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Research and Development Services Agreement - Bio-Technology General Corp. and Bio-Technology General (Israel) Ltd.


            THIS AGREEMENT, made and entered into as of this 1st day of January,
1996, by and between BIO-TECHNOLOGY GENERAL CORP., a Delaware corporation ('BTG
U.S.'), and BIO-TECHNOLOGY GENERAL (ISRAEL) LTD., an Israeli corporation ('BTG

                              W I T N E S S E T H :

            WHEREAS, BTG ISRAEL has experience in the research and development
of genetically engineered and other products and has the facilities, equipment
and employees that will permit it to carry out research and development
activities on behalf of BTG U.S.; and

            WHEREAS, BTG U.S. has engaged BTG ISRAEL to render research and
development services to BTG U.S. in connection with BTG U.S.' research and
development activities, and BTG ISRAEL is willing to provide such services; and

            WHEREAS, BTG U.S. and BTG ISRAEL desire to amend and restate the
terms under which BTG ISRAEL will continue to provide research and development
services to BTG U.S.

            NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

            1.    Definitions. The following terms used in this Agreement shall
have the meanings set forth below:

            1.1. 'Affiliate' shall mean an entity or person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, BTG U.S. For this purpose 'control' means the direct
or indirect beneficial ownership of fifty percent (50%) or more of an entity's
voting stock or equity.

            1.2. 'Chief Scientist' shall mean the office of the Chief Scientist
of the State of Israel or any successor entity.

            1.3. 'Margin' shall mean a specified percentage of Reimbursable
Costs determined annually by good faith negotiation between BTG ISRAEL and BTG
U.S. based upon the percentage an unrelated party would charge BTG U.S. on an
arms' length basis for the services rendered by BTG ISRAEL hereunder.


            1.4. 'Principal Investigators' shall mean those scientists and
technicians at Research Institutions who engage or participate in the conduct or
supervision of a Sponsored Research Program.

            1.5. 'Product' shall mean each and every product which embodies or
is manufactured by the use of, or which contains components which embody or are
produced by, the Technology.

            1.6. 'Reimbursable Costs' shall mean all direct and indirect costs
(including without limitation an allocable share of BTG ISRAEL's administrative
expenses) incurred by BTG ISRAEL in conducting the Sponsored Research Program or
in providing technical assistance pursuant to Section 4 hereof, all as
determined in accordance with United States generally accepted accounting
principles. Such costs shall include, without limitation, salaries and wages,
payroll taxes, contract labor, fringe benefits, facilities (including leasehold
improvements) and equipment repair and maintenance expenses, recruitment and
relocation expenses, communication expense, supplies, development and prototype
materials, freight and transportation, training, education, travel expenses,
data processing costs, license fees, insurance, professional or other outside
purchased services (including, without limitation, services performed by the
Principal Investigators), depreciation and amortization of, and financing
charges for, capital acquisitions made on or after January 1, 1994, sales and
use taxes, and periodic lease payments under capital or financing leases of
assets acquired by BTG ISRAEL or any Research Institution for use in conducting
the Sponsored Research Program. Such costs shall not include any exchange losses
incurred as a result of any fluctuation in the rate of exchange between the
Israel Shekel and the U.S. dollar. BTG ISRAEL shall document the allocation of
indirect costs, which allocations shall be submitted to BTG U.S. for its review
and approval, which approval shall not be unreasonably withheld. Such allocation
of indirect costs shall be reviewed by the parties from time to time to
determine whether such allocation should be revised. Notwithstanding the
foregoing, Reimbursable Costs shall not include the direct and indirect costs of
the Sponsored Research Program which are funded by the Chief Scientist unless
and until BTG ISRAEL is obligated to reimburse the Chief Scientist for such
funding, in which event Reimbursable Costs shall include the amounts due the
Chief Scientist in respect of such Sponsored Research Program, up to 100% of the
amount of the Sponsored Research Program funded by the Chief Scientist
(denominated in U.S. Dollars). All third party costs shall be charged to BTG
U.S. in an amount equal to the payments made by BTG ISRAEL to any such third
party in respect of the research and development.

            1.7. 'Research Institutions' shall mean those universities, research
institutions and other organizations which, pursuant to written agreements with
BTG ISRAEL, will undertake to conduct, supervise or participate in a Sponsored
Research Program.

            1.8. 'Sponsored Research Program' shall mean a research and
development program which is conducted by BTG ISRAEL or by one or more Research
Institution(s) under an agreement with BTG ISRAEL pursuant to the terms and
conditions of this Agreement.


