Filing

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-SB

GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

BIOKEYS PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its charter)

DELAWARE 84-1318182
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization

9948 HIBERT ST., SUITE 100
SAN DIEGO, CALIFORNIA 92131
(Address of principal executive offices) (Zip Code)

Registrant's telephone number: (858) 271-9671

SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Common Stock, par value $0.001
(Title of Class)

TABLE OF CONTENTS

PART I
PAGE
Item 1. Description of Business.............................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................17
Item 3. Description of Property............................................29
Item 4. Security Ownership of Certain Beneficial Owners and Management.....29
Item 5. Directors, Executive Officers, Promoters and Control Persons.......32
Item 6. Executive Compensation.............................................35
Item 7. Certain Relationships and Related Transactions.....................36
Item 8. Description of Securities..........................................36

PART II

Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters............................39
Item 2. Legal Proceedings..................................................40
Item 3. Changes in and Disagreements With Accountants......................40
Item 4. Recent Sales of Unregistered Securities............................40
Item 5. Indemnification of Directors and Officers..........................41

PART F/S

Financial Statements..........................................................44

PART III

Item 1. Index to Exhibits..................................................

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY BACKGROUND

Biokeys Pharmaceuticals, Inc. and its wholly owned subsidiary, Biokeys,
Inc. (which we refer to collectively as the "Company" or "we") are a biomedical
research and development business focused on treatments for cancer and viral
infections. Our business is in the development stage, meaning that we have not
generated any significant revenues and we have not yet marketed any product.
Through our license agreements with the University of Texas M.D. Anderson Cancer
Center (referred to as "M.D. Anderson") and the University of Southern
California (referred to as "USC"), we have development, commercialization,
manufacturing and marketing rights to a number of drug candidates in the fields
of antiviral and anti cancer therapy, which are in varying stages of
development. Our goal is to become a leading developer of drug therapies for
HIV/AIDS, HPV (human papillomavirus) and cancer.

Until our recent merger with Biokeys, Inc., a privately held biomedical
research and development company based in San Diego, California, our parent
company was known as BioQuest, Inc. When our merger was completed on October 10,
2000, Biokeys, Inc. became a wholly-owned subsidiary of BioQuest, Inc., and
BioQuest, Inc. changed its name to Biokeys Pharmaceuticals, Inc. In the merger,
the shareholders of Biokeys, Inc. received Common Stock in our parent company
equal to 50% of the total Common Stock of the parent company outstanding at the
consummation of the merger.

Since the date of the merger, we have maintained two offices. Our
principal executive office is located at 9948 Hibert Street, Suite 100, San
Diego, California 92131, (telephone number 858/271-9671). We also maintain an
office at 333 N. Sam Houston Parkway, Suite 1035, Houston, TX 77060 (telephone
number 281/272-0000) where a number of administrative and financial functions
are carried out. We also maintain a website located at WWW.BIOKEYS.COM, but the
information on our website is not part of this registration statement.

Our Common Stock has been traded in the over-the-counter market and
quoted in the "pink sheets" under the ticker symbol "BKYS." (See Part II, Item 1
below.)

COMPANY TECHNOLOGIES UNDER DEVELOPMENT

We have six potential drug products in development:

PRODUCT LINE FOCUS APPLICATION
CoFactor(TM) Anticancer 5-FU biomodulator
Selone(TM) Anticancer alkylating agent for drug-resistant cancers
EradicAide(TM) Antiviral HIV/AIDS prophylactic and therapeutic agent
BlockAide/CR(TM) Antiviral HIV/AIDS therapeutic agent
BlockAide/VP(TM) Antiviral HIV/AIDS therapeutic agent
Thiovir(TM) Antiviral broad-spectrum agent for human papillomaviruses
and other viral infections

COFACTOR

CoFactor (5,10-methylenetetrahydrofolate) is a patented new drug which
greatly improves the performance of 5-FU (5-Fluorouracil) and other
fluoropyrimidines commonly used in cancer chemotherapy. It was developed by
researchers at USC in Los Angeles and at the Sahlgrenska University Hospital,
University of Goteborg, Sweden, who discovered its ability to greatly enhance
5-FU's inhibition of a key enzyme, thymidylate synthase (TS), necessary for
cancer cell growth. Since 5-FU is probably the most extensively used cancer
chemotherapy drug in the world, this enhanced performance makes CoFactor a
promising new combination therapy drug for the treatment of cancer.

Between November 1989 and March 1993, a Phase I/II clinical study of
the use of CoFactor in combination with 5-FU was performed at Sahlgrenska
University Hospital, under the direction of Dr. Bengt Gustavsson, in close
collaboration with Dr. Colin Paul Spears at USC. Dr. Gustavsson and Dr. Spears,
who are the co-inventors of this technology, are currently medical/clinical
consultants to the Company. Results of their work with humans were published in
THE CANCER JOURNAL, vol. 10, no. 5 September-October 1997.

In the human clinical trials at Sahlgrenska University Hospital,
CoFactor was administered to 62 cancer patients receiving 5-FU therapy. Partial
responses in the range of 21%-55% were noted in colorectal, pancreas, stomach,
gallbladder and breast cancer patients. The average duration of remissions was
9-15 months, which is at least a two-fold increase over 5-FU/leucovorin therapy.
Toxicity was milder than expected for 5-FU or 5-FU/leucovorin, and no toxicities
of CoFactor have been observed. We consider that these results represent a
significant improvement over 5-FU/leucvorin standard traditional therapy for
cancer patients.

Several publications appeared during late 1997 and early 1998 in
leading medical journals, including CANCER INVESTIGATIONS, CANCER TREATMENT,
ANTICANCER RESEARCH, and THE CANCER JOURNAL, concerning the use of CoFactor.
Such publications discussed:

o curative results with 5-FU therapy in combination with CoFactor for
liver cancer in animal studies compared to 5-FU alone or to
5-FU/leucovorin therapy;

o significant response to 5-FU/CoFactor in animal colon cancer studies;

o human pharmacokinetic (drug action/metabolism) data documenting high
blood levels of CoFactor for several hours after administration; and

o the achievement of stabilizing the CoFactor compound for routine
administration to patients.

Since the time when the clinical trials were conducted and reported,
technology for analyzing human enzyme levels has progressed. As a result, in
January 2001, the Company undertook a study on tissue samples from the 62
patients who were treated in the earlier trials, by

retrieving paraffin-embedded tissues of those patients from the Sahlgrenska
University Hospital's medical archives. Analyses were based upon a RT-PCR
(Reverse Transcriptase - Polymerase Chain Reaction), a technique first described
in Goteborg, Sweden in 1977 for detection of TS gene expression, but now
dramatically improved by technology developed at USC. This advancement permitted
retrospective analyses from paraffin-fixed tissues, using micro-disection
technology, which enabled the Company to better understand why patients
responded to 5- FU/CoFactor therapy.

An IND (Investigational New Drug) application has been submitted to the
U.S. Food and Drug Administration, or FDA, for approval of Phase II / III trials
for second-line metastatic colorectal cancer therapy, in order to test CoFactor
in conjunction with 5-FU. We also intend to file an IND with the Swedish FDA
later this year or in early 2002.

SELONE

Selone is the Company's leading compound in a new class of compounds
which are potential new cancer drugs for drug resistant cancer, discovered
through USC research focused on the use of the element selenium, an
anti-oxidant. We are the exclusive licensee of a patent from USC, which
encompasses the use of Selone and other oxygen-carbon-selenium compounds as
anticancer agents, as well as the method for their synthesis.

Selone acts, in part, as a highly nitrogen-specific alkylating agent (a
drug that kills cancer cells by directly attacking their DNA) found to be
effective against cancer cell lines that exhibit drug resistance to currently
available alkylating and platinating (akylating compounds which contain
platinum) agents. Alkylating agents, as a class, are the most broadly used
anticancer agents in the world, collectively surpassing the use of 5-FU. In
recent years, alkylating agents have been increasingly used, in dose
intensification strategies such as bone marrow transplant, and have exhibited
further promise when used with compounds known as thiophosphate protection
agents. However, a majority of cancers develop resistance to currently available
alkylating and platinating agents, usually through a thiol (sulfur metabolism)
mechanism. Selone was developed to address this problem, through increased
targeting to guanine nitrogen contained in DNA, without increased susceptibility
to the thiol mechanisms connected with drug resistance.

Based upon current IN VITRO screening methods, Selone shows promise of
being broadly effective, at even very low concentrations, against human ovarian,
breast, lung and head/neck cancers, and against leukemias and lymphomas. Its
potency is remarkably high for its rate of alkylating activity, suggesting an
increased specificity of action. Demonstrated effectiveness in central nervous
system cell lines, in addition to the extraordinarily high solubility of Selone
in watery and fatty tissues, suggests potential activity in brain tumors. Selone
shows full activity in human cell lines resistant to other cancer drugs,
including antitumor antibiotics, and in nitrosourea-resistant colon cancer. It
has also demonstrated significant activity against leukemia in mice at doses
predicted to readily achieve effective blood concentrations.

Now that chemical, kinetic and tissue toxicity relationships have been
established for

Selone, we are planning further IN VIVO testing and pre-clinical optimization
and toxicity studies to determine recommended dose/schedules for later Phase
I-II human clinical trials.

ERADICAIDE

We have licensed the exclusive right to commercialize a patented
immunotherapeutic and vaccine strategy, developed by M.D. Anderson, that relies
on eliciting a cell-mediated immunity response to treat individuals already
infected with HIV and to protect against new HIV infections. A unique feature of
this technology is that it is designed to not elicit an antibody response.

The survival of the HIV virus in the human body is dependant on its
ability to penetrate special target cells, take over genetic material in those
cells, and use that genetic material to make millions and billions of copies
which then propagate from the surface of the cell, killing the cell in the
process. In cell-mediated immunity, after a virus has penetrated the cell and
released its genetic material, its viral proteins are broken into fragments by
the infected cell. The resulting viral protein fragments are then transported
within the infected cell through a mechanism called the MHC (Major
Histocompatibility Complex) Class I pathway to special sites on the surface of
the infected cell. Here the viral protein fragments are displayed to the body's
immune system as evidence that the cell is infected and should be destroyed
before it can produce new virus particles. Cruising Killer T-cells, circulating
in the body, recognize the presence of these displayed viral proteins as a
signal to kill the infected cells and also as a signal to the immune system to
produce more Killer T-cells preprogrammed to seek out and specifically kill off
the HIV infected cells.

A research model system incorporating a special version of HIV has
recently been developed. A form of SHIV or Simian (monkey)/human
Immunodeficiency Virus, a chimeric virus, which contains the inner core proteins
and genetic material from SHIV and the outer envelope proteins and viral binding
proteins of HIV, has proven to be an invaluable research tool in the quest for
effective approaches to HIV control. Monkeys to whom SHIV was administered
showed rapidly induced immunodeficiency (profound reduction in CD-4 positive
cell counts within three to four weeks after infection), progressing to an AIDS
state nearly identical to that seen in humans infected with HIV.

Preliminary trials were conducted at the University of Texas animal
research facility in Bastrop, Texas under the supervision of Dr. Jagan Sastry.
Rhesus monkeys were used along with SHIV developed by a group of research labs,
including M.D. Anderson. M.D. Anderson's SHIV development work was supported in
part by the Company. In the trial, test animals were vaccinated with the
Company's cell-mediated immunity agent known as EradicAide, and subsequently
challenged with live SHIV. Compared to control animals, viral levels in plasma
in treated animals were reduced more than 1,000-fold three weeks after challenge
with virus. In non-treated control animals, the CD-4 positive T-cell counts
dropped at least 90% while in treated animals the change in CD-4 positive T-cell
counts ranged from 0 to 10% with one animal showing a maximum 30% reduction.

These data demonstrate scientific proof of principle for the
cell-mediated immunity strategy. Subsequent confirmatory trials and safety
testing are now being performed by the Company. We expect that the Company may
be able to qualify for the FDA's Fast Track Program for human trials, which
provides for an accelerated FDA review process of HIV therapeutic drugs.

BLOCKAIDE/CR

Scientists at M.D. Anderson have developed another approach to
combating HIV, based on the BlockAide/CR compound, a synthetic peptide (a
sequence of amino acids that is part of a protein) which appears to be able to
block the ability of HIV to infect human immune cells. During IN VITRO
experiments in human cell cultures, and in preliminary animal tests conducted at
M.D. Anderson and sponsored by the Company, BlockAide/CR was able to
significantly depress the level of HIV infection indicated in blood samples.

Studies from several laboratories, including M.D. Anderson and the U.S.
National Institutes of Health, indicate that at least two cell surface receptors
are involved in the mechanism for HIV binding and immune cell penetration. One
is the CD4 receptor, largely found on T helper cells which are part of the human
immune system. The second receptor, which has only recently been described, is
represented by members of a family of chemokine receptors, a type of target cell
molecule. HIV researchers have found that a molecular component called the V3
Loop, which is part of the GP-120 surface protein on the outer coat of the HIV
virus, plays a critical role in interacting with these CD4 receptors and
chemokine receptors, thus initiating the infection process.

M.D. Anderson researchers believe that the BlockAide/CR compound, which
is structurally similar to a portion of the V3 Loop, mimics the V3 Loop and, by
occupying CD4 receptor sites on immune system cells, prevents the virus from
binding to immune cell receptors and subsequently penetrating the cell. Dr.
Jagan K. Sastry of M.D. Anderson is credited with discovering the inhibitory
effects of BlockAide/CR. He likens the V3 Loop to a key: when HIV, using the V3
Loop as a key tries to enter a human cell via a CD4 receptor site (the keyhole),
the virus is unsuccessful because the entrance key hole is already blocked by
BlockAide/CR.

In addition, based on their work to date, Dr. Sastry and his research
colleagues believe that BlockAide/CR can effectively block syncytium formation
and prevent or limit the T-cell loss that invariably occurs with a progressive
HIV infection. Syncytium formation is a very important step in the spread of HIV
infection and the destruction of T-cells. In this process, an HIV infected cell
combines with a number of healthy T-cells to form a large multinuclear mass or
syncytium. The syncytia die quickly, killing the incorporated T-cells and
releasing massive numbers of newly formed HIV particles.

Published studies suggest that, at the time of its initial
transmission, and for a variable period afterwards, HIV exists largely in
nonsyncytial form and is relatively harmless to the body's natural immune
system. It is believed that, during this phase, T-cells generated by the immune

system keep the virus in check. As the virus evolves, however, it acquires the
ability to infect T- cells and the immune system becomes less able to combat the
virus. The result is the emergence of the syncytial form of HIV and the onset of
the illness phase, the point at which the patient begins to develop AIDS.

The Company intends to conduct large animal toxicology testing for
BlockAide/CR which, if successful, is expected to enable the Company to proceed
with preparations for human testing under the FDA's Fast Track Program.

BLOCKAIDE/VP

The BlockAide/VP compound was also created and patented by M.D.
Anderson and is licensed to the Company. It works to prevent HIV infection in
human cells in a different way from BlockAide/CR.

HIV depends on its ability to enter and infect host cells in order to
multiply and survive. In the case of HIV, the binding protein GP-120 on the
surface of the HIV particle interacts with a receptor site known as CD4, which
is present on the surface of certain human cells. Interaction of the HIV virus
with CD4 causes a change in the shape of GP-120, uncovering the actual binding
region of GP-120, which then fuses with a second, chemokine receptor.

The BlockAide/VP compound mimics a section of the CD4 receptor. When
BlockAide/VP comes into contact with the GP-120 protein present on the surface
of HIV, it appears to cause a change in the protein-folding configuration of
GP-120, rendering the GP-120 unable to initiate the infection process.

Early tests indicate that HIV virus treated with BlockAide/VP and
exposed to human cells is unable to bind to and infect such cells. The Company
does not know of any other available antiviral agent which can render HIV unable
to infect cells in this manner.

BlockAide/VP has progressed through IN VITRO testing, and though a
preliminary primate trial, with encouraging results. Further preclinical and
animal toxicity testing must be conducted before progressing to human trials, in
the same manner as described above for BlockAide/CR. If proven safe and
effective in preclinical testing, and if approved by the FDA through its Fast
Track Program, BlockAide/VP could be used for HIV infected individuals as an
adjunct to Triple Combination Therapy, a multiple drug regimen widely used to
suppress HIV in HIV infected humans to prevent the onset of AIDS, or as a
primary therapy for newly infected individuals.

THIOVIR

Thiovir is a sulfur-containing compound synthesized using technology
developed at USC and exclusively licensed to the Company by USC.

Thiovir and Thiovir-analogues under development are part of a new class
of compounds

known as thiophosphonoformates (sulfur/phosphorous compounds), which have
demonstrated powerful antiviral properties. Thiovir was designed to be a
replacement for the broad-spectrum antiviral drug, foscarnet. Foscarnet is
administered by intravenous catheter (IV drip) and is FDA-approved for treatment
of HIV, herpes and CMV (cytomegalovirus) infections. Although foscarnet is a
highly effective, broad-spectrum antiviral, it has limitations from a commercial
perspective because it must be administered by IV catheter with medical
supervision. Also, foscarnet is a small molecule whose parent chemical structure
restricts modifications that could lead to the future development of an oral
form of the drug.

In contrast to foscarnet, the creation of thiophosphonates (such as
Thiovir) makes possible an entirely new class of compounds, of which there can
be many proprietary derivatives. These derivatives can lead to additional
improvements in antiviral effectiveness, oral drug forms and reduced toxicity.
The thiophosphonate is delivered as an active prodrug (an initial form of a drug
which converts in the body through normal metabolic processes), and may also
metabolize to additional active compounds. In the case of Thiovir, a dual action
antiviral effect is achieved through delivery of an active prodrug and an active
metabolite, which happens to be foscarnet.

An IN VITRO test of a group of Thiovir analogues was conducted at the
National Cancer Institute. Results reported to USC in early 2000 revealed
several compounds with better therapeutic values than foscarnet for HHV-8, a
herpes virus linked to Kaposi's sarcoma, the cancer that causes lesions on the
skin of AIDS patients. In addition, preliminary studies conducted by the Company
on Thiovir efficacy against papillomaviruses (a viral infection directly related
to genital warts and cervical cancer) between 1999 and 2001, with collaborators
at the Gittlen Cancer Research Institute and Hershey Medical Center, Penn State
University, showed that Thiovir had potential as an antiviral treatment for
papillomavirus infection. Current research and development efforts for Thiovir
are supported by the Company and by U.S. government funding. Assuming continued
positive research results, the Company would intend to file an IND for a form of
Thiovir for testing in humans infected with genital warts caused by HPV.

MEDICAL MARKETS

ANTI-CANCER AGENTS

On a worldwide basis, cancer killed over 6 million people in 1998,
according to statistics published by the World Health Organization. After
cardiovascular disease, cancer is the second most frequent cause of death in
developing countries, accounting for 21% of all deaths. In the U.S., cancer is
responsible for approximately 23% of all deaths according to recent statistics.
The American Cancer Society reported in 1998 that there were more than 1.4
million new cases of cancer diagnosed in the U.S. and over 560,000 deaths due to
cancer in the previous year.

Treatment choices for the cancer patient depend on the stage of the
cancerous tumor, and whether and/or how far the cancer has spread. Treatment
options include surgery, radiation, chemotherapy, hormone therapy and
immunotherapy. Treatment of cancer with chemicals is

referred to as chemotherapy, which represents a current market in the US of
approximately $9 billion, according to Frost & Sullivan Market Research and IMS
Market Research.

Traditional cancer chemotherapy poisons all body cells to some extent,
but particularly targets rapidly dividing cells such as cancer cells. Its effect
on other rapidly dividing cells, such as hair follicles, cells lining the
stomach and red blood cells, accounts for some of the more common negative side
effects of cancer chemotherapy. Current approaches often use several drugs in
combination, aimed at minimizing side effects while attacking the rapidly
proliferating cells at vulnerable times.

Chemotherapy is highly individualized, depending on the type of disease
and its progression, the action of the agents used, and the side effects in the
patient, and may be used alone or in combination with other cancer therapies,
such as surgery or radiation. Chemotherapy drugs such as 5-FU, Ancobon,
Methotrexate, Alkeran and Cyloxan, are commonly used to treat patients.

We believe that the total annual market potential for CoFactor is
related to new cases of cancer, which are often treated by 5-FU therapy, the
single most widely used cancer drug in the world, according to industry experts.
Doses of 5-FU vary widely based upon the cancer being treated. As an example, in
U.S. therapy regimens, approximately 36 doses of 5-FU are administered to
approximately two-thirds of colorectal cancer patients annually, compared with
12 doses of 5-FU to about one-third of breast cancer patients.

Based upon statistics for cancer incidence and cancer treatment
reported by the American Cancer Society, we estimate that the annual potential
for CoFactor use can be based on an assumed annual use of over 4 million doses
of 5-FU, with initial emphasis focused on combination therapy with 5-FU for
colorectal cancer. There are approximately 131,000 new cases of colorectal
cancer per year in the US alone. It should be noted that these estimates do not
take into account additional market opportunities to enhance other drugs similar
to 5-FU, such as floxuridine (FUDR), florafur (tegafur), Doxifluridine(R)
(5'deoxyfluorouridine) and Xeloda(R) (campecctabine).

Selone, which functions in part as an alkylating agent against cancer
cell lines that exhibit drug resistance to currently available alkylating and
platinating agents, may serve as a useful new anticancer drug. Alkylating agents
as a class are the most broadly used anticancer agents in the world,
collectively surpassing the use of 5-FU as single agent . In recent years, they
have been used increasingly in dose intensification strategies, such as bone
marrow transplant, and have exhibited further promise when used with the
thiophosphate protection agents. Approximately one-half of all cancers can
become resistant to treatment with current chemotherapy products. Accordingly,
we believe there is great potential for new products which address drug
resistance in cancer therapy.

HIV/AIDS THERAPY

Significant advancements have been made in the treatment of
asymptomatic HIV positive patients. It is now understood that early combination
therapy with a three or four drug "cocktail" can push HIV viral load to below
"detectable levels." This therapy is often referred to as HAART (highly
aggressive antiretroviral therapy). It is widely reported that the average
annual drug cost for such combination therapy in the U.S. is $11,000 per
patient.

However, recent studies have shown that, whether or not patients adhere
to the strict therapy regimens required for HAART treatment, antiretroviral
therapy will continue to lead to problems of viral resistance, rendering many
drugs ineffective over time. There is no conclusive evidence that current drugs
can eradicate HIV from the body over the long term. As long as HIV is present in
the body, the opportunity exists for the evolution of HIV escape mutants
resistant to HAART. These mutant strains can reproduce unchecked by HAART,
subsequently becoming the predominant strain and re-establishing high viral
loads in patients. This can lead to permanently damaged immune systems,
opportunistic infections, and the advance to AIDS even if combination therapy
continues. Currently, no one combination of drugs is effective for all patients,
and therapies are continually modified based upon patient progress. Therefore,
new drugs and new drug approaches continue to be needed for HIV therapy.

In a recent study reported by the University of California-San
Francisco, based upon treatment of HIV positive patients at San Francisco
General Hospital, 53% of patients had evidence of treatment failure after at
least six months of therapy. Based on these facts, we believe that the demand
for new types of HIV drugs, designed to block infection or to clear HIV-
infected cells, will therefore increase.

The World Health Organization and the U.S. Centers for Disease Control
report that there are 1.5 million HIV positive individuals in the U.S. and
Europe, where the vast majority of anti- HIV drugs are used. However, according
to a November 1999 report by the United Nations Program on HIV/AIDS, more than
33 million adults and children in the world are living with HIV and 16,000 new
infections are occurring each day. As current transmission rates hold steady,
the number of people with HIV/AIDS will soar to 40 million in 2001. HIV
infections are not being treated in the third world, to even the smallest
extent, since cost is prohibitive and the ability to administer complex therapy
is nearly impossible. Thus, simple, inexpensive new therapies are required.

THIOVIR AND HPV

According to the Center for Disease Control and the American Cancer
Society, the most prevalent sexually transmitted disease in the U.S. is human
papillomavirus (HPV) infection, which is extremely contagious, with
approximately two-thirds of all people exposed to the virus becoming infected
within a three-month period. The virus exists in over 80 different subtypes, 40
of which affect the urogenital region.

Transmission of HPV usually occurs through direct skin contact during
vaginal, anal or oral sex with an infected individual, and warts (called genital
warts or condylomas) may or may not begin to appear on the skin surrounding the
entrance to infection, depending on the length of the latency period. Because
one of the consequences of HPV infection is the introduction of abnormal cells,
the infection may lead to cancerous growths, particularly on the cervix.
Although HPV and genital warts are treatable, there is currently no known cure
for the infection.

HPV is highly prevalent in women under 30 years of age, and studies
indicate that the majority of college age women are HPV positive without
clinical or cytological evidence. According to American Cancer Society, the
lifetime risk of invasive cancer is 5-10% for untreated HPV infection, and, if
infected with a high-oncogenic form of HPV, there is a 70% risk of having an
abnormal papsmear. Approximately 5.5 million new cases of sexually transmitted
HPV occur in the U.S. each year, with at least 20 million people currently
infected according to pharmaceutical industry estimates. Of special importance
is the link between HPV and cancer, particularly cervical cancer. The role of
HPV as a principal agent in the etiology of cervical cancer has been clearly
established by the American Cancer Society and the American Association of
Obstetrics and Gynecology.

Preliminary studies sponsored by the Company on Thiovir efficacy
against HPV, with collaborators at the Gittlen Cancer Research Institute and
Hershey Medical Center, Penn State University, showed that Thiovir had potential
as an antiviral treatment for papillomavirus infection. These studies along with
animal toxicology data, could provide the basis for an IND to test a topical
form of Thiovir for genital warts in humans.

MARKETING AND SALES

We do not presently have a marketing and sales staff, although the
experience and background of Nicholas Jon Virca, President of Biokeys, Inc.,
includes pharmaceutical marketing and sales functions. As one or more Company
products approach commercialization, we intend to seek arrangements with third
parties, such as pharmaceutical companies, for the marketing and distribution of
our products. At that point, we would also seek to add marketing personnel for
liaison, support and administrative purposes. While we have held preliminary
discussions on a number of occasions with potential commercialization and
marketing partners, we have not yet entered into any binding agreements with a
commercialization or marketing partner.

For further information on the requirements for clinical trials and
future commercialization, see the discussion below under "Government Regulation
and Clinical Testing for New Drugs." See also the discussion under "Risk
Factors" in Item 2 below.

MANUFACTURING

We do not have our own manufacturing facilities, and do not intend to
establish them. However, the Company has entered into a manufacturing agreement
with Eprova AG, of Schaffhausen, Switzerland and Clinalfa AG of Laufelfingen,
Switzerland, under which Eprova

and Clinalfa will produce CoFactor for clinical trial requirements and future
product sales. In the future, we will have to establish one or more
relationships with additional manufacturers as new drug candidates progress
through development, testing and commercialization stages. Consequently, the
Company will be dependent upon various manufacturers for a reliable supply of
its drug products. (See "Risk Factors" in Item 2 below.)

LICENSING AND RESEARCH AGREEMENTS

M.D. ANDERSON AGREEMENTS

In June 1996, the Company entered into an exclusive worldwide Patent
and Technology License Agreement with M.D. Anderson (the "M.D. Anderson
Agreement") granting development, manufacturing and marketing rights, relating
to the commercialization of technologies described in seven patents and patent
applications developed by scientists at M.D. Anderson in the field of HIV
therapy and preventions. The M.D. Anderson Agreement continues in effect for the
life of the subject patents (including any extensions or renewals), and requires
payment of royalties based on percentages of sales and a share of sub-licensing
revenues from products developed under the Agreement. Our exclusive license
rights are subject to any non- exclusive rights that the U.S. government may
have as a result of any agreement between it and M.D. Anderson by which
government-funded research was provided in connection with the licensed
technology. The M.D. Anderson Agreement requires the Company to reimburse M.D.
Anderson for the cost of preparing, filing, prosecuting and maintaining the
licensed patents.

The M.D. Anderson License Agreement was amended effective June 15, 2000
(the Amendment). The Amendment incorporated additional licensed subject matter,
revised certain royalty rates due to M.D. Anderson upon commercialization, and
settled past due patent and research and development amounts from the Company to
M.D. Anderson. In accordance with the Amendment, we issued 414,829 shares of our
Common Stock to M.D. Anderson, valued at $1,000,000 based on the then market
price of the shares. In addition, the Company committed to funding at least
$1,000,000 of research and development activity through December 31, 2001.
Finally, the Amendment defined a milestone payment due to M.D. Anderson upon the
enrollment of the first patient in the first Phase I trial of any product that
utilizes licensed subject matter.

No royalties have been paid under the M.D. Anderson Agreement and
Amendment.

USC AGREEMENTS

Under an Option and License Agreement with USC dated January 23, 1998,
amended August 16, 2000, we hold exclusive license rights to a total of three
patents, two relating to Biokeys' CoFactor product and one relating to Selone,
both of which are intended for use in connection with cancer chemotherapy. In
addition, under a second Option and License Agreement dated August 17, 2000, we
acquired exclusive rights under the four patents related to Thiovir antiviral
technologies. These agreements with USC (the USC License Agreements) grant us
exclusive worldwide licenses to study, use, manufacture and market drug products

covered by the subject patents. Under the USC License Agreements, we are
obligated to pay USC for out-of-pocket expenses incurred in filing, prosecuting,
enforcing and maintaining the licensed patent rights and all future
patent-related expenses paid by USC, as long as the USC License Agreements
remain in effect and until the patent rights have expired. USC's retained
interest consists of a running royalty on net sales of licensed products and a
share of consideration received by Biokeys from all sublicenses and assignments.
No royalties have been paid under these agreements.

SPONSORED RESEARCH AGREEMENTS

We entered into a sponsored research agreement with M.D. Anderson on
September 7, 2000, which provides for studies to test the ability of a mixture
of synthetic HIV-derived peptides to elicit an antibody-negative cell-mediated
immune response. The testing will seek to determine if this immune response can
protect against new HIV infection and if the preparation can be administered
after HIV infection as a therapeutic. This requires a total of $814,490 payable
in two equal installments for research to be conducted through 2001 and into
2002. The first installment was paid by the Company in 2000 and the second in
2001.

We also have sponsored research arrangements with USC, under which USC
will continue studies in the therapeutic potential of Thiovir and its analogues
as antiviral agents. The Company has entered into a grant agreement with USC
effective November 1, 2000, under which USC will perform research into Thiovir
and its analogues as inhibitors for HPV and other pathogenic viruses. The
budgeted research costs for this study are approximately $217,000, which have
been paid by the Company.

GOVERNMENT REGULATION AND CLINICAL TESTING FOR NEW DRUGS

The manufacture and sale of therapeutic drugs are subject to government
regulation in the U.S. and in certain foreign countries. In the U.S., we must
follow rules and regulations established by the FDA requiring the presentation
of data indicating that our products are safe and efficacious and are
manufactured in accordance with the FDA's current Good Manufacturing Practices
(cGMP) regulations.

Safety and effectiveness standards are required in certain other
countries as well. The Company believes that only a limited number of foreign
countries have extensive regulatory requirements for new drugs, especially Japan
and the countries comprising the European Union.

The steps required to be taken before a new prescription drug may be
marketed in the U.S. include (i) preclinical laboratory and animal tests, (ii)
the submission to the FDA of an IND, which must be evaluated and found
acceptable by the FDA before human clinical trials may commence, (iii) adequate
and well-controlled human clinical trials to establish the safety and
effectiveness of the drug, (iv) the submission of a New Drug Application (NDA)
to the FDA and (v) FDA approval of the NDA. Prior to obtaining FDA approval of
an NDA, the facilities that will be used to manufacture the drug must undergo a
preapproval inspection to ensure

compliance with the FDA's cGMP regulations.

Preclinical tests include laboratory evaluation of product chemistry
and animal studies to assess the safety and effectiveness of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA, after which clinical trials can begin. If
the FDA has concerns about the proposed clinical trial, it may delay the trial
and require modifications to the trial protocol prior to permitting the trial to
begin.

Clinical trials involve the administration of the pharmaceutical
product to healthy volunteers or to patients identified as having the condition
for which the product is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with protocols previously submitted
to the FDA as part of the IND that detail the objectives of the trial, the
parameters used to monitor safety and the efficacy criteria that are being
evaluated. Each clinical trial is conducted under the auspices of an
Institutional Review Board ("IRB") at the institution at which the trial is
conducted. The IRB considers, among other things, ethical factors, the safety of
the human subjects and the possible liability risk for the institution.

Clinical trials are typically conducted in three sequential phases that
may overlap. In Phase I, the initial introduction of the pharmaceutical into
healthy human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. Phase II involves trials in a limited patient population to
determine the effectiveness of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks.

In serious diseases such as HIV/AIDS, patients suffering from the
disease rather than healthy volunteers are used in Phase I trials. In addition,
Phase I trials may be divided between Phase Ia, in which single doses of the
drug are given, and Phase Ib, in which multiple doses are given. In the latter
instance, some efficacy data may be obtained if the subjects are patients
suffering from the disease rather than healthy volunteers, and these trials are
referred to as "Phase Ib/IIa."

After a compound has been shown in Phase II trials to have an
acceptable safety profile and probable effectiveness, Phase III trials are
undertaken to evaluate clinical effectiveness further and to further test for
safety within an expanded patient population at multiple clinical study sites.
The FDA reviews both the clinical trial plans and the results of the trials at
each phase, and may discontinue the trials at any time if there are significant
safety issues.

The results of the preclinical tests and clinical trials are submitted
to the FDA in the form of an NDA for marketing approval. The testing and
approval process requires substantial time and effort, and FDA approval may not
be granted on a timely basis or at all. The approval process is affected by a
number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional

animal studies or clinical trials may be requested during the FDA review process
and may delay marketing approval.

Upon approval, a drug may be marketed only for the FDA approved
indications in the approved dosage forms. Further clinical trials are necessary
to gain approval for the use of the product for any additional indications or
dosage forms. The FDA may also require post-market reporting and may require
surveillance programs to monitor the side effects of the drug, which may result
in withdrawal of approval after marketing begins.

The FDA has developed several regulatory procedures to accelerate the
clinical testing and approval of drugs intended to treat serious or
life-threatening illnesses under certain circumstances. For example, in l988,
the FDA issued regulations to expedite the development, evaluation and marketing
of drugs for life-threatening and severely debilitating illnesses, especially
where no alternative therapy exists (the "l988 Regulations"). These procedures
encourage early consultation between the IND sponsors and the FDA in the
preclinical testing and clinical trial phases to determine what evidence will be
necessary for marketing approval and to assist the sponsors in designing
clinical trials. Under this program, the FDA works closely with the IND sponsors
to accelerate and condense Phase II clinical trials, which may, in some cases,
eliminate the need to conduct Phase III trials or limit the scope of Phase III
trials. Under the l988 Regulations, the FDA may require post-marketing clinical
trials (Phase IV trials) to obtain additional information on the drug's risks,
benefits and optimal use.

In l992, the FDA issued regulations establishing an accelerated NDA
approval procedure for certain drugs under Subpart H of the agency's NDA
approval regulations ("Subpart H Regulations"). The Subpart H Regulations
provide for accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effects. This approval is conditional on the favorable
completion of trials to establish and define the degree of clinical benefits to
the patient. In this case, post-marketing clinical trials would usually be
underway when the product obtains accelerated approval. If, after approval, a
post-marketing clinical study establishes that the drug does not perform as
expected, or if post- marketing restrictions are not adhered to or are not
adequate to ensure the safe use of the drug, or other evidence demonstrates that
the product is not safe and/or effective under its conditions of use, the FDA
may withdraw approval. The Subpart H Regulations can complement the l988
Regulations for expediting the development, evaluation and marketing of drugs.
These two procedures for expediting the clinical evaluation and approval of
certain drugs may shorten the drug development process by as much as two to
three years.

We believe that several of our drugs may be candidates for accelerated
development and/or approval under the l988 Regulations and/or the Subpart H
Regulations. This would include our HIV/AIDS drugs as well as the Company's
anticancer agents.

Once the sale of a product is approved, the FDA regulates the
manufacturing and

marketing of the product. The FDA periodically inspects both domestic and
foreign drug manufacturing facilities to ensure compliance with applicable cGMP
regulations and other requirements. In addition, manufacturers in the U.S. must
register with the FDA and submit a list of every drug in commercial
distribution. Foreign manufacturers are subject only to the drug listing
requirement. Post-marketing reports are also required to monitor the product's
usage and effects. Product approvals may be withdrawn, or sanctions imposed, if
compliance with regulatory requirements is not maintained.

