godward LLP
                  Five Palo Alto Square
                  3000 El Camino Real
                  Palo Alto, CA 94306-2155
                  Attention: Richard E. Climan, Esq.
                  Telecopy No.: (650) 857-0663

or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless mailed, in which case on the third business day (fifth business
day, if mailed outside the country of the recipient) after the mailing thereof
except for a notice of a change of address, which shall be effective only upon
receipt thereof.

            SECTION 7.6. ENTIRE AGREEMENT. This Agreement, the schedules and the
exhibits and other documents referred to herein or delivered pursuant hereto
collectively contain the entire understanding of the parties hereto with respect
to the subject matter contained herein and therein and supersede all prior
agreements and understandings, oral and written, with respect thereto; PROVIDED,
HOWEVER, that the Confidential Disclosure Agreement is not superseded by this
Agreement and shall remain in full force and effect in accordance with its
terms.

            SECTION 7.7. BINDING EFFECT; BENEFIT; ASSIGNMENT. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any Person other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement;
provided that the Indemnified Parties shall be third-party beneficiaries of
Parent's agreement contained in Section 4.13 hereof.

            SECTION 7.8. AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified and supplemented, or provisions hereof
waived, in writing by the parties hereto in any and all respects before the
Effective Time (notwithstanding any stockholder approval), by action taken by
the respective Boards of Directors of Parent, Sub and the Company or by the
respective officers authorized by such Boards of Directors, PROVIDED, HOWEVER,
that after any such stockholder approval, no amendment, modification, supplement
or waiver shall be made which by law requires further approval by such


                                      -67-


stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.

            SECTION 7.9. FURTHER ACTIONS. Each of the parties hereto agrees
that, subject to its legal obligations, it will use its reasonable efforts to
fulfill all conditions precedent specified herein, to the extent that such
conditions are within its control, and to do all things reasonably necessary to
consummate the transactions contemplated hereby.

            SECTION 7.10. HEADINGS. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only, do
not constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.

            SECTION 7.11. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument.

            SECTION 7.12. APPLICABLE LAW. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflict of laws rules
thereof.

            SECTION 7.13. SEVERABILITY. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.

            SECTION 7.14. ENFORCEMENT OF AGREEMENT. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.

            SECTION 7.15. "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a partnership, a
limited liability company, a trust, an unincorporated organization and a
government or other department or agency thereof.

            SECTION 7.16. SUBMISSION TO JURISDICTION. With respect to any suit,
action or proceeding initiated by a party to 


                                      -68-


this Agreement arising out of, under or in connection with this Agreement, the
Company, Parent and Sub each hereby submit to the non-exclusive jurisdiction of
any state or federal court sitting in the State of Delaware and irrevocably
waive, to the fullest extent permitted by law, any objection that they may now
have or hereafter obtain to the laying of venue in any such court in any such
suit, action or proceeding.

            SECTION 7.17. SUBSIDIARIES. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation or other
organization or entity, whether incorporated or unincorporated, of which such
party directly or indirectly owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner.


                                      -69-


            IN WITNESS WHEREOF, each of Parent, Sub and the Company has caused
this Agreement to be executed by their respective officers or directors
thereunto duly authorized, all as of the date first above written.

                                    GILEAD SCIENCES, INC.


                                    /s/ MARK L. PERRY
                                    --------------------------------
                                    By: Mark L. Perry
                                    Title: Senior Vice President and
                                           Chief Financial Officer

                                    GAZELLE ACQUISITION SUB, INC.


                                    /s/ MARK L. PERRY
                                    --------------------------------
                                    By: Mark L. Perry
                                    Title: Secretary

                                    NEXSTAR PHARMACEUTICALS, INC.

                                    /s/ MICHAEL E. HART
                                    --------------------------------
                                    By: Michael E. Hart
                                    Title: Vice President and Chief
                                           Financial Officer