            1.9. 'Technology' shall mean all information and know-how (general
and specific) including, without limitation, developments, discoveries,
inventions, improvements, designs, methods, processes, techniques, devices,
formulae and trade secrets which hereafter are developed, acquired, conceived,
result from or arise in connection with a Sponsored Research Program.

            2.    Research and Development Services.

            2.1. From time to time during the term of this Agreement, BTG ISRAEL
agrees to undertake, at BTG U.S.'s request, Sponsored Research Programs in
accordance with the terms of this Agreement. Each such Sponsored Research
Program shall be initiated by the submission by BTG U.S. to BTG ISRAEL of a
written proposed project plan which shall include:

                  (i) the estimated budget for the first year of the Sponsored
            Research Program; and

                  (ii) a proposed development plan setting forth the activities
            to be carried out, the objectives sought to be achieved, and the
            projected duration of the Sponsored Research Program.

Any such Sponsored Research Program shall be considered effective and in full
force upon written concurrence thereto from an authorized representative of both
parties. BTG U.S. may make changes to and amend the Sponsored Research Program
and the project plan from time to time after consulting with BTG ISRAEL.

            BTG ISRAEL hereby agrees to use its best efforts to accomplish the
research contemplated by such Sponsored Research Program, directly and/or by
arrangement with Research Institutions, including without limitation expending
sufficient time and effort and allocating sufficient staff, but does not
guarantee or warrant the results of the Sponsored Research Program.

            2.2. At least ninety (90) days prior to the end of the first year of
any Sponsored Research Program (or any subsequent year if any Sponsored Research
Program is extended), BTG ISRAEL and BTG U.S. shall commence good faith
discussions of the budget and any revisions in the project plan with the intent
of establishing a one-year budget therefor no later than sixty (60) days prior
to the end of the current year.

            2.3. During the term of this Agreement, BTG ISRAEL shall devote such
time and effort to the performance of services pursuant to this Agreement as may
be necessary or appropriate to fulfill its duties as described in Section 2;
however, it is specifically understood and agreed by BTG U.S. that BTG ISRAEL
shall not be required to devote full time to such services and that BTG ISRAEL
shall have the right to engage in its own research and development activities,
which may include research and development activities which may be competitive
with the Sponsored Research Programs and in other business activities with other
persons, and BTG U.S. shall not, by virtue of this


Agreement, have any right, title or interest in or to such independent
activities or to the income or profits derived therefrom and, without limiting
BTG ISRAEL's obligation to use commercially reasonable efforts to provide
certain services hereunder, nothing set forth in this Agreement shall limit or
reduce the ability of BTG ISRAEL to carry on such other activities.

            2.4. BTG ISRAEL shall maintain its research and development
facilities, and shall conduct its research and development services, in
accordance with Good Laboratory Practices as required from time to time.

            3.    Payment for Services.

            3.1. As compensation for the services to be performed by BTG ISRAEL
hereunder on behalf of BTG U.S., BTG U.S. agrees to pay to BTG ISRAEL its
Reimbursable Costs incurred in each Sponsored Research Program, all as set forth
in this Section 3, plus the Margin.

            3.2. At the beginning of each fiscal quarter, BTG U.S. shall advance
to BTG ISRAEL one quarter of the total budget for each Sponsored Research
Program for the fiscal year or such other amount as indicated in the budget for
the particular quarter. Within thirty (30) days after the end of each quarter,
BTG ISRAEL shall furnish to BTG U.S. a written report of its Reimbursable Costs
for each Sponsored Research Program for that quarter. If the Reimbursable Costs
plus the Margin exceed the advance, BTG U.S. shall promptly pay the difference
to BTG ISRAEL; if such Reimbursable Costs plus the Margin are less than the
advance, such difference shall be credited in U.S. dollars toward the advance
for the subsequent fiscal quarter. All revenue received by BTG ISRAEL from
pre-commercial sales of products in accordance with Section 5 hereof shall be
treated as an advance to BTG ISRAEL pursuant to this Section 3 and shall be
credited in U.S. Dollars toward the advance for the subsequent fiscal quarter
due BTG ISRAEL pursuant to this Section 3.