Many foreign countries also regulate the clinical testing,
manufacturing, marketing and use of pharmaceutical products. The requirements
relating to the conduct of clinical trials, product approval, manufacturing,
marketing, pricing and reimbursement vary widely from country to country. In
addition to the import requirements of foreign countries, a company must also
comply with U.S. laws governing the export of FDA regulated products.

HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT

Pharmaceutical companies are affected by the efforts of governments and
third party payors to contain or reduce the cost of health care through various
means. A number of legislative and regulatory proposals aimed at changing the
health care system have been proposed in recent years. In addition, an
increasing emphasis on managed care in the U.S. has and will continue to
increase pressures on pharmaceutical pricing. While the Company cannot predict
whether legislative or regulatory proposals will be adopted or the effect such
proposals or managed care efforts may have on its business, the announcement
and/or adoption of such proposals or efforts could have a material adverse
effect on the Company. In the U.S. and elsewhere, sales of prescription
pharmaceuticals are dependent in part on the availability of reimbursement to
the consumer from third party payors, such as government and private insurance
plans that mandate predetermined discounts from list prices.

RESEARCH AND DEVELOPMENT OUTLAYS

During l999 and 2000, the Company expended $351,446 and $983,198,
respectively, on research and development activities.

EMPLOYEES

At June 30, 2000, the Company had two full-time employees and one
part-time employee.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

As a development-stage biomedical research company, we have not yet
generated any revenues from our anti-cancer and anti-viral products. We have had
no earnings since inception, and have an accumulated deficit of $7,704,222 as of
December 31, 2000. Our expenses have

related mainly to costs incurred in research activities for the development of
our drug candidates and from administrative expenses required to support these
efforts. We expect losses to continue for the near future, and such losses will
likely increase as human clinical trials are undertaken in the U.S. and Europe
for our CoFactor drug. Future profitability will be dependent upon our ability
to complete the development of our pharmaceutical products, obtain necessary
regulatory approvals and effectively market such products. Also, future
profitability will require that the Company establish agreements with other
parties for the clinical testing, manufacturing, commercialization and sale of
its products.

Since inception, the Company has generally funded itself through
short-term loans and the sale of equity securities. We will need to obtain
additional financing in order to sustain our efforts, as discussed below under
"Liquidity and Capital Resources."

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

The Company continued its research and development efforts in both 1999
and 2000, and no revenues were received during the period. However, the Company
earned interest income which increased to $40,922 in 2000 from $14,234 in 1999,
as a result of interest earned on funds received from the Company's overseas
private placement offering.

Using the proceeds of our overseas private placement offering, we were
able to significantly expand our research and development efforts in connection
with our EradicAide products for HIV/AIDS. Results in preliminary, small-scale
non-human primate trials warranted an expansion of the Company's research
program into larger scale non-human primate trials conducted through researchers
at M.D. Anderson. In addition, after the consummation of the merger with
Biokeys, Inc., we began to fund research and development efforts in connection
with CoFactor, Thiovir and Selone. Accordingly, our research and development
expenses increased 180% from $351,446 in 1999 to $983,198 in 2000.

General and Administrative expenses increased by approximately 17% from
$708,562 in 1999 to $827,970 in 2000, primarily as a result of additional costs
and expenses related to the merger between the Company and Biokeys.

Depreciation and amortization increased from $5,385 in 1999 to
$1,907,341 in 2000. Such increase was due entirely to the merger, which resulted
in $15,205,675 of goodwill being recorded on the Company's balance sheet based
on allocation of the purchase price to net assets acquired. Such amount is being
amortized over a two-year period, beginning in the last quarter of 2000, at
which time a goodwill amortization charge of $1,900,709 for the quarter was
recorded.

Interest expense increased from $4,326 in 1999 to $23,497 in 2000, due
to the accrual of interest on the Company's subordinated convertible notes
issued in a private offering in the spring of 2000. All of such notes, including
accrued interest, were converted into shares of Common Stock at the time of the
merger, in accordance with their terms.

As a result of the factors described above, the Company's net loss
increased from $1,055,485 in 1999 to $3,701,084 in 2000, and the loss per share
increased from $0.20 per share in 1999 to $0.44 per share in 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred negative cash flows since its inception, and
has funded its activities primarily through short-term loans and sales of equity
securities. As of December 31, 2000 and 1999, the Company had cash and
equivalents and a certificate of deposit of $1,484,208 and $58,463,
respectively. Working capital amounted to $1,297,761 at December 31, 2000,
compared with a working capital deficiency of $(1,244,166) at the end of 1999,
reflecting improvement due to our overseas private placement.

The Company does not have any bank or any other commercial financing
arrangements. The Company's operations over the last twelve months have been
funded primarily from the proceeds of an overseas private placement offering
consummated in August and September 2000, through which the Company raised a
total of $3.2 million through the issuance of its 8% convertible preferred
stock.

The Company will need to raise a total of approximately $500,000 for
the balance of calendar 2001 and will require approximately $1,000,000 for
overhead expenses and another $4,000,000 to fund expanded testing of its HIV
drug candidates in 2002. (See "Risk Factors," below.)

In addition, the Company expects shortly to obtain FDA approval to
commence Phase II/III clinical trials for its CoFactor product. We do not have
the resources to conduct such trials ourselves and are seeking a strategic
partner to finance and conduct the trials. While the Company has had discussions
with a number of potential CoFactor development partners, it has not yet entered
into any agreement for the conduct and financing of clinical trials. If the
Company is unable to enter into such an agreement on acceptable terms, it will
be required to delay such clinical trials or seek an outright sale of its
CoFactor rights.

The Company's dependence on raising additional capital will continue at
least until the Company is able to begin marketing its new technologies. The
Company's future capital requirements and the adequacy of its financing depend
upon numerous factors, including the successful commercialization of the
Company's drug candidates, progress in its product development efforts, progress
with preclinical studies and clinical trials, the cost and timing of production
arrangements, the development of effective sales and marketing activities, the
cost of filing, prosecuting, defending and enforcing intellectual property
rights, competing technological and market developments, and the development of
strategic alliances for the marketing of its products.

The Company will be required to obtain such funding through equity or
debt financing, strategic alliances with corporate partners and others, or
through other sources not yet identified. The Company does not have any
committed sources of additional financing, and cannot guarantee that additional
funding will be available on acceptable terms, if at all. If adequate

funds are not available, the Company may be required to delay, scale-back or
eliminate certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

We do not engage in trading market-risk sensitive instruments and do
not purchase hedging instruments or "other than trading" instruments that are
likely to expose us to market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk. We have no outstanding debt
instruments, have not entered into any forward or future contracts, and have
purchased no options and entered into no swaps. We have no credit lines or other
borrowing facilities, and do not view ourselves as subject to interest rate
fluctuation risk at the present time.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS (SFAS 141). SFAS
141 eliminates the pooling of interests method of accounting and requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method. The Company does not expect the adoption of SFAS 141 to
have a material impact on its business because it currently has no planned or
pending acquisitions.

The FASB has also issued Statement of Financial Accounting Standards
No. 142 GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS 142) which will be effective
for the Company as of January 1, 2002. SFAS 142 requires that goodwill and other
intangible assets with indefinite lives no longer be amortized. SFAS 142 further
requires that the fair value of goodwill and other intangible assets with
indefinite lives be tested for impairment upon adoption of this statement,
annually and upon the occurrence of certain events and be written down to fair
value if considered impaired. Adoption of SFAS 142 will result in the
elimination of annual amortization expense related to goodwill; however, because
of the extensive effort needed to comply with this statement, the impact of
related impairment, if any, on our financial position or results of operations
has not been determined.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We believe this registration statement contains "forward-looking
statements." These statements are subject to risks and uncertainties and are
based on the beliefs and assumptions of our management based on information
currently available on it. When we use words such as "believes", "expects",
"anticipates", "intends", "plans", "estimates", "should", "likely", or similar
expressions, we are making forward-looking statements. Forward-looking
statements are not guarantees of performance. They involve risks, uncertainties,
and assumptions. Our future results and stockholder values may differ materially
from those expressed in the forward-looking statements. Many of the factors that
will determine these results and values are beyond our ability of control or
predict.

Assumptions relating to budgeting, marketing, and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our marketing, capital
expenditure, or other budgets, which may in turn affect our business, financial
position, results of operations, and cash flows.

RISK FACTORS

THERE IS A SUBSTANTIAL ACCUMULATED DEFICIT AND LIMITED WORKING CAPITAL.

The Company had an accumulated deficit of $(7,704,222) as of December
31, 2000. Since the Company presently has no source of revenues and is committed
to continuing its product research and development program, significant
expenditures and losses will continue until development of new products is
completed and such products have been clinically tested, approved by the FDA and
successfully marketed. In addition, the Company has funded its operations
primarily through the sale of Company securities, and has had limited working
capital for its product development and other activities.

WE HAVE NO CURRENT REVENUES OR PROFITS.

The Company has devoted its resources in recent years to developing a
new generation of therapeutic drug products, but such products cannot be
marketed until clinical testing is completed and governmental approvals have
been obtained. Accordingly, there is no current source of revenues, much less
profits, to sustain the Company's present activities, and no revenues will be
available until, and unless the new products are clinically tested, approved by
the FDA and successfully marketed, an outcome which the Company is not able to
guarantee.

IT IS UNCERTAIN THAT THE COMPANY WILL HAVE ACCESS TO FUTURE CAPITAL.

It is not expected that the Company will generate positive cash flow
from operations for at least the next several years. As a result, substantial
additional equity or debt financing may be required to fund our activities. We
cannot assure you that we will be able to consummate any such financing on
favorable terms, if at all, or that such financing will be adequate to meet
capital requirements. Any additional equity financing could result in
substantial dilution to stockholders, and debt financing, if available, may
involve restrictive covenants which preclude the Company from making
distributions to stockholders and taking other actions beneficial to
stockholders. If adequate funds are not available, the Company may be required
to delay or reduce the scope of its drug development program or attempt to
continue development by entering into arrangements with collaborative partners
or others that may require the Company to relinquish some or all of its rights
to proprietary drugs. The inability to fund its capital requirements would have
a material adverse effect on the Company.

THE COMPANY IS NOT CERTAIN THAT IT WILL BE SUCCESSFUL IN THE DEVELOPMENT OF ITS
DRUG CANDIDATES.

The successful development of any new drug is highly uncertain and is
subject to a

number of significant risks. Our drug candidates, which are in a development
stage, require significant, time-consuming and costly development, testing and
regulatory clearance. This process typically takes several years and can require
substantially more time. Risks include, among others, the possibility that a
drug candidate will (i) be found to be ineffective or unacceptably toxic, (ii)
have unacceptable side effects, (iii) fail to receive necessary regulatory
clearances, (iv) not achieve broad market acceptance, (v) be subject to
competition from third parties who may market equivalent or superior products,
or (vi) be affected by third parties holding proprietary rights that will
preclude the Company from marketing a drug product. There can be no assurance
that the development of drug candidates will demonstrate the efficacy and safety
of a drug candidate as a therapeutic drug, or, even if demonstrated, that there
will be sufficient advantages to its use over other drugs or treatments so as to
render the drug product commercially viable. In the event that the Company is
not successful in developing and commercializing one or more drug candidates,
investors are likely to realize a loss of their entire investment.

THE COMPANY WILL FACE INTENSE COMPETITION FROM OTHER COMPANIES IN THE
PHARMACEUTICAL INDUSTRY.

The Company is engaged in a segment of the pharmaceutical industry that
is highly competitive and rapidly changing. If successfully developed and
approved, any of the Company's drug candidates will likely compete with several
existing therapies. In addition, other companies are pursuing the development of
pharmaceuticals that target the same diseases as are targeted by the drugs being
developed by the Company. The Company anticipates that it will face intense and
increasing competition in the future as new products enter the market and
advanced technologies become available. We cannot assure you that existing
products or new products developed by competitors will not be more effective, or
more effectively marketed and sold than those by the Company. Competitive
products may render the Company's drugs obsolete or noncompetitive prior to the
Company's recovery of development and commercialization expenses.

Many of the Company's competitors will also have significantly greater
financial, technical and human resources and will likely be better equipped to
develop, manufacture and market products. In addition, many of these competitors
have extensive experience in preclinical testing and clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. A number of these competitors also have products that
have been approved or are in late-stage development and operate large,
well-funded research and development programs. Smaller companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, government agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are actively seeking to commercialize the technology they have
developed. Accordingly, competitors may succeed in commercializing products more
rapidly or effectively than the Company, which would have a material adverse
effect on the Company.

THERE IS NO ASSURANCE THAT THE COMPANY'S PRODUCTS WILL HAVE MARKET ACCEPTANCE.

The success of the Company will depend in substantial part on the
extent to which a drug product achieves market acceptance. The degree of market
acceptance will depend upon a number of factors, including (i) the receipt and
scope of regulatory approvals, (ii) the establishment and demonstration in the
medical community of the safety and efficacy of a drug product, (iii) the
product's potential advantages over existing treatment methods and (iv)
reimbursement policies of government and third party payors. We cannot predict
or guarantee that physicians, patients, healthcare insurers or maintenance
organizations, or the medical community in general, will accept or utilize any
drug product of the Company.

THERE IS UNCERTAINTY AS TO THE AVAILABILITY AND AMOUNTS OF HEALTH CARE
REIMBURSEMENT.

The Company's ability to commercialize its technology successfully will
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of newly-
approved medical products. The Company cannot guarantee that adequate
third-party insurance coverage will be available for the Company to establish
and maintain price levels sufficient for realization of an appropriate return on
its investments in developing new therapies. Government, private health
insurers, and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
new therapeutic products approved for marketing by the FDA. Accordingly, even if
coverage and reimbursement are provided by government, private health insurers,
and third-party payors for uses of the Company's products, the market acceptance
of these products would be adversely affected if the amount of reimbursement
available for the use of the Company's therapies proved to be unprofitable for
health care providers.

UNCERTAINTIES RELATED TO HEALTH CARE REFORM MEASURES MAY AFFECT THE COMPANY'S
SUCCESS.

There have been a number of federal and state proposals during the last
few years to subject the pricing of health care goods and services, including
prescription drugs, to government control and to make other changes to U.S.
health care system. It is uncertain which legislative proposals will be adopted
or what actions federal, state, or private payors for health care treatment and
services may take in response to any health care reform proposals or
legislation. The Company cannot predict the effect health care reforms may have
on its business, and there is no guarantee that any such reforms will not have a
material adverse effect on the Company.

FURTHER TESTING OF OUR DRUG CANDIDATES WILL BE REQUIRED AND THERE IS NO
ASSURANCE OF FDA APPROVAL.

The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of medical products, through lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of these requirements
typically takes several years or more and varies substantially based upon the
type, complexity, and novelty of the product.

The effect of government regulation and the need for FDA approval may
be to delay

marketing of new products for a considerable period of time, to impose costly
procedures upon the Company's activities, and to provide an advantage to larger
companies that compete with the Company. There can be no assurance that FDA or
other regulatory approval for any products developed by the Company will be
granted on a timely basis or at all. Any such delay in obtaining, or failure to
obtain, such approvals would materially and adversely affect the marketing of
any contemplated products and the ability to earn product revenue. Further,
regulation of manufacturing facilities by state, local, and other authorities is
subject to change. Any additional regulation could result in limitations or
restrictions on the Company's ability to utilize any of its technologies,
thereby adversely affecting the Company's operations.

Human pharmaceutical products are subject to rigorous preclinical
testing and clinical trials and other approval procedures mandated by the FDA
and foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of pharmaceutical products. The process of
obtaining these approvals and the subsequent compliance with appropriate U.S.
and foreign statutes and regulations are time-consuming and require the
expenditure of substantial resources. In addition, these requirements and
processes vary widely from country to country.

Among the uncertainties and risks of the FDA approval process are the
following: (i) the possibility that studies and clinical trials will fail to
prove the safety and efficacy of the drug, or that any demonstrated efficacy
will be so limited as to significantly reduce or altogether eliminate the
acceptability of the drug in the marketplace, (ii) the possibility that the
costs of development, which can far exceed the best of estimates, may render
commercialization of the drug marginally profitable or altogether unprofitable,
and (iii) the possibility that the amount of time required for FDA approval of a
drug may extend for years beyond that which is originally estimated. In
addition, the FDA or similar foreign regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in FDA policy and the establishment of additional regulations
during the period of product development and FDA review. Similar delays or
rejections may be encountered in other countries.

THE COMPANY'S SUCCESS WILL BE DEPENDENT ON LICENSES AND PROPRIETARY RIGHTS IT
RECEIVES FROM OTHER PARTIES, AND ON ANY PATENTS IT MAY OBTAIN.

Our success will depend in large part on the ability of the Company and
its licensors to (i) maintain license and patent protection with respect to
their drug products, (ii) defend patents and licenses once obtained, (iii)
maintain trade secrets, (iv) operate without infringing upon the patents and
proprietary rights of others and (iv) obtain appropriate licenses to patents or
proprietary rights held by third parties if infringement would otherwise occur,
both in the U.S. and in foreign countries. The Company has obtained licenses to
patents and other proprietary rights from M.D. Anderson and from USC.

The patent positions of pharmaceutical companies, including those of
the Company, are uncertain and involve complex legal and factual questions.
There is no guarantee that the Company or its licensors have or will develop or
obtain the rights to products or processes that are patentable, that patents
will issue from any of the pending applications or that claims allowed

will be sufficient to protect the technology licensed to the Company. In
addition, we cannot assure you that any patents issued to or licensed by the
Company will not be challenged, invalidated, infringed or circumvented, or that
the rights granted thereunder will provide competitive disadvantages to the
Company.

Litigation, which could result in substantial cost, may also be
necessary to enforce any patents to which the Company has rights, or to
determine the scope, validity and unenforceability of other parties' proprietary
rights, which may affect the rights of the Company. U.S. patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. There can be no assurance that the Company's licensed
patents would be held valid by a court or administrative body or that an alleged
infringer would be found to be infringing. The mere uncertainty resulting from
the institution and continuation of any technology-related litigation or
interference proceeding could have a material adverse effect on the Company
pending resolution of the disputed matters.

The Company may also rely on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that trade secrets will
not otherwise become known or be independently discovered by competitors.

THE COMPANY'S LICENSE AGREEMENTS CAN BE TERMINATED IN THE EVENT OF A BREACH.

The license agreements pursuant to which the Company has licensed its
core technologies for its potential drug products permit the licensors,
respectively M.D. Anderson and USC, to terminate the agreement under certain
circumstances, such as the failure by the licensee to use its reasonable best
efforts to commercialize the subject drug or the occurrence of any other uncured
material breach by the licensee. The license agreements also provide that the
licensor is primarily responsible for obtaining patent protection for the
technology licensed, and the licensee is required to reimburse it for the costs
it incurs in performing these activities. The license agreements also require
the payment of specified royalties. Any inability or failure to observe these
terms or pay these costs or royalties could result in the termination of the
applicable license agreement in certain cases. The termination of any license
agreement would have a material adverse effect on the Company.

THE COMPANY'S SUCCESS IS DEPENDENT ON ITS KEY PERSONNEL.

The Company is dependent on a small management group and on independent
researchers, some of whom are inventors of the patents licensed to the Company
for core technologies and drugs developed at M.D. Anderson and USC,
respectively. Scientific personnel may from time to time serve as consultants to
the Company and may devote a portion of their time to the Company's business, as
well as continue to devote substantial time to the furtherance of the Company's
sponsored research at M.D. Anderson, USC and other affiliated institutions as
may be agreed to in the future, but such personnel are not employees of the
Company and are not bound under written employment agreements. The services of
such persons are important to the Company, and the loss of any of these services
may adversely affect the Company.

In addition, to develop and commercialize future drug products, the
Company may need to hire and retain a number of additional highly qualified and
experienced management, scientific personnel, consultants and advisors. The
ability to attract and retain qualified personnel will be critical to the
success of the Company. Competition for qualified individuals is intense, and
the Company will face competition from numerous pharmaceutical and biotechnology
companies, universities and other research institutions. There can be no
assurance that the Company will be able to attract and retain such individuals
on acceptable terms or at all, and the failure to do so would have a material
adverse effect on the Company.

THERE IS NO SALES AND MARKETING CAPABILITY AT THE PRESENT TIME.

The Company does not have marketing or sales personnel. The Company
will have to develop a sales force, or rely on marketing partners or other
arrangements with third parties for the marketing, distribution and sale of any
drug product which is ready for distribution. There is no guarantee that the
Company will be able to establish marketing, distribution or sales capabilities
or make arrangements with third parties to perform those activities on terms
satisfactory to the Company, or that any internal capabilities or third party
arrangements will be cost-effective.

In addition, any third parties with which the Company may establish
marketing, distribution or sales arrangements may have significant control over
important aspects of the commercialization of a drug product, including market
identification, marketing methods, pricing, composition of sales force and
promotional activities. There can be no assurance that the Company will be able
to control the amount and timing of resources that any third party may devote to
the products of the Company or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with, and/or the withdrawal of support for, the products of the Company.

THERE ARE NO MANUFACTURING CAPABILITIES.

The Company will not have any manufacturing capacity. When required,
the Company will seek to establish relationships with third-party manufacturers
for the manufacture of clinical trial material and the commercial production of
a drug product just as it has with Eprova, AG and Clinalfa AG. There can be no
assurance that the Company will be able to establish relationships with
third-party manufacturers on commercially acceptable terms or that third-party
manufacturers will be able to manufacture a drug product on a cost-effective
basis in commercial quantities under good manufacturing practices mandated by
the FDA.

The dependence upon third parties for the manufacture of products may
adversely affect future costs and the ability to develop and commercialize a
drug product on a timely and competitive basis. Further, there can be no
assurance that manufacturing or quality control problems will not arise in
connection with the manufacture of the drug product or that third party
manufacturers will be able to maintain the necessary governmental licenses and
approvals to continue manufacturing such products. Any failure to establish
relationships with third parties for its manufacturing requirements on
commercially acceptable terms would have a material

adverse effect on the Company.

THE COMPANY DOES NOT HAVE ITS OWN RESEARCH FACILITIES AND WILL BE DEPENDENT ON
THIRD PARTIES FOR DRUG DEVELOPMENT.

The Company does not have its own research and development facilities
and engages consultants and independent contract research organizations to
design and conduct clinical trials in connection with the development of a drug.
As a result, these important aspects of a drug's development will be outside the
direct control of the Company. In addition, there can be no assurance that such
third parties will perform all of their obligations under arrangements with the
Company or will perform those obligations satisfactorily.

THERE IS NO PRODUCT LIABILITY INSURANCE AND IT IS UNCERTAIN THAT SUCH INSURANCE
CAN BE OBTAINED.

The business of the Company will expose it to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
pharmaceutical products. There can be no assurance that product liability claims
will not be asserted against the Company. The Company intends to obtain limited
product liability insurance for its clinical trials when they begin in the U.S.
and to expand its insurance coverage if and when the Company begins marketing
commercial products. However, there can be no assurance that the Company will be
able to obtain product liability insurance on commercially acceptable terms or
that the Company will be able to maintain such insurance at a reasonable cost or
in sufficient amounts to protect against potential losses. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company.

THE MARKET PRICE OF OUR SHARES IS VOLATILE.

Market prices for the Company's Common Stock and the securities of
other medical and biomedical technology companies have been volatile. Factors
such as announcements of technological innovations or new products by the
Company or its competitors, government regulatory action, litigation, patent or
proprietary rights developments, and market conditions for medical and high
technology stocks in general can have a significant impact on any future market
for the Common Stock.

WE ARE NOT PAYING DIVIDENDS ON OUR COMMON STOCK.

The Company has never paid cash dividends on Common Stock, and does not
intend to do so in the foreseeable future.

THE ISSUANCE OF THE SHARES OF PREFERRED STOCK IN THE FUTURE MAY AFFECT COMMON
STOCK.

The Company has previously issued shares of Series A Convertible
Preferred Stock to overseas investors. In addition, the Board of Directors is
authorized, without action by the

stockholders, to issue other shares of preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof. Although no
such issuance is currently planned, the effect of such issuance in the future
may (i) restrict dividends on Common Stock, (ii) dilute the voting power of
Common Stock, (iii) impair the liquidation rights of the Common Stock, and (iv)
delay or prevent a change in control without further action by the stockholders.

UNDER PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW, THE COMPANY'S MANAGEMENT MAY BE ABLE TO BLOCK OR IMPEDE A CHANGE
IN CONTROL.

The Company's Certificate of Incorporation authorizes the Board of
Directors (the "Board") to issue shares of undesignated preferred stock without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any such preferred stock that may be issued in the
future. Moreover, the issuance of preferred stock may make it more difficult for
a third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock. These and other provisions of the Certificate of
Incorporation and the by-laws, as well as certain provisions of Delaware law,
could delay or impede the removal of incumbent directors and could make more
difficult a merger, tender offer or proxy contest involving a change of control
of the Company, even if such events could be beneficial to the interest of the
stockholders as a whole. Such provisions could limit the price that certain
investors might be willing to pay in the future for the Common Stock.

OFFICERS' AND DIRECTORS' LIABILITIES ARE LIMITED UNDER DELAWARE LAW.

Pursuant to the Company's Certificate of Incorporation and by-laws, as
authorized under applicable Delaware law, directors are not liable for monetary
damages for breach of fiduciary duty, except in connection with a breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or for any transaction in which a
director has derived an improper personal benefit. The Certificate of
Incorporation and by-laws provide that the Company must indemnify its officers
and directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their having served as officers or directors.

ITEM 3. DESCRIPTION OF PROPERTY

The Company's principal office is located at 9948 Hibert St., Suite 100
in San Diego, California, and consists of 1,553 square feet. The office is
occupied under a three-year lease expiring on January 14, 2004, at a rental of
$33,600 per year.

The Company also has an office handling administration and finance, at
333 N. Sam Houston Parkway, Suite 1035, Houston, Texas, which consists of
approximately 800 square feet, occupied pursuant to a lease that expires on
October 31, 2001 at a rental of $14,686 per year.

Our research and development activities are conducted mainly on the
premises of M.D. Anderson, USC, and Sahlgrenska University Hospital, pursuant to
the terms of sponsored research arrangements.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information known to the Company
regarding beneficial ownership of the Common Stock of the Company as of December
31, 2000, of (i) each person who is known to the Company to own of record or
beneficially more than five percent (5%) of such Common Stock, (ii) each
director and executive officer of the Company (including Biokeys, Inc.) and
(iii) all directors and executive officers of the Company (including Biokeys,
Inc.) as a group. All share amounts shown here and elsewhere in this
registration have been adjusted to reflect a reverse stock split of
approximately one for 1.9899 in July 2000.

NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENT OF CLASS
------------------------------------- ---------------- ----------------

Louis R. Reif 201,010(1)
c/o Biokeys Pharmaceuticals, Inc.
333 N. Sam Houston Pkwy, Suite 1035
Houston, Texas 77060

Warren C. Lau 885,797(2)
c/o Biokeys Pharmaceuticals, Inc.
333 N. Sam Houston Pkwy, Suite 1035
Houston, Texas 77060

Nicholas Jon Virca 476,693(3)
c/o Biokeys Pharmaceuticals, Inc.
9948 Hibert Street, Suite 100
San Diego, CA 92131

Robert D. Whitworth 75,380(4)
c/o Biokeys Pharmaceuticals, Inc.
333 N. Sam Houston Pkwy, Suite 1035
Houston, Texas 77060

Francis E. O'Donnell, Jr., M.D. 1,323,646(5)
709 The Hamptons Lane
Town & Country, Missouri 63017

Thomas DePetrillo 957,922(6)
988 Centerville Road
Warwick, Rhode Island 02886

----------

(1) Does not include a total of 703,536 shares held by the adult
children of Mr. Reif, as trustees of family trusts, as to which Mr.Reif
disclaims any voting power or beneficial ownership.

(2) Includes 6,000 shares held by Mr. Lau as custodian for his minor
children, as to which he has voting power but disclaims any beneficial
ownership.

(3) Includes currently exercisable warrants for the purchase of 144,435
shares.

(4) Includes 25,127 shares held by Croyden Resources, Inc., as to which
Mr. Whitworth has sole voting power.

(5) Includes shares held by family trust and children, as to which Dr.
O'Donnell has voting power but disclaims any beneficial interest.

(6) Includes warrants held by Mr. DePetrillo to purchase 366,430
shares, currently exercisable, and shares held by family members. Mr. DePetrillo
has voting power but disclaims any beneficial interest as to such family- owned
shares.

NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENT OF CLASS
------------------------------------- ---------------- ----------------

Matthew Balk 976,275(7)
245 Park Avenue, 44th Floor
New York, NY 10167

M. Ross Johnson, Ph.D. 502,538(8)
53524 Bickett Street
Chapel Hill, North Carolina 27514

Jonnie R. Williams 1,072,085
1 Starwood Lane
Manakin Sabot, VA 23103

All directors and executive officers of 3,465,064
the Company (including the directors and
executive officers of Biokeys, Inc.) as a
group (6 persons)

----------

(7) Does not include other shares held by certain adult relatives of
Mr. Balk, as to which he disclaims any voting power or beneficial ownership.

(8) Represents currently exercisable warrants.

ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The Board of Directors of Biokeys Pharmaceuticals, Inc. is presently
composed of Louis R. Reif, Warren C. Lau, and Robert D. Whitworth. Directors
generally serve for one-year terms and until successors are duly elected and
qualified.

The Board of Directors of our subsidiary, Biokeys, Inc., is comprised
of M. Ross Johnson, Ph.D., Nicholas Jon Virca, Francis E. O'Donnell, Jr., M.D.,
and Louis R. Reif.

The directors and executive officers of each of Biokeys
Pharmaceuticals, Inc. and Biokeys, Inc., and their respective positions and ages
as of June 30, 2001, are as follows:

NAME AGE POSITION
--------------------------------------------------------------------------------

Louis R. Reif 77 Chairman, Chief Executive Officer and
Director of Biokeys Pharmaceuticals, Inc.;
Director and Secretary of Biokeys, Inc.

Nicholas Jon Virca 54 President, Chief Executive Officer and
Director of Biokeys, Inc.

Warren C. Lau 47 President, Chief Financial Officer and
Director of Biokeys Pharmaceuticals, Inc.;
Chief Financial Officer of Biokeys, Inc.

M. Ross Johnson, Ph.D. 56 Chairman and Director of Biokeys, Inc.

Francis E. O'Donnell, Jr. M.D. 52 Director of Biokeys, Inc.

Robert D. Whitworth 48 Director and Secretary of Biokeys
Pharmaceuticals, Inc.

LOUIS R. REIF is a co-founder of Biokeys Pharmaceuticals, Inc. and has served as
its Chief Executive Officer and Chairman and as a member of its Board of
Directors since 1996. From 1952 to 1993, Mr. Reif was associated with National
Fuel Gas Company, a U.S. natural gas company listed on the New York Stock
Exchange. He served as Vice President from 1958 to 1974, President and Chief
Executive Officer from 1974 to 1988, a Director from 1966 to 1993, and Chairman
of the Board from 1980 to 1993. In 1989, Mr. Reif served as Chief Operating
Officer and a Director of Delaware North Companies, a large privately-held
company operating food concession businesses at major sports arenas in the U.S.
He has served as past Chairman of the American Gas Association and Chairman of
the 17th World Gas Conference of the International Gas Union. He is a
Trustee-emeritus of the State University of New York. Mr. Reif received a B.A.
degree from the University of Buffalo and a J.D. degree from the University of
Michigan.

NICHOLAS JON VIRCA has served as President, and a Director of Biokeys, Inc., the
Company's wholly-owned subsidiary, since March 1997, becoming Chief Executive
Officer in March 2000. From 1991 to 1997, he served as Vice President of
Operations, and as a director from 1997 to 1998, of Diametrix Detectors, Inc., a
privately-held immunosensor company which he co- founded and which focused on
detection of narcotics using monoclonal antibodies. From 1991 to 1994, Mr. Virca
also served as Vice President, Business Operations, of IRT Corporation, a
publicly-traded company that specialized in x-ray inspection and imaging systems
for industrial and security applications. In addition, from 1994 to 1997, Mr.
Virca served as Business Unit Manager, Security Products, for Nicolet Imaging
Systems, a company that purchased substantially all of IRT's assets in 1994. His
earlier employment includes key marketing and general management positions with
Fisher Scientific, Damon Biotech, Promega Corporation, the Ortho Division of
Johnson & Johnson and the Ross Division of Abbott Laboratories, during which he
participated in the commercialization of numerous prescription and OTC
pharmaceuticals and biotherapeutic and diagnostic reagents. Mr. Virca received a
B.A. degree in biology from Youngstown State University.

WARREN C. LAU is the co-founder of Biokeys Pharmaceuticals, Inc. and has served
as its President and as a member of its Board of Directors from June 1996, and
Chief Financial Officer of Biokeys, Inc., the Company's wholly-owned subsidiary,
since the merger. From November 1997 to September 1998, Mr. Lau served as a
director of Immune Complex Corporation and Synthetic Genetics, Inc.,
privately-held biotechnology companies with which the Company was affiliated
during such period. From 1986 to 1996, Mr. Lau was a registered representative
of Josephthal, Lyons and Ross, an investment banking and brokerage firm, where
he was involved with the underwriting of biotechnology issues.

M. ROSS JOHNSON, PH.D. serves as Chairman and a Director of Biokeys, Inc. From
1996 to 1999, he was President, Chief Executive Officer and member of the Board
of Directors of Trimeris, Inc., and, from 1995 to 1996, served as its Chief
Scientific Officer and Vice President of Research and Development. Trimeris is
engaged in the development of fusion inhibitor technology for antivirals to
treat HIV infection. Prior to his service with Trimeris, Dr. Johnson was
President and CEO of Parnassus Pharmaceuticals and Vice President of Chemistry
at the Glaxo, Inc. Research Institute in North Carolina, where he was part of
the original scientific founding team. Earlier, he served in key scientific and
research management positions with Pfizer Central Research. He is Adjunct
Professor of Chemistry and Adjunct Professor of Medicinal Chemistry at the
University of North Carolina at Chapel Hill. He has authorized or participated
in numerous patents, scientific publications and scientific and medical
presentations. Dr. Johnson received his B.S. degree in chemistry from the
University of California at Berkeley and a Ph.D. degree in organic chemistry
from the University of California at Santa Barbara.

FRANCIS E. O'DONNELL, JR., M.D. has served as a director of Biokeys, Inc.
(including its predecessor) since1996. He is founder and Managing Partner of
Hopkins Capital Group, LLC, a biotech business development company. In his role
as Managing Partner for the Hopkins Capital Group, he is actively involved in
the management of the portfolio companies: APP Specialty Pharmacy, Photo Vision
Pharmaceuticals, BioDelivery Sciences International, Inc., RetinaPharma, Inc.,
Pen2Net, Inc. and Sublase, Inc. Dr. O'Donnell is the Founder and Managing
Partner of Hopkins Biotech Development Corporate (HBDC) which provides biotech
company

advertising. Dr. O'Donnell has published over 30 peer-reviewed scientific
articles and he has been awarded 22 US patents. He is a 1975 graduate of the
Johns Hopkins School of Medicine and former a Professor and Chairman, Department
of Opthamology at the St. Louis University School of Medicine in St. Louis,
Missouri.

ROBERT D. WHITWORTH has served as a director of Biokeys Pharmaceuticals, Inc.
since August, 1998. Mr. Whitworth began his business career in 1976 with Charles
Martin, Inc., a petroleum inspection company, and ultimately served as Chief
Chemist for Europe, Africa, and the Middle East. In 1979, Mr. Whitworth became
Vice President, Logistics and Quality Control, at Hydrocarbon Trading and
Transport, Inc., a Houston, Texas, company, which at the time was the largest
private supplier of jet fuel in the U.S. From 1989 to 1994, Mr. Whitworth was a
Vice President of Croydon Resources, Inc., a provider of crude oil and refined
petroleum products for refinery processing. From 1994 to the present, Mr.
Whitworth has served as Manager of International Fuel Sales and Operations for
Mecury Group, Inc., a jet fuel supplier for the airline industry. Mr. Whitworth
is the holder of 22 U.S. and international patents in chemical and petroleum
engineering, and is a member of the American Chemical Society, the American
Society for Testing and Materials and the International Standards Association.
Mr. Whitworth holds a B.S. degree in Chemistry from Southern Methodist
University.

ITEM 6. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to each executive
officer of Biokeys Pharmaceuticals, Inc. and Biokeys, Inc., for each of the
three fiscal years ended December 31, 2000:

------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
(i)
------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
------------------------------------------------------------------------------------------------------------------------------

Name Year Salary Bonus Other Restricted Securities LTIP All
and ($) ($) Annual Stock Underlying Payouts Other
Principal Compe Award(s) Options/ ($) Compen-
Position nsation ($) SARs (#) sation
($) ($)
------------------------------------------------------------------------------------------------------------------------------
Nicholas Jon Virca 2000 30,000(1)
President & CEO 1999
Biokeys, Inc. 1998
------------------------------------------------------------------------------------------------------------------------------
Warren C. Lau 2000 114,000
President 1999 114,000 5,000
Biokeys 1998 94,000 5,000
Pharmaceuticals,
Inc.
------------------------------------------------------------------------------------------------------------------------------
Louis R. Reif (2)

------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Includes salary only for the last quarter of 2000, during which Biokeys, Inc. was a subsidiary.

(2) Mr. Reif has not been paid compensation, but is reimbursed for actual expenses.
------------------------------------------------------------------------------------------------------------------------------

EXECUTIVE EMPLOYMENT AGREEMENTS

The Company has an employment agreement with Warren C. Lau, President
of Biokeys Pharmaceuticals, Inc., expiring November 30, 2002. The agreement
provides for an annual salary of $114,000, plus cost-of-living increases based
on percentage changes in the Consumer Price Index. In the event of a change of
control of the Company and a related termination of the employment agreement,
Mr. Lau will be entitled to a severance payment equal to one year's salary.

Nicholas Jon Virca, the President and Chief Executive Officer of
Biokeys, Inc., does not presently have an employment agreement. He receives a
salary of $120,000 per year.

The Company provides health and life insurance coverage for Messrs.
Virca and Lau.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Warren C. Lau, a founder, stockholder, officer and director of Biokeys
Pharmaceuticals Inc., is party to an executive employment agreement providing
for a salary of $114,000 per year. Nicholas Jon Virca, an officer and director
of Biokeys, Inc. and a stockholder of the Company, is paid a salary of $120,000.
(See Item 6 above).

Louis R. Reif, a founder, stockholder, officer and director of Biokeys
Pharmaceuticals, Inc., is not compensated for his service for the Company, but
receives reimbursement of actual expenses incurred in performing services for
the Company, including attending meetings and undertaking business trips for the
Company. Directors who are not executive officers of the Company are similarly
reimbursed, but are not paid a salary.

M. Ross Johnson, a Director and Chairman of Biokeys, Inc., has provided
consulting services to the Company from time to time. In consideration of such
services, the Company issued warrants to Dr. Johnson in 1999 for the purchase of
up to 502,528 shares of Common Stock. From time to time, the Company has also
paid Dr. Johnson cash consulting fees which amounted to $15,000 in the aggregate
as of December 31, 2000.

Matthew Balk, a principal stockholder of the Company, is affiliated
with H.C. Wainwright & Co., Inc., a brokerage and investment banking firm. H.C.
Wainwright & Co., Inc. represented the Company in its merger arrangements with
Biokeys, Inc., for which the Company agreed to issue 150,000 shares of Common
Stock in payment of such services.

ITEM 8. DESCRIPTION OF SECURITIES

The authorized capital stock of Biokeys Pharmaceuticals, Inc. consists
of 1,000,000 shares of Preferred Stock, $0.01 par value, and 50,000,000 shares
of Common Stock, $0.001 par value.

PREFERRED STOCK

Our Board of Directors is authorized, without action by the
stockholders, to issue preferred stock in one or more series. In the year 2000,
we issued 3,200 shares of Series A 8% Convertible Preferred Stock, which are
currently outstanding, to investors in an overseas private placement offering.

SERIES A 8% CONVERTIBLE PREFERRED STOCK (referred to as the "Preferred Stock")

DIVIDEND RIGHTS. Holders of shares of Preferred Stock are
entitled to receive, when, as and if declared by the Company's Board of
Directors out of earnings at the time legally available therefor,
dividends at the annual rate of 8% per share, payable semi- annually on
June 30 and December 31, pro-rated to the date of original issuance of
the shares. Dividends are cumulative and will be payable to holders of
record as they appear on our stock books on such record dates as are
fixed by the Board of Directors. At the election of the holder, such
dividends will be payable in shares and fractional shares of

Preferred Stock, valued for this purpose at the rate of $1,000 per
share.

LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, the
Preferred Stock will have preference and priority over the Common Stock
of the Company for payment, out of the assets of the Company or
proceeds thereof available for distribution to shareholders, of the sum
of $1,000 per share plus all cumulative dividends payable and unpaid
thereon to the date of such distribution.

CONVERSION: The shares of Preferred Stock have the following
conversion rights:

(i) The Preferred Stock is convertible into Common Stock at
the election of the holder. Each share of Preferred Stock is
convertible into 250 shares of the Company's Common Stock, which is
equal to a conversion price of $4.00 per share.

(ii) The conversion price and ratio will be subject to
adjustment for subsequent events such as stock splits,
recapitalization, and certain financing. In addition, if within two
years after issuance the Company sells Common Stock in a private
placement or in a underwritten public offering at a price per share
which is less than the conversion price, the Company will issue a
sufficient number of additional shares of Common Stock to each holder
of Preferred Stock so as to reduce the effective conversion price to
the level established in such private placement or public offering;
PROVIDED, HOWEVER, that (i) such provisions shall not apply to a
specified transaction previously pending between the Company and an
institutional investor, (ii) such reduced conversion price shall not be
less than $2.50 per share, and (iii) such price adjustment provisions
shall not apply to an interim financing of $1,000,000 or less.

REDEMPTION: The Company may call the Preferred Stock for
redemption at any time the closing price of Common Stock remains at a
level of at least $8.00 per share for a period of at least 20
consecutive trading days. The redemption price will be equal to the
liquidation preference plus accrued and unpaid dividends. Also, at any
time beginning after July 1, 2003, the Company may call all or any
portion of the outstanding Preferred Stock for redemption on at least
30 days notice, at a redemption price equal to 105% of the liquidation
preference of such shares, plus all accrued and unpaid dividends. On
the effective date fixed for redemption in the redemption notice, the
Preferred Stock will cease to be outstanding but conversion rights will
be exercisable up until the effective redemption date.

VOTING RIGHTS. The Preferred Stock will have no voting rights,
except that the written consent or affirmative vote of the holders of a
majority of the outstanding Preferred Stock is required to approve (i)
any proposed amendment to the Company's Certificate of Incorporation
that would materially alter or change the powers, preferences, or
special rights of the Preferred Stock so as to affect the holders
adversely, and (ii) any plan of merger or consolidation that contains
provisions which, if contained in a proposed amendment to the Company's
Certificate of Incorporation, would have entitled the holders of the
Preferred Stock to vote, as a class, on the issue.

OTHER SERIES OF PREFERRED SHARES

Of the remaining authorized but unissued shares of preferred stock, our
Board of Directors is authorized, without action by the stockholders, to issue
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. These rights, preferences and
privileges may include dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of any series, all or any of
which may be greater than the rights of the Common Stock. We have no present
plans to issue any new shares of preferred stock.

COMMON STOCK

As of August 27, 2001, there were 14,652,429 shares of Common Stock
issued or issuable which were held of record by approximately 600 stockholders.

The holders of our Common Stock are entitled to one vote per share held
of record on all matters submitted to a vote of the stockholders. Our
certificate of incorporation does not provide for cumulative voting in the
election of directors. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by our
Board of Directors out of funds legally available for that purpose. In the event
of our liquidation, dissolution or winding up, holders of our Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Holders of our Common Stock have no preemptive or other
subscription or conversion rights. There are no redemption or sinking fund
provisions applicable to our Common Stock.

PART II

ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Until December 7, 1999, the Common Stock of Biokeys Pharmaceuticals,
Inc. (then known as BioQuest, Inc.) was quoted on the National Association of
Securities Dealers (NASD) OTC Bulletin Board under the symbol "HIVX". Since that
time, our Common Stock has been quoted in the "Pink Sheets". Trading in the
"Pink Sheets" takes place on an irregular basis, and liquidity in this trading
market may be variable or non-existent. All prices shown have been adjusted to
reflect 1 for 1.989949857 reverse stock split in July 2000. When this
registration statement becomes effective, the Company intends to reapply for
quotation privileges on the OTC Bulletin Board.

The following represents high and low prices on the OTC Bulletin Board
(until December 7, 1999) and thereafter in the Pink Sheets, during the last two
years:

QUARTER ENDING HIGH SALES PRICE LOW SALES PRICE
-------------- ---------------- ---------------

December 31, 1998 $0.557 $0.259
March 31, 1999 $0.776 $0.259
June 30, 1999 $0.684 $0.418
September 30, 1999 $0.995 $0.398
December 31, 1999 $0.736 $0.239
March 31, 2000 $3.48 $0.299
June 30, 2000 $3.18 $0.995
September 30, 2000 $3.90 $2.25
December 31, 2000 $3.85 $2.80
March 31, 2001 $5.25 $2.75
June 30, 2001 $2.90 $2.10

HOLDERS

The number of record and beneficial holders of our Common Stock as of
August 27, 2001 is approximately 600.

TRANSFER AGENT

Biokeys Pharmaceutical's transfer agent is Interwest Transfer Co.,
Inc., 1981 E. Holladay Road, Suite 100, Salt Lake City, UT 84117.

ITEM 2. LEGAL PROCEEDINGS

The Company is a defendant in an action entitled Karo Bio USA, Inc. vs.
Biokeys Pharmaceuticals, Inc., recently commenced in the United States District
Court for the District of Delaware. The action alleges infringement of Karo
Bio's federal trademark registration for the name "Biokey," based upon their
claimed prior use in connection with a particular Karo Bio product, and the use
of "Biokeys" in our Company's name. The plaintiff seeks to prevent us from
continuing to use "Biokeys" as part of our name, as well as an unspecified
amount of damages.

The case is at an early stage and no discovery proceedings have yet
taken place. The Company intends to defend the action vigorously.

We do not use the name "Biokeys" to identify any of our drug candidate
products and have not marketed, and would not market such products using such
identification. Even if the Company were required to cease using the name
"Biokeys", which we do not anticipate, we believe that the lawsuit by Karo Bio
will not have a material adverse effect on the Company.

ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

None

ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES

From January 1999 to the present, the Company issued and sold the
following securities which were not registered under the Securities Act of 1933,
as amended. All issuances were undertaken pursuant to exemptions from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended, or Regulation D promulgated by the Securities and Exchange Commission.
Certificates for all securities were appropriately legended with restrictions on
sale and transfer of such securities.

In November and December 1999, the Company agreed to sell to four
investors a total of 678,412 shares of Common Stock at a price of approximately
$0.20 per share for a total of $135,000. Each share was accompanied by a warrant
to purchase additional shares of Common Stock at an exercise price of $0.40 per
share. In March 2000, these warrants were exercised under a cashless exercise
provision, resulting in the issuance of 599,066 shares of Common Stock to the
warrant holders.

From April to June 2000, the Company issued an aggregate of $472,000
principal amount of 8.5% subordinated convertible promissory notes in a private
placement offering to accredited investors under Regulation D, made through
Company officers and without the assistance of any

placement agent. In accordance with the terms of the notes, the principal
amounts of the notes and all accrued interest were converted into shares of
Common Stock at a conversion price of $1.19 per share, effective as of the
consummation of the Company's merger with Biokeys, Inc. which resulted in the
issuance of 412,487 restricted shares to the note holders.

As of October 2000, the Company issued a total of approximately
6,999,990 shares of its Common Stock to the former stockholders of Biokeys,
Inc., in accordance with the terms of the Plan and Agreement of Merger between
Bioquest, Inc. and Biokeys, Inc.

In October and November, 2000, the Company issued a total of 8,727
shares of Common Stock to a creditor in settlement of various outstanding
obligations of Biokeys, Inc., and BioQuest, Inc., which preceded the date of
consummation of the merger.

In August and September 2000, the Company sold a total of 3,200 shares
of Series A 8% Convertible Preferred Stock to three overseas investors for a
total of $3,200,000, and issued to such investors warrants to purchase 400,000
shares of Common Stock at $5.00 per share. Such sale and issuance were conducted
in accordance with Regulation S of the Securities and Exchange Commission.

ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 102(b) (7) of the Delaware General Corporation
Law (the "DGCL"), Biokeys Pharmaceutical's Certificate of Incorporation and By
Laws eliminate in certain circumstances the liability of directors of Biokeys
Pharmaceuticals for monetary damages for breach of their fiduciary duty as
directors. This provision does not eliminate the liability of a director: (i)
for breach of the director's duty of loyalty to Biokeys Pharmaceuticals or its
stockholders; (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
under Section174 of the DGCL; or (iv) for transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.

Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any

person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such a
person acted in any of the capacities set forth above, against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.

Section 145 of the DGCL further provides that to the extent a director,
officer, employee, or agent of a corporation has been successful in the defense
of any action, suit, or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue, or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145 of
the DGCL shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of any person acting in any of the capacities set
forth in the second preceding paragraph against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145 of the DGCL.

The Company's Bylaws require it, under certain circumstances, to
indemnify any person who is or was a director or officer against expense
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of Biokeys Pharmaceuticals and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Bylaws of the Company also provide that expenses incurred by a director or
officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitle to be indemnified by Biokeys Pharmaceuticals
as authorized in the Bylaws.

In addition, the Company has applied for directors' and officers'
liability insurance which, if issued, insures against liabilities that directors
and officers of Biokeys Pharmaceuticals may incur in such capacities. The risks
covered by such policies do not exclude liabilities under the Securities Act.

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the day of September, 2001.

BIOKEYS PHARMACEUTICALS, INC.

By
-----------------------------
Louis R. Reif, Chairman and Chief Executive Officer

By
-----------------------------
Warren C. Lau, President and Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints LOUIS R. REIF and WARREN C. LAU, or
either of them, as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement of Biokeys
Pharmaceuticals, Inc. on Form 10SB, and any and all amendments (including
post-effective amendments) to such Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agents or any
of them or their or his substitute or substitutes, may unlawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of
1934, this Registration Statement or thereto has been signed below by the
following persons in the capacities and on the date indicated.

Signature Title Date

/s/ LOUIS REIF Director September 26, 2001
------------------------------
Louis R. Reif

/s/ ROBERT D. WHITWORTH Director September 26, 2001
------------------------------
Robert D. Whitworth

/s/ WARREN C. LAU Director September 26, 2001
------------------------------
Warren C. Lau

PART F/S

The following financial statements are included herein:

PAGE NO. TITLE OF DOCUMENTS

A. FINANCIAL STATEMENTS OF BIOKEYS PHARMACEUTICALS, INC.

--------------------------------------------------------------------------------
1 Independent Auditors' Report
--------------------------------------------------------------------------------
2 Consolidated Balance Sheets
--------------------------------------------------------------------------------
3 Consolidated Statements of Operations
--------------------------------------------------------------------------------
4 Consolidated Statements of Shareholders' Equity (Deficit)
--------------------------------------------------------------------------------
5 Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
6 Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

B. FINANCIAL STATEMENTS OF BIOKEYS, INC.

--------------------------------------------------------------------------------
1 Independent Auditors' Report
--------------------------------------------------------------------------------
2 Balance Sheets
--------------------------------------------------------------------------------
3 Statements of Operations
--------------------------------------------------------------------------------
4 Statements of Shareholders' Equity (Deficit)
--------------------------------------------------------------------------------
5 Statements of Cash Flows
--------------------------------------------------------------------------------
6 Notes to Financial Statements
--------------------------------------------------------------------------------

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Consolidated Financial Statements

December 31, 2000 and 1999

(With Independent Auditors' Report Thereon)

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Biokeys Pharmaceuticals, Inc.:

We have audited the accompanying consolidated balance sheets of Biokeys
Pharmaceuticals, Inc. and subsidiary (formerly BioQuest, Inc.) (a development
stage enterprise) (the Company) as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years then ended, and for the period from inception (June
12, 1996) through December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biokeys
Pharmaceuticals, Inc. and subsidiary (formerly BioQuest, Inc.) (a development
stage enterprise) as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended, and for the period
from inception (June 12, 1996) through December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 11 to
the consolidated financial statements, the Company has suffered recurring losses
from operations; this fact raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 11. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Houston, Texas
June 22, 2001

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Consolidated Balance Sheets

DECEMBER 31,
------------------------------
Assets 2000 1999
------------ ------------

Current assets:
Cash and cash equivalents $ 467,878 58,463
Certificate of deposit 1,016,330 --
Advances to employees 10,500 6,554
Prepaid expenses 71,624 --
------------ ------------

Total current assets 1,566,332 65,017

Property and equipment, net (note 4) 6,356 9,243
Goodwill, net of accumulated amortization of $1,900,709 in 2000 13,304,966 --
Other assets 1,180 1,180
------------ ------------

Total assets $ 14,878,834 75,440
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities $ 67,537 165,082
Accrued salary and related taxes 116,034 60,605
Accrued dividends payable 85,000 --
Notes payable (note 5) -- 97,718
Sponsored research payable (note 7) -- 845,944
Obligation under license agreement (note 6) -- 139,834
------------ ------------

Total current liabilities 268,571 1,309,183
------------ ------------

Shareholders' equity (deficit) (notes 1, 6 and 8):
Cumulative convertible preferred stock, $.01 par value,
(aggregate involuntary liquidation preference $3,285,000),
1,000,000 shares authorized; issued and outstanding, 3,200
shares in 2000 32 --
Common stock, $.001 par value, 50,000,000 shares authorized;
issued and outstanding, 14,586,984 shares in 2000 and
5,859,976 shares in 1999 14,587 5,860
Additional paid-in capital 22,299,866 2,763,535
Deficit accumulated during the development stage (7,704,222) (4,003,138)
------------ ------------

Total shareholders' equity (deficit) 14,610,263 (1,233,743)

Commitments and contingencies (notes 6, 7, 11, 12 and 13)
------------ ------------

Total liabilities and shareholders' equity (deficit) $ 14,878,834 75,440
============ ============

See accompanying notes to consolidated financial statements.

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Consolidated Statements of Operations

INCEPTION
(JUNE 12, 1996)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
2000 1999 2000
----------- ----------- -----------

Net sales $ -- -- 174,830
Cost of goods sold -- -- 51,094
----------- ----------- -----------

Gross margin -- -- 123,736

Grant revenue -- -- 80,338
Interest income 40,922 14,234 57,005
----------- ----------- -----------
40,922 14,234 261,079
----------- ----------- -----------

Operating expenses:
Research and development 983,198 351,446 2,717,544
General and administrative 827,970 708,562 3,437,098
Depreciation and amortization 1,907,341 5,385 1,989,516
Interest expense 23,497 4,326 111,989
Equity in loss of subsidiary -- -- 178,936
----------- ----------- -----------
Total operating expenses 3,742,006 1,069,719 8,435,083
----------- ----------- -----------

Loss before cumulative effect of
change in accounting principle (3,701,084) (1,055,485) (8,174,004)

Cumulative effect of change in accounting
principle -- -- (25,821)
----------- ----------- -----------
Net loss $(3,701,084) (1,055,485) (8,199,825)
=========== =========== ===========

Loss per common share -
basic and diluted (note 10) $ (0.44) (0.20)
=========== ===========

See accompanying notes to consolidated financial statements.

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Consolidated Statements of Shareholders' Equity (Deficit)

Inception (June 12, 1996) through December 31, 2000

DEFICIT
CUMULATIVE CONVERTIBLE ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE SHAREHOLDERS'
----------------------- ------------------------ PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at June 12, 1996 (date of
incorporation) -- $ -- -- $ -- -- -- --

Sale of common stock without par value -- -- 503 5 5 -- 10

Change in par value of common stock -- -- -- (4) 4 -- --

Issuance of common stock and net
liabilities assumed in acquisition -- -- 1,716,132 1,716 3,224 (18,094) (13,154)

Issuance of common stock -- -- 2,010,111 2,010 456 (2,466) --

Net loss -- -- -- -- -- (259,476) (259,476)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at December 31, 1996 -- -- 3,726,746 3,727 3,689 (280,036) (272,620)

Sale of common stock, net
of offering costs of $9,976 -- -- 1,004,554 1,004 1,789,975 -- 1,790,979

Issuance of common stock in acquisition -- -- 375,891 376 887,874 -- 888,250

Minority interest deficiency at
acquisition charged to the Company -- -- -- -- -- (45,003) (45,003)

Net loss -- -- -- -- -- (1,979,400) (1,979,400)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at December 31, 1997 -- -- 5,107,190 5,107 2,681,538 (2,304,439) 382,206

Rescission of acquisition -- -- (375,891) (376) (887,874) 561,166 (327,084)

Issuance of common stock at
conversion of notes payable -- -- 450,264 451 363,549 -- 364,000

Expense related to stock warrants
issued -- -- -- -- 260,000 -- 260,000

Net loss -- -- -- -- -- (1,204,380) (1,204,380)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at December 31, 1998 -- -- 5,181,564 5,182 2,417,213 (2,947,653) (525,258)

Sale of common stock (note 8) -- -- 678,412 678 134,322 -- 135,000

Expense related to stock warrants
issued (note 8) -- -- -- -- 212,000 -- 212,000

Net loss -- -- -- -- -- (1,055,485) (1,055,485)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at December 31, 1999 -- -- 5,859,976 5,860 2,763,535 (4,003,138) (1,233,743)

Sale of preferred stock, net of
offering costs of $76,500
(note 8) 3,200 32 -- -- 3,123,468 -- 3,123,500

Issuance of common stock at conversion
of notes and interest payable
(note 8) -- -- 412,487 412 492,085 -- 492,497

Issuance of common stock at
conversion of notes payable
(note 8) -- -- 70,354 70 83,930 -- 84,000

Issuance of common stock to settle
obligations (notes 1 and 6) -- -- 495,111 496 1,201,664 -- 1,202,160

Issuance of common stock for
acquisition (note 1) -- -- 6,999,990 7,000 9,325,769 -- 9,332,769

Issuance of warrants for acquisition
(note 1) -- -- -- -- 4,767,664 -- 4,767,664

Stock issued for acquisition costs
(note 1) -- -- 150,000 150 487,350 -- 487,500

Expense related to stock warrants issued
(note 8) -- -- -- -- 140,000 -- 140,000

Dividends payable (note 8) -- -- -- -- (85,000) -- (85,000)

Cashless exercise of warrants
(note 8) -- -- 599,066 599 (599) -- --

Net loss -- -- -- -- -- (3,701,084) (3,701,084)
----------- ----------- ----------- ----------- ----------- ----------- -----------

Balances at December 31, 2000 3,200 $ 32 14,586,984 $ 14,587 22,299,866 (7,704,222) 14,610,263
=========== =========== =========== =========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Consolidated Statements of Cash Flows

INCEPTION
(JUNE 12, 1996)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
2000 1999 2000
----------- ----------- -----------

Cash flows from operating activities:
Net loss $(3,701,084) (1,055,485) (8,199,825)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,907,341 5,385 1,989,516
Expense related to stock warrants issued 140,000 212,000 612,000
Expenses paid by issuance of common stock 211,209 -- 211,209
Equity in loss of subsidiary -- -- 178,936
Write-off of license agreement -- -- 152,866
Cumulative effect of change in accounting principle -- -- 25,821
Changes in assets and liabilities, net of effect of
acquisitions:
(Increase) decrease in other assets (81,382) 11,518 (142,153)
Increase in inventory -- -- (13,490)
Increase (decrease) in accounts payable
and accrued liabilities (624,376) 67,430 (475,139)
Increase in sponsored research
payable and license obligation -- 360,419 924,318
----------- ----------- -----------
Net cash used in operating activities (2,148,292) (398,733) (4,735,941)
----------- ----------- -----------

Cash flows from investing activities:
Purchase of certificate of deposit (1,016,330) -- (1,016,330)
Purchases of property and equipment (3,745) -- (87,630)
Payment on obligation under license agreement -- -- (106,250)
Cash acquired in acquisition of subsidiary -- -- 64,233
Payments on note receivable -- 170,000 370,000
Advance to subsidiary -- -- (90,475)
Cash transferred in rescission of acquisition -- -- (19,475)
Cash received in rescission of acquisition -- -- 230,000
----------- ----------- -----------
Net cash provided by (used in) investing activities (1,020,075) 170,000 (655,927)
----------- ----------- -----------

Cash flows from financing activities:
Proceeds from sale of preferred stock 3,200,000 -- 3,200,000
Proceeds from sale of common stock -- 135,000 1,935,965
Payment of financing and offering costs (76,500) -- (98,976)
Payment of notes payable and long-term debt (17,718) -- (67,718)
Proceeds from issuance of notes payable 472,000 80,000 894,718
Principal payments on capital lease obligations -- -- (4,243)
----------- ----------- -----------
Net cash provided by financing activities 3,577,782 215,000 5,859,746
----------- ----------- -----------

Net increase in cash and cash equivalents 409,415 (13,733) 467,878

Cash and cash equivalents at beginning of period 58,463 72,196 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 467,878 58,463 467,878
=========== =========== ===========

See accompanying notes to consolidated financial statements.

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

(1) DESCRIPTION OF THE COMPANY

Biokeys Pharmaceuticals, Inc., a Delaware corporation, formerly known as
BioQuest, Inc. (the Company), is a development stage enterprise which
conducts biomedical research and development focused on treatments for
cancer and certain viral infections, including HIV. The Company currently
does not market any product. Through its license agreements with University
of Texas M.D. Anderson Cancer Center (M.D. Anderson) and University of
Southern California (USC), the Company has rights to drug candidates in
varying early stages of development.

On October 10, 2000, a wholly-owned subsidiary of BioQuest, Inc. merged
with Biokeys, Inc. (Biokeys) of San Diego, California (see note 3).
BioQuest, Inc. (BioQuest) changed its name to Biokeys Pharmaceuticals Inc.
Pursuant to the merger, Biokeys shareholders received 6,999,990 shares of
BioQuest common stock, representing 50% of the total common stock of
BioQuest outstanding upon consummation of the merger. All previously
outstanding Biokeys shares were canceled, and all outstanding Biokeys
warrants were replaced with warrants to purchase a total of 1,468,018
shares of Company common stock at $0.49 per share expiring December 15,
2003. A Biokeys liability was settled through the issuance of 8,727 shares
of Company common stock. The Company issued 150,000 shares of common stock
in payment of certain direct acquisition costs. For financial reporting
purposes, the merger was accounted for as a purchase. Biokeys operating
activity is included in the Company's consolidated financial statements
from the date of the merger.

The Company's shares trade in the over-the-counter market and are quoted in
the so-called "pink sheets" under the symbol BKYS.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the accounts
of Biokeys Pharmaceuticals, Inc. and its wholly-owned subsidiary, Biokeys.
All intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management
believes that the estimates utilized in preparing its financial statements
are reasonable and prudent. Actual results could differ from those
estimates.

COMMON STOCK

On June 20, 2000, the Company effected a reverse stock split of its common
stock of approximately 1.9899 to 1. All share and per-share information
included in the accompanying consolidated financial statements and related
notes has been adjusted to reflect the stock split.

6 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

CASH EQUIVALENTS

Highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.

FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, certificate of deposit,
advances to employees, and accounts payable are a reasonable estimate of
their fair values at the balance sheet dates due to the short-term nature
of these instruments.

The Company maintains cash, cash equivalents, and certificates of deposit
with banks which from time to time may exceed federally insured limits. The
Company periodically assesses the financial condition of the institutions
and believes that the risk of any loss is minimal.

GOODWILL

Goodwill (excess of purchase price over fair value of net assets acquired)
is being amortized using the straight-line method over two years.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are calculated using the straight-line method over the estimated useful
lives of the assets. The costs of improvements that extend the lives of the
assets are capitalized. Repairs and maintenance are expensed as incurred.

DEFERRED FINANCING COSTS

Costs associated with arranging debt financing are deferred and amortized
using the straight-line method over the term of the notes payable.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are expensed as incurred and include
Company-sponsored research and development.

LICENSE AGREEMENTS

Costs of license agreements for patent rights and technology rights that
currently have no alternative future uses are expensed as research and
development costs.

IMPAIRMENT OF LONG-LIVED ASSETS

In the event that facts and circumstances indicate that property and
equipment and intangible or other noncurrent assets may be impaired, an
evaluation of the recoverability of currently recorded costs will be made.
If an evaluation is required, the estimated value of undiscounted future
net cash flows associated with the asset is compared to the asset's
carrying value to determine if impairment exists. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets.

7 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

INCOME TAXES

Income taxes are accounted for using the asset and liability method under
which deferred tax assets and liabilities are recognized for estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Deferred tax expense or
benefit is recognized as a result of the change in the asset or liability
during the period.

SUPPLEMENTARY CASH FLOW INFORMATION

Interest of $3,000 and $4,300 was paid during 2000 and 1999, respectively.
No income taxes were paid during 2000 and 1999.

Noncash investing and financing transactions excluded from the statements
of cash flows for the years ended December 31, 2000 and 1999 are as
follows:

2000 1999
------------------ -----------------

Conversion of notes payable and accrued
interest into common stock (note 8) $ 84,000 -
Issuance of common stock to settle
obligations (note 6) 1,172,490 -
Issuance of common stock for acquisition
(note 1) 9,332,769 -
Issuance of warrants for acquisition (note 1) 4,767,664 -
Acquisition liability settled with stock
(note 1) 29,670 -
Issuance of common stock for direct costs
of acquisition (note 1) 487,500 -
Warrants issued for consulting services
(note 8) 140,000 212,000
Cashless exercise of warrants (note 8) 599 -
Dividends payable (note 8) 85,000 -
Issuance of common stock at conversion
of notes and interest payable (note 8) 492,497 -

Acquisition of Biokeys, Inc.:
Other assets 5,812 -
Current liabilities 582,260 -

8 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS (SFAS 141).
SFAS 141 eliminates the pooling of interests method of accounting and
requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. The Company does not expect the
adoption of SFAS 141 to have a material impact on its business because it
currently has no planned or pending acquisitions.

The FASB has also issued Statement of Financial Accounting Standards No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS 142), which will be
effective for the Company as of January 1, 2002. SFAS 142 requires that
goodwill and other intangible assets with indefinite lives no longer be
amortized. SFAS 142 further requires that the fair value of goodwill and
other intangible assets with indefinite lives be tested for impairment upon
adoption of this statement, annually and upon the occurrence of certain
events and be written down to fair value if considered impaired. Adoption
of SFAS 142 will result in the elimination of annual amortization expense
related to goodwill; however, because of the extensive effort needed to
comply with this statement, the impact of related impairment, if any, on
our financial position or results of operations has not been determined.

(3) ACQUISITION OF BIOKEYS, INC.

On October 10, 2000, the Company merged with Biokeys, Inc. (see note 1).
The cost of the acquisition has been allocated on the basis of the
estimated fair value of the assets acquired and liabilities assumed. This
allocation resulted in goodwill of $15,205,675 which is being amortized
using the straight-line method over two years. In connection with the
acquisition, net liabilities were assumed by the Company as follows:

Other assets $ 5,812
Current liabilities (582,260)
-----------
$ (576,448)
===========

In addition, the Company issued warrants to purchase 103,904 shares of
Company common stock to settle Biokeys, Inc. obligations valued at
$113,406. The fair value of these warrants was included in the purchase
price.

9 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

The following unaudited pro forma results of operations for the years ended
December 31, 2000 and 1999 have been prepared as though the merger occurred
January 1, 1999. This pro forma information is not necessarily indicative
of any future results of the Company.

2000 1999
---------- --------------

Interest income $ 40,922 14,234

Operating expenses (5,945,469) (1,546,460)
---------- -------------

Net loss $ (5,904,547) (1,532,226)
---------- -------------

Loss per common share $ (0.42) (0.13)
=========== =============

Weighted average number of common
shares outstanding 14,027,144 12,183,437
============ ============

(4) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and 1999 were as follows:

USEFUL
LIVES 2000 1999
----------------- --------------- --------------

Office furniture and equipment 5 years $ 13,420 13,420
Computer software and equipment 3 years 11,845 8,100
-------- --------
25,265 21,520
Less accumulated depreciation
and amortization (18,909) (12,277)
-------- --------
$ 6,356 9,243
======== ========

(5) NOTES PAYABLE

At December 31, 1999, the Company had overdue unsecured promissory notes
payable to investors in the principal amounts of $80,000 and $17,718,
bearing interest at 8% and 12% per annum, respectively. The notes had
original maturity dates of November 30, 1999 and July 31, 1999,
respectively, but the investors agreed to forbear any action to collect the
notes in 1999. The two notes were paid in full, including accrued interest,
during 2000. The $80,000 note and accrued interest were converted to common
stock (see note 8). The $17,718 note and accrued interest were repaid with
cash.

10 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

(6) LICENSE AGREEMENTS

M.D. ANDERSON

Pursuant to a patent and technology license agreement dated June 14, 1996
between M.D. Anderson and the Company (the M.D. Anderson License
Agreement), the Company acquired a license to seven patents and patent
applications related to technology for HIV/AIDS therapy and prevention.
Under the M.D. Anderson License Agreement, the Company is obligated to pay
M.D. Anderson for all out-of-pocket expenses incurred in filing,
prosecuting, enforcing and maintaining the licensed patent rights and all
future patent-related expenses paid by M.D. Anderson as long as the M.D.
Anderson License Agreement remains in effect.

The M.D. Anderson License Agreement was amended effective June 15, 2000
(the Amendment). The Amendment incorporated additional licensed subject
matter, revised certain royalty rates due to M.D. Anderson upon
commercialization, and settled past due patent and research and development
amounts from the Company to M.D. Anderson. The Company gave consideration
valued at approximately $172,000 through the issuance of 71,555 shares of
common stock to reimburse M.D. Anderson for patent costs incurred through
June 15, 2000. The Company also issued 414,829 shares of common stock to
M.D. Anderson valued at $1,000,000, based on the market value of the
Company's stock at the date of the settlement agreement, to settle past due
research and development obligations. In addition, the Company committed to
funding at least $1,000,000 of research and development activity through
December 31, 2001, including the amounts referred to in note 7. Finally,
the Amendment defined a milestone payment due to M.D. Anderson upon the
enrollment of the first patient in the first Phase I trial of any product
that utilizes licensed subject matter.

Under the amended M.D. Anderson License Agreement, the Company has the
right to a royalty-bearing, exclusive license to manufacture, have
manufactured, and use and/or sell licensed products. M.D. Anderson's
retained interest consists of royalties on net sales of licensed products
and a share of consideration received by the Company from all sublicenses
and assignments. No royalties were paid under this agreement during the
years ended December 31, 2000 and 1999. The M.D. Anderson License Agreement
continues in effect until all patent rights have expired.

USC

Under an Option and License Agreement with USC dated January 23, 1998,
amended August 16, 2000, Biokeys acquired license rights to a total of
three patents, two relating to Biokeys' CoFactor product and one relating
to Selone, both of which are intended for use in connection with cancer
chemotherapy. In addition, under a second Option and License Agreement
dated August 17, 2000, Biokeys acquired rights under four patents related
to its Thiovir anti-viral technologies. These agreements with USC (the USC
License Agreements) grant Biokeys exclusive worldwide licenses to study,
use, manufacture and market drug products covered by the subject patents.
Under the USC

11 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

License Agreements, Biokeys is obligated to pay USC for out-of-pocket
expenses incurred in filing, prosecuting, enforcing and maintaining the
licensed patent rights and all future patent-related expenses paid by USC
as long as the USC License Agreements remain in effect and until the patent
rights have expired. USC's retained interest consists of royalties on net
sales of licensed products and a share of consideration received by Biokeys
from all sublicenses and assignments. No royalties have been paid under
this agreement. The USC License Agreements continue in effect until all
patent rights have expired.

(7) SPONSORED RESEARCH

Since September 1996, the Company has entered into a total of four
Sponsored Research Agreements (SRAs) with M.D. Anderson. Under the SRAs,
M.D. Anderson agreed to conduct specific research activities for the
Company, at the expense of the Company, into various aspects of treating
HIV infections using technologies made available under the M.D. Anderson
License Agreement. All amounts due to M.D. Anderson under the first three
SRAs were paid or settled as of December 31, 2000, and such SRAs have been
terminated. The most recent SRA with M.D. Anderson, entered into September
7, 2000, provides for studies to test the ability of a mixture of synthetic
HIV derived peptides to elicit an antibody-negative cell mediated immune
response. The testing will seek to determine if this immune response can
protect against new infection and if the preparation can be administered
after HIV infection as a therapeutic. This SRA requires a total of $814,490
payable in two equal installments for research to be conducted through 2001
and into 2002. The first installment was paid by the Company in 2000 and
the second in 2001.