            BTG ISRAEL shall keep full and true books of account and other
records in sufficient detail so that the Reimbursable Costs payable to BTG
ISRAEL hereunder can be properly ascertained. BTG ISRAEL agrees, at the request
of and expense of BTG U.S., to permit an independent certified public accountant
selected by BTG U.S. (except one to whom BTG ISRAEL has some reasonable
objection) to have access, once each calendar year, during ordinary business
hours, to such books and records as may be necessary to determine in respect to
invoices for Reimbursable Costs delivered not more than two (2) years prior to
the date of such request the correctness of any determination of the
Reimbursable Costs contained in such invoice, but in no event shall any invoice
be reviewed more than once. The basis for any determination of such accountant
shall be made available for review and comment by BTG ISRAEL and reconsidered if
BTG ISRAEL so requests, and a further determination made at BTG ISRAEL's expense
by another nationally recognized independent certified public accountant
selected by BTG U.S. from among three proposed by BTG ISRAEL and such accountant
shall make a final determination. Such final determination shall be binding upon
the parties hereto.


            3.3. BTG ISRAEL shall use its reasonable best efforts to obtain
funding on an annual basis for a portion of each Sponsored Research Program from
the Chief Scientist.

            3.4. BTG U.S. shall bear all risks of loss attributable to the
research and development activities performed on its behalf by BTG ISRAEL. BTG
ISRAEL shall be entitled to retain the entire amount of Reimbursable Costs plus
the Margin received pursuant to this Section, whether or not the research and
development work is successful and accomplished the results contemplated by any
Sponsored Research Program.

            4.    Technical Assistance. BTG ISRAEL agrees to make available to
BTG U.S. or its designee, at reasonable times and places and on reasonable
notice, the services of technical personnel to consult with, instruct and assist
BTG U.S. or its designee in utilizing the Technology.

            5.    Pre-Commercial Sales. BTG ISRAEL shall, at the request of BTG
U.S., sell products to third parties who have obtained license or distribution
rights in respect of such products for use by such third parties in conducting
clinical tests and obtaining regulatory approval to market such products. All
amounts received by BTG ISRAEL in respect of such sales shall, for purposes of
this Agreement, be treated as advances of payments due BTG ISRAEL hereunder.

            6.    Reports and Records.

            6.1. BTG ISRAEL shall furnish BTG U.S. within sixty (60) days of the
end of each of BTG ISRAEL's fiscal quarters a report in such reasonable detail
as BTG U.S. may request setting forth:

                  (a) the work performed by BTG ISRAEL during such quarter with
            respect to such Sponsored Research Program; and

                  (b) the status of such Sponsored Research Program at the end
            of such quarter.

In addition, BTG ISRAEL shall furnish to BTG U.S. such information regarding the
status of the sponsored Research Program as BTG U.S. may from time to time
reasonably request.

            6.2. Within ninety (90) days after the completion of such Sponsored
Research Program, BTG ISRAEL shall provide to BTG U.S. a final report in such
reasonable detail as BTG U.S. may request setting forth all Reimbursable Costs
incurred by BTG ISRAEL in connection therewith.

            6.3. BTG ISRAEL shall keep complete, accurate and authentic
accounts, notes, data and records relating to such Sponsored Research Program in
the manner and form approved by


BTG U.S. Such accounts, notes, data and records shall be available for
inspection and copying by BTG U.S. and its authorized representative during
regular business hours.

            6.4. BTG ISRAEL shall provide to BTG U.S. such data and information
resulting from its conduct of the Sponsored Research Program and such reasonable
assistance as BTG U.S. may reasonably require in connection with preparing
applications required for governmental approval of, and obtaining approval of,
the use, marketing and distribution of the product(s) resulting from the
Sponsored Research Program.

            7.    Ownership and Patents.

            7.1. BTG U.S. shall have exclusive right, title and interest in and
to the Technology, and BTG ISRAEL shall have no rights with respect thereto. The
parties hereto recognize and agree that BTG ISRAEL is merely rendering research
and development services to BTG U.S., and that BTG U.S. is the developer of the

            Nothing herein is intended to derogate from BTG ISRAEL's ownership
of the real property, tools, machinery and equipment acquired by it in
furtherance of, or incidental to, any Sponsored Research Program, whether or not
the research and development work is successful and accomplishes the results
contemplated by any such Sponsored Research Program.