Biokeys has entered into an SRA with USC under which USC will continue
studies in the therapeutic potential of Thiovir and its analogues as
anti-viral agents. The Company has entered into a grant agreement with USC
effective November 1, 2000, under which USC will perform research into
Thiovir and its analogues as inhibitors for HPV and other pathogenic
viruses. The budgeted research costs for this study are approximately
$217,000, which sum has been paid and expensed by the Company in 2000.

(8) EQUITY TRANSACTIONS

In August 1999, the Company borrowed $80,000 from two investors who had
previously purchased common stock. The notes issued to the investors were
due in November 1999 and carried interest at an annual rate of 8%. The
Company issued warrants to purchase 40,202 shares of common stock at $0.49
per share to the investors as part of the same transaction. The notes,
which were due November 30, 1999, were repaid in March 2000 through the
conversion of principal and interest into common stock at $1.19 per share
and the issuance of additional warrants to purchase 40,202 shares of common
stock at $0.49 per share.

12 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

In November and December 1999, the Company agreed to sell to four investors
a total of 678,412 shares of its common stock at a price of approximately
$0.20 per share for a total of $135,000. Each share was accompanied by a
warrant to purchase shares of common stock at an exercise price of $0.40
cents per share. The warrants were exercised in March 2000 under a
provision permitting cashless exercise, with 599,066 shares being issued to
the holders as a result of such exercise.

Beginning in April 2000, the Company sold an aggregate of $472,000
principal amount of 8.5% subordinated convertible promissory notes in a
private placement offering to accredited investors. The principal amounts
of the notes, together with accrued interest of $20,497, was converted into
shares of common stock at a conversion price of $1.19 per share, effective
as of the consummation of the merger between the Company and Biokeys.

In a private placement offering to European investors pursuant to
Regulation S of the Securities and Exchange Commission, the Company sold a
total of 3,200 shares of its Series A 8% Convertible Preferred Stock for
gross proceeds of $3,200,000 between August and September 2000. In addition
to the shares of Series A Convertible Preferred Stock, which are
convertible into common stock at $4.00 per share, the offering included
warrants to purchase a total of 400,000 shares of common stock at $5.00 per
share. The preferred stock has a liquidation preference of $1,000 per share
plus accrued and unpaid dividends, carries cumulative dividends at 8% per
annum payable semi-annually, and provides for future adjustments in
conversion price if specified dilutive events take place. At December 31,
2000, dividends payable totaled $85,000 or $27 per share. The preferred
stock is redeemable at the option of the Company at any time the closing
price of common stock remains at a level of at least $8 per share for 20
consecutive days if the Company is listed on the American Stock Exchange or
NASDAQ at such time, with the redemption price being equal to the
liquidation preference. In addition, at any time after July 1, 2003, the
Company may call all of any portion of the outstanding preferred stock for
redemption on at least 30 days notice, at a redemption price equal to 105%
of the liquidation preference plus all accrued and unpaid dividends. The
Company incurred consulting fees totaling $76,500, paid to a stockholder
who acted as a finder and agent in this transaction.

In May 2000, the Company issued warrants to two of its research scientists
for the purchase of a total of 100,506 shares of common stock. The fair
value of the warrants on the date of issue, $140,000, has been recorded as
a noncash research and development expense. The warrants are exercisable at
$0.49 per share and expire in May 2003. No such warrants have been
exercised as of December 31, 2000.

In June 1999, the Company issued warrants to a key consultant to purchase
502,528 shares of common stock. The fair value of these warrants on the
date of issue, $212,000, has been recorded as a noncash general and
administrative expense. The warrants are exercisable at $0.49 per share and
expire in June 2006. No such warrants have been exercised as of December
31, 2000.

In September 1998, the Company issued warrants to several consultants for
the purchase of an aggregate of 670,875 shares of common stock. The
warrants are exercisable at $0.49 per share and expire in September 2005.
No such warrants have been exercised as of December 31, 2000.

13 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

In conjunction with the acquisition of Biokeys as discussed in note 1, all
outstanding Biokeys warrants were replaced with warrants to purchase a
total of 1,468,018 shares of the Company's common stock at $0.49 per share
that expire December 15, 2003.

At December 31, 2000, there were outstanding warrants to purchase a total
of 3,222,331 shares of common stock as follows:

EXERCISE EXPIRATION
WARRANTS PRICE DATE
------------- ------------ -------------------

80,404 $ 0.49 August 2002
100,506 0.49 May 2003
400,000 4.00 August 2003
1,468,018 0.49 December 2003
670,875 0.49 September 2005
502,528 0.49 June 2006

(9) INCOME TAXES

Significant components of income tax expense for the years ended December
31, 2000 and 1999 are as follows:

2000 1999
--------- ----------

Deferred tax benefit $ 487,617 284,064
Increase in valuation allowance for
deferred tax assets (487,617) (284,064)
--------- ---------

Income tax expense $ -- --
========= =========

The tax effects of temporary differences that give rise to deferred tax
assets at December 31, 2000 and 1999 are as follows:

2000 1999
----------- -----------

Net operating loss carryforward $ 2,642,171 967,556
Organization costs and license agreement,
due to differences in amortization 39,055 44,538
----------- -----------
Total deferred tax assets 2,681,226 1,012,094

Less valuation allowance (2,681,226) (1,012,094)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========

14 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

At December 31, 2000, the Company had an unused net operating loss
carryforward of approximately $7,771,000 for tax reporting purposes, which
expires in 2111 through 2112 and 2118 through 2120. Included in the 2000
carryforward is a net operating loss carryforward acquired from Biokeys,
Inc. of approximately $3,475,000.

(10) NET LOSS PER COMMON SHARE

The computation of basic and diluted net loss per share for the years ended
December 31, 2000 and 1999 is as follows:

2000 1999
----------- -----------

Numerator:
Net loss $(3,701,084) (1,055,485)
Less preferred stock dividends (85,000) --
----------- -----------

Numerator for basic and diluted
loss per share $(3,786,084) (1,055,485)
=========== ===========
Denominator for basic and diluted loss
per share - weighted average shares 8,582,707 5,183,447
=========== ===========

Loss per common share - basic and diluted $ (0.44) (0.20)
=========== ===========

Net loss per common share is calculated according to Statement of Financial
Accounting No. 128, EARNINGS PER SHARE, using the weighted average number
of shares of common stock outstanding during the period. At December 31,
2000 and 1999, 4,022,331 and 1,253,807 potentially dilutive shares,
respectively, and were not included in the computation of net loss per
common share - diluted, as their effect would have been antidilutive due to
the Company's net loss incurred in 2000 and 1999.

(11) OPERATIONAL STATUS

The accompanying consolidated financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and
satisfaction of liabilities and commitments in the normal course of
business. The Company has incurred losses since inception and had net
losses of $3,701,084 and $1,055,485 for the years ended December 31, 2000
and 1999, respectively.

To date, the Company has been principally engaged in licensing and research
and development efforts. The Company has no current revenues, is not
marketing any products, and projects a loss from operations for 2001. The
Company will require additional capital, which it intends to obtain through
equity and debt offerings and/or strategic partnership in order to continue
to operate its business. The Company's ability to meet its obligations as
they become due and to continue as a going concern must be considered in
light of the expenses, difficulties and delays frequently encountered in
operating a new business, particularly since the Company will focus on
research, development and unproven technology which may require a lengthy
period of time and substantial

15 (Continued)

BIOKEYS PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly BioQuest, Inc.)

(A Development Stage Enterprise)

Notes to Consolidated Financial Statements

December 31, 2000 and 1999

expenditures to complete. Even if the Company is able to successfully
develop new products or technologies, there can be no assurance that the
Company will generate sufficient revenues from the sale or licensing of
such products and technologies to be profitable. Management believes that
the Company's ability to meet its obligations as they become due and to
continue as a going concern through December 2001 are dependent upon
obtaining additional financing.

(12) COMMITMENTS AND CONTINGENCIES

LITIGATION

In the normal course of business, the Company may become subject to
lawsuits and other claims and proceedings. Such matters are subject to
uncertainty and outcomes are not predictable with assurance. Management is
not aware of any pending or threatened lawsuit or proceeding that would
have a material adverse effect on the Company's financial position,
liquidity or results of operations.

OPERATING LEASES

The Company has operating leases for office space and equipment. Rent
expense was $23,522 and $19,099 during the years ended December 31, 2000
and 1999, respectively. A lease for office space expired in November 2000
and was renewed for an additional one-year term.

(13) SUBSEQUENT EVENTS

In January 2001, the Company entered into a one-year consulting agreement
with an individual who will serve as a medical director and provide
assistance for anticipated applications to the U.S Food and Drug
Administration. The consulting agreement provides for fees of $42,000.

BIOKEYS, INC.

Financial Statements

September 30, 2000 and December 31, 1999

(With Independent Auditors' Report Thereon)

INDEPENDENT AUDITORS' REPORT

The Board of Directors
BioKeys, Inc.:

We have audited the accompanying balance sheets of BioKeys, Inc. (the Company)
as of September 30, 2000 and December 31, 1999, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the nine months
ended September 30, 2000 and the year ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As discussed in note 1 to the financial statements, the Company's outstanding
common stock and warrants were acquired in October 2000 in a business
combination accounted for as a purchase.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioKeys, Inc. as of September
30, 2000 and December 31, 1999, and the results of its operations and its cash
flows for the nine months ended September 30, 2000 and the year ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 11 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 11. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ KPMG LLP

Houston, Texas
March 16, 2001

BIOKEYS, INC.

Balance Sheets

SEPTEMBER 30, DECEMBER 31,
Assets 2000 1999
----------- -----------

Current assets - cash and cash equivalents $ -- 11,135

Property and equipment, net (note 3) -- 520

Other assets 5,812 --
----------- -----------
Total assets $ 5,812 11,655
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities $ 102,982 325,791
Due to BioQuest, Inc. 494,722 --
Accrued salaries 97,962 107,902
----------- -----------
Total current liabilities 695,666 433,693

Notes payable (note 4) -- 617,673
----------- -----------
Total liabilities 695,666 1,051,366
----------- -----------

Commitments and contingencies (notes 5, 10 and 11)

Shareholders' equity (deficit) (notes 4 and 7):
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; issued and outstanding zero shares in
2000 and 250,000 shares in 1999 -- 2,500
Common stock, $0.001 par value, 25,000,000 shares
authorized; issued and outstanding 6,330,320 shares
in 2000 and 4,858,440 shares in 1999 6,330 4,858
Additional paid-in capital 5,461,787 3,348,500
Accumulated deficit (6,157,971) (3,895,569)
Preferred shareholder note receivable -- (500,000)
----------- -----------
Total shareholders' equity (deficit) (689,854) (1,039,711)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 5,812 11,655
=========== ===========

See accompanying notes to financial statements.

BIOKEYS, INC.

Statements of Operations

NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------

Operating expenses:
Research and development $ 220,470 154,183
General and administrative (note 7) 2,087,356 323,918
----------- -----------

Total operating expenses 2,307,826 478,101

Extraordinary income - gain on forgiveness
of debt (note 9) 45,424 --
----------- -----------

Net loss $(2,262,402) (478,101)
=========== ===========

Loss per common share -
basic and diluted (note 2) $ (0.45) (0.10)
=========== ===========

Weighted average number of
common shares outstanding 5,021,982 4,858,440
=========== ===========

See accompanying notes to financial statements.

BIOKEYS, INC.

Statements of Shareholders' Equity (Deficit)

Nine months ended September 30, 2000
and year ended December 31, 1999

PREFERRED TOTAL
ADDITIONAL SHAREHOLDER SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED NOTE EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at December 31, 1998 250,000 $ 2,500 4,858,440 $ 4,858 3,348,500 (3,417,468) (500,000) (561,610)

Net loss -- -- -- -- -- (478,101) -- (478,101)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at December 31, 1999 250,000 2,500 4,858,440 4,858 3,348,500 (3,895,569) (500,000) (1,039,711)

Conversion of preferred stock
to common stock (note 4) (250,000) (2,500) 1,000,000 1,000 1,500 -- 500,000 500,000

Issuance of common stock at
conversion of notes payable
(note 4) -- -- 471,880 472 235,468 -- -- 235,940

Expense related to stock
warrants issued (note 7) -- -- -- -- 1,876,319 -- -- 1,876,319

Net loss -- -- -- -- -- (2,262,402) -- (2,262,402)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at December 31, 2000 -- $ -- 6,330,320 $ 6,330 5,461,787 (6,157,971) -- (689,854)
========== ========== ========== ========== ========== ========== ========== ==========

See accompanying notes to financial statements.

BIOKEYS, INC.

Statements of Cash Flows

NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------

Cash flows from operating activities:
Net loss $(2,262,402) (478,101)
Adjustments to reconcile net loss to
net cash used in operating activities:
Extraordinary gain on forgiveness of debt (45,424) --
Depreciation 520 3,386
Expense related to stock warrants issued 1,876,319 --
Changes in assets and liabilities:
Increase in other assets (5,812) --
Decrease in deposits -- 3,910
Increase (decrease) in accounts payable and
accrued liabilities (177,385) 1,000
Increase in due to BioQuest, Inc. 494,722 --
Increase (decrease) in accrued salaries (9,940) 100,323
----------- -----------
Net cash used in operating activities (129,402) (369,482)
----------- -----------
Cash flows from financing activities - proceeds from
issuance of notes payable 118,267 317,716
----------- -----------
Net decrease in cash and cash equivalents (11,135) (51,766)
Cash and cash equivalents, beginning of period 11,135 62,901
----------- -----------
Cash and cash equivalents, end of period $ -- 11,135
=========== ===========

See accompanying notes to financial statements.

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

(1) DESCRIPTION OF THE COMPANY

BioKeys, Inc. (BioKeys or the Company) was organized as a corporation in
the State of Delaware in November 1997, and was formed to develop
biotechnology. BioKeys' business strategy is to develop leading-edge
medical research, currently being conducted at leading universities and
research institutes throughout the world, into commercial medical
products. Business opportunities BioKeys has identified include the
development of a vaccine for use in cancer chemotherapy and the
development of an effective oral anti-AIDS drug.

In October 2000, the Company was acquired by BioQuest, Inc. (BioQuest) of
Houston, Texas. Company shareholders received 6,999,990 shares of
BioQuest common stock, an aggregate amount equal to 50% of the total
common stock of BioQuest outstanding immediately after the transaction.
All outstanding BioKeys warrants were replaced with warrants to purchase
BioQuest common stock at $0.49 per share that expire December 15, 2003
(see note 4). The terms further specified that BioQuest change its name
to Biokeys Pharmaceuticals, Inc. and that BioKeys, Inc. become a
wholly-owned subsidiary. For financial reporting purposes, the
acquisition transaction was accounted for as a purchase.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management
believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from
those estimates.

CASH EQUIVALENTS

Highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents. There were no cash
equivalents at September 30, 2000 and December 31, 1999.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets. The costs of improvements that extend the lives of the assets are
capitalized. Repairs and maintenance are expensed as incurred.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are expensed as incurred, including
Company-sponsored research and development (see note 6).

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

LICENSE AGREEMENTS

Costs of license agreements for patent rights and technology rights that
currently have no alternative future uses are expensed as research and
development costs.

IMPAIRMENT OF LONG-LIVED ASSETS

In the event that facts and circumstances indicate that property and
equipment and intangible or other noncurrent assets related to
specifically acquired assets may be impaired, an evaluation of the
recoverability of currently recorded costs will be made. If an evaluation
is required, the estimated value of undiscounted future net cash flows
associated with the asset is compared to the asset's carrying value to
determine if a write-down to fair value is required. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of these assets exceeds the fair
value of the assets.

INCOME TAXES

Income taxes are accounted for using the asset and liability method under
which deferred tax assets and liabilities are recognized for estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Deferred tax expense or benefit is recognized as a result of the change
in the asset or liability during the period.

NET LOSS PER COMMON SHARE

Net loss per common share - basic is calculated according to Statement of
Financial Accounting (SFAS) No. 128, EARNINGS PER SHARE, using the
weighted average number of shares of common stock outstanding during the
period. At September 30, 2000 and December 31, 1999, 1,227,825 and
710,000 potentially dilutive shares, respectively, relating to
outstanding warrants were not included in the computation of net loss per
common share - diluted, as their effect would have been antidilutive due
to the Company's net loss incurred for the nine months ended September
30, 2000 and the year ended December 31, 1999.

SUPPLEMENTARY CASH FLOW INFORMATION

No interest expense or income taxes were paid during the nine months
ended September 30, 2000 or the year ended December 31, 1999.

Noncash investing and financing transactions excluded from the statement
of cash flows for the nine months ended September 30, 2000 are as
follows:

Conversion of notes payable into common stock (note 4) $ 235,940
Payment of shareholder note receivable with offset of
notes payable (note 4) 500,000

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

(3) PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2000 and December 31, 1999 were
as follows:

USEFUL
LIVES 2000 1999
------------------ ---------- ---------

Computer equipment 3 years $ 10,157 10,157
Less accumulated depreciation (10,157) (9,637)
---------- ---------

$ -- 520
========== =========

(4) NOTES PAYABLE

At December 31, 1999, notes payable consisted of advances from investors
and related parties for operating purposes. This debt was non-interest
bearing. During the nine months ended September 30, 2000, additional
advances totaling $118,267 were received by the Company.

During September 2000, advances totaling $235,940 were converted into
471,880 shares of common stock at a conversion price of $0.50 per share.
An additional $500,000 of outstanding advances were used toward the
payment of the preferred shareholder note receivable. The preferred stock
was simultaneously converted to 10,000 shares of common stock at a
conversion rate of four shares of common stock for every share of
preferred stock.

(5) LICENSE AGREEMENT

Under an Option and License Agreement with the University of Southern
California (USC) dated January 23, 1998, amended August 16, 2000, BioKeys
acquired license rights to a total of three patents, two relating to
BioKeys' CoFactor product and one relating to Selone, both of which are
intended for use in connection with cancer chemotherapy. In addition,
under a second Option and License Agreement dated August 17, 2000,
BioKeys acquired rights under four patents related to its Thiovir
anti-viral technologies. These agreements with USC (the USC License
Agreements) grant BioKeys exclusive worldwide licenses to study, use,
manufacture and market drug products covered by the subject patents.
Under the USC License Agreements, BioKeys is obligated to pay USC for
out-of-pocket expenses incurred in filing, prosecuting, enforcing and
maintaining the licensed patent rights and all future patent-related
expenses paid by USC as long as the USC License Agreements remain in
effect and until the patent rights have expired. USC's retained interest
consists of a running royalty on net sales of licensed products and a
share of consideration received by BioKeys from all sublicenses and
assignments. No royalties have been paid under this agreement.

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

(6) RESEARCH AGREEMENT

On November 17, 1997, BioKeys entered into a Research Agreement (RA) with
USC.

The RA will involve further studies in the therapeutic potential of
particular anti-AIDS agents. The RA will involve the following
objectives: (1) acquire initial in vitro data relating to the potential
use of an oral anti-AIDS drug with other HIV and/or CMV inhibitor drugs
as part of a combination therapy; (2) conduct additional research into
other potential applications of the oral anti-AIDS drug; (3) conduct
additional research into other proprietary compounds related to the oral
anti-AIDS drug; (4) transfer to the Company technology related to the
oral anti-AIDS drug family of compounds; and (5) continue to patent
findings.

(7) WARRANTS

In exchange for consulting services, in September 2000, the Company
issued warrants with a fair value of $1,876,319 to purchase 517,825
shares of common stock. These transactions have been reported as a
noncash general and administrative expense in the accompanying 2000
statement of operations.

In conjunction with 1997 and 1998 private placements of common stock, the
Company issued warrants to purchase 710,000 shares of common stock.

In conjunction with the acquisition of BioKeys in October 2000 (see note
1), all outstanding Company warrants were exchanged for warrants to
purchase common stock in Biokeys Pharmaceuticals, Inc. (New Warrants).
The New Warrants expire December 15, 2003 and have an exercise price of
$0.49 per share of common stock.

(8) INCOME TAXES

Significant components of income tax expense for the nine months ended
September 30, 2000 and the year ended December 31, 1999 are as follows:

2000 1999
------------ -----------

Deferred tax benefit $ 129,568 159,154
Increase in valuation allowance for
deferred tax assets (129,568) (159,154)
------------ -----------

Income tax expense $ -- --
============ ===========

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

The tax effects of temporary differences that give rise to deferred tax
assets at September 30, 2000 and December 31, 1999 are as follows:

2000 1999
------------- ------------

Net operating loss carryforward $ 1,181,515 1,051,947

Less valuation allowance (1,181,515) (1,051,947)
------------- ------------

Net deferred tax assets $ -- --
============= ============

At September 30, 2000, BioKeys had an unused net operating loss
carryforward of approximately $3,475,000 for tax reporting purposes which
expires in 2112 and 2118 through 2120.

(9) EXTRAORDINARY INCOME

During 2000, the Company negotiated reductions in certain payables.
Payables of $228,175 were settled with a cash payment of $182,751, and
$45,424 was recognized as forgiveness of debt. The forgiveness of debt is
reflected as an extraordinary item in the accompanying 2000 statement of
operations.

(10) CONTINGENCIES

In the normal course of business, the Company may become subject to
lawsuits and other claims and proceedings. Such matters are subject to
uncertainty and outcomes are not predictable with assurance. Management
is not aware of any pending or threatened lawsuit or proceeding that
would have a material adverse effect on the Company's financial position,
liquidity or results of operations.

(11) OPERATIONAL STATUS

The accompanying financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and
satisfaction of liabilities and commitments in the normal course of
business. The Company has incurred losses since inception and had net
losses of $2,262,402 and $478,101 for the nine months ended September 30,
2000 and the year ended December 31, 1999, respectively.

BIOKEYS, INC.

Notes to Financial Statements

September 30, 2000 and December 31, 1999

Through September 30, 2000, the Company has been principally engaged in
licensing and research and development efforts. The Company has no
current revenues and is not marketing any products. Before the
acquisition of the Company by BioQuest, Inc. in October 2000 (see note
1), the Company projected a loss from operations for the remainder of
2000 and for 2001. Following the acquisition, the combined Company will
require additional capital, which it intends to obtain through equity and
debt offerings and/or strategic partnership, in order to continue to
operate its business. The combined Company's ability to meet its
obligations as they become due and to continue as a going concern must be
considered in light of the expenses, difficulties and delays frequently
encountered in operating a new business, particularly since the combined
Company will focus on research, development and unproven technology which
may require a lengthy period of time and substantial expenditures to
complete. Even if the combined Company is able to successfully develop
new products or technologies, there can be no assurance that the combined
Company will generate sufficient revenues from the sale or licensing of
such products and technologies to be profitable. Management believes that
the combined Company's ability to meet its obligations as they become due
and to continue as a going concern through December 2001 are dependent
upon obtaining additional financing.

PART III

ITEM 1. INDEX TO EXHIBITS

--------------------------------------------------------------------------------
Exhibit DESCRIPTION
Number
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated May 19, 2000 among
BioQuest, Inc.; BioQuest Acquisition Corp.; and Biokeys, Inc.
--------------------------------------------------------------------------------
3.1 Certificate of Amendment of Certificate of Incorporation of
BioQuest, Inc. - October 12, 2000
--------------------------------------------------------------------------------
3.2 Certificate of Amendment of Certificate of Incorporation of
BioQuest, Inc. - October 12, 2000
--------------------------------------------------------------------------------
3.3 Certificate of Merger of BioQuest Acquisition Corp. into
Biokeys, Inc. - October 12, 2000
--------------------------------------------------------------------------------
3.4 Certificate of Incorporation of BioQuest Acquisition Corp. -
--------------------------------------------------------------------------------
3.6 May 19, 2000 Amended and Restated Bylaws of Biokeys
Pharmaceuticals, Inc.
--------------------------------------------------------------------------------
4.1 Certificate of Designation of BioQuest, Inc. - September 11,
2000
--------------------------------------------------------------------------------
10.1 Patent and Technology License Agreement with M.D. Anderson -
June, 1996 (Request for confidential treatment of certain
data)
--------------------------------------------------------------------------------
10.2 Amendment to M.D. Anderson Licensing Agreement June 15, 2000
(Request for confidential treatment of certain data)
--------------------------------------------------------------------------------
10.3 Option and License Agreement with USC - June 23, 1998 (Co
Factor and Selone) (Request for confidential treatment of
certain data)
--------------------------------------------------------------------------------
10.4 Amendment to Option and License Agreement with USC dated
August 16, 2000 (Co Factor and Selone) (Request for
confidential treatment of certain data)
--------------------------------------------------------------------------------
10.5 Option and License Agreement with USC dated August 17, 2000
(Thiovir) (Request for confidential treatment of certain data)
--------------------------------------------------------------------------------
10.6 Employment Agreement with Warren C. Lau
--------------------------------------------------------------------------------
11.1 Statement Regarding Computation of Per Share Earnings
--------------------------------------------------------------------------------
21.1 Subsidiaries of the Registrant
--------------------------------------------------------------------------------
24.1 Powers of Attorney (included on signature pages)
--------------------------------------------------------------------------------



                                                                     Exhibit 2.1

                          AGREEMENT AND PLAN OF MERGER


                                  BY AND AMONG


                                 BIOQUEST, INC.,


                           BIOQUEST ACQUISITION CORP.


                                       AND

                                  BIOKEYS, INC.


                                TABLE OF CONTENTS

I.  THE MERGER.................................................................1
         1.01  The Merger......................................................1
         1.02  Preliminary Actions.............................................2
         1.03. Conversion of Capital Stock by Merger...........................2
         1.04. Exchange of Certificates........................................3
         1.05. Lost Certificates...............................................4
         1.06. The Closing.....................................................4
         1.07. Stockholder Approval and Voting of Shares.......................4

II.  THE SURVIVING CORPORATION.................................................4
         2.01. Certification of Incorporation & Bylaws.........................4
         2.02. Surviving Corporation...........................................5
         2.03. Directors and Officers; Insurance...............................5

III.  REPRESENTATIONS AND WARRANTIES OF BIOKEYS................................6
         3.01.  Organization and Qualification.................................6
         3.02.  Corporate Records..............................................6
         3.03.  Capitalization.................................................6
         3.04.  Books and Records..............................................7
         3.05.  Subsidiaries and Investments...................................7
         3.06.  Authority Relative to this Agreement...........................7
         3.07.  Non-Contravention; Approvals and Consents......................7
         3.08.  Financial Statements...........................................8
         3.09.  Absence of Undisclosed Liabilities.............................8
         3.10.  Absence of Sales and Customers.................................8
         3.11.  Contracts......................................................8
         3.12.  No Material Restrictions.......................................9
         3.13.  Title to Assets................................................9
         3.14.  Related Party Transactions.....................................9
         3.15   Compensation of Employees......................................9
         3.16   Employee Relations.............................................9
         3.17.  Legal Proceedings.............................................10
         3.18.  Environmental Compliance......................................10
         3.19.  Insurance.....................................................10
         3.20.  Intellectual Property.........................................10
         3.21.  Bank Accounts and Powers of Attorney..........................12
         3.22.  Corporate and Fictitious Names................................12
         3.23.  Absence of Certain Changes or Events..........................12
         3.24.  Compliance with Laws and Orders...............................13
         3.25.  Compliance with Agreements; Certain Agreements................14
         3.26.  Employee Benefit Plans........................................14
         3.27.  Brokers.......................................................14


                                        i


         3.28.  Consents Without Any Condition................................14
         3.29.  Tax Matters...................................................14
         3.30.  OSHA..........................................................15
         3.31.  Immigration Matters...........................................15
         3.32.  Information Supplied..........................................15

IV.  REPRESENTATIONS AND WARRANTIES
         OF BIOQUEST AND MERGER SUB...........................................16
         4.01.  Organization and Qualification................................16
         4.02.  Corporate Records.............................................16
         4.03.  Capitalization................................................16
         4.04.  Books and Records.............................................17
         4.05.  Subsidiaries and Investments..................................17
         4.06.  Authority Relative to this Agreement..........................17
         4.07.  Non-Contravention; Approvals and Consents.....................17
         4.08.  Financial Statements..........................................18
         4.09.  Absence of Undisclosed Liabilities............................18
         4.10.  Absence of Sales and Customers................................19
         4.11.  Contracts.....................................................19
         4.12.  No Material Restrictions......................................19
         4.13.  Title to Assets...............................................19
         4.14.  Related Party Transactions....................................19
         4.15   Compensation of Employees.....................................20
         4.16   Employee Relations............................................20
         4.17.  Legal Proceedings.............................................20
         4.18.  Environmental Compliance......................................20
         4.19.  Insurance.....................................................21
         4.20.  Intellectual Property.........................................21
         4.21.  Bank Accounts and Powers of Attorney..........................22
         4.22.  Corporate and Fictitious Names................................22
         4.23.  Absence of Certain Changes or Events..........................22
         4.24.  Compliance with Laws and Orders...............................24
         4.25.  Compliance with Agreements; Certain Agreements................24
         4.26.  Employee Benefit Plans........................................24
         4.27.  Brokers.......................................................25
         4.28.  Consents Without Any Condition................................25
         4.29.  Tax Matters...................................................25
         4.30.  OSHA..........................................................26
         4.31.  Immigration Matters...........................................26
         4.32.  Information Supplied..........................................26

V.  COVENANTS.................................................................27
         5.01.  Information Statement.........................................27


                                       ii


         5.02.  Stockholder Approval..........................................27
         5.03.  Access to Information.........................................27
         5.04.   Public Disclosure............................................28
         5.05.   Approvals....................................................28
         5.06.   Notification of Certain Matters..............................28
         5.07.   Additional Documents and Further Assurances..................28
         5.08.   Maintenance of Business......................................28
         5.09.   Conduct of Business; Restrictions............................28
         5.10.   Confidentiality..............................................30
         5.11.   Directors' and Officers' Insurance...........................30
         5.12.   Necessary Actions............................................31
         5.13.   Agreement Among Stockholders.................................31
         5.14.   Interim Financing............................................31

VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF
         BIOQUEST AND MERGER SUB..............................................31
         6.01.   Accuracy of Representations and Warranties...................31
         6.02.   Performance of Agreements....................................31
         6.03.   Opinion of Counsel for Biokeys...............................32
         6.04.   Compliance Certificate.......................................32
         6.05.   Material Adverse Change......................................32
         6.06.   Approvals and Consents.......................................32
         6.07.   Proceedings and Documents; Secretary's Certificate...........32
         6.08.   Compliance With Laws.........................................32
         6.09.   Shareholder Approval.........................................32
         6.10.   Legal Proceedings............................................32
         6.11.   Employment Arrangements......................................33
         6.12.   Consents to the Merger.......................................33
         6.13.   Delivery of Financial Statements.............................33
         6.14.   Satisfactory Due Diligence...................................33
         6.15.   Opinion of Tax Counsel.......................................33

VII.  CONDITIONS PRECEDENT TO OBLIGATIONS OF
         BIOKEYS..............................................................33
         7.01.   Accuracy of Representations and Warranties...................33
         7.02.   Performance of Agreements....................................34
         7.03.   Opinion of Counsel...........................................34
         7.04.   Compliance Certificate.......................................34
         7.05.   Legal Proceedings............................................34
         7.06.   Material Adverse Change......................................34
         7.07.   Approvals and Consents.......................................34
         7.08.   Compliance with Laws.........................................34
         7.09.   Shareholder Approval.........................................34


                                       iii


         7.10.   Employment Arrangements......................................35
         7.11.   Satisfactory Due Diligence...................................35
         7.12.   Proceedings and Documents; Secretary's Certificate...........35
         7.13.   Consents to the Merger.......................................35
         7.14.   Delivery of Financial Statements.............................35
         7.15.   Opinion of Tax Counsel.......................................35

XIII.  TERMINATION, AMENDMENT AND WAIVER......................................36
         8.01.  Termination...................................................36
         8.02.  Effect of Termination.........................................36
         8.03.  Amendment.....................................................36
         8.04.  Waiver........................................................36

IX.  SURVIVAL AND INDEMNIFICATION.............................................37
         9.01.  Survival......................................................37
         9.02.  Indemnification by Biokeys....................................37
         9.03.  Indemnification by Biokeys Principals.........................37
         9.04.  Indemnification by BioQuest and Merger Sub....................37
         9.05.  Indemnification by BioQuest Principals........................38
         9.06.  Limits on Indemnification.....................................38
         9.07.  Indemnity Fund; Escrow........................................38
         9.08.  Indemnification Procedure for Claims..........................39
         9.09.  Defense by Indemnifying Party.................................39

X.  MISCELLANEOUS.............................................................40
         10.01.  Expenses.....................................................40
         10.02.   Notices.....................................................41
         10.03.  Governing Law................................................41
         10.04.  Severability.................................................42
         10.05.  Assignment; Binding Effect; Benefit..........................42
         10.06.  Headings.....................................................42
         10.07.  Entire Agreement.............................................42
         10.08.  Counterparts.................................................42
         10.09.  Waivers......................................................42


EXHIBITS

         a.     Exhibit A - Opinion of Counsel - Camhy Karlinsky & Stein, LLP
         b.     Exhibit B - Opinion of Counsel - Bresler Goodman & Unterman, LLP
         c.     Exhibit C - Biokeys Escrow Agreement
         d.     Exhibit D - BioQuest Escrow Agreement


                                       iv


SCHEDULES

         a.       Schedule 2.03 - Directors and Officers
         b.       Schedule 3.02 - Corporate Records
         c.       Schedule 3.03 - Capitalization
         d.       Schedule 3.05 - Subsidiaries and Investments
         e.       Schedule 3.07 - Non-Contravention; Approvals and Consents
         f.       Schedule 3.08 - Financial Statements
         g.       Schedule 3.11 - Contracts
         h.       Schedule 3.12 - No Material Restrictions
         i.       Schedule 3.13 - Title to Assets
         j.       Schedule 3.14 - Related Party Transactions
         k.       Schedule 3.15 - Compensation to Employees
         l.       Schedule 3.19 - Insurance
         m.       Schedule 3.20 - Intellectual Property
         n.       Schedule 3.21 - Bank Accounts and Powers of Attorney
         o.       Schedule 3.22 - Corporate and Fictitious Names
         p.       Schedule 3.23 - Absence of Certain Changes or Events
         q.       Schedule 3.24 - Compliance with Laws and Orders
         r.       Schedule 3.25 - Compliance with Agreements; Certain Agreements
         s.       Schedule 3.27 - Brokers
         t.       Schedule 3.29 - Tax Matters
         u.       Schedule 3.30 - OSHA
         v.       Schedule 3.31 - Immigration Matters
         w.       Schedule 4.02 - Corporate Records
         x.       Schedule 4.03 - Capitalization
         y.       Schedule 4.05 - Subsidiaries and Investments
         z.       Schedule 4.07 - Non-Contravention; Approvals and Consents
         aa.      Schedule 4.11 - Contracts
         bb.      Schedule 4.12 - No Material Restrictions
         cc.      Schedule 4.13 - Title to Assets
         dd.      Schedule 4.14 - Related Party Transactions
         ee.      Schedule 4.15 - Compensation to Employees
         ff.      Schedule 4.17 - Legal Proceedings
         gg.      Schedule 4.18 - Environmental Compliance
         hh.      Schedule 4.19 - Insurance
         ii.      Schedule 4.20 - Intellectual Property
         jj.      Schedule 4.21 - Bank Accounts and Powers of Attorney
         kk.      Schedule 4.22 - Corporate and Fictitious Names
         ll.      Schedule 4.23 - Absence of Certain Changes or Events
         mm.      Schedule 4.24 - Compliance with Laws and Orders
         nn.      Schedule 4.25 - Compliance with Agreements; Certain Agreements


                                        v


         oo.      Schedule 4.27 - Brokers
         pp.      Schedule 4.29 - Tax Matters
         qq.      Schedule 4.30 - OSHA
         rr.      Schedule 4.31 - Immigration Matters
         ss.      Schedule 5.09 - Conduct of Business; Restrictions
         tt.      Schedule 5.13 - Agreement Among Stockholders
         uu.      Schedule 5.14 - Interim Financing


                                       vi


                          AGREEMENT AND PLAN OF MERGER

         AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of May 19,
2000 among BIOQUEST, INC., a Delaware corporation ("BioQuest"), BIOQUEST
ACQUISITION CORP., a Delaware corporation ("Merger Sub") and BIOKEYS, INC., a
Delaware corporation ("Biokeys").