            7.2. Any patent applications or patents for the Technology shall be
owned by BTG U.S., and BTG ISRAEL shall have no rights with respect thereto. BTG
U.S. shall have sole control over filing and prosecuting applications for United
States and foreign patents covering the Technology and shall file and prosecute
the same in BTG U.S.'s name. The cost for all such filings and prosecutions
shall be borne by BTG U.S. BTG ISRAEL agrees to use its best efforts to cause
each of its employees and consultants and each Research Institution (and each
Principal Investigator thereat) working on a Sponsored Research Program to enter
into a binding written agreement, reasonably acceptable to BTG U.S., to the
effect that (i) if such person is a sole inventor or joint inventor of
Technology, such employee, consultant or Principal Investigator will, without
further compensation, provide BTG U.S. with the necessary authorizations, powers
of attorney and other documents and assistance reasonably requested by BTG U.S.
to secure and maintain BTG U.S.'s patent rights in the United States and/or
foreign countries and (ii) such person shall safeguard the secrecy and
confidentiality of, and the proprietary rights of BTG U.S. in and to, the
Technology and any information relating thereto, and to use the Technology and
any information relating thereto solely in connection with such Sponsored
Research Program. BTG ISRAEL will use its reasonable efforts to cause such
employee(s), consultant(s), Research Institution(s) and Principal
Investigator(s) to fulfill their obligations under such agreements.

            Notwithstanding anything herein to the contrary, the parties
acknowledge that under certain agreements previously entered into by BTG ISRAEL
with Research Institutions, patent rights with respect to certain Technology
are, and will continue to be, owned by such Research Institutions.


            7.3. Within sixty (60) days of (i) delivering a certificate signed
by an officer of BTG ISRAEL certifying completion of a Sponsored Research
Program or (ii) termination of such Sponsored Research Program pursuant to
Section 9 hereof, BTG ISRAEL will transfer and deliver to BTG U.S. all property
and property rights in which BTG U.S. has ownership rights pursuant to Section
7.1 above held by or under the control of BTG ISRAEL relating to such Sponsored
Research Program.

            8.    Disclosure of Information.

            8.1. BTG ISRAEL shall not furnish copies of documents, patents,
patent applications, copyrights, drawings, specifications, bills of materials,
devices, equipment, prototypes and other information relating to the Technology
other than as contemplated by this Agreement and shall not, without prior
written approval of BTG U.S., disclose such information to any third party
except to the extent that such disclosure is necessary to BTG ISRAEL's
performance of a Sponsored Research Program, and then only if (i) such
disclosure is subject to the same limitations on the recipient as on BTG ISRAEL,
and (ii) such limitations are set forth in a written agreement in form and
substance satisfactory to BTG U.S.

            8.2. Unless previously so delivered, within sixty (60) days after
the termination of this Agreement for any reason, BTG ISRAEL shall deliver to
BTG U.S. all information and all other property in which BTG U.S. has ownership
rights pursuant to Section 7 of this Agreement.

            8.3. No publication with respect to any activity undertaken pursuant
to any Sponsored Research Program shall be made, nor any manuscript submitted
for publication, without the prior review and written approval of BTG U.S.

            8.4. The parties hereto agree that remedies at law may be inadequate
to protect against the breach of this Section 8, and in any case of such a
breach BTG ISRAEL hereby consents to the granting of injunctive relief, whether
temporary, preliminary or final, in favor of BTG U.S. without proof of actual

            8.5. The provisions of this Section 8 shall survive the termination
of this Agreement notwithstanding the reason for such termination.

            9.    Term and Termination.

            9.1. This Agreement shall commence as of the date first written
above, and shall continue in full force and effect unless terminated pursuant to
this Section 9.

            9.2. This Agreement shall terminate upon:

                  (a) the mutual consent of the parties hereto; or


                  (b) a party sending notice to the other party of termination
            of this Agreement upon the occurrence of any of the following

                        (i) the other party institutes bankruptcy, insolvency,
                  liquidation or receivership proceedings or proceedings for
                  reorganization under bankruptcy or comparable laws;

                        (ii) a petition is filed against the other party for any
                  such proceedings listed in (i) above, the effectiveness of
                  which is not stayed or dismissed within ninety (90) days after
                  the filing thereof;

                        (iii) the other party shall make a general assignment
                  for the benefit of creditors; or

                        (iv) the other party shall commit any material breach of
                  any of the terms or conditions hereof, and also shall fail to
                  remedy such default or breach within ninety (90) days after
                  receipt of written notice thereof from the other party.

            9.3. Notwithstanding the termination of this Agreement as provided
in this Section 9, the rights and obligations of the parties under Sections 7
and 8 hereof shall survive such termination and remain in full force and effect.