                              W I T N E S S E T H:

         WHEREAS, Merger Sub is a newly formed, wholly owned subsidiary of
BioQuest; and

         WHEREAS, the Boards of Directors of BioQuest, Merger Sub and Biokeys
deem it advisable and in the best interests of each corporation and their
respective shareholders that BioQuest and Biokeys combine their businesses in
order to advance the long-term business interests of BioQuest and Biokeys; and

         WHEREAS, the combination of BioQuest and Biokeys shall be effected by
the terms of this Agreement through a transaction in which Merger Sub will merge
with and into Biokeys, Biokeys will become a wholly-owned subsidiary of BioQuest
and the stockholders of Biokeys will become stockholders of BioQuest; and

         WHEREAS, for federal income tax purposes, the parties to this Agreement
intend, by approving resolutions authorizing this Agreement, to adopt this
Agreement as a plan of reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder, and that the merger of Merger Sub with and into Biokeys shall
qualify as a reorganization within the meaning of Section 368(a)(1)(a) of the
Code.

         NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

                                  I. THE MERGER

         1.01 THE MERGER. (a) Subject to the provisions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub
shall be merged with and into Biokeys (the "Merger"). As a result of the Merger,
(i) the outstanding shares of capital stock of Merger Sub and of Biokeys shall
be converted, canceled and replaced in the manner provided in Section 1.03 of
this Agreement; (ii) the separate corporate existence of Merger Sub shall cease;
and (iii) Biokeys shall be the surviving corporation (the "Surviving
Corporation") in the Merger and shall become a wholly-owned subsidiary of
BioQuest.

         (b) As soon as practicable after satisfaction of, or, to the extent
permitted hereunder,


written waiver of all conditions to the Merger set forth herein,Biokeys and
Merger Sub will file a certificate of merger (the "Certificate of Merger") with
the Delaware Secretary of State and make all other filings or recordings
required by the DGCL in connection with the Merger. The Merger shall become
effective at such time (the "Effective Time") as the Certificate of Merger is
duly filed with the Delaware Secretary of State (or at such later time as may be
agreed in writing by the parties hereto and specified in the Certificate of
Merger).

         (c) From and after the Effective Time, the separate existence of Merger
Sub shall cease, and the Surviving Corporation shall be a wholly-owned
subsidiary of BioQuest and possess all the rights, powers, privileges and
franchises and be subject to all of the obligations, liabilities, restrictions
and disabilities of Biokeys and Merger Sub, all as provided under the DGCL.

         (d) It is intended that the Merger shall qualify as a "reorganization"
within the meaning Section 368(a)(1)(a) of the Code.

         1.02 PRELIMINARY ACTIONS. Immediately prior to the Effective Time:

         (a) BioQuest shall take such actions and complete such corporate
proceedings as are necessary (including, without limitation, a reverse stock
split or combination of its shares) so as to cause it to (i) have 14,000,009
shares of BioQuest Common Stock, $0.001 par value, issued and outstanding, of
which 6,999,990 shares shall have been issued to Merger Sub to be used as
consideration for the cancellation and exchange of outstanding shares of Biokeys
as set forth below, and 7,000,009 shares shall be held by all other stockholders
of BioQuest (ii) outstanding warrants and options for the purchase of not more
than 1,526,090 shares of BioQuest Common Stock; and no other outstanding shares
(or options, warrants, or other rights to purchase any such shares) of any kind.

         (b) Biokeys shall take such actions and complete such corporate
proceedings as are necessary (including, without limitation, a stock split or
division or distribution of its shares) so as to cause it to have (i) 6,999,990
shares of Biokeys Common Stock, $0.01 par value ("Biokeys Common Stock"), issued
and outstanding, (ii) outstanding warrants and options for the purchase of not
more than 1,525,090 shares of Biokeys Common Stock; and no other outstanding
shares of any kind.

         (c) Merger Sub shall have 100 shares of its Common Stock issued and
outstanding, all of which shall be owned by BioQuest.

         1.03. CONVERSION OF CAPITAL STOCK BY MERGER. As of the Effective Time,
by virtue of the Merger and without any further action on the part of BioQuest,
Merger Sub, Biokeys or any stockholder of any of such corporations:

         (a) CAPITAL STOCK OF MERGER SUB. Each of the 100 issued and outstanding
shares of the capital stock of Merger Sub shall be converted into and become one
fully paid and nonassessable


                                        2


share of common stock, $0.01 par value, of Biokeys as the Surviving Corporation.

         (b) EXCHANGE OF BIOQUEST SHARES FOR BIOKEYS SHARES. Each issued and
outstanding share of Biokeys Common Stock (other than the 100 shares issued in
accordance with Section 1.03(a)) shall be converted into the right to receive
one (1) fully paid and nonassessable share of Common Stock, $0.001 par value, of
BioQuest ("BioQuest Common Stock"). Each share of Biokeys Common Stock issued
and outstanding at the Effective Time (other than the shares issued pursuant to
Section 1.03(a)) shall cease to be outstanding, and shall be cancelled and
retired and shall cease to exist, and each holder of certificates representing
such shares (the "Biokeys Certificates") shall cease to have any rights with
respect thereto, except the right to receive BioQuest Common Stock therefor upon
the surrender of such certificates in accordance with this Section 1.03 and
Section 1.04. All shares of BioQuest Common Stock issued upon the surrender for
exchange of Biokeys Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Biokeys Common Stock, and there shall be no further registration of
transfers on the stock transfer books of Biokeys. If, after the Effective Time,
Biokeys Certificates are presented to Biokeys for any reason, they shall be
canceled and exchanged as provided in this Section 1.03 and in Section 1.04.

         (c) CANCELLATION OF TREASURY STOCK. Each share of Biokeys Common Stock
held by Biokeys as treasury stock prior to the Effective Time shall
automatically be canceled and retired and shall cease to exist, and no shares of
BioQuest Common Stock or other consideration shall be delivered in exchange
therefor.

         (d) OPTIONS AND WARRANTS. Biokeys shall have 1,525,090 outstanding
options and warrants for the purchase of shares of Biokeys Common Stock
outstanding immediately prior to the Effective Time ("Biokeys Options"). The
Biokeys Options shall, from and after the Effective Time, be exercisable at a
price of $0.49 per share, for the purchase of the same number of shares of
BioQuest Common Stock as the number of Biokeys Options. BioQuest shall have
1,526,090 outstanding options and warrants for the purchase of shares of
BioQuest Common Stock outstanding immediately prior to the Effective Time
("BioQuest Options"). The BioQuest Options shall, from and after the Effective
Time, be exercisable at a price of $0.49 per share, for the purchase of the same
number of shares of BioQuest Common Stock. The parties shall take such actions
as may be necessary to ensure that the holders of such Biokeys Options will
receive, upon the due exercise thereof, the proper number of shares of BioQuest
Common Stock pursuant to the provisions of this Section 1.03 and 1.04.

         1.04. EXCHANGE OF CERTIFICATES. (a) Promptly after the Effective Time,
BioQuest and/or its transfer agent will send to each holder of shares of Biokeys
Common Stock at the Effective Time a letter of transmittal for use by such
holder in the exchange of share certificates. Each holder of shares of Biokeys
Common Stock that have been converted into the right to receive the Merger
Consideration will be entitled to receive, upon surrender to BioQuest of such
holder's Biokey's certificate, a new certificate for shares of BioQuest Common
Stock. Until so surrendered, each such Biokeys Certificate shall, after the
Effective Time, represent for all purposes only the right to receive


                                        3


BioQuest Common Stock. Upon surrender to BioQuest or BioQuest's transfer agent
of the Biokeys Certificates by holders of Biokeys Common Stock for cancellation,
together with any other required documents, each such holder shall received
BioQuest Common Stock issuable in the Merger. No Biokeys Certificates for shares
of BioQuest Common Stock shall be delivered to any Biokeys stockholders who have
objected to the Merger and have asserted appraisal rights under applicable
provisions of the DCGL.

         (b) After the Effective Time, there shall be no further registration of
transfers of shares of Biokeys Common Stock. If, after the Effective Time,
Biokeys Certificates are presented to BioQuest, they shall be canceled and
exchanged for the consideration provided for and in accordance with the
procedures set forth, in this Section.

         1.05. LOST CERTIFICATES. If any Biokeys Certificates shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Biokeys Certificate to be lost, stolen or destroyed and, if
required by BioQuest, the posting by such person of a bond, in such reasonable
amount as BioQuest may direct, as indemnity against any claim that may be made
against BioQuest and Merger Sub with respect to such Biokeys Certificate,
BioQuest will issue in exchange for such lost, stolen or destroyed Biokeys
Certificate shares to be paid in respect of the shares of Biokeys Common Stock
represented by such Biokeys Certificates as contemplated by this Article.

         1.06. THE CLOSING. The closing for the merger (the "Closing") shall be
held beginning at 10:00 a.m. on June 15, 2000 (the "Closing Date"), or such
other date and time specified by BioQuest to Biokeys on five days' notice, but
in no event later than July 5, 2000. The closing shall occur at a location to be
determined by BioQuest, Merger Sub and Biokeys.

         1.07. STOCKHOLDER APPROVAL AND VOTING OF SHARES. The actions set forth
in this Article I shall be conditioned upon the approval by the stockholders of
BioQuest and the stockholders of Biokeys of this Agreement, as set forth in
Section 5.02 below. By their signatures to this Agreement, the principal
stockholders of BioQuest and the principal stockholders of Biokeys agree to vote
their respective shares of BioQuest and Biokeys in favor of the approval of this
Agreement and to cause BioQuest and Biokeys, respectively, to take the actions
necessary in order to permit the completion of the transactions contemplated by
this Agreement.

                         II. THE SURVIVING CORPORATION

         2.01. CERTIFICATION OF INCORPORATION AND BYLAWS. At the Effective Time:
(i) the separate existence of Merger Sub shall cease and Merger Sub shall be
merged with and into Biokeys; (ii) the Certificate of Incorporation of Merger
Sub as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation; and (iii) the Bylaws
of Merger Sub as in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation. Merger Sub and Biokeys are sometimes
referred to herein as the "Constituent Corporations."


                                        4


         2.02. SURVIVING CORPORATION. From and after the Effective Time; (i) the
Surviving Corporation shall possess all the rights, privileges, immunities,
powers and purposes of each of the Constituent Corporations; (ii) all the
property, real and personal, including subscriptions to shares, causes of action
and every other asset of each of the Constituent Corporations, shall vest in the
Surviving Corporation without further act or deed; (iii) the Surviving
Corporation shall assume and be liable for all the liabilities, obligations and
penalties of each of the Constituent Corporations; and (iv) the Merger shall
have the further effects set forth in this Agreement and in the DGCL.

         2.03. DIRECTORS AND OFFICERS; INSURANCE. (a) From and after the
Effective Time, and at least until the next annual meeting of stockholders of
BioQuest and until their successors are duly elected or appointed and shall
qualify, the Board of Directors of BioQuest shall consist of nine (9) members,
four (4) of whom shall be designated by the Board of Directors of Biokeys as
such Biokeys Board exists immediately prior to the Effective Time, and four (4)
of whom shall be designated by the Board of Directors of BioQuest as such
BioQuest Board exists immediately prior to the Effective Time. The ninth
director shall be chosen by the members of the Board of BioQuest constituted
immediately after the Effective Time. Concurrently with the designation of four
directors by the Board of Directors of BioQuest, as such Board exists
immediately prior to the Effective Time, any director serving on the Board of
BioQuest prior to the Effective Time, who is not one of the four directors
designated by the Board of Directors of BioQuest, shall submit his resignation.
For purposes hereof, the names of the Biokeys directors intended to be
designated by Biokeys and the names of the BioQuest directors intended to be
designated by Bioquest, known as of the date of this Agreement, are set forth in
SCHEDULE 2.03(A). The principal stockholders of BioQuest and the principal
stockholders of Biokeys are agreeing, by their signatures to a separate
Agreement Among Stockholders described in Section 5.13, to vote their shares,
and to take such other action necessary so as to constitute a Board of Directors
of BioQuest as described in this Section 2.03. In addition, the Surviving
Corporation shall have a board of directors constituted in a like manner.

         (b) From and after the Effective Time, and until successor are duly
appointed by and qualified in accordance with applicable law, the officers of
the Surviving Corporation shall be as set forth in SCHEDULE 2.03(B).

         (c) Notwithstanding the foregoing, if any person designated to hold
office as a director or officer under the preceding provisions of this section
2.03 declines to serve because BioQuest has not yet obtained directors and
officers liability insurance, the position which such person is intended to fill
may remain vacant until such insurance is obtained, but not beyond six (6)
months past the Effective Time (it being understood that such person may elect
to serve in such position even in the absence of such insurance).


                                        5


                 III. REPRESENTATIONS AND WARRANTIES OF BIOKEYS

         Biokeys represents and warrants to BioQuest and Merger Sub, and
BioQuest and Merger Sub are relying materially thereon in entering into this
Agreement, as follows:

         3.01. ORGANIZATION AND QUALIFICATION. Biokeys is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its assets and properties, except
for such failures to have such power and authority which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect (as defined in this Section 3.01) on Biokeys, as the case may be. Biokeys
is duly qualified, licensed or admitted to do business and is in good standing
in each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on Biokeys. As used in this Agreement, a "Material Adverse Effect" shall
mean a material adverse effect on the businesses, properties, assets,
liabilities, condition (financial or otherwise) or results of operations of an
entity (or group of entities taken as a whole). Notwithstanding the foregoing, a
Material Adverse Effect shall not include any change in political or economic
matters of general applicability. Biokeys does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.

         3.02. CORPORATE RECORDS. The copies of the Certificate of Incorporation
and By-laws of Biokeys, as amended to date and annexed hereto as SCHEDULE 3.02,
are true and complete copies of such documents as now in effect. The minute
books of Biokeys as presented for inspection by BioQuest are accurate and
complete in all material respects.

         3.03. CAPITALIZATION. (a) The authorized capital stock of Biokeys
consists of 25,000,000 shares of Common Stock, $0.01 par value, of which
6,300,395 shares are issued and outstanding as of the date hereof. Except as set
forth in SCHEDULE 3.03(A), there is no other authorized class, series or unit of
securities of any kind (whether or not convertible into Common Stock), and there
are no options, warrants or rights of any kind, evidencing a proprietary
interest (or permitting a third party to obtain a proprietary interest) in
Biokeys. None of the shares of Biokeys have been issued in a manner giving rise
to claims for violation of the securities laws of any jurisdiction.

         (b) Except as contemplated hereby, there are no outstanding contractual
obligations of Biokeys to repurchase, redeem or otherwise acquire any shares of
Biokeys or to grant, extend or enter into any option with respect thereto.

         (c) There are no debt obligations of Biokeys of any nature whatsoever,
and as of the Closing Date, Biokeys will not have any debt, liabilities,
obligations or contingent liabilities of any


                                        6


nature whatsoever, except as set forth on SCHEDULE 3.03(C).

         (d) All of Biokeys' shares are fully paid, duly and validly issued and
owned of record and beneficially by the stockholders; and in the amounts, listed
in SCHEDULE 3.03(D).

         3.04. BOOKS AND RECORDS. The books and records of Biokeys are true,
accurate and complete in all material respects.

         3.05. SUBSIDIARIES AND INVESTMENTS. Except as disclosed on Schedule
3.05, Biokeys does not own, directly or indirectly, any capital stock or other
equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entities.

         3.06. AUTHORITY RELATIVE TO THIS AGREEMENT. Biokeys has full corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Biokeys and the consummation by
Biokeys of the Merger and the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Biokeys. No other corporate
proceedings on the part of Biokeys, other than stockholder approval as set forth
in this Agreement, are necessary to authorize the execution, delivery and
performance of this Agreement by Biokeys and the consummation by Biokeys of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Biokeys, and constitutes a legal, valid and binding
obligation of Biokeys enforceable against Biokeys in accordance with its terms.

         3.07. NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution and
delivery of this Agreement by Biokeys does not, and the performance by Biokeys
of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in, or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any lien on any of the assets or properties of Biokeys
under any of the terms, conditions or provisions of (x) the Certificate of
Incorporation or By-laws of Biokeys, (y) any laws or orders of any governmental
or regulatory authority applicable to Biokeys or any of its assets or
properties, or (z) any contracts to which Biokeys is a party or by which Biokeys
or any of its assets or properties is bound, excluding from the foregoing
clauses (y) and (z) conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations and impositions of liens, which
individually or in the aggregate, would not be reasonably expected to have a
Material Adverse Effect on Biokeys or on its ability to consummate the
transactions contemplated by this Agreement.

         (b) Except (x) for the filing of a Certificate of Merger and other
appropriate merger documents required by the DGCL with the Secretary of State of
Delaware and appropriate documents with the relevant authorities of other states
in which Biokeys is qualified to do business, and (y) as disclosed in SCHEDULE
3.07(B) hereto, no consent, approval, or action of, filing with or notice to any
governmental or regulatory authority or other public or private third party is
necessary


                                        7


or required under any of the terms, conditions or provisions of any law or order
of any governmental or regulatory authority or any contract to which Biokeys is
a party or by which Biokeys or any of its assets or properties is bound for the
execution and delivery of this Agreement by Biokeys, the performance by Biokeys
of its obligations hereunder or the consummation of the transactions
contemplated hereby, except for such consents, approvals or actions of, filing
with or notices to any governmental or regulatory authority or other public or
private third party the failure of which to make or obtain could not reasonably
be expected to have a Material Adverse Effect on Biokeys or on Biokeys' ability
to consummate the transactions contemplated by this Agreement.

         3.08. FINANCIAL STATEMENTS. To the best knowledge of Biokeys, the
Biokeys financial statements attached as SCHEDULE 3.08 fairly present the
financial condition, assets, liabilities, stockholders equity and results of
operations of Biokeys for the periods indicated on such statements.

         3.09. ABSENCE OF UNDISCLOSED LIABILITIES. Except for matters reflected
or reserved against in Biokeys Balance Sheets included in Biokeys Financial
Statements, Biokeys did not have at such date and has not incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent,
fixed or otherwise, or whether due or to become due) of any nature, except
liabilities or obligations which were incurred in connection with this Agreement
and the transactions contemplated hereby or in the ordinary course of business
consistent with past practice.

         3.10. ABSENCE OF SALES AND CUSTOMERS. Biokeys is a development stage
company engaged in biopharmaceutical research and development and has no sales
or customers.

         3.11. CONTRACTS. Except as set forth in SCHEDULE 3.11, (a) Biokeys has
made available for examination by BioQuest copies of all material contracts,
agreements and other instruments of Biokeys;

         (b) All such contracts, agreements and other instruments are valid,
binding and enforceable in accordance with their terms and are in full force and
effect;

         (c) To the best of its knowledge after reasonable inquiry, Biokeys is
not in default, and no condition or event exists or has occurred that, with
notice or lapse of time or both, would become a default under any such contract,
agreement or instrument;

         (d) Biokeys has not made or entered into any warranties or guarantees
with respect to products manufactured or sold by Biokeys, except warranties
implied by law;

         (e) Biokeys has received no notice of any default or alleged default
under any such contract, agreement or instrument which has not heretofore been
cured or which notice has heretofore been withdrawn and does not know of any
material default thereunder by any other party thereto or by any other person
bound thereunder; and

         (f) Biokeys is not a party to, nor bound by, nor are any of its
properties subject to, any


                                        8


agreement, contract or commitment which involves $1,000 or more and is not
cancelable without penalty within 30 days, or any agreement, contract or
commitment which might reasonably be expected to have a material adverse effect
on its business.

         3.12. NO MATERIAL RESTRICTIONS. Except as set forth in SCHEDULE 3.12,
Biokeys is not party or subject to any charter provision, by-law, mortgage,
lien, lease, license, permit, agreement, contract, instrument, law, rule,
ordinance, regulation, order, judgment or decree, or any other restriction of
any kind or character, which (a) is reasonably expected to have a Material
Adverse Effect, or (b) would prevent consummation of the transactions
contemplated by this Agreement or the continued operation of its business after
the Closing Date on substantially the same basis as heretofore operated, or (c)
would materially restrict the ability of to conduct the business of Biokeys in
substantially the same manner as it is currently conducted.

         3.13. TITLE TO ASSETS. Except as set forth in SCHEDULE 3.13, Biokeys
holds good and marketable title to its assets, free and clear of all adverse
claims, liens, mortgages, charges, security interests, shared ownership,
encumbrances or restrictions. There are no outstanding options, calls,
commitments, or other plans or agreements of any character providing for the
purchase, sale or other disposition of any of such assets, other than as
contemplated by this Agreement.

         3.14. RELATED PARTY TRANSACTIONS. Except as set forth in SCHEDULE 3.14,
Biokeys has not made any loans to any officer, director, shareholder or employee
outstanding on the date of this Agreement, nor entered into any agreement or
arrangement with any such person, or with a parent, child, spouse or sibling of
such person, in which such person or any of such relatives has a material direct
or indirect economic interest in such arrangement or agreement, other than
compensation arrangements in keeping with the usual and customary practices of
Biokeys.

         3.15 COMPENSATION OF EMPLOYEES. Set forth in SCHEDULE 3.15 is an
accurate and complete list showing the names of all persons employed by Biokeys
in any capacity, their respective titles, job descriptions and dates of hire,
and setting forth the present compensation (including salary and bonus and
fringe benefits) of each such person. Biokeys has no employees other than those
set forth in SCHEDULE 3.15.

         3.16 EMPLOYEE RELATIONS. (a) Biokeys is in compliance, in all material
respects, with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labor practice;

         (b) No unfair labor practice complaint against Biokeys is pending
before the National Labor Relations Board or any other judicial or
administrative body;

                  (c) Biokeys has not experienced any material labor difficulty
during the last three years; and

                  (d) No claim of discrimination or harassment is pending or
threatened before the Equal


                                        9


Employment Opportunity Commission or any other judicial or administrative body.

         3.17. LEGAL PROCEEDINGS. There are no actions, suits, arbitrations, or
proceedings pending, nor to the knowledge of Biokeys, threatened against,
relating to or affecting, Biokeys or any of its assets and properties which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Biokeys or on the ability of Biokeys to consummate
the transactions contemplated by this Agreement. Biokeys is not subject to any
judgment, decree, court order or writ of any governmental or regulatory
authority.

         3.18. ENVIRONMENTAL COMPLIANCE. To the best of its knowledge after
reasonable inquiry, Biokeys has at all times complied with and not violated any
federal, state or local environmental laws, and the Biokeys facilities have not
been used to receive, handle, store, treat, ship or otherwise dispose of
hazardous material except in compliance with all applicable environmental,
health or safety statutes, ordinances, orders, rules, regulations or
requirements. There are no proceedings pending against Biokeys with respect to
the enforcement of any such laws, and, to the knowledge of Biokeys after
reasonable inquiry, no hazardous material has been released into the environment
or deposited, discharged, placed or disposed of at, on or near Biokeys'
facilities, nor has Biokeys used its facilities been used at any time by any
person as a landfill or a waste disposal site. Biokeys knows of no fact or
circumstance that would reasonably be expected to give rise to any future civil,
criminal or administrative proceedings against them under any environmental
laws.

         3.19. INSURANCE. Set forth in SCHEDULE 3.19 is a true, correct and
complete listing of all insurance policies or binders of insurance which relate
to Biokeys' business and assets. Except as set forth in such Schedule:

                  (a) the coverage under each such policy and binder is in full
force and effect, and no notice of cancellation or non-renewal with respect to,
or disallowance of any claim under, any such policy or binder has been received;

                  (b) there are no programs of self-insurance relating to
Biokeys' business;

                  (c) there are no pending or unpaid claims under any such
insurance policy; and

                  (d) no event has occurred which reasonably might form the
basis of any claim against Biokeys covered by any of the policies or binders set
forth in the Schedule or which would reasonably be expected to increase
materially the insurance premiums payable under any such policy or binder.

         3.20. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.20(A) contains a complete
and accurate list of all Intellectual Property (as defined below) owned by,
licensed to or otherwise used by Biokeys. Biokeys owns, or possesses valid
licenses to use, all Intellectual Property necessary for the operation of its
business as it is operated as of the date of this Agreement. Except as otherwise
set forth in such Schedule, each item of Intellectual Property (i) has been
maintained and used in accordance with


                                       10


applicable law, (ii) is transferable to BioQuest through the Merger in
accordance with the terms of this Agreement, (iii) has not been infringed by any
other person, (iv) is not subject to any lien or encumbrance and (v) each
license agreement is valid and binding and is not considered in default. Except
as set forth in SCHEDULE 3.20(A), neither any Intellectual Property nor any
right therein has been assigned to a third party.

         (b) Except as otherwise indicated in SCHEDULE 3.20(B), each item of
Intellectual Property, to the extent practicable, has been duly registered or
recorded with, or is protected by applications filed with the appropriate
governmental agency, to the extent required, and each such registration,
recording, and filing remains in full force and effect.

         (c) Except as set forth in SCHEDULE 3.20(C), no claim adverse to the
interests of Biokeys in the Intellectual Property rights or agreements listed in
such Schedule which is reasonably expected to have a material adverse effect on
its business has been made or threatened. To the knowledge of Biokeys, no person
has infringed or otherwise violated Biokeys right in any of the Intellectual
Property or agreements listed in SCHEDULE 3.20(C). Except as set forth on
SCHEDULE 3.20(C), no litigation is pending wherein Biokeys is accused of
infringing or otherwise violating the Intellectual Property right of another, or
of breaching a contract conveying rights under Intellectual Property, and, to
the knowledge of Biokeys, no such claim has been asserted or threatened against
Biokeys nor are there any facts that would give rise to such a claim.

         (d) Each current and former employee of Biokeys has assigned to Biokeys
all of such employee's rights to, and benefits to be derived from, each item of
Intellectual Property developed by such employee while employed by Biokeys.

         (e) Except as set forth in SCHEDULE 3.20(E), the Intellectual Property
is free from known material defects and substantially conforms to the applicable
specifications and documentation of such Intellectual Property.

         (f) SCHEDULE 3.20(F) sets forth a list of all Internet domain names
used by Biokeys in its business (collectively, the "Domain Names"). Biokeys has,
and after the Closing the Surviving Corporation will have, a valid registration
and all material rights (free of any material restriction) in and to the Domain
Names, including, without limitation, all rights necessary to continue to
conduct Biokeys' business as it is currently conducted, subject only to a
successful challenge to the Biokeys' registration of a Domain Name by the third
party owner of the registered United States trademark that corresponds to the
Domain Name.

         (g) To the knowledge of Biokeys, none of Biokeys' officers, employees,
consultants, distributors, agents or representatives have on their own behalf
entered into any agreement regarding know-how, trade secrets, assignment of
rights in inventions, or prohibition or restriction of competition or
solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any Person other than Biokeys during the
period in which such officer, employee, consultant, agent or representative was
employed with or engaged by Biokeys.


                                       11


         (h) For purposes of this Agreement, the term "Intellectual Property"
shall mean (i) all research practice and protocols, products, tools, computer
programs, specifications, source code, object code, graphics, devices,
techniques, algorithms, methods, processes, procedures, packaging, formulae,
drawings, designs, improvements, discoveries, concepts, user interfaces, the
"look and feel" of any software or web sites, software, software development and
other tools, content, data inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, and other technology that are now or are currently proposed to be
developed, produced, used, marketed or sold by Biokeys; and (ii) all proprietary
rights in this provision (h)(i), including, without limitation, all: (1) domain
names; (2) trade names, trademarks, service marks, logos, brand names and other
identifiers, with respect only to the goods and services on which they are
currently used by Biokeys; (3) trade secrets,(4) copyrights and (5) domestic and
foreign letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, together with all
goodwill associated with the Intellectual Property.

         3.21. BANK ACCOUNTS AND POWERS OF ATTORNEY. SCHEDULE 3.21 lists the
name of each bank, savings and loan, or other financial institution, in which
Biokeys has an account, including cash contribution accounts or safe deposit
boxes, the names of all persons authorized to draw thereon or to have access
thereto, and the names of any persons holding powers of attorney with respect to
its business of Biokeys.

         3.22. CORPORATE AND FICTITIOUS NAMES. Except as disclosed in SCHEDULE
3.22, (i) Biokeys has not been known by or used any other corporate or
fictitious name and (ii) Biokeys has full right to the use of its name, free
from any claim of infringement by any person.

         3.23. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 3.23, since February 18, 2000, the date of the Letter of Intent (the
"Letter of Intent") between BioQuest and Biokeys, Biokeys has conducted its
operations and business only in the ordinary course and has not:

         (a) suffered either any Material Adverse Effect with respect to its
financial condition, results of operations or business or any other event or
condition of any character that might reasonably be expected to have a
Material Adverse Effect on its business or prospects, including any
liability, loss, damage or expense outside the ordinary course of business;

         (b) suffered any loss or prospective loss of one or more dealers,
suppliers or customers, or altered any contractual arrangement with any one
or more of its dealers, suppliers or customers, the loss or alteration of
which, either individually or in the aggregate, would have a Material Adverse
Effect;

         (c) made any capital expenditure or commitments for the acquisition or
construction of any single item of property, plant or equipment in excess of
$1,000;

         (d) amended or terminated any lease, contract or material commitment to
which Biokeys is a party;


                                       12


         (e) entered into any transaction not in the ordinary course of
business or otherwise inconsistent in any respect with the past practices or
conduct of its business of Biokeys;

         (f) sold any accounts receivable, disposed of any inventories other
than in the ordinary course of business or accrued any liabilities not in
the ordinary course of business;

         (g) changed any material accounting principle, material procedure or
material practice followed by Biokeys;

         (h) incurred any indebtedness for borrowed money;

         (i) created, assumed or permitted to exist any lien, pledge, security
interest, encumbrance or mortgage of any kind on any of the assets;

         (j) acquired the securities or substantially all of its assets of any
other entity;

         (k) merged or consolidated with any entity;

         (l) established or agreed to establish any pension, retirement,
profit-sharing, deferred compensation or other employee benefit or welfare plan
for the employees of Biokeys;

         (m) entered into any employment or similar contract with any officer or
employee, or granted any bonuses or salary increases to any officer or employee
except for normal cost-of- living escalations related to increases in the
Consumer Price Index;

         (n) amended in any material respect or terminated any plan or agreement
concerning employee benefits or compensation or made awards or distributions
under any such plan or agreement;

         (o) entered into any material contract (including but not limited to
assignments, licenses, transfers of exclusive rights, "work for hire"
agreements, special commissions, employment contracts, purchase orders, sales
orders, mortgages and security agreements) which (A) contain a grant or other
transfer, whether present, retroactive, prospective, or contingent, by it of
any rights in any Intellectual Property, or (B) contain a promise made by or
to it to pay any lump sum or royalty or other payment or consideration with
respect to the acquisition, practice or use of any Intellectual Property.

         3.24. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed on SCHEDULE
3.24, to the best of its knowledge after reasonable inquiry, Biokeys holds all
permits, licenses, variances, exemptions, orders and approvals of all
governmental and regulatory authorities necessary for the lawful conduct of its
business (the "Biokeys Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which, individually or in
the aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on Biokeys. Biokeys is in


                                       13


compliance with the terms of Biokeys Permits, except failures so to comply
which, individually or in the aggregate, do not have and are not reasonably
expected to have a Material Adverse Effect on Biokeys. Biokeys is not in
violation of, or in default under, any law or order of any governmental or
regulatory authority except for violations which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on Biokeys.

         3.25. COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS. Except as set
forth on SCHEDULE 3.25, neither Biokeys, nor to the knowledge of Biokeys, any
other party thereto, is in breach or violation of, or in default in the
performance or observance of any term or provision of and no event has occurred
which, with notice or lapse of time or both, is reasonably expected to result in
a default under, (x) the Certificate of Incorporation or By-laws of Biokeys or
(y) any material contract to which Biokeys is a party or by which Biokeys or any
of its assets or properties is bound, except in the case of clause (y) for
breaches, violations and defaults which, individually or in the aggregate, do
not and are not reasonably expected to have a Material Adverse Effect on
Biokeys.

         3.26. EMPLOYEE BENEFIT PLANS. Biokeys does not have or contribute to
any pension, profit- sharing, option, other incentive plan, or any other type of
employee benefit plan, or have any obligation to or customary arrangement with
employees for bonuses, incentive compensation, vacations, severance pay, sick
pay, sick leave, insurance, service award, relocation, disability, tuition
refund or other benefits, whether oral or written.

         3.27. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Biokeys and its
affiliates directly with Biokeys, without the intervention of any person on
behalf of Biokeys in such manner as to give rise to any valid claim by any
person against Biokeys, BioQuest or Merger Sub for a finder's fee, brokerage
commission or similar payment, except as specifically set forth in SCHEDULE
3.27.

         3.28. CONSENTS WITHOUT ANY CONDITION. Biokeys has not made any
agreement or reached any understanding not approved by BioQuest as a condition
for obtaining any consent, authorization, approval, order, license, certificate
or permit required for the consummation of the transactions contemplated by this
Agreement.

         3.29. TAX MATTERS. (a) Except as set forth in SCHEDULE 3.29, Biokeys
has filed all tax returns to be filed by applicable law prior to the Closing.
All tax returns were (and, as to tax returns not filed as of the date hereof,
will be) true, complete and correct and filed on a timely basis. Biokeys (x) has
paid all taxes due, or claimed or asserted in writing by any taxing authority to
be due, for the periods covered by such tax returns or (y) has duly and fully
provided reserves (in accordance with GAAP) adequate to reflect all such taxes.

         (b) Biokeys has established (and until the Closing will maintain) on
its books and records reserves adequate to reflect all material taxes not yet
due and payable. Biokeys shall make available to BioQuest complete and
accurate copies of all work papers associated with the calculation of
Biokeys' tax reserves.

                                       14


         (c) There are no tax liens upon the assets of Biokeys.

         (d) Biokeys has not requested (and no request has been made on its
behalf) any extension of time within which to file any material tax return.

         (e) (A) No income tax returns have been examined by any taxing
authorities for any periods; and (B) no deficiency for any material taxes has
been suggested, proposed, asserted, or assessed against Biokeys that has not
been resolved and paid in full.

         (f) No audits or other administrative proceedings or court proceedings
are presently pending with regard to any taxes or tax returns of Biokeys.

         (g) To the extent requested by Biokeys, Biokeys has made available to
Biokeys (or, in the case of tax returns to be filed on or before the Closing,
will make available) complete and accurate copies of all tax returns and
associated work papers filed by or on behalf of Biokeys for all taxable years
ending on or prior to the Closing.

         (h) No agreements relating to allocating or sharing of any taxes have
been entered into by Biokeys.

         (i) Biokeys has not entered into any transactions that could give rise
to an understatement of Federal Income Tax.

         3.30. OSHA. Except as disclosed in SCHEDULE 3.30, during the five years
immediately prior to the date of this Agreement, Biokeys has not been cited for
any violations of the Occupational Safety and Health Act of 1970, as amended,
nor are there any citations pending as a result of inspections or for
noncompliance with such Act. Except as otherwise provided in such Schedule, each
of the conditions which resulted in the issuance of a citation has been abated
or otherwise corrected to the satisfaction of the Occupational Safety and Health
Administration as of the date of this Agreement.

         3.31. IMMIGRATION MATTERS. Except as set forth in SCHEDULE 3.31,
Biokeys has properly completed and maintained Forms I-9 on all persons who
became employed by Biokeys for the past three years, and any alien employee of
Biokeys is employed pursuant to a valid temporary work authorization. The
Schedule lists the names of any alien employees who are required to have
temporary work authorizations, the date of their employment and their job titles
and responsibilities, and attached to such Schedule is the Form I-9 for each
such person.

         3.32. INFORMATION SUPPLIED. (a) Nothing in this Agreement or any
Schedule, annex, certificate, document or statement in writing which has been
supplied by or on behalf of Biokeys, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact required to be stated or necessary in order to
make the statements contained herein or therein not misleading. There is no fact
known to Biokeys which


                                       15


materially and adversely affects Biokeys, which has not been set forth in this
Agreement or in the Schedules, exhibits, annexes, certificates, documents or
statements in writing furnished by Biokeys in connection with the transactions
contemplated by this Agreement.

         (b) In furtherance of the foregoing, from the execution of this
Agreement until the Closing, Biokeys may attach, update and/or amend any Biokeys
Schedules or Exhibits referenced to herein, provided that such Schedules or
Exhibits have been agreed to in writing by all of the parties in accordance with
Section 10.07.

                       IV. REPRESENTATIONS AND WARRANTIES

                           OF BIOQUEST AND MERGER SUB

         BioQuest and Merger Sub jointly and severally represent and warrant to
Biokeys, and Biokeys is relying materially thereon in entering into this
Agreement, as follows:

         4.01. ORGANIZATION AND QUALIFICATION. BioQuest and Merger Sub are both
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and both have full power and authority to conduct
its business as and to the extent now conducted and to own, use and lease their
assets and properties, except for such failures to have such power and authority
which, individually or in the aggregate, do not and are not reasonably expected
to have a Material Adverse Effect on BioQuest and Merger Sub, as the case may
be. BioQuest and Merger Sub are duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business makes such qualification, licensing or admission necessary, except for
such failures to be so qualified, licensed or admitted and in good standing
which, individually or in the aggregate, do not and are not reasonably expected
to have a Material Adverse Effect on BioQuest and Merger Sub.

         4.02. CORPORATE RECORDS. The copies of the Certificate of Incorporation
and By-laws of BioQuest and Merger Sub, as amended to date and annexed hereto as
SCHEDULE 4.02, are true and complete copies of such documents as now in effect.
The minute books of BioQuest and Merger Sub as presented for inspection by
Biokeys are accurate and complete in all material respects.

         4.03. CAPITALIZATION. (a) The authorized capital stock of BioQuest
consists of 1,000,000 shares of Preferred Stock, none of which are outstanding
and 30,000,000 shares of Common Stock, $0.001 par value, of which 12,361,666
shares are issued and outstanding as of the date hereof. Except as set forth in
SCHEDULE 4.03(A), there is no other authorized class, series or unit of
securities of any kind (whether or not convertible into Common Stock), and there
are no options, warrants or rights of any kind, evidencing a proprietary
interest (or permitting a third party to obtain a proprietary interest) in
BioQuest. None of the shares of BioQuest have been issued in a manner giving
rise to claims for violation of the securities laws of any jurisdiction.


                                       16


         (b) The authorized capital stock of Merger Sub consists of 2,000,000
shares of Common Stock, $0.01 par value, of which 100 shares are issued and
outstanding as of the date hereof. Except as set forth in SCHEDULE 4.03(B),
there is no other authorized class, series or unit of securities of any kind
(whether or not convertible into Common Stock), and there are no options,
warrants or rights of any kind, evidencing a proprietary interest (or permitting
a third party to obtain a proprietary interest) in Merger Sub. None of the
shares of Merger Sub have been issued in a manner giving rise to claims for
violation of the securities laws of any jurisdiction.

         (c) Except as contemplated hereby, there are no outstanding contractual
obligations of BioQuest and Merger Sub to repurchase, redeem or otherwise
acquire any shares of BioQuest and Merger Sub or to grant, extend or enter into
any option with respect thereto.

         (d) There are no debt obligations of BioQuest and Merger Sub of any
nature whatsoever, and as of the Closing Date, BioQuest and Merger Sub will not
have any debt, liabilities, obligations or contingent liabilities of any nature
whatsoever, except as set forth on SCHEDULE 4.03(D).

         (e) All of BioQuest's and Merger Sub's shares are fully paid, duly and
validly issued and owned of record and beneficially by the stockholders; and in
the amounts listed in SCHEDULE 4.03(E).

         4.04. BOOKS AND RECORDS. The books and records of BioQuest and Merger
Sub are true, accurate and complete in all material respects.

         4.05. SUBSIDIARIES AND INVESTMENTS. Except as set forth in SCHEDULE
4.05, BioQuest and Merger Sub do not own, directly or indirectly, any capital
stock or other equity or ownership or proprietary interest in any other
corporation, partnership, association, trust, joint venture or other entities.

         4.06. AUTHORITY RELATIVE TO THIS AGREEMENT. BioQuest and Merger Sub
have full corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by BioQuest and Merger Sub and the consummation by BioQuest and Merger Sub of
the Merger and the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of BioQuest and Merger Sub. No other
corporate proceedings on the part of BioQuest and Merger Sub, other than
stockholder approval as set forth in this Agreement, are necessary to authorize
the execution, delivery and performance of this Agreement by BioQuest and Merger
Sub and the consummation by BioQuest and Merger Sub of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by BioQuest and Merger Sub, and constitutes a legal, valid and binding
obligation of BioQuest and Merger Sub enforceable against BioQuest and Merger
Sub in accordance with its terms.

         4.07. NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution and
delivery of this Agreement by BioQuest and Merger Sub does not, and the
performance by BioQuest and Merger Sub of its obligations hereunder and the
consummation of the transactions contemplated


                                       17


hereby will not, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, result in, or
give to any person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the creation or
imposition of any lien on any of the assets or properties of BioQuest and Merger
Sub under any of the terms, conditions or provisions of (x) the Certificate of
Incorporation or By-laws of BioQuest and Merger Sub, (y) any laws or orders of
any governmental or regulatory authority applicable to BioQuest and Merger Sub
or any of its assets or properties, or (z) any contracts to which BioQuest and
Merger Sub is a party or by which BioQuest and Merger Sub or any of its assets
or properties is bound, excluding from the foregoing clauses (y) and (z)
conflicts, violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of liens, which individually or in
the aggregate, would not be reasonably expected to have a Material Adverse
Effect on BioQuest and Merger Sub or on its ability to consummate the
transactions contemplated by this Agreement.

         (b) Except (x) for the filing of a Certificate of Merger and other
appropriate merger documents required by the DGCL with the Secretary of State of
Delaware and appropriate documents with the relevant authorities of other states
in which the BioQuest and Biokeys are qualified to do business, and (y) as
disclosed in SCHEDULE 4.07(B) hereto, no consent, approval, or action of, filing
with or notice to any governmental or regulatory authority or other public or
private third party is necessary or required under any of the terms, conditions
or provisions of any law or order of any governmental or regulatory authority or
any contract to which BioQuest and Merger Sub is a party or by which BioQuest
and Merger Sub or any of its assets or properties is bound for the execution and
delivery of this Agreement by BioQuest and Merger Sub, the performance by
BioQuest and Merger Sub of its obligations hereunder or the consummation of the
transactions contemplated hereby, except for such consents, approvals or actions
of, filing with or notices to any governmental or regulatory authority or other
public or private third party the failure of which to make or obtain could not
reasonably be expected to have a Material Adverse Effect on BioQuest and Merger
Sub or on BioQuest and Merger Sub's ability to consummate the transactions
contemplated by this Agreement.

         4.08. FINANCIAL STATEMENTS. All financial statements of BioQuest
delivered, and to be delivered under this Agreement to Biokeys, constituting an
unaudited balance sheet, unaudited statement of income and expense, unaudited
statements of cash flow and unaudited statement of shareholder's equity of
BioQuest as of and for the periods ended December 31, 1999 and March 31, 2000
("BioQuest Financial Statements"), shall conform in so far as possible to GAAP.
BioQuest Financial Statements fairly present the financial condition, assets,
liabilities, stockholders equity and results of operations of BioQuest for the
periods indicated.

         4.09. ABSENCE OF UNDISCLOSED LIABILITIES. Except for matters reflected
or reserved against in BioQuest and Merger Sub Balance Sheets included in
BioQuest and Merger Sub Financial Statements, BioQuest and Merger Sub did not
have at such date and have not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature, except liabilities or obligations
which were incurred in connection with this Agreement and the transactions
contemplated hereby or in the ordinary


                                       18


course of business consistent with past practice.

         4.10. ABSENCE OF SALES AND CUSTOMERS. BioQuest is a development stage
company engaged in biopharmaceutical research and development and has no sales
or customers.

         4.11. CONTRACTS. Except as set forth in SCHEDULE 4.11, (a) BioQuest and
Merger Sub have made available for examination by Biokeys copies of all material
contracts, agreements and other instruments of BioQuest and Merger Sub; (b) all
such contracts, agreements and other instruments are valid, binding and
enforceable in accordance with their terms and are in full force and effect; (c)
to the best of their knowledge after reasonable inquiry, BioQuest and Merger Sub
are not in default, and no condition or event exists or has occurred that, with
notice or lapse of time or both, would become a default under any such contract,
agreement or instrument; (d) BioQuest and Merger Sub have not made or entered
into any warranties or guarantees with respect to products manufactured or sold
by BioQuest and Merger Sub, except warranties implied by law; (e) BioQuest and
Merger Sub have received no notice of any default or alleged default under any
such contract, agreement or instrument which has not heretofore been cured or
which notice has heretofore been withdrawn and does not know of any material
default thereunder by any other party thereto or by any other person bound
thereunder; and (f) BioQuest and Merger Sub are not a party to, nor bound by,
nor are any of its properties subject to, any agreement, contract or commitment
which involves $1,000 or more and is not cancellable without penalty within 30
days, or any agreement, contract or commitment which might reasonably be
expected to have a material adverse effect on its business.

         4.12. NO MATERIAL RESTRICTIONS. Except as set forth in SCHEDULE 4.12,
BioQuest and Merger Sub are not party or subject to any charter provision,
by-law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which (a) is reasonably expected to have a
Material Adverse Effect, or (b) would prevent consummation of the transactions
contemplated by this Agreement or the continued operation of the its business
after the Closing Date on substantially the same basis as heretofore operated,
or (c) would materially restrict the ability of to conduct the business of
BioQuest and Merger Sub in substantially the same manner as it is currently
conducted.

         4.13. TITLE TO ASSETS. Except as set forth in SCHEDULE 4.13, BioQuest
and Merger Sub hold good and marketable title to its assets, free and clear of
all adverse claims, liens, mortgages, charges, security interests, shared
ownership, encumbrances or restrictions. There are no outstanding options,
calls, commitments, or other plans or agreements of any character providing for
the purchase, sale or other disposition of any of such assets, other than as
contemplated by this Agreement.

         4.14. RELATED PARTY TRANSACTIONS. Except as set forth in SCHEDULE 4.14,
BioQuest and Merger Sub have not made any loans to any officer, director,
shareholder or employee outstanding on the date of this Agreement, nor entered
into any agreement or arrangement with any such person, or with a parent, child,
spouse or sibling of such person, in which such person or any of such relatives
has a material direct or indirect economic interest in such arrangement or
agreement, other than compensation arrangements in keeping with the usual and
customary practices of BioQuest and


                                       19


Merger Sub.

         4.15 COMPENSATION OF EMPLOYEES. Set forth in SCHEDULE 4.15 is an
accurate and complete list showing the names of all persons employed by BioQuest
and Merger Sub in any capacity, their respective titles, job descriptions and
dates of hire, and setting forth the present compensation (including salary and
bonus and fringe benefits) of each such person. BioQuest and Merger Sub has no
employees other than those set forth in SCHEDULE 4.15.

         4.16 EMPLOYEE RELATIONS. (a) BioQuest and Merger Sub are in compliance,
in all material respects, with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice;

         (b) No unfair labor practice complaint against BioQuest and Merger Sub
is pending before the National Labor Relations Board or any other judicial or
administrative body;

         (c) BioQuest and Merger Sub have not experienced any material labor
difficulty during the last three years; and

         (d) No claim of discrimination or harassment is pending or threatened
before the Equal Employment Opportunity Commission or any other judicial or
administrative body.

         4.17. LEGAL PROCEEDINGS. Except as disclosed in SCHEDULE 4.17, there
are no actions, suits, arbitrations, or proceedings pending, nor to the
knowledge of BioQuest and Merger Sub, threatened against, relating to or
affecting, BioQuest and Merger Sub or any of its assets and properties which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on BioQuest and Merger Sub or on the ability of BioQuest
and Merger Sub to consummate the transactions contemplated by this Agreement.
BioQuest and Merger Sub are not subject to any judgment, decree, court order or
writ of any governmental or regulatory authority.

         4.18. ENVIRONMENTAL COMPLIANCE. Except as set forth in SCHEDULE 4.18,
BioQuest and Merger Sub have at all times complied with and not violated any
federal, state or local environmental laws, and BioQuest and Merger Sub
facilities have not been used to receive, handle, store, treat, ship or
otherwise dispose of hazardous material except in compliance with all applicable
environmental, health or safety statutes, ordinances, orders, rules, regulations
or requirements. There are no proceedings pending against BioQuest and Merger
Sub with respect to the enforcement of any such laws, and, to the knowledge of
BioQuest and Merger Sub after reasonable inquiry, no hazardous material have
been released into the environment or deposited, discharged, placed or disposed
of at, on or near BioQuest's facilities, nor has BioQuest used its facilities
been used at any time by any person as a landfill or a waste disposal site.
BioQuest and Merger Sub knows of no fact or circumstance that would reasonably
be expected to give rise to any future civil, criminal or administrative
proceedings against them under any environmental laws.


                                       20


         4.19. INSURANCE. Set forth in SCHEDULE 4.19 is a true, correct and
complete listing of all insurance policies or binders of insurance which relate
to BioQuest and Merger Sub's business and assets. Except as set forth in such
Schedule:

         (a) the coverage under each such policy and binder is in full force and
effect, and no notice of cancellation or non-renewal with respect to, or
disallowance of any claim under, any such policy or binder has been received;

         (b) there are no programs of self-insurance relating to BioQuest and
Merger Sub's business;

         (c) there are no pending or unpaid claims under any such insurance
policy; and

         (d) no event has occurred which reasonably might form the basis of any
claim against BioQuest and Merger Sub covered by any of the policies or
binders set forth in the Schedule or which would reasonably be expected to
increase materially the insurance premiums payable under any such policy or
binder.

         4.20. INTELLECTUAL PROPERTY. (a) SCHEDULE 4.20(A) contains a complete
and accurate list of all Intellectual Property (as defined below) owned by,
licensed to or otherwise used by BioQuest. BioQuest owns, or possesses valid
licenses to use, all Intellectual Property necessary for the operation of its
business as it is operated as of the date of this Agreement. Except as otherwise
set forth in such Schedule, each item of Intellectual Property (i) has been
maintained and used in accordance with applicable law, (ii) is transferable to
Biokeys through the Merger in accordance with the terms of this Agreement, (iii)
has not been infringed by any other person, (iv) is not subject to any lien or
encumbrance and (v) each license agreement is valid and binding and is not
considered in default. Except as set forth in SCHEDULE 4.20(A), neither any
Intellectual Property nor any right therein has been assigned to a third party.

         (b) Except as otherwise indicated in SCHEDULE 4.20(B), each item of
Intellectual Property, to the extent practicable, has been duly registered or
recorded with, or is protected by applications filed with the appropriate
governmental agency, to the extent required, and each such registration,
recording, and filing remains in full force and effect.

         (c) Except as set forth in SCHEDULE 4.20(C), no claim adverse to the
interests of BioQuest in the Intellectual Property rights or agreements listed
in such Schedule which is reasonably expected to have a material adverse effect
on its business has been made or threatened. To the knowledge of BioQuest, no
person has infringed or otherwise violated BioQuest's right in any of the
Intellectual Property or agreements listed in SCHEDULE 4.20(C). Except as set
forth on SCHEDULE 4.20(C), no litigation is pending wherein BioQuest is accused
of infringing or otherwise violating the Intellectual Property right of another,
or of breaching a contract conveying rights under Intellectual Property, and, to
the knowledge of BioQuest, no such claim has been asserted or threatened against
BioQuest nor are there any facts that would give rise to such a claim.


                                       21


         (d) Each current and former employee or consultant of BioQuest has
assigned to BioQuest all of such employee's rights to, and benefits to be
derived from, each item of Intellectual Property developed by such employee or
consultant while employed or engaged by BioQuest relating to Intellectual
Property of BioQuest.

         (e) Except as set forth in SCHEDULE 4.20(E), the Intellectual Property
is free from known material defects and substantially conforms to the applicable
specifications and documentation of such Intellectual Property.

         (f) Except as set forth in SCHEDULE 4.20(F), to the knowledge of
BioQuest after reasonable inquiry, none of BioQuest's officers, employees,
consultants, distributors, agents or representatives have on their own behalf
entered into any agreement regarding know-how, trade secrets, assignment of
rights in inventions, or prohibition or restriction of competition or
solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any person other than BioQuest during
the period in which such officer, employee, consultant, agent or representative
was employed with or engaged by BioQuest.

         (h) For purposes of this Agreement, the term "Intellectual Property"
shall mean (i) all research practice or protocols, products, tools, computer
programs, specifications, source code, object code, graphics, devices,
techniques, algorithms, methods, processes, procedures, packaging, formulae,
drawings, designs, improvements, discoveries, concepts, user interfaces, the
"look and feel" of any software or web sites, software, software development and
other tools, content, data inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, and other technology that are now or are currently proposed to be
developed, produced, used, marketed or sold by BioQuest; and (ii) all
proprietary rights in provision (h)(i), including, without limitation, all: (1)
domain names; (2) trade names, trademarks, service marks, logos, brand names and
other identifiers, with respect only to the goods and services on which they are
currently used by BioQuest; (3) trade secrets,(4) copyrights and (5) domestic
and foreign letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, together with all
goodwill associated with the Intellectual Property.

         4.21. BANK ACCOUNTS AND POWERS OF ATTORNEY. SCHEDULE 4.21 lists the
name of each bank, savings and loan, or other financial institution, in which
BioQuest and Merger Sub have an account, including cash contribution accounts or
safe deposit boxes, the names of all persons authorized to draw thereon or to
have access thereto, and the names of any persons holding powers of attorney
with respect to its business of BioQuest and Merger Sub.

         4.22. CORPORATE AND FICTITIOUS NAMES. Except as disclosed in SCHEDULE
4.22, (i) BioQuest and Merger Sub have not been known by or used any other
corporate or fictitious name and (ii) BioQuest and Merger Sub have full right to
the use of its name, free from any claim of infringement by any person.

         4.23. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 4.23, since


                                       22


the Letter of Intent, BioQuest and Merger Sub have conducted its operations and
business only in the ordinary course and have not:

         (a) suffered either any Material Adverse Effect with respect to its
financial condition, results of operations or business or any other event or
condition of any character that might reasonably be expected to have a
Material Adverse Effect on its business or prospects, including any
liability, loss, damage or expense outside the ordinary course of business;

         (b) suffered any loss or prospective loss of one or more dealers,
suppliers or customers, or altered any contractual arrangement with any one
or more of its dealers, suppliers or customers, the loss or alteration of
which, either individually or in the aggregate, would have a Material Adverse
Effect;

         (c) made any capital expenditure or commitments for the acquisition or
construction of any single item of property, plant or equipment in excess of
$1,000;

         (d) amended or terminated any lease, contract or material commitment to
which BioQuest and Merger Sub is a party;

         (e) entered into any transaction not in the ordinary course of business
or otherwise inconsistent in any respect with the past practices or conduct of
its business of BioQuest and Merger Sub;

         (f) sold any accounts receivable, disposed of any inventories other
than in the ordinary course of business or accrued any liabilities not in
the ordinary course of business;

         (g) changed any material accounting principle, material procedure or
material practice followed by BioQuest and Merger Sub;

         (h) incurred any indebtedness for borrowed money;

         (i) created, assumed or permitted to exist any lien, pledge, security
interest, encumbrance or mortgage of any kind on any of the assets;

         (j) acquired the securities or substantially all of its assets of any
other entity;

         (k) merged or consolidated with any entity;

         (l) established or agreed to establish any pension, retirement,
profit-sharing, deferred compensation or other employee benefit or welfare
plan for the employees of BioQuest and Merger Sub;

         (m) since December 31, 1999, entered into any employment or similar
contract with any


                                       23


officer or employee, or granted any bonuses or salary increases to any officer
or employee except for normal cost-of- living escalations related to increases
in the Consumer Price Index;

         (n) amended in any material respect or terminated any plan or agreement
concerning employee benefits or compensation or made awards or distributions
under any such plan or agreement;

         (o) entered into any material contract (including but not limited to
assignments, licenses, transfers of exclusive rights, "work for hire"
agreements, special commissions, employment contracts, purchase orders, sales
orders, mortgages and security agreements) which (A) contain a grant or other
transfer, whether present, retroactive, prospective, or contingent, by it of
any rights in any Intellectual Property, or (B) contain a promise made by or
to it to pay any lump sum or royalty or other payment or consideration with
respect to the acquisition, practice or use of any Intellectual Property.

         4.24. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed on SCHEDULE
4.24, to the best of their knowledge after reasonable inquiry, BioQuest and
Merger Sub hold all permits, licenses, variances, exemptions, orders and
approvals of all governmental and regulatory authorities necessary for the
lawful conduct of its business (the "BioQuest and Merger Sub Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, do not and are not reasonably
expected to have a Material Adverse Effect on BioQuest and Merger Sub. BioQuest
and Merger Sub are in compliance with the terms of BioQuest and Merger Sub
Permits, except failures so to comply which, individually or in the aggregate,
do not have and are not reasonably expected to have a Material Adverse Effect on
BioQuest and Merger Sub. BioQuest and Merger Sub are not in violation of, or in
default under, any law or order of any governmental or regulatory authority
except for violations which, individually or in the aggregate, do not and are
not reasonably expected to have a Material Adverse Effect on BioQuest and Merger
Sub.

         4.25. COMPLIANCE WITH AGREEMENTS; CERTAIN AGREEMENTS. Except as set
forth on SCHEDULE 4.25, neither BioQuest and Merger Sub, nor to the knowledge of
BioQuest and Merger Sub, any other party thereto, is in breach or violation of,
or in default in the performance or observance of any term or provision of and
no event has occurred which, with notice or lapse of time or both, is reasonably
expected to result in a default under, (x) the Certificate of Incorporation or
By- laws of BioQuest and Merger Sub or (y) any material contract to which
BioQuest and Merger Sub is a party or by which BioQuest and Merger Sub or any of
its assets or properties is bound, except in the case of clause (y) for
breaches, violations and defaults which, individually or in the aggregate, do
not and are not reasonably expected to have a Material Adverse Effect on
BioQuest and Merger Sub.

         4.26. EMPLOYEE BENEFIT PLANS. BioQuest and Merger Sub do not have or
contribute to any pension, profit-sharing, option, other incentive plan, or any
other type of employee benefit plan, or have any obligation to or customary
arrangement with employees for bonuses, incentive


                                       24


compensation, vacations, severance pay, sick pay, sick leave, insurance, service
award, relocation, disability, tuition refund or other benefits, whether oral or
written.

         4.27. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by BioQuest and Merger
Sub and its affiliates directly with BioQuest and Merger Sub, without the
intervention of any person on behalf of BioQuest and Merger Sub in such manner
as to give rise to any valid claim by any person against BioQuest and Merger
Sub, BioQuest or Merger Sub for a finder's fee, brokerage commission or similar
payment, except as specifically set forth in SCHEDULE 4.27.

         4.28. CONSENTS WITHOUT ANY CONDITION. BioQuest and Merger Sub has not
made any agreement or reached any understanding not approved by BioQuest as a
condition for obtaining any consent, authorization, approval, order, license,
certificate or permit required for the consummation of the transactions
contemplated by this Agreement.

         4.29. TAX MATTERS.

         (a) Except as set forth in SCHEDULE 4.29, BioQuest and Merger Sub have
filed all tax returns to be filed by applicable law prior to the Closing. All
tax returns were (and, as to tax returns not filed as of the date hereof,
will be) true, complete and correct and filed on a timely basis. BioQuest and
Merger Sub (x) have paid all taxes due, or claimed or asserted in writing by
any taxing authority to be due, for the periods covered by such tax returns
or (y) has duly and fully provided reserves (in accordance with GAAP)
adequate to reflect all such taxes.

         (b) BioQuest and Merger Sub have established (and until the Closing
will maintain) on its books and records reserves adequate to reflect all
material taxes not yet due and payable. BioQuest and Merger Sub have made
available to BioQuest and Merger Sub complete and accurate copies of all work
papers associated with the calculation of BioQuest and Merger Sub's tax
reserves.

         (c) There are no tax liens upon the assets of BioQuest and Merger Sub.

         (d) BioQuest and Merger Sub has not requested (and no request has been
made on its behalf) any extension of time within which to file any material tax
return.

         (e) (A) No income tax returns have been examined by any taxing
authorities for any periods; and (B) no deficiency for any material taxes has
been suggested, proposed, asserted, or assessed against BioQuest and Merger Sub
that have not been resolved and paid in full.

         (f) No audits or other administrative proceedings or court proceedings
are presently pending with regard to any taxes or tax returns of BioQuest and
Merger Sub.

         (g) To the extent requested by BioQuest and Merger Sub, BioQuest and
Merger Sub have made available to BioQuest and Merger Sub (or, in the case of
tax returns to be filed on or before


                                       25


the Closing, will make available) complete and accurate copies of all tax
returns and associated work papers filed by or on behalf of BioQuest and Merger
Sub for all taxable years ending on or prior to the Closing.

         (h) No agreements relating to allocating or sharing of any taxes have
been entered into by BioQuest and Merger Sub.

         (i) BioQuest and Merger Sub has not entered into any transactions that
could give rise to an understatement of Federal Income Tax.

         4.30. OSHA. Except as disclosed in SCHEDULE 4.30, during the five years
immediately prior to the date of this Agreement, BioQuest and Merger Sub have
not been cited for any violations of the Occupational Safety and Health Act of
1970, as amended, nor are there any citations pending as a result of inspections
or for noncompliance with such Act. Except as otherwise provided in such
Schedule, each of the conditions which resulted in the issuance of a citation
has been abated or otherwise corrected to the satisfaction of the Occupational
Safety and Health Administration as of the date of this Agreement.

         4.31. IMMIGRATION MATTERS. Except as set forth in SCHEDULE 4.31,
BioQuest and Merger Sub have properly completed and maintained Forms I-9 on all
persons who became employed by BioQuest and Merger Sub for the past three years,
and any alien employee of BioQuest and Merger Sub is employed pursuant to a
valid temporary work authorization. The Schedule lists the names of any alien
employees who are required to have temporary work authorizations, the date of
their employment and their job titles and responsibilities, and attached to such
Schedule is the Form I-9 for each such person.

         4.32. INFORMATION SUPPLIED. (a) Nothing in this Agreement or any
Schedule, annex, certificate, document or statement in writing which has been
supplied by or on behalf of BioQuest and Merger Sub, in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits any statement of a material fact required to be stated or
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to BioQuest and Merger Sub which materially
and adversely affects BioQuest and Merger Sub, which has not been set forth in
this Agreement or in the Schedules, exhibits, annexes, certificates, documents
or statements in writing furnished by BioQuest and Merger Sub in connection with
the transactions contemplated by this Agreement.

         (b) In furtherance of the foregoing, from the execution of this
Agreement until the Closing, BioQuest may attach, update and/or amend any
BioQuest Schedules or Exhibits referenced to herein, provided that such
Schedules or Exhibits have been agreed to in writing by all of the parties in
accordance with Section 10.07.


                                       26


                                  V. COVENANTS

         5.01. INFORMATION STATEMENT. BioQuest and Biokeys shall each distribute
its own information statement, proxy statement or other disclosure statement for
its respective stockholders to approve this Agreement and the transactions
contemplated hereby and thereby (the "Information Statement"). Each of BioQuest
and Biokeys agree to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable judgment
of the providing party or its counsel, may be required or appropriate for
inclusion in the Information Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Information Statement. BioQuest
will promptly advise Biokeys, and Biokeys will promptly advise BioQuest, in
writing if at any time prior to the Effective Time either BioQuest or Biokeys
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. Anything to the contrary contained herein notwithstanding,
neither BioQuest nor Biokeys shall include in an Information Statement any
information with respect to the others, the form and content of which
information shall not have been approved by the other prior to such inclusion.

         5.02. STOCKHOLDER APPROVAL. BioQuest and Biokeys shall each promptly
after the date hereof take all action necessary in accordance with DGCL and
their respective Certificates of Incorporation and Bylaws to hold, as promptly
as possible, special meetings of their respective stockholders, for the purpose
of seeking approval of this Agreement and all transactions contemplated
thereunder. In lieu of such meeting, either party may obtain written consents
from its stockholders holding a majority of its outstanding shares for the
purpose of seeking approval of this Agreement, provided that such consents
comply with and are permitted under the applicable provisions of the DCGL.

         5.03. ACCESS TO INFORMATION. Between the date of this Agreement and the
earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice, BioQuest and Biokeys shall, during normal business hours, (i)
give each other and their respective officers, employees, accountants, counsel,
financing sources and other agents and representatives full access to their
buildings, offices, and other facilities and to all their books and records,
whether located on their premises or at another location; (ii) permit the other
party to make such inspections as they may require; (iii) cause its officers to
furnish the other party such financial, operating, technical and product data
and other information with respect to the business and assets and properties of
BioQuest and Biokeys as they from time to time may request, including financial
statements and Schedules; (iv) allow each other the opportunity to interview
their employees and other personnel with their prior written consent, which
consent shall not be unreasonably withheld or delayed; and (v) assist and
cooperate with BioQuest, Merger Sub and Biokeys in implementation by the parties
of the Merger; provided, however, that no investigation pursuant to this Section
5.03 shall affect or be deemed to modify any representation or warranty made by
BioQuest and Biokeys herein. Materials furnished to BioQuest and Biokeys
pursuant to this Section 5.03 may be used by each party for


                                       27


strategic and integration planning purposes relating to accomplishing the
transactions contemplated hereby.

         5.04. PUBLIC DISCLOSURE. Unless otherwise required by law (including
federal and state securities laws) prior to the Effective Time (in which case
BioQuest and Biokeys shall have a prior opportunity to review and comment on the
proposed disclosure), no disclosure (whether or not in response to any inquiry)
of the existence of any subject matter of, or the terms and conditions of, this
Agreement shall be made by any party hereto unless approved by BioQuest and
Biokeys prior to release; provided, however, that such approval shall not be
unreasonably withheld or delayed.

         5.05. APPROVALS. Each of BioQuest and Biokeys shall use all
commercially reasonable efforts required to obtain all approvals from
governmental or regulatory authorities or under any of the contracts or other
agreements as may be required for each of BioQuest and Biokeys, respectively, to
participate in the Merger so as to preserve all rights of, and benefits to, each
party, and each party shall provide the other with such assistance and
information as is reasonably required to obtain such approvals.

         5.06. NOTIFICATION OF CERTAIN MATTERS. Biokeys shall give prompt notice
to BioQuest, and BioQuest shall give prompt notice to Biokeys, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of Biokeys, BioQuest or
Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Closing Date and (ii) any failure of
Biokeys, BioQuest or Merger Sub, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice, or failure to do
so, pursuant to this Section 5.06 shall not limit or otherwise affect any
remedies available to the party receiving such notice.

         5.07. ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto,
at the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things (including, but not
limited to, all action reasonably necessary to seek and obtain any and all
consents and approvals of any government or regulatory authority or person
required in connection with the Merger; provided, however, that no party shall
be obligated to consent to any divestitures or operational limitations or
activities in connection therewith and no party shall be obligated to make a
payment of money as a condition to obtaining any such condition or approval) as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.

         5.08. MAINTENANCE OF BUSINESS. From the date hereof until the Closing,
BioQuest and Biokeys shall each use its diligent, good faith efforts, to cause
each of BioQuest and Biokeys to carry on and preserve its respective business,
goodwill and relationships with suppliers, employees, agents and others in
substantially the same manner as it had been prior to the date hereof.

         5.09. CONDUCT OF BUSINESS; RESTRICTIONS. (a) From the date hereof until
the Effective


                                       28


Time, except as expressly permitted hereby, neither BioQuest nor Biokeys shall
without the prior express written consent of the other (except as set forth in
SCHEDULE 5.09):

         (i) incur any additional indebtedness, or guarantee any indebtedness or
         obligation of any other party, except in the ordinary course of
         business;

         (ii) issue, redeem, pledge, sell or repurchase any of is capital stock
         or securities convertible into its capital stock or grant or issue any
         options, warrants or rights to subscribe for its capital stock or
         securities convertible into its capital stock or commit to do any of
         the foregoing;

         (iii) enter into or terminate or amend any material agreement or
         arrangement, including, without limitation, any agreement concerning
         Intellectual Property;

         (iv) increase the compensation or bonuses payable or to become payable
         to any of its officers, employees or agents or adopt or amend any
         employee benefit plan or arrangement;

         (v) enter into any employment contract or agreement with any existing
         or prospective employee which is not terminable at will;

         (vi) pay any obligation or liability, fixed or contingent, other than
         current liabilities or except as such payment becomes due;

         (vii) cancel, without full payment, any note, loan or other obligation
         owing to it, or waive any rights of material value;

         (viii) acquire or dispose of any properties, assets or business except
         in the ordinary course of its business;

         (ix) create or suffer to be imposed any lien, mortgage, security
         interest or other charge on or against its properties or assets other
         than in the ordinary course of business consistent with its past
         practices;

         (x) make or adopt any change in its Certificate of Incorporation or
         Bylaws as in force and effect on the date hereof;

         (xi) declare or pay any dividends on or make any other distributions in
         respect of any shares of its capital stock; or

         (xii) pay, agree to pay or make any accrual or arrangement for payment
         of any pension, retirement allowance or other employee benefit pursuant
         to any plan, agreement or arrangement to any officer, director or
         employee.


                                       29


         (b) From the date hereof until the Effective Time, except as expressly
permitted hereby, each of BioQuest and Biokeys shall, unless otherwise expressly
consented to in writing by the other:

         (i) maintain its existing insurance policies, unless comparable
         insurance is substituted therefor, and shall not take any action to
         terminate or modify those insurance policies;

         (ii) accurately maintain its books and records consistent with past
         practices and policies;

         (iii) maintain in good condition, ordinary wear and tear excepted, and
         in compliance in all material respects with all applicable laws,
         regulations and agreements, all assets owned, leased, licensed or
         operated, as the case may be, by it;

         (iv) observe and perform, and remain in compliance with, all
         obligations in agreements and contracts the breach or violation of
         which would have, individually or in the aggregate, a Material Adverse
         Effect, and not enter into any agreements or contracts which would
         require payments of more than Five Thousand Dollars ($5,000) over any
         period of twelve (12) months; and

         (v) maintain compliance with the terms and conditions of all material
         contracts or licenses held by it or under which it operates or conducts
         its business and use its best efforts to maintain all such material
         contracts and licenses in full force and effect.

         5.10. CONFIDENTIALITY. Each party will cause its directors, affiliates,
officers, employees or authorized representatives to hold in strict confidence,
and not disclose to any third party, without prior written consent of the other
party, all confidential information received by it in connection with the
transactions contemplated hereby, except as may be required by applicable law or
as otherwise contemplated herein.

         5.11. DIRECTORS' AND OFFICERS' INSURANCE. BioQuest shall, as soon as
possible, after the Effective Time, apply for, use its best efforts to obtain,
and maintain in effect, directors and officers liability insurance in a face
amount of at least $3,000,000. BioQuest acknowledges that the directors and
officers of Biokeys and the directors and officers of BioQuest prior to the
Effective Time have a right to indemnification under the respective Certificates
of Incorporation and By-laws of each corporation and under the DCGL, and
BioQuest shall not limit or interfere with such rights, and BioQuest shall take
such actions, to indemnify each director and officer of Biokeys and its
subsidiaries, against all losses, claims, damages, costs and expenses (including
reasonable attorneys' fees), liabilities, judgements, and settlement amounts
that are paid or incurred in connection with any claim, action, suit, proceeding
or investigation (whether civil, criminal, administrative or investigative)
arising out of or pertaining to matters existing or occurring at or prior to the
Effective Time (whether asserted or claimed prior to, at or after the Effective
Time), to the same extent, the same time and on the same bases that BioQuest is
obligated to indemnify, or actually indemnifies, the directors and officers of
BioQuest, subject to the applicable terms of the DGCL.


                                       30


         5.12. NECESSARY ACTIONS. BioQuest, Merger Sub and Biokeys shall use all
commercially reasonable efforts to promptly take all actions and make all
filings required by the Internal Revenue Code or otherwise, in order to cause
the Merger to be treated as a "tax-free" reorganization under the Internal
Revenue Code.

         5.13. AGREEMENT AMONG STOCKHOLDERS. At the Closing, the parties will
cause the stockholders listed in SCHEDULE 5.13 to enter into a shareholder's
agreement providing that, until the earlier of (a) the first anniversary of the
Effective Time and (b) the consummation of a public or private offering by
BioQuest in a gross amount of at least $5,000,000, each such shareholder, in any
and all elections of directors of BioQuest (whether at a meeting or by written
consent in lieu of a meeting), shall vote or cause to be voted all shares owned
by him or it, or over which he or it has voting control, and otherwise use his
or its respective best efforts, to cause the election as directors of BioQuest
of the persons described in Section 2.03(c).

         5.14. INTERIM FINANCING. From the date of this Agreement until the
Effective Time, the parties shall cooperate in the undertaking of, and Biokeys
shall assist BioQuest in conducting, a private placement offering to a limited
number of accredited investors, for the purpose of providing interim financing
in an aggregate amount of $840,000. Such financing shall take the form of an
issuance and sale by BioQuest of its subordinated promissory notes, convertible
into shares of BioQuest Common Stock. The parties intend that 50% of the
proceeds of such financing shall be derived from sources originated by BioQuest
and 50% from sources originated by Biokeys and, on such assumption, 50% of the
total proceeds of such financing shall be loaned by BioQuest to Biokeys, such
loan to be evidenced by a promissory note to be issued to BioQuest by Biokeys in
the form annexed as SCHEDULED 5.14.