            10.   Research Institutions and Principal Investigators. BTG ISRAEL
may enter into agreements with Research Institutions whereby such institutions
and/or the Principal Investigators undertake to perform all or any portion of a
Sponsored Research Program; provided, however, that (except with prior written
approval of BTG U.S.) no such agreement shall contain any provision which
restricts the rights conferred upon BTG U.S. hereunder or diminishes the
obligations of BTG ISRAEL hereunder which would be required to be performed by
BTG ISRAEL if no such agreement had been made. Nothing in this Section 10 is
intended to derogate from the provisions of Section 7.2.

            11.   Relationship of the Parties. Nothing in this Agreement or in
the performance hereof shall have the effect of making BTG U.S. and BTG ISRAEL
partners, joint venturers or each other's agents, and neither shall have the
right to act on behalf of or bind the other except as expressly provided
hereunder or otherwise expressly agreed in writing, and each party shall
indemnify and hold harmless the other against and from any liability arising
from any such act by such party. BTG ISRAEL will render the research and
development services provided for herein as an independent contractor.

            12.   Headings. All section headings used in this Agreement are
solely for the convenience of the parties and shall not affect the meaning or
interpretation of the provisions thereof.


            13.   Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York (not including its choice of law principles). The parties hereto submit to
the exclusive jurisdiction and venue of the Supreme Court of the State of New
York and the Federal District Court for the Southern District of New York for
purposes of any legal action arising out of this Agreement.

            14.   Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and replaces all prior agreements, understandings, writings and
discussions between the parties, including without limitation that certain
Research and Development Services Agreement, dated as of May 9, 1983, and that
certain Amended and Restated Research and Development Services Agreement, dated
as of December 28, 1995.

            15.   Amendment; Nonwaiver. This Agreement, and any of the terms
hereof, shall not be modified, amended or waived except by a written instrument
executed by the parties or, in the case of a waiver, by the waiving party. The
failure of either party at any time to require performance of any term hereof
shall not affect its right at a later time to enforce such term. The waiver by
either party of any condition or term hereof in any one or more instances shall
not be construed as a further or continuing waiver of such condition or term.

            16.   Unenforceable Provision. If any provision of this Agreement
is, or becomes or is deemed to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be deemed amended to conform
to applicable laws so as to be valid and enforceable or, if it cannot be so
amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and

            In case any one or more of the provisions contained in this
Agreement shall be held invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such provision or
provisions shall not in any way be affected or impaired thereby in any other
jurisdiction; and the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be otherwise affected or
impaired thereby.

            17.   Notices. All notices and other communications required or
desired to be given or sent by one party to the other party shall be in writing,
in the English language, and shall be deemed to have been given (a) on the date
of delivery, if delivered to the persons identified below, (b) five calendar
days after mailing if mailed, with proper postage, by certified or registered
airmail, postage prepaid, return receipt requested, addressed as set forth
below, (c) on the date of receipt if sent by telex or telecopy, and confirmed in
writing in the manner set forth in (b) on or before the next day after the
sending of the telex or telecopy, or (d) two business days after delivered to an
internationally recognized overnight courier service marked for overnight
delivery, as follows:


            To BTG U.S.:            Bio-Technology General Corp.
                                    70 Wood Avenue South
                                    Iselin, New Jersey 08830
                                    Attn:  President
                                    Telecopier:  908-632-8844

            To BTG ISRAEL:          Bio-Technology General (Israel) Ltd.
                                    Kiryat Weizmann
                                    Rehovot 76326, Israel
                                    Attn:  President
                                    Telecopier:  972-8-409041

            Any party may change such party's address for notices by notice duly
given pursuant to this Section 17.

            18.   Assignment. Neither this Agreement nor any right or obligation
arising hereunder may be assigned by BTG ISRAEL in whole or in part, without the
prior written consent of BTG U.S., which consent may be withheld in the absolute
discretion of BTG U.S. BTG U.S. may, upon written notice to BTG ISRAEL, assign
this Agreement or any part hereof without the prior consent of BTG ISRAEL,
subject to any limitation imposed by any agreement (approved by BTG U.S.) to
which BTG ISRAEL is a party. This Agreement shall be binding upon any assignee
and, subject to the restrictions on assignment herein set forth, inure to the
benefit of the successors and assigns of each of the parties hereto.

            19.   Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original; but such counterparts
shall together constitute but one and the same instrument.


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

                              BIO-TECHNOLOGY GENERAL CORP.

                              By:   /s/


                              BIO-TECHNOLOGY GENERAL (ISRAEL) LTD.

                              By:   /s/


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