                   VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF

                             BIOQUEST AND MERGER SUB

         The obligations of BioQuest and Merger Sub to consummate the Merger,
perform and observe the covenants, agreements and conditions hereof to be
performed and observed by them at or before the Closing shall be subject to the
satisfaction of the following conditions, which may be expressly waived only in
writing signed by BioQuest:

         6.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Biokeys contained herein (including applicable Exhibits or
Schedules to the Agreement) shall have been true and correct in all material
respects when made and, except (a) for changes contemplated by this Agreement
and (b) to the extent that such representations and warranties speak as of an
earlier date, shall be true and correct in all material respects as of the
Closing Date as though made on that date.

         6.02. PERFORMANCE OF AGREEMENTS. Biokeys shall have performed in all
material respects all obligations and agreements and complied with all covenants
contained in this Agreement or any


                                       31


other agreements to be performed and complied with by them at or prior to the
Closing.

         6.03. OPINION OF COUNSEL FOR BIOKEYS. BioQuest shall have received the
opinion of Camhy Karlinsky & Stein, LLP, counsel for Biokeys, dated the Closing
Date, substantially in the form of Exhibit A, to be attached hereto as set forth
in Section 3.32.

         6.04. COMPLIANCE CERTIFICATE. BioQuest shall have received a
certificate of the President and the Chief Financial Officer of Biokeys, dated
the Closing Date, in form and substance satisfactory to BioQuest, certifying
that the conditions to the obligations of BioQuest in Sections 6.01, 6.02, 6.05
and 6.06 have been fulfilled.

         6.05. MATERIAL ADVERSE CHANGE. Since the date of this Agreement and
through the Closing, there shall not have occurred any Material Adverse Effect
on Biokeys.

         6.06. APPROVALS AND CONSENTS. All transfers of permits or licenses and
all approvals of or notices to public agencies, federal, state, local or
foreign, the granting or delivery of which is necessary for the consummation of
the transactions contemplated hereby, or for the continued operation of Biokeys,
shall have been obtained, and all waiting periods specified by law shall have
passed. All other consents, approvals and notices referred to in this Agreement
shall have been obtained or delivered.

         6.07. PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE. All corporate
and other proceedings in connection with the transactions contemplated hereby
and by any other agreement, and all documents and instruments incident to such
transactions, shall have been approved by BioQuest's counsel. BioQuest shall
have received a certificate of the Secretary of Biokeys, in form and substance
satisfactory to BioQuest, as to the authenticity and effectiveness of the
actions of the Board of Directors and shareholders of Biokeys authorizing the
Merger, the transactions contemplated by this Agreement and the other
agreements, and copies of Biokeys' Articles of Incorporation, certified by the
Delaware Secretary of State, and Bylaws, certified by the Secretary of Biokeys,
shall be attached to such certificate.

         6.08. COMPLIANCE WITH LAWS. The consummation of other transactions
contemplated by this Agreement and any other agreements shall be legally
permitted by all laws and regulations to which BioQuest or Biokeys is subject.

         6.09. SHAREHOLDER APPROVAL. The principal terms of this Agreement and
the transactions contemplated therein shall have been approved by the holders of
not less than a majority (or such higher percentage as required by Biokeys'
Articles of Incorporation) of each class of Biokeys capital stock.

         6.10. LEGAL PROCEEDINGS. No order of any court or administrative agency
shall be in effect which enjoins, restrains, conditions or prohibits
consummation of this Agreement, and no litigation, investigation or
administrative proceeding shall be pending or threatened which would enjoin,


                                       32


restrain, condition or prevent consummation of this Agreement.

         6.11. EMPLOYMENT ARRANGEMENTS. At or prior to the Closing, BioQuest
shall enter into an employment agreement with Nicholas Jon Virca, as President
and Chief Executive Officer, which shall be effective as of the Effective Time
and shall be satisfactory in form and substance to the parties thereto.

         6.12. CONSENTS TO THE MERGER. SCHEDULE 3.07 lists certain agreements,
leases, notes or other documents identified that by their terms require consent.
Unless otherwise set forth in SCHEDULE 3.07, Biokeys shall have received and
shall have delivered to BioQuest or its counsel written consents to the Merger
from each of the parties (other than Biokeys) to such agreements, leases, notes
or other documents, which consents shall be reasonably satisfactory in all
respects to BioQuest.

         6.13. DELIVERY OF FINANCIAL STATEMENTS. Biokeys shall deliver to
BioQuest the Biokeys Financial Statements not later than five business days
prior to Closing.

         6.14. SATISFACTORY DUE DILIGENCE. All due diligence matters concerning
Biokeys, including, without limitation, the form and substance of material
agreements, organization documents, by-laws, financial statements, technology
licenses, and other documents, and the nature and extent of indebtedness
(whether or not funded) and capitalization, shall be satisfactory in form and
substance to BioQuest and its counsel.

         6.15. OPINION OF TAX COUNSEL. BioQuest and Biokeys shall have received
an opinion from tax counsel acceptable to all parties, dated as of the Closing
Date, in form and substance reasonably satisfactory to all parties,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, for federal income tax purposes, the
Merger will constitute a tax-free "reorganization" within the meaning of Section
368(a) of the Code. In rendering such opinion, chosen tax counsel may receive
and rely upon representations including those contained in this Agreement or in
certificates of officers of the parties or others; provided, however, that the
cost of obtaining such tax opinion shall be reasonable and shall be borne by
BioQuest.

                   VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF

                                     BIOKEYS

         The obligations of Biokeys to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at or
before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by Biokeys.

         7.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of BioQuest and Merger Sub contained herein shall have been true
and correct in all material


                                       33


respects when made and, except for (a) changes contemplated by this Agreement
and (b) to the extent that such representations and warranties speak as of an
earlier date, shall be true and correct as of the Closing Date as though made on
that date.

         7.02. PERFORMANCE OF AGREEMENTS. BioQuest and Merger Sub shall have
performed all obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with by them at or
prior to the Closing.

         7.03. OPINION OF COUNSEL. Biokeys shall have received the opinion of
Bresler Goodman & Unterman, LLP, counsel for BioQuest and Merger Sub, dated the
Closing Date, substantially in the form of Exhibit C, to be attached hereto as
set forth in Section 4.32.

         7.04. COMPLIANCE CERTIFICATE. Biokeys shall have received a certificate
of an officer of BioQuest, dated the Closing Date, substantially in form and
substance satisfactory to Biokeys, certifying that the conditions to the
obligations of Biokeys in Section 7.01, 7.02, 7.05 and 7.06 have been fulfilled.

         7.05. LEGAL PROCEEDINGS. No order of any court or administrative agency
shall be in effect which enjoins, restrains, conditions or prohibits
consummation of this Agreement, and no litigation, investigation or
administrative proceeding shall be pending or threatened which would enjoin,
restrain, condition or prevent consummation of this Agreement.

         7.06. MATERIAL ADVERSE CHANGE. Since the date of this Agreement and
through the Closing, there shall not have occurred any Material Adverse Effect
on BioQuest. Changes in the trading prices of BioQuest Common Stock shall not be
deemed to have a BioQuest Material Adverse Effect under this Agreement.

         7.07. APPROVALS AND CONSENTS. All transfers of permits or licenses and
all approvals of or notices to public agencies, federal, state, local or
foreign, the granting or delivery of which is necessary for the consummation of
the transactions contemplated hereby or for the continued operation of Biokeys,
shall have been obtained, and all waiting periods specified by law shall have
passed. All other consents, approvals and notices referred to in this Agreement
shall have been obtained or delivered.

         7.08. COMPLIANCE WITH LAWS. The consummation of other transactions
contemplated by this Agreement shall be legally permitted by all laws and
regulations to which BioQuest or Biokeys are subject.

         7.09. SHAREHOLDER APPROVAL. The principal terms of this Agreement and
the transactions contemplated therein shall have been approved by the holders of
not less than a majority (or such higher percentage as required by BioQuest's
Certificate of Incorporation) of each class of BioQuest capital stock.


                                       34


         7.10. EMPLOYMENT ARRANGEMENTS. BioQuest shall enter into an employment
agreement with Warren C. Lau ("Mr. Lau"), as Vice President, Finance and Chief
Financial Officer, on terms substantially similar to the terms of Mr. Lau's
present employment agreement with BioQuest in the forms attached hereto as
Exhibit D.

         7.11. SATISFACTORY DUE DILIGENCE. All due diligence matters concerning
BioQuest, including, without limitation, the form and substance of material
agreements, organization documents, by-laws, financial statements, technology
licenses, and other documents, and the nature and extent of indebtedness
(whether or not funded) and capitalization, shall be satisfactory in form and
substance to Biokeys and its counsel.

         7.12. PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE. All corporate
and other proceedings in connection with the transactions contemplated hereby
and by any other agreement, and all documents and instruments incident to such
transactions, shall have been approved by Biokeys' counsel. Biokeys shall have
received a certificate of the Secretary of BioQuest, in form and substance
satisfactory to Biokeys, as to the authenticity and effectiveness of the actions
of the Board of Directors and shareholders of BioQuest authorizing the Merger,
the transactions contemplated by this Agreement and the other agreements, and
copies of BioQuest's Articles of Incorporation, certified by the Delaware
Secretary of State, and Bylaws, certified by the Secretary of BioQuest, shall be
attached to such certificate.

         7.13. CONSENTS TO THE MERGER. SCHEDULE 4.07 lists certain agreements,
leases, notes or other documents identified that by their terms require consent.
Unless otherwise set forth in SCHEDULE 4.07, BioQuest shall have received and
shall have delivered to Biokeys or its counsel written consents to the Merger
from each of the parties (other than BioQuest) to such agreements, leases, notes
or other documents, which consents shall be reasonably satisfactory in all
respects to Biokeys.

         7.14. DELIVERY OF FINANCIAL STATEMENTS. BioQuest shall deliver to
Biokeys the BioQuest Financial Statements not later than five business days
prior to Closing.

         7.15. OPINION OF TAX COUNSEL. BioQuest and Biokeys shall have received
an opinion from tax counsel acceptable to all parties, dated as of the Closing
Date, in form and substance reasonably satisfactory to all parties,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, for federal income tax purposes, the
Merger will constitute a tax-free "reorganization" within the meaning of Section
368(a) of the Code. In rendering such opinion, chosen tax counsel may receive
and rely upon representations including those contained in this Agreement or in
certificates of officers of the parties or others; provided, however, that the
cost of obtaining such tax opinion shall be reasonable and shall be borne by
BioQuest.

                     XIII. TERMINATION, AMENDMENT AND WAIVER


                                       35


         8.01. TERMINATION. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the shareholders of Biokeys or BioQuest):

         (a) by mutual written consent;

         (b) by either Biokeys or BioQuest, if the Merger has not been
consummated by July 5, 2000; provided, however, that the right to terminate this
Agreement under this subsection (b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;

         (c) by either Biokeys or BioQuest, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining BioQuest, Merger Sub or Biokeys from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;

         (d) by Biokeys, in the event of a material breach by BioQuest of any
representation, warranty or agreement contained herein which has not been cured
or is not curable by July 5, 2000;

         (e) by BioQuest, in the event of a material breach by Biokeys of any
representation, warranty or agreement contained herein which has not been cured
or is not curable by July 5, 2000; or

         (f) the failure to obtain the stockholder approval of either Biokeys'
stockholders or BioQuest's stockholders as set forth in Section 5.02 by July 5,
2000.

         8.02. EFFECT OF TERMINATION. If this Agreement is validly terminated by
Biokeys, BioQuest or Merger Sub pursuant to Section 8.01, this Agreement shall
forthwith become null and void and there shall be no liability or obligation on
the part of either BioQuest, Merger Sub or Biokeys (or any of their respective
officers, directors, representatives, or affiliates), except that nothing
contained herein shall relieve BioQuest, Merger Sub or Biokeys from liability
for willful or intentional breach of their respective obligations contained in
the Agreement or for fraud.

         8.03. AMENDMENT. This Agreement may be amended by the parties hereto at
any time before or after approval of Biokeys' shareholders; but after such
approval, however, no amendment will be made which by applicable law requires
the further approval of Biokeys' shareholders without obtaining such further
approval.

         8.04. WAIVER. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any obligation or other act of
any other party hereto, (b) waive any


                                       36


inaccuracy in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) waive compliance with any agreement
or condition contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.

                        IX. SURVIVAL AND INDEMNIFICATION

         9.01. SURVIVAL. All representations and warranties contained in this
Agreement or in any certificate delivered pursuant hereto or thereto shall
survive the Closing for a period of 18 months after the Effective Time (the
"Survival Period"), and shall not be deemed waived or otherwise affected by any
investigation made or any knowledge acquired with respect thereto, or by any
notice delivered pursuant to Section 10.02 hereof; provided, however, that any
claim based on Section 3.29 and 4.29 shall survive until the end of the
applicable statute of limitations. The covenants and agreements contained in
this Agreement shall survive the Closing and shall continue until all
obligations with respect thereto shall have been performed or satisfied or shall
have been terminated in accordance with their terms.

         9.02. INDEMNIFICATION BY BIOKEYS. Biokeys shall indemnify and hold
harmless BioQuest and Merger Sub, and their respective officers, directors,
employees, successors and assigns in respect of any and all claims, actions,
suits or other proceedings and any and all losses, costs, expenses, liabilities,
fines, penalties, interest, and damages, whether or not arising out of any
claim, action, suit or other proceeding (and including reasonable counsel and
accountants' fees and expenses and all other reasonable costs and expenses of
investigation, defense or settlement of claims and amounts paid in settlement)
incurred by, imposed on or borne by BioQuest and Merger Sub or such other
persons (collectively "Damages") resulting from the breach of any of the
representations, warranties or agreements made by Biokeys in this Agreement.

         9.03 INDEMNIFICATION BY BIOKEYS PRINCIPALS. By their separate
signatures to this Agreement, Dr. Francis O'Donnell, Jr., M.D., Thomas
DePetrillo and Nicholas Jon Virca (the "Biokeys Principals") agree, jointly and
severally, to indemnify and hold harmless BioQuest and Merger Sub, and their
respective officers, directors, employees, successors and assigns, from and
against any and all Damages arising out of any inaccuracy or breach of any
representation, warranty or covenant by Biokeys relating to (i) any funded or
unfunded indebtedness of Biokeys or (ii) any contractual obligation of Biokeys.

         9.04. INDEMNIFICATION BY BIOQUEST AND MERGER SUB. Each of BioQuest and
Merger Sub, jointly and severally, shall indemnify and hold harmless Biokeys and
its officers, directors and employees, in respect of any and all claims,
actions, suits or other proceedings and any and all losses, costs, expenses,
liabilities, fines, penalties, interest, and damages, whether or not arising out
of any claim, action, suit or other proceeding (and including reasonable counsel
and accountants' fees and expenses and all other reasonable costs and expenses
of investigation, defense or settlement of claims and amounts paid in
settlement) incurred by, imposed on or borne by Biokeys or such other


                                       37


persons (collectively, "Damages") resulting from the breach of any of the
representations, warranties or agreements made by BioQuest and Merger Sub in
this Agreement.

         9.05 INDEMNIFICATION BY BIOQUEST PRINCIPALS. (a) By their separate
signatures to this Agreement, Louis R. Reif and Warren C. Lau (the "BioQuest
Principals") agree jointly and severally, to indemnify and hold harmless
Biokeys, and its officers, directors and employees, from and against any and all
Damages arising out of any inaccuracy or breach of any representation, warranty
or covenant by BioQuest or Merger Sub relating to (i) any funded or unfunded
indebtedness of BioQuest or Merger Sub or (ii) any contractual obligation of
BioQuest or Merger Sub in this Agreement.

         9.06 LIMITATIONS ON INDEMNIFICATION.

         Notwithstanding anything to the contrary contained in this Agreement,
the following limitations shall apply to any claim for indemnification asserted
by any party to this Agreement or by any other person or entity under the
provisions of this Article IX:

         (a) No right of indemnification shall arise in respect of any Damages
based on a transaction, event or incident occurring more than one year prior to
the date of this Agreement.

         (b) No right of indemnification shall arise in respect of any Damages
based on any claim, action, suit or other proceeding initiated more than one
year after the Effective Time.

         (c) The maximum liability of Biokeys or any Biokeys Principals, or of
BioQuest or Merger Sub or any BioQuest Principals, for Damages under any
indemnification provision of this Agreement shall not exceed the amounts
available and proceeds generated (whether in cash or in securities) from an
Indemnification Fund as defined and to be established and administered as set
forth in Section 9.07 below.

         9.07 INDEMNITY FUND; ESCROW.

         In order to secure the indemnification obligations set forth in this
Article IX, the parties agree that an indemnification fund (the "Indemnification
Fund") shall be established and administered, consisting initially of shares of
BioQuest Common Stock to be deposited in escrow by the Biokeys Principals and
the BioQuest Principals, respectively, as follows:

         (a) Upon consummation of the Merger, two Biokeys Principals, Dr.
Francis O'Donnell, Jr. and Thomas DePetrillo, will jointly deposit in escrow for
the benefit of BioQuest and Merger Sub and their respective officers, directors
and employees (the "Escrowed Biokeys Shares"), an aggregate of 250,000 shares
out of the total number of shares of BioQuest Common Stock to be received by
such Biokeys Principals as a result of the Merger. The Escrowed Biokeys Shares
will be held as security for the performance of indemnification obligations in
favor of BioQuest and Merger Sub and their respective officers, directors,
employees and successors and assigns as set forth


                                       38


in Sections 9.02 and 9.03 above, and shall be administered, applied, disbursed
and distributed, as set forth in a separate escrow agreement ("the Biokeys
Escrow Agreement"), to be executed and delivered at the Closing by the parties
and by counsel to BioQuest and counsel to Biokeys as joint escrow agents, in the
form annexed to this Agreement as Exhibit C.

         (b) Upon consummation of the Merger, the BioQuest Principals will
jointly deposit in escrow, for the benefit of Biokeys and its officers,
directors and employees (the "Escrowed BioQuest Shares"), an aggregate of
250,000 shares out of the total number of shares of BioQuest Common Stock to be
retained and held by such BioQuest Principals immediately prior to the Effective
Time. The Escrowed BioQuest Shares will be held as security for the performance
of indemnification obligations in favor of Biokeys and its officers, directors
and employees as set forth in Sections 9.04 and 9.05 above, and shall be
administered, applied, disbursed and distributed, as set forth in a separate
escrow agreement ("the BioQuest Escrow Agreement"), to be executed and delivered
at the Closing by the parties and by counsel to BioQuest and counsel to Biokeys
as joint escrow agents, in the form annexed to this Agreement as Exhibit D.

         (c) At the termination of the Biokeys Escrow Agreement, any Escrowed
Biokeys Shares not previously applied or required to be applied to satisfy
indemnification obligations under the provisions of Sections 9.02 or 9.03 above
shall be returned to the Biokeys Principals contributing such Shares in the same
proportion in which such Shares were contributed by each such Biokeys Principal
at the Closing. At the termination of the BioQuest Escrow Agreement, any
Escrowed BioQuest Shares not previously applied or required to be applied to
satisfy indemnification obligations under the provisions of Sections 9.04 or
9.05 above shall be returned to the BioQuest Principals contributing such Shares
in the same proportion in which such Shares were contributed by each such
BioQuest Principal at the Closing.

         9.08 INDEMNIFICATION PROCEDURE FOR CLAIMS. Whenever any claim shall
arise for indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify in writing the other party or parties
(the "indemnifying party") of the claim and, when known, the facts constituting
the basis for such claim; provided, that the indemnified party's failure to give
such written notice shall not affect any rights or remedies of an indemnified
party hereunder with respect to indemnification for damages except to the extent
that the indemnifying party is materially prejudiced thereby. In the event of
any claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the written notice to the
indemnifying party shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. The indemnified party shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the indemnifying
party (which shall not be unreasonably withheld), unless suit shall have been
instituted against it and the indemnifying party shall not have taken control of
and conducted in a diligent manner the defense of such suit after notification
thereof as provided in this Agreement.

         9.09 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim giving
rise to an indemnification right hereunder or resulting from or arising out of
any claim or legal proceeding by


                                       39


a person who is not a party to this Agreement, the indemnifying party at its
sole cost and expense may, upon written notice to the indemnified party, assume
the defense of any such claim or legal proceeding if it acknowledges to the
indemnified party in writing its obligations to indemnify the indemnified party
with respect to all elements of such claim, and thereafter diligently conducts
the defense thereof with counsel reasonably acceptable to the indemnified party.
If the indemnifying party acknowledges in writing as specified above that it
shall assume the defense of any such action, then the indemnifying party shall
keep the indemnified party informed with respect to the defense of such action
and the indemnified party shall be entitled to participate in (but not control)
the defense of such action, with its counsel and at its own expense. If (A) the
indemnifying party does not acknowledge in writing as specified above that it
shall assume or fails to conduct in a diligent manner the defense of any such
claim or litigation resulting therefrom, or (B) the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from, or, additional to those available to the
indemnifying party or other indemnified parties with respect to such claim or
litigation, then, (i) the indemnified party may defend against such claim or
litigation, in such manner as it may deem appropriate, including, without
limitation, settling such claim or litigation, after giving notice of the same
to the indemnifying party, on such terms as the indemnified party may deem
appropriate, and (ii) the indemnifying party shall be entitled to participate in
(but not control) the defense of such action, with its counsel and at its own
expense. If the indemnifying party thereafter seeks to question the manner in
which the indemnified party defended such third party claim or the amount or
nature of any such settlement, the indemnifying party shall have the burden to
prove by a preponderance of the evidence that the indemnified party did not
defend or settle such third party claim in a reasonably prudent manner. Each
party agrees to cooperate fully with the other, such cooperation to include,
without limitation, attendance at depositions and the provisions of relevant
documents as may be reasonably requested by the indemnifying party; provided,
that the indemnifying party will hold the indemnified party harmless from all of
its expenses, including reasonable attorneys' fees, incurred in connection with
such cooperation by the indemnified party.

                                X. MISCELLANEOUS.

         10.01. EXPENSES. Regardless of whether the transactions contemplated by
this Agreement are consummated, each party shall pay its own respective fees and
expenses incident to the negotiation, preparation and execution of this
Agreement (including legal and accounting fees and expenses).

         10.02. NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested or sent by Federal Express,
express mail or similar overnight delivery or courier service or delivered, or
delivered by telecopy, and confirmed by another notification method permitted
hereunder, at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 10.02) with copies (which
copies shall not constitute notice) as follows:


                                       40


         If to Biokeys:             Biokeys, Inc.
                                    9948 Hilbert St.
                                    Suite 100
                                    San Diego, CA 92131
                                    Attn: Nicholas Jon Virca

         With a copy to:            Camhy Karlinsky & Stein LLP
                                    1740 Broadway, 16th Floor
                                    New York, NY 10019
                                    Attn: Michael B. Kupin, Esq.

         If to BioQuest or

         Merger Sub:                BioQuest, Inc.
                                    333 N. Sam Houston Parkway,
                                    Suite 1035
                                    Houston, TX 77060
                                    Attention: Warren Lau, President

         With a copy to:            Bresler Goodman & Unterman LLP
                                    521 Fifth Avenue
                                    28th Floor
                                    New York, NY 10175
                                    Attn:  Seymour Bucholz, Esq.

Any notice or other communication given by certified mail shall be deemed given
three business days after certification thereof, except for a notice changing a
party's address which will be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 10.02 shall be deemed
given at the time of receipt hereof.

         10.03. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES) EXCEPT TO THE EXTENT
MANDATORILY GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. BIOQUEST AND BIOKEYS
AND ALL OTHER SIGNATORIES HERETO EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY, NEW YORK,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. ALL
DISPUTES ARISING UNDER THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN SUCH
STATE COURT OR SUCH FEDERAL COURT. THE SIGNATORIES HERETO EACH HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE
OF AN INCONVENIENT FORUM OR IMPROPER VENUE TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING.

         10.04. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or


                                       41


incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner to
the fullest extent permitted by applicable law in order that the Merger may be
consummated as originally contemplated to the fullest extent possible.

         10.05. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
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 signatories hereto or their respective successors and permitted assigns
any rights or remedies under or by reason of this Agreement.

         10.06. HEADINGS. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

         10.07. ENTIRE AGREEMENT. This Agreement (including all Exhibits and
Schedules) constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.

         10.08. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Execution and delivery of
this Agreement by exchange of facsimile copies bearing the facsimile signature
of a party hereto shall constitute a valid and binding execution and delivery of
this Agreement by such party.

         10.09. WAIVERS. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.


                                       42


                  IN WITNESS WHEREOF, this Agreement has been executed on behalf
of each of the parties hereto as of the date first above written.

                                          BIOQUEST, INC.


                                          By: /s/ LOUIS R. REIF
                                             -----------------------------------
                                                   Louis R.  Reif
                                                   Chief Executive Officer

                                          BIOQUEST ACQUISITION CORP.


                                          By: /s/ LOIS R. REIF
                                              ----------------------------------
                                                   Louis R.  Reif
                                                   Chief Executive Officer

                                          BIOKEYS, INC.


                                          By: /s/ NICHOLAS JON VIRCA
                                             -----------------------------------
                                                   Nicholas Jon Virca
                                                   President

Agreed as to Sections 9.05 and 9.07:
BioQuest Principals:


 /s/ LOUIS R. REIF
---------------------------------------------------
Louis R. Reif


 /s/ WARREN C. LAU
-------------------------------------------------
Warren C. Lau


Agreed as to Sections 9.03 and 9.07:
Biokeys Principals:


 /s/ NICHOLAS JOHN VIRCA
-------------------------------------------------

Nicholas Jon Virca


 /s/ DR. FRANCIS O'DONNELL, JR., M.D.
-------------------------------------------------
Dr. Francis O'Donnell, Jr., M.D.


 /s/ THOMAS DEPETRILLO
-------------------------------------------------
Thomas DePetrillo


                                       43



                                                                     Exhibit 3.1

                            CERTIFICATE OF AMENDMENT

                                       OF

                          CERTIFICATE OF INCORPORATION

                                       OF

                                 BIOQUEST, INC.

                            UNDER SECTION 242 OF THE
                        DELAWARE GENERAL CORPORATION LAW

         Pursuant to the provisions of Section 242 of the General Corporation
Law, the undersigned, being the President of the corporation, hereby certifies
that:

         FIRST: The name of the corporation is BioQuest, Inc.

         SECOND: The amendment to the Certificate of Incorporation effected by
this Certificate is as follows:

         (a) Paragraph FIRST of the Certificate of Incorporation, relating to
the name of the corporation, is hereby amended to read as follows:

                  "FIRST:  The name of the corporation is:
                           Biokeys Pharmaceuticals, Inc."

         THIRD: The aforesaid amendment of the Certificate of Incorporation was
duly adopted and approved in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.

         IN WITNESS WHEREOF, I hereunto sign my name and affirm that the
statements made herein are true under the penalties of perjury, this 12th day of
October, 2000.

                                                     BIOQUEST, INC.


                                                     BY: /s/ WARREN C. LAU
                                                         -----------------------
                                                         Warren C. Lau,
                                                         President



                                                                     Exhibit 3.2

                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                                 BIOQUEST, INC.

                            UNDER SECTION 242 OF THE
                        DELAWARE GENERAL CORPORATION LAW

         Pursuant to the provisions of Section 242 of the General Corporation
Law, the undersigned, being the President of the corporation, hereby certifies
that:

         FIRST: The name of the corporation is Bioquest, Inc.

         SECOND: The amendment to the Certificate of Incorporation effected by
this Certificate is as follows:

         (a) Paragraph FIRST of the Certificate of Incorporation, relating to
the name of the corporation, is hereby amended to read as follows:

                     "FIRST: The name of the corporation is:
                         Biokeys Pharmaceuticals, Inc."

         THIRD: The aforesaid amendment of the Certificate of Incorporation was
duly adopted and approved in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.

         IN WITNESS WHEREOF, I hereunto sign my name and affirm that the
statements made herein are true under the penalties of perjury, this 12th day of
October, 2000.


                                                     BIOQUEST, INC.


                                                     BY: /s/ WARREN C. LAU
                                                         -----------------
                                                             Warren C. Lau,
                                                             President



                                                                     Exhibit 3.3

                              CERTIFICATE OF MERGER

                                       OF

                           BIOQUEST ACQUISITION CORP.

                            (A DELAWARE CORPORATION)

                                      INTO

                                  BIOKEYS, INC.

                            (A DELAWARE CORPORATION)

    -------------------------------------------------------------------------
                     PURSUANT TO SECTION 251 OF THE GENERAL
                    CORPORATION LAW OF THE STATE OF DELAWARE
    -------------------------------------------------------------------------

         BIOKEYS, INC., a corporation organized and existing under the laws of
the State of Delaware, DOES HEREBY CERTIFY THAT:

         FIRST: The constituent corporations to the merger are Biokeys, Inc., a
Delaware corporation, and BioQuest Acquisition Corp., a Delaware corporation.

         SECOND: An agreement of merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the requirements of Section 251 of the General Corporation Law of Delaware.

         THIRD: The name of the surviving corporation shall be Biokeys, Inc.

         FOURTH: The Certificate of Incorporation of Biokeys, Inc. as the
surviving corporation shall be the certificate of incorporation of Biokeys, Inc.
prior to the merger, and amended in the following manner:

                  Article II shall be amended to read:

                                   "ARTICLE II
                                REGISTERED OFFICE


         The address of the registered office of the Corporation in the the
State of Delaware is c/o United Corporate Services, Inc., 15 East North St., in
the City of Dover, County of Kent. The name of its registered office at such
address is United Corporate Services, Inc."

                  ARTICLE IV shall be amended to read in its entirety as
follows:

                                   "ARTICLE IV

                                  CAPITAL STOCK

                  The total number of shares of capital stock which the
Corporation shall have the authority to issue is 25,000,000 shares which shall
be common stock, par value $0.01 per share ("Common Stock")."

                  ARTICLE VI shall be amended by deleting therefrom Section 4.

         FIFTH: The Merger Agreement is on file at the principal office of
Biokeys, Inc. located at 11466 Winding Ridge Drive, San Diego, California and
shall be furnished without cost upon request to any stockholder of Biokeys, Inc.
or BioQuest Acquisition Corp.

         IN WITNESS WHEREOF, the undersigned has executed this Certificate this
10th day of October, 2000, and affirms that the statements herein and the
contents hereof are true under the penalties of perjury.


                                               BIOKEYS, INC.
                                               (a Delaware corporation)


                                               By: /s/ NICHOLAS JON VIRCA
                                                   -----------------------------
                                                   Nicholas Jon Virca,
                                                   President


                                        2



                                                                     Exhibit 3.4

                          CERTIFICATE OF INCORPORATION

                                       OF

                           BIOQUEST ACQUISITION CORP.

         The undersigned, a natural person of legal age, for the purpose of
organizing a corporation pursuant to the General Corporation Law of the State of
Delaware, hereby certifies that:

         FIRST: The name of the corporation is

                           BIOQUEST ACQUISITION CORP.

         SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is c/o United
Corporate Services, Inc., 15 East North Street, in the City of Dover, County of
Kent, State of Delaware 19901, and the name of the registered agent at said
address is United Corporate Services, Inc.

         THIRD: The nature of the business and the purposes to be conducted and
promoted by the corporation are to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity, for which
corporations may be organized under the General Corporation Law of the State of
Delaware.

         FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Two Million (2,000,000) shares of
Common Stock, par value $.01 per share.

         FIFTH: The name and address of the incorporator are as follows:

         NAME                                  ADDRESS
         ----                                  -------

         Michael Barr                          10 Bank Street
                                               White Plains, New York 10606

         SIXTH: The corporation is to have perpetual existence.


         SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
indebtedness held by such creditors or class of creditors, and/or three-fourths
of the shares held by the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on the corporation.

         EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:

         (1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws.

         (2) The Board of Directors shall have power without the assent or vote
of the stockholders:

                  (a) To make, alter, amend, change, add to or repeal the
                  By-Laws of the corporation; to fix and vary the amount to be
                  reserved for any proper purpose; to authorize and cause to be
                  executed mortgages and liens upon all or any part of the
                  property of the corporation; to determine the use and
                  disposition of any surplus or net profits; and to fix the
                  times for the declaration and payment of dividends.

                  (b) To determine from time to time whether, and at what times
                  and places, and under what conditions the accounts and books
                  of the corporation (other than the stock ledger) or any of
                  them, shall be open to the inspection of the stockholders..

         (3) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, of this certificate, and to any


By-Laws from time to time; provided, however, that no By-Laws so made shall
invalidate any prior act of the directors which would have been valid if such
By-Laws had not been made.

         NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented.

         TENTH: The corporation shall, to the fullest extent permitted by the
provisions of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have the power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
Law, and the indemnification provided for herein shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.

         ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted as prescribed by said laws, and all rights at any time
conferred upon the stockholders of the corporation by this certificate of
incorporation are granted subject to the provisions of this Article ELEVENTH.

         IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this 19th day of May, 2000.


                                           /s/ MICHAEL BARR
                                           -------------------------------------
                                           MICHAEL BARR   --  Incorporator



                                                                     EXHIBIT 3.6

                              AMENDED AND RESTATED

                                     BYLAWS


                                       OF


                          BIOKEYS PHARMACEUTICALS, INC.



                            (A DELAWARE CORPORATION)



                                    ARTICLE I

                                CORPORATE OFFICES

1.1      REGISTERED OFFICE. The registered office of the corporation shall be
fixed in the Certificate of Incorporation of the corporation.

1.2      OTHER OFFICES. The board of directors may at any time establish the
principal office and any branch or subordinate offices of the corporation at any
place or places deemed advisable.


                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

2.1      PLACE OF MEETINGS. Meetings of stockholders shall be held at any place
within or outside the State of Delaware designated by the board of directors.

2.2      ANNUAL MEETING.

         (a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. At the meeting,
directors shall be elected, and any other proper business may be transacted.

         (b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (B) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received not later than the close of business on the later of one hundred
twenty (120) calendar days in advance of such annual meeting or ten (10)
calendar days following the date on which public announcement of the date of the
meeting is first made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the




stockholder proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business, and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b), the chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.

         (c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including, without limitation, such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the board of directors, any person nominated
by a stockholder for election as a director shall furnish to the secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.


                                       -3-



2.3      SPECIAL MEETING. A special meeting of the stockholders may be called at
any time by the board of directors, the president or the chairman, but such
special meeting may not be called by any other person or persons. Only such
business shall be considered at a special meeting of stockholders as shall have
been stated in the notice for such meeting.

2.4      ORGANIZATION. Meetings of stockholders shall be presided over by the
president, the chairman or, in his or her absence, by a chairman designated by
the board of directors, or in the absence of such designation, by a chairman
chosen at the meeting by the vote of a majority in interest of the stockholders
present in person or represented by proxy and entitled to vote thereat. The
secretary, or in his or her absence an assistant secretary, or in the absence of
the secretary and any assistant secretary, a person whom the chairman of the
meeting shall appoint, shall act as secretary of the meeting and keep a record
of the proceedings thereof.

         The board of directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the board of directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business, limitations on
the time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting. Unless determined by the board
of directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules of parliamentary procedure.

2.5      NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the stockholders (but any proper matter may be
presented at the meeting for such action). The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
who, at the time of the notice, the board intends to present for election.

2.6      MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of
stockholders shall be given either personally or by mail, telecopy, telegram or
other electronic or wireless means. Notices not personally delivered shall be
sent charges prepaid and shall be addressed to the stockholder at the address of
that stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telecopy, telegram or other electronic or wireless means.


                                       -4-



         An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice or report.

2.7      QUORUM. The holders of a majority in voting power of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders by the vote of the holders of a majority of
the stock, present in person or represented by proxy shall have power to adjourn
the meeting.

         When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the Certificate of Incorporation or these Bylaws, a vote of a greater number
or voting by classes is required, in which case such express provision shall
govern and control the decision of the question.

         If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.

2.8      ADJOURNED MEETING; NOTICE. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the voting power of the shares represented at
that meeting, either in person or by proxy. In the absence of a quorum, no other
business may be transacted at that meeting except as provided in Section 2.7 of
these Bylaws.

         When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than thirty (30) days from the date set
for the original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.5 and 2.6 of these Bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.

2.9      VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these Bylaws, subject to applicable provisions of the General
Corporation Law of Delaware.


                                       -5-



         Except as may be otherwise provided in the Certificate of
Incorporation, by instruments setting forth the voting rights of specific
classes or series of stocks, by these Bylaws or by applicable law, each
stockholder shall be entitled to one vote for each share of capital stock held
by such stockholder.

         Any stockholder entitled to vote on any matter may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or,
except when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.

2.10     VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. The transactions of
any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy.

         Attendance by a person at a meeting shall constitute a waiver of notice
of and presence at that meeting, except when the person objects at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened.

2.11     ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of the
shares of any series of preferred stock or any other class of stock or series
thereof having a preference over the common stock as to dividends or upon
liquidation, any action required or permitted to be taken by the stockholders of
the corporation may be effected either at a duly called annual or special
meeting of stockholders of the corporation or by a consent in writing by such
stockholders obtained in accordance with the applicable provisions of the
General Corporation Law of Delaware.

2.12     RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10) days before the
date of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise provided in the Certificate of Incorporation, by these Bylaws, by
agreement or by applicable law.

         If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.

         A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new


                                       -6-



record date for the adjourned meeting, but the board of directors shall fix a
new record date if the meeting is adjourned for more than thirty (30) days from
the date set for the original meeting.

         The record date for any other purpose shall be as provided in Section
8.1 of these Bylaws.

2.13     PROXIES. Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy, which may be in the form of a telegram,
cablegram, or other means of electronic transmission, signed by the person and
filed with the secretary of the corporation, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the stockholder or the stockholder's attorney-
in-fact. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the secretary of the corporation.

         A proxy is not revoked by the death or incapacity of the maker unless,
before the vote is counted, written notice of such death or incapacity is
received by the corporation.

2.14     INSPECTORS OF ELECTION. Before any meeting of stockholders, the board
of directors shall appoint an inspector or inspectors of election to act at the
meeting or its adjournment and to determine such matters as quorum, validity of
proxies and ballots, voting eligibility, and the tabulation of votes. The number
of inspectors shall be either one (1) or three (3). If any person appointed as
inspector fails to appear or fails or refuses to act, then the chairman of the
meeting may, and upon the request of any stockholder or a stockholder's proxy
shall, appoint a person to fill that vacancy.

         The inspectors of election shall execute an oath of office agreeing to
perform, and shall perform their duties impartially, in good faith, to the best
of their ability and as expeditiously as is practical. If there are three (3)
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. Any report
or certificate made by the inspectors of election is prima facie evidence of the
facts stated therein.

                                   ARTICLE III

                                    DIRECTORS

3.1      POWERS. Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be


                                       -7-



approved by the stockholders, the business and affairs of the corporation shall
be managed, and all corporate powers shall be exercised, by or under the
direction of the board of directors.

3.2      NUMBER AND TERM OF OFFICE. The authorized number of directors shall be
not less than three (3) nor more than nine (9). Within such limits, the number
of directors shall be initially fixed at three (3), which number may be changed
by resolution of the board of directors. An indefinite number of directors may
be fixed, or the definite number of directors may be changed, by a duly adopted
amendment to the Certificate of Incorporation or by an amendment to these Bylaws
duly adopted by the stockholders or the board of directors.

         No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.

3.3      ELECTION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section
3.4 of these Bylaws, directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting. Each director,
including a director elected or appointed to fill a vacancy, shall hold office
until the expiration of the term for which elected and until a successor has
been elected and qualified. Directors need not be stockholders unless so
required by the Certificate of Incorporation or by these Bylaws.

3.4      RESIGNATION AND VACANCIES. Any director may resign on giving written
notice to the president, the chairman, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective.

         Unless otherwise provided in the Certificate of Incorporation or by
these Bylaws, vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified. Unless otherwise provided in the Certificate of Incorporation or
these Bylaws:

                  (i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director.

                  (ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.


                                       -8-



         If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.

3.5      REMOVAL. Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of seventy-five percent
(75%) of the shares then entitled to vote at an election of directors.

3.6      PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the board
of directors may be held at any place within or outside the State of Delaware
that has been designated from time to time by resolution of the board of
directors. In the absence of such a designation, regular meetings shall be held
at the principal executive office of the corporation. Special meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.

         Any meeting, regular or special, may be held by conference telephone or
similar communications equipment, so long as all directors participating in the
meeting can hear one another, and all such directors shall be deemed to be
present in person at the meeting.

3.7      REGULAR MEETINGS. Regular meetings of the board of directors may be
held without notice if the times of such meetings are fixed in advance by the
board of directors.

3.8      SPECIAL MEETINGS; NOTICE. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the president, the
chairman, the secretary or by any two (2) or more of the directors.

         Notice of the time and place of special meetings of the board of
directors shall be delivered personally or by telephone to each director or sent
by mail, telecopy, telegram or other electronic or wireless means, charges
prepaid, addressed to each director at that director's address as it is shown on
the records of the corporation or if the address is not readily ascertainable,
notice shall be addressed to the director at the city or place in which the
meetings of directors are regularly held. If the notice is mailed, it shall be
deposited in the United States mail at least three (3) days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone, telecopy, telegram or other electronic or wireless means, it shall be
delivered personally or by telephone or other electronic or wireless means at
least twenty-four (24) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to


                                       -9-



believe will promptly communicate it to the director. A notice of a special
meeting of the board of directors need not state the purpose of such meeting,
and, unless indicated in the notice thereof, any and all business may be
transacted at a special meeting.

3.9      QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to fill vacancies in
the board of directors as provided in Section 3.4 and to adjourn as provided in
Section 3.11 of these Bylaws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the Certificate of Incorporation and applicable law.

         A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.

3.10     WAIVER OF NOTICE. Notice of a meeting need not be given to any director
(i) who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such directors. The transactions of any
meeting of the board, however called and noticed or wherever held, are as valid
as though had at a meeting duly held after regular call and notice if a quorum
is present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice. All such waivers shall be filed with
the corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.

3.11     ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.

3.12     NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need not be given if such time and place are announced, unless
the meeting is adjourned for more than forty-eight (48) hours. If the meeting is
adjourned for more than forty-eight (48) hours, then notice of the time and
place of the adjourned meeting shall be given.

3.13     BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the board of directors may be taken without
a meeting, provided that all members of the board of directors individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.

3.14     ORGANIZATION. Meetings of the board of directors shall be presided over
by the president or the chairman, or, in his or her absence, by a president pro
tem chosen by a majority of the directors


                                                       -10-



present. The secretary shall act as secretary of the meeting, but in his or her
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.

3.15     FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees
may receive such compensation, if any, for their services and such reimbursement
of expenses as may be fixed or determined by resolution of the board of
directors. This Section 3.15 shall not be construed to preclude any director
from serving the corporation in any other capacity as an officer, agent,
employee or otherwise and receiving compensation for those services.

                                   ARTICLE IV

                                   COMMITTEES

4.1      COMMITTEES OF DIRECTORS. The board of directors may designate one (1)
or more committees, each consisting of two or more directors, to serve at the
pleasure of the board of directors. The board of directors may designate one (1)
or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. The purposes and authority of any
committee shall be as provided in the resolution of the board, but no such
committee shall have power or authority by itself to (i) approve or adopt or
recommend to the stockholders any action or matter that requires the approval of
the stockholders or (ii) adopt, amend or repeal any Bylaw of the corporation.

4.2      MEETINGS AND ACTION OF COMMITTEES. To the extent feasible, meetings and
actions of committees shall be governed by, and held and taken in accordance
with, the provisions of Article III of these Bylaws, Section 3.6 (place of
meetings), Section 3.7 (regular meetings), Section 3.8 (special meetings and
notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11
(adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members, provided, however, that the board of directors may adopt rules
for the government of any committee not inconsistent with the provisions of
these Bylaws.

                                    ARTICLE V

                                    OFFICERS

5.1      OFFICERS. The officers of this corporation shall consist of a chairman,
a president, one or more vice presidents, a secretary, a chief financial officer
who will also serve as a treasurer, and such other officers and assistant
officers as may be determined from time to time by the board of directors, all
of whom shall be chosen in such manner and hold their offices for such terms as
the board of directors may prescribe. Any two or more of such offices may be
held by the same person.


                                      -11-



The board of directors may designate one or more vice presidents as executive
vice presidents or senior vice presidents. The board of directors may from time
to time designate the president or any other officer as the chief operating
officer of the corporation.

5.2      TERMS OF OFFICE AND COMPENSATION. The term of office and salary of each
of said officers and the manner and time of the payment of such salaries shall
be fixed and determined by the board of directors and may be altered by said
board from time to time at its pleasure, subject to the rights, if any, of said
officers under any contract of employment.

5.3      REMOVAL; RESIGNATION OF OFFICERS AND VACANCIES.  Any officer of the
corporation may be removed at the pleasure of the board of directors at any
meeting, or by vote of stockholders entitled to exercise the majority of voting
power of the corporation at any meeting, or at the pleasure of any officer who
may be granted such power by a resolution of the board of directors. Any officer
may resign at any time upon written notice to the corporation without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party. If any vacancy occurs in any office of the corporation, the
board of directors may elect a successor to fill such vacancy for the remainder
of the unexpired term and until a successor is duly chosen and qualified.

5.4      CHAIRMAN. Unless otherwise determined by the board of directors, the
chairman shall be the chief executive officer of the corporation and shall have
general direction of the affairs of the corporation and general supervision over
its several officers, subject, however, to the control of the board of
directors. The chairman shall, at each annual meeting and from time to time,
report to the stockholders and the board of directors all matters within his
knowledge which the interest of the corporation may require to be brought to
their notice, may sign with the treasurer or an assistant treasurer, if any, or
the secretary or an assistant secretary, if any, any or all certificates of
stock of the corporation. The chairman shall preside at all meetings of the
stockholders and at all meetings of the board of directors, may sign and execute
in the name of the corporation all contracts or other instruments authorized by
the board of directors, except in cases where the signing and execution thereof
shall be delegated or permitted by the board of directors or by these Bylaws to
some other officer or agent of the corporation, and in general shall perform
such duties and, subject to the other provisions of these Bylaws and to the
control of the board of directors, have such powers incident to the office of
chairman and perform such other duties and have such other powers as from time
to time may be assigned to him by the board of directors.

5.5      PRESIDENT. The president shall be the chief operating officer of the
corporation and shall exercise and perform such powers and duties, including the
signing and execution of contracts and instruments, as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
Bylaws. The president shall report to the board of directors.

5.6      UNAVAILABILITY OF CHAIRMAN. In case of the absence, disability or death
of the chairman, the president or, if he is not available, a vice president,
shall exercise all the powers and perform all the duties of the chairman. If
there is more than one elected vice president, the order in


                                      -12-



which the elected vice presidents shall succeed to the powers and duties of the
chairman shall be as fixed by the board of directors.

5.7      CHIEF FINANCIAL OFFICER. The chief financial officer shall be the
treasurer of the corporation and shall have the care an custody of the corporate
funds and other valuable effects, including securities, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors. The treasurer shall disburse the funds of the
corporation as may be ordered by the chairman, president, or the board of
directors, taking proper vouchers for such disbursements, and shall render to
the chairman, president and board of directors, at the regular meetings of the
board, or whenever they may require it, an account of all his transactions as
treasurer and of the financial condition of the corporation; and, in general
perform all the duties incident to the office of treasurer and such other duties
as from time to time may be assigned to him by the chairman, president, or the
board of directors.

5.8      SECRETARY.  The powers and duties of the secretary are:

         (a) To keep a book of minutes at the principal office of the
corporation, or such other place as the board of directors may order, of all
meetings of its directors and stockholders with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at stockholders' meetings and the proceedings thereof.

         (b) To keep the seal of the corporation and affix the same to all
instruments which may require it.

         (c) To keep or cause to be kept at the principal office of the
corporation, or at the office of the transfer agent or agents, a share register,
or duplicate share registers, showing the names of the stockholders and their
addresses, the number of and classes of shares, and the number and date of
cancellation of every certificate surrendered for cancellation.

         (d) To keep a supply of certificates for shares of the corporation, to
fill in all certificates issued, and to make a proper record of each such
issuance; provided, that so long as the corporation shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the corporation, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.

         (e) To transfer upon the share books of the corporation any and all
shares of the corporation; provided, that so long as the corporation shall have
one or more duly appointed and acting transfer agents of the shares, or any
class or series of shares, of the corporation, such duties with respect to such
shares shall be performed by such transfer agent or transfer agents, and the
method of transfer of each certificate shall be subject to the reasonable
regulations of the transfer


                                      -13-



agent to which the certificate is presented for transfer, and also, if the
corporation then has one or more duly appointed and acting registrars, to the
reasonable regulations of the registrar to which the new certificate is
presented for registration; and provided, further that no certificate for shares
of stock shall be issued or delivered or, if issued or delivered, shall have any
validity whatsoever until and unless it has been signed or authenticated in the
manner provided in Section 8.5 hereof.

         (f) To make service and publication of all notices that may be
necessary or proper, and without command or direction from anyone. In case of
the absence, disability, refusal, or neglect of the secretary to make service or
publication of any notices, then such notices may be served and/or published by
an assistant secretary or by the president or a vice president, or by any person
thereunto authorized by either of them or by the board of directors or by the
holders of a majority of the outstanding shares of the corporation.

         (g) Generally to do and perform all such duties as pertain to the
office of secretary and as may be required by the board of directors.


                                   ARTICLE VI

                          INDEMNIFICATION OF DIRECTORS,
                      OFFICERS, EMPLOYEES AND OTHER AGENTS

6.1      INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation;
provided, however, that the corporation may modify the extent of such
indemnification by individual contracts with its directors and executive
officers and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized in advance by the
board of directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the General Corporation Law of Delaware or (iv) such
indemnification is required to be made pursuant to an individual contract. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation.

6.2      INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the
maximum extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each


                                      -14-



of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation.

6.3      INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.

6.4      EXPENSES. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding, upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise; provided, however, that the corporation shall not be
required to advance expenses to any director or officer in connection with any
proceeding (or part thereof) initiated by such person unless the proceeding was
authorized in advance by the board of directors of the corporation.

         Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.


                                      -15-



6.5      NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the General Corporation Law of Delaware.

6.6      SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.

6.7      AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.

                                   ARTICLE VII

                               RECORDS AND REPORTS

7.1      MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at
its principal executive office or at such place or places as designated by the
board of directors, keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each stockholder, a copy of
these Bylaws as amended to date, accounting books and other records.

         Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.

7.2      INSPECTION BY DIRECTOR. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may,


                                      -16-



in its discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.

                                  ARTICLE VIII

                                 GENERAL MATTERS

8.1      RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of
determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Certificate
of Incorporation, by these Bylaws, by agreement or by law.

         If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.

8.2      CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to time, the board
of directors shall determine by resolution which person or persons may sign or
endorse all checks, drafts, other orders for payment of money, notes or other
evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.

8.3      CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.

8.4      FISCAL YEAR. The fiscal year of this corporation shall begin on the
first day of January of each year and end on the last day of December of such
year.

8.5      STOCK CERTIFICATES. There shall be issued to each holder of fully paid
shares of the capital stock of the corporation a certificate or certificates for
such shares. Every holder of shares of the corporation shall be entitled to have
a certificate signed by, or in the name of the corporation by,


                                      -17-



the president or the chairman or the president or a vice president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary,
representing the number of shares registered in certificate form. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.

8.6      SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

8.7      LOST CERTIFICATES. The corporation may issue a new share certificate or
new certificate for any other security in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the corporation may require the owner of the lost, stolen or destroyed
certificate or the owner's legal representative to give the corporation a bond
(or other adequate security) sufficient to indemnify it against any claim that
may be made against it (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate. The board of directors may adopt such other provisions and
restrictions with reference to lost certificates, not inconsistent with
applicable law, as it shall in its discretion deem appropriate.

8.8      CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the General
Corporation Law of Delaware shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.

8.9      PROVISIONS ADDITIONAL TO PROVISIONS OF LAW. All restrictions,
limitations, requirements and other provisions of these Bylaws shall be
construed, insofar as possible, as supplemental and additional to all provisions
of law applicable to the subject matter thereof and shall be fully complied with
in addition to the said provisions of law unless such compliance shall be
illegal.


                                      -18-



8.10     PROVISIONS CONTRARY TO PROVISIONS OF LAW. Any article, section,
subsection, subdivision, sentence, clause or phrase of these Bylaws which, upon
being construed in the manner provided in Section 8.9 hereof, shall be contrary
to or inconsistent with any applicable provisions of law, shall not apply so
long as said provisions of law shall remain in effect, but such result shall not
affect the validity or applicability of any other portions of these Bylaws, it
being hereby declared that these Bylaws would have been adopted and each
article, section, subsection, subdivision, sentence, clause or phrase thereof,
irrespective of the fact that any one or more articles, sections, subsections,
subdivisions, sentences, clauses or phrases is or are illegal.

8.11     NOTICES. Any reference in these Bylaws to the time a notice is given or
sent means, unless otherwise expressly provided, the time a written notice by
mail is deposited in the United States mails, postage prepaid; or the time any
other written notice is personally delivered to the recipient or is delivered to
a common carrier for transmission, or actually transmitted by the person giving
the notice by electronic means, to the recipient; or the time any oral notice is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.

                                   ARTICLE IX

                                   AMENDMENTS

         Subject to Section 6.7 hereof, the original or other Bylaws of the
corporation may be adopted, amended or repealed by the board of directors or by
the stockholders entitled to vote.

         Whenever an amendment or new bylaw is adopted, it shall be copied in
the corporation's records, next to the original bylaws, in the appropriate
place. If any bylaw is repealed, the fact of repeal with the date of the meeting
at which the repeal was enacted or the filing of the operative written
consent(s) shall be stated in said book.


                                      -19-



                                                                             4.1

                           CERTIFICATE OF DESIGNATION

                                       OF

                                 BIOQUEST, INC.

                    Certificate of Designations, Preferences
                            Rights and Limitations of
                     SERIES A 8% CONVERTIBLE PREFERRED STOCK
            under Section 151 of the Delaware General Corporation Law

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

         Warren C. Lau and Robert Whitworth HEREBY CERTIFY that they are,
respectively, the President and Secretary, of BIOQUEST, INC. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Delaware, and that, pursuant to (i) authority conferred upon the Board of
Directors by the Corporation's Certificate of Incorporation and (ii) Section 151
of the Delaware General Corporation Law, the Board of Directors of the
Corporation has duly adopted the following resolution providing for the issuance
of a series of convertible preferred stock, as follows:

                  RESOLVED, that, pursuant to authority expressly granted to and
         vested in the Board of Directors by the provisions of the Certificate
         of Incorporation and Section 151 of the Delaware General Corporation
         Law, the Board of Directors hereby creates a series consisting of 8,000
         shares of Series A 8% Convertible Preferred Stock of the Corporation,
         and hereby fixes the powers, designation, preferences and rights of the
         shares of such Series, and the qualifications, limitations, or
         restrictions thereof (in addition to those provisions set forth in the
         Certificate of Incorporation which may be applicable to the Preferred
         Stock), as follows:

         FIRST: Pursuant to authority contained in the Corporation's Certificate
of Incorporation, Eight Thousand (8,000) authorized but unissued shares of the
Corporation's capital stock, $.01 par value, have been duly reclassified by the
Board of Directors of the Corporation as authorized but unissued shares of
Series A 8% Convertible Preferred Stock.


         SECOND: A description of the Series A 8% Convertible Preferred Stock
and of the powers, designation, preferences and rights of the shares of such
Series, and the qualifications, limitations, or restrictions thereof, is as
follows:

         1.       DESIGNATION AND PAR VALUE.

                  The formal designation of the shares so reclassified by the
Board of Directors shall be Series A 8% Convertible Preferred Stock (referred to
herein for convenience as "Series A Preferred Stock" or as "Preferred Shares").
The par value of Series A Preferred Stock is $.01 per share.

         2.       LIQUIDATION PREFERENCE AND RANKING.

                  (a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the business and affairs of the Corporation, and before the
holders of shares of Common Stock or any other class or series of stock of the
Corporation ranking junior on liquidation to the Series A Preferred Stock shall
be entitled to any payment on account of such shares, the holders of whole or
fractional Series A Preferred Stock then outstanding shall be entitled to
receive, as a liquidation preference, an amount equal to One Thousand
(US$1,000.00) U.S. Dollars per share (the "Original Cost"), plus any accrued but
unpaid dividends (the Original Cost plus such accrued but unpaid dividends being
referred to as the "Liquidation Preference") to which such shareholders have
become entitled and which have not theretofore been paid. After the holders of
Series A Preferred Stock shall have received such payment of the Liquidation
Preference plus all accrued and unpaid dividends in the course of such
liquidation, dissolution or winding up, they shall have no right or claim to any
of the remaining assets of the Corporation.

                  (b) If upon any liquidation, dissolution or winding up, the
Corporation shall have insufficient funds to permit payment to the holders of
Series A Preferred Stock then


                                       -2-


outstanding of the entire amount to which they are entitled as a Liquidation
Preference thereunder, then such funds as are available for such purpose shall
be distributed among such holders on the basis of the number of shares of Series
A Preferred Stock held by each such holder so that, as nearly as may be
practicable, the amount each such holder shall receive shall represent the same
proportion of such available funds as such holder's total holding of shares of
Series A Preferred Stock represents of the total shares of Series A Preferred
Stock at the time outstanding.

                  (c) For all purposes under this Certificate of Designation,
all shares of Series A Preferred Stock shall be of equal rank with each other.

         3.       DIVIDENDS.

                  (a) The holders of Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors of the
Corporation, out of capital surplus or earnings at the time legally available
therefor, dividends at the annual rate of 8% per share, payable (at the election
of the holder) in cash or in fully-paid and non-assessable whole and/or
fractional shares of Series A Preferred Stock which shall be valued, for this
purpose, at an amount equal to the Original Cost. Dividends shall accrue,
whether or not declared, unless such dividends are then prohibited by the
provisions of the Delaware General Corporation Law or the Corporation's
Certificate of Incorporation.

                  (b) Dividends shall be cumulative and shall be payable
semi-annually on June 30 and on December 31, to stockholders of record on the
immediately preceding June 15th and December 15th, respectively, or such other
record date fixed for the purpose by the Board of Directors. Dividends payable
with respect to any shares of Series A Preferred Stock for the initial dividend
period and for any period less than a full six-month period shall accrue from
the date of issuance of such shares of Series A Preferred Stock on which such
dividends are payable,


                                       -3-


and shall be computed and apportioned on the basis of a 180-day period composed
of six 30-day months. Holders of Series A Preferred Stock shall not be entitled
to any dividends in excess of the full dividends provided for herein, and no
interest or sum of money in lieu of interest shall be payable in respect of any
dividend payment which may be in arrears. No dividends shall be payable on any
fractional or full shares of Series A Preferred Stock which shall have been
declared, paid or distributed as dividends on outstanding Preferred Shares.

         4.       NO DIVIDENDS OR DISTRIBUTIONS TO JUNIOR SECURITIES.

                  Except as may be otherwise provided in this Certificate of
Designation, so long as any shares of Series A Preferred Stock are outstanding,
no dividends shall be declared or paid or set aside for payment, and no other
distribution shall be declared or made, upon any Common Stock of the Corporation
or upon any other shares of a class or series of stock which is junior in right
and ranking to the Series A Preferred Stock, unless all amounts then due to the
holders of Series A Preferred Stock, including the dividends provided for
herein, have been paid.

         5.       VOTING RIGHTS.

                  Except as otherwise expressly provided herein or as provided
by law, the Series A Preferred Stock shall have no voting rights. However,
notwithstanding the foregoing, the written consent or affirmative vote of the
holders of a majority of the outstanding Series A Preferred Stock is required to
approve (i) any proposed amendment to the Corporation's Certificate of
Incorporation that would materially alter or change the powers, preferences, or
special rights of the Series A Preferred Stock so as to affect the holders
adversely, and (ii) any plan of merger or consolidation that contains provisions
which, if contained in a proposed amendment to the Corporation's Certificate of
Incorporation, would have entitled the holders of the Series A Preferred Stock
to vote, as a class, on the issue.


                                       -4-


         6.       CONVERSION RIGHTS.

                  The Preferred Shares and any fractional Preferred Shares
(including, for such purposes, any shares and fractional shares issued or
issuable as dividends) will be entitled to the following rights of exchange and
conversion, subject to any limitations and conditions provided in this
Certificate of Designation:

                  (a) (i) The Series A Preferred Stock will be convertible into
         Common Stock at the election of the holder made at any time (i) after
         the Corporation becomes registered with the Securities and Exchange
         Commission (the "SEC") under the Securities Act of 1933, as amended or
         Securities Exchange Act of 1934, or (ii) six months after issuance of
         the Preferred Stock (the initial issuance date of such Preferred Stock
         to be referred to as the "Minimum Closing Date"), whichever occurs
         first. Each share of Series A Preferred Stock will be convertible into
         250 shares of the Corporation's Common Stock, which is equal to a
         conversion price of US$4.00 per share. Each holder who elects to
         convert the Preferred Shares shall surrender and deliver to the
         Corporation or to the exchange agent or transfer agent designated for
         such purpose by the Corporation, certificates for the Preferred Shares
         being exchanged, or exchanged and converted as the case may be, as set
         forth in such holder's election as described in the immediately
         preceding sentence. Within five (5) business days thereafter, the
         Corporation will cause to be issued to each holder certificates
         representing shares of Common Stock being issued in exchange for such
         Preferred Shares.

                  (b) Other than as set forth in Paragraph (a) of this Section
6, the holders of Series A Preferred Stock will not have any right to convert
their Preferred Shares prior to the


                                       -5-


earlier of (i) the six month anniversary of the issuance of the Preferred Stock
or (ii) the Corporation's issuance of a Redemption Notice as provided in Section
8.

                  (c) A right to convert Preferred Shares into shares of Common
Stock under this Section 6 shall be exercised by a holder by delivering to the
Corporation during regular business hours, or to such agent as may be designated
by the Corporation, the original certificate or certificates for the shares to
be converted, duly endorsed or assigned either in blank or to the Corporation,
accompanied by written notice in substantially the form annexed hereto as
Exhibit A, stating that the holder elects to convert such shares (or the amount
thereof as to which the conversion right is to be exercised, which amount shall
be not less than that represented by shares having an aggregate Original Cost of
$5,000) and stating the name or names (with address and Social Security or
Federal Taxpayer Identification Number or other applicable governmental
identification) in which the certificate or certificates for the shares of
Common Stock are to be issued. Conversion shall be deemed to have been effected
on the date when the aforesaid delivery is made (the "Conversion Date"). As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder (or upon the written order of such holder) to the place designated
by such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled. The person in whose name the certificate
or certificates for Common Stock are to be issued shall be deemed to have become
a stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event such person
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of Series A
Preferred Stock surrendered for conversion, the Corporation shall issue and
deliver to such holder, or upon


                                       -6-


the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered.

                  (d) The Corporation shall, at all times when Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
Series A Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock.

                  (e) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and non-assessable. No
adjustment shall be made for dividends on any share of Series A Preferred Stock
which is being converted (unless such dividends have been accrued and are unpaid
as of the Conversion Date) or on any share of Common Stock issued on exercise of
a holder's Conversion Right.

                  (f) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock and, in lieu of any fractional shares
to which the holder would otherwise be entitled, the number of shares of Common
Stock issuable upon conversion shall be rounded to the nearest whole number.

                  (g) All shares of Series A Preferred Stock which shall have
been surrendered for conversion or exchange as herein provided shall no longer
be deemed to be outstanding, and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, with respect Preferred Shares which
have been converted, and on the specified effective date of exchange for
Preferred Shares


                                       -7-


which have been exchanged, except only the right of the holders thereof to
receive shares of Common Stock, in conversion or exchange therefor. Any shares
of Series A Preferred Stock so converted or exchanged shall be retired and
canceled and shall not be reissued, and the Corporation (without the need for
stockholder action) may from time to time take such appropriate action as may be
necessary to reduce the authorized number of shares of Series A Preferred Stock
accordingly.

                  (h) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 6. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.

         7.       ADJUSTMENTS TO CONVERSION PRICE.

                  The Conversion Price (which is initially established at
US$4.00 per share of Common Stock) in effect from time to time shall be subject
to adjustment (to the nearest cent) from time to time as follows:

                  (a) If the Corporation, at any time after the Minimum Closing
Date and at any time prior to the conversion of a Preferred Share shall have
subdivided its outstanding shares of Common Stock by recapitalization,
reclassification or split-up thereof, or if the Corporation shall have declared
a stock dividend or distributed shares of Common Stock to its stockholders, the


                                       -8-


Conversion Price immediately prior to such conversion shall be proportionately
increased; and if the Corporation, prior to such conversion, shall have at any
time combined the outstanding shares of Common Stock by recapitalization,
reclassification or comparable combination thereof, the Conversion Price
immediately prior to such conversion shall be proportionately increased.

                  (b) In case the Corporation, six months after the Minimum
Closing Date, shall consolidate with or merge into another corporation or convey
all or substantially all of its assets to another corporation, then, and in each
such case, the Conversion Price shall be adjusted in such manner that the holder
of Preferred Shares, upon the conversion thereof as provided in Section 6 above,
at any time after the consummation of such consolidation, merger or conveyance,
shall be entitled to receive the securities or property to which such holder
would have been entitled upon such consummation if such holder had exercised his
right to convert such Preferred Shares immediately prior thereto.

                  (c) In case the Corporation, within two years from the Minimum
Closing Date, sells Common Stock in a private placement or in a underwritten
public offering at a price per share which is less than the Conversion Price,
the Corporation will disclose the terms to the holder of the Preferred Shares
and will issue a sufficient number of additional shares of Common Stock to each
holder of Preferred Shares so as to reduce the effective Conversion Price to the
level established in such private placement or public offering.

                  (d) For purposes hereof, the term "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued by the Corporation after the
Minimum Closing Date, or the maximum number of shares of Common Stock issuable
upon conversion or exchange of any securities (including, for this purpose,
preferred stock other than the Preferred Shares, and notes and debentures)
convertible into Common Stock ("Convertible Securities"), but not warrants or


                                       -9-


options issued after the Minimum Closing Date, except to the extent such
warrants or options are actually exercised.

                  (e) In the event the Corporation shall at any time after the
Minimum Closing Date issue Additional Shares of Common Stock, (except for
issuances of Common Stock described in paragraph (g) below) without
consideration or for a consideration per share less than the applicable
Conversion Price in effect immediately prior to such issuance (such amount being
defined as the "Adjustment Base Price"), then and in such event, such Conversion
Price shall be reduced, concurrently with such issuance, to a price (calculated
to the nearest cent) determined by multiplying such Conversion Price by a
fraction: (A) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issuance plus (2) the quotient
derived by dividing the aggregate consideration received from such issuance of
Additional Shares of Common Stock by the Adjustment Base Price; and (B) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued.

                  (f) For purposes of Paragraph (e) of this Section 7, the
consideration received by the Corporation for the issue of any Additional Shares
of Common Stock referred to therein shall be computed as follows:

                  Cash and Property:  Such consideration shall:

                           (I) insofar as it consists of cash, be computed at
                           the gross amount of aggregate cash received by the
                           Corporation, excluding amounts paid or payable for
                           accrued interest and the costs of the issuance;


                                      -10-


                           (II) insofar as it consists of property other than
                           cash, be computed at the fair market value thereof at
                           the time of such issue, as determined in good faith
                           by the Board of Directors; and

                           (III) in the event Additional Shares of Common Stock
                           are issued together with other shares or securities
                           or other assets of the Corporation for consideration
                           which covers both, be the proportion of such
                           consideration so received, computed as provided in
                           clauses (I) and (II) above, as determined in good
                           faith by the Board of Directors.

                  (g) Notwithstanding anything to the contrary contained in this
Section 7 or elsewhere in this Certificate of Designation, the following
issuances, transactions or occurrences shall be excluded from those events
requiring any adjustment in accordance with this Section 7:

                           (i)      The accrual or payment in kind of dividends
                                    on the Series A Preferred Stock;

                           (ii)     The issuance or re-issuance of the Preferred
                                    Shares to any investors in the private
                                    placement offering of the Preferred Shares
                                    (or any subsequent issuance or reissuance to
                                    their transferees) and any exchange,
                                    conversion or redemption of any Preferred
                                    Shares (and of any shares of Series A
                                    Preferred Stock representing dividends paid
                                    in kind) in accordance with provisions
                                    governing such exchange, conversion or
                                    redemption as set forth in the Corporation's
                                    Articles of Incorporation, Certificate of
                                    Designation and By-Laws;


                                      -11-


                           (iii)    The issuance to any of the Corporation's
                                    executives, directors, employees and
                                    consultants of options, warrants or shares
                                    granted under any incentive, stock option,
                                    bonus or other benefit plan, program or
                                    policy of the Corporation, provided that
                                    such issuances in the aggregate do not
                                    exceed 15% in the aggregate of the
                                    Corporation's then outstanding shares of
                                    Common Stock;

                           (iv)     The issuance of shares of Common Stock upon
                                    the exercise of any option or warrant of the
                                    Corporation outstanding on the Minimum
                                    Closing Date;

                           (v)      The issuance of shares of Common Stock, or
                                    warrants or options for the purchase of
                                    shares of Common Stock, to pay, settle or
                                    compromise any Corporation obligations to
                                    suppliers, vendors, contractors, licensors
                                    and joint venture partners; and

                           (vi)     The future issuance of shares, or options or
                                    warrants for the purchase of shares, in any
                                    previously negotiated private placement
                                    transaction which was pending between the
                                    Corporation and a United States technology
                                    or biotechnology investment fund before the
                                    Minimum Closing Date.

                  (h) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 7 and in the


                                      -12-


taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A Preferred Stock against
impairment.

                  (i) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Section 7, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock, upon the
request of such holder, a certificate setting forth such adjustment or
readjustment and showing the facts upon which such adjustment or readjustment is
based and the then Conversion Price.

         8.       REDEMPTION.

                  (a) The Corporation, at its sole option, expressed by
resolution of its Board of Directors, may call for redemption and may redeem
shares of Series A Preferred Stock in whole, or from time to time in part, upon
notice as set forth below, at any time the closing price of the Common Stock of
the Corporation remains at a level of at least US$8.00 per share for a period of
at least 20 consecutive trading days, provided, however, that the Corporation is
listed on the American Stock Exchange or the Nasdaq SmallCap Market System or
the Nasdaq National Market System at the time of such redemption. The redemption
price shall be equal to the Liquidation Preference.

                  (b) In addition, beginning at any time after July 1, 2003, the
Corporation, at its sole option, expressed by resolution of its Board of
Directors, may call for redemption and may redeem shares of Series A Preferred
Stock in whole, or from time to time in part, upon notice as set forth below.
The redemption price per share of Series A Preferred Stock shall be equal to
105% of the Liquidation Preference plus accrued and unpaid dividends.


                                      -13-


                  (c) Notice of any redemption of the Series A Preferred Stock
(the "Redemption Notice") shall be given at least 30 days prior to the date
fixed in such notice for such redemption (the "Redemption Date") to each holder
of record of shares of Series A Preferred Stock, at such holder's address as the
same shall appear on the books of the Corporation. Such notice shall specify the
time and place of redemption, the redemption price, and, if less than all the
outstanding Preferred Shares are to be redeemed, shall also specify the
proportion of shares which are to be redeemed.

                  (d) If any such notice of redemption shall have been duly
given and if, on or before the Redemption Date specified therein, all funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares so called for redemption, so as to be and continue to
be available therefor, then, notwithstanding that any certificate for shares so
called for redemption shall not have been surrendered for cancellation, all
shares so called for redemption shall no longer be deemed outstanding on and
after the Redemption Date, and the right to receive dividends thereon and all
other rights with respect to such shares shall forthwith on such Redemption Date
cease and terminate, except only the right of the holders thereof to receive the
amount payable on redemption, without interest.

                  (e) From and after the giving of the notice of redemption,
holders of Series A Preferred Stock shall continue to have the conversion rights
provided in Section 6, which rights shall continue in effect until the
Redemption Date.

                  (f) Shares of Series A Preferred Stock which have been
redeemed, purchased or otherwise acquired by the Corporation shall be canceled
and shall not be subject to re-issuance by the Corporation for any purpose.


                                      -14-


         9.       GENERAL.

                  (a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, in accordance
with applicable law. For this purpose, without limiting the generality of the
foregoing, the authorization of any shares of capital stock with preference or
priority over the Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series A Preferred
Stock, and the authorization of any shares of capital stock on a parity with
Series A Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall not be deemed to affect adversely the Series A Preferred Stock.

                  (b) The number of authorized shares of Series A Preferred
Stock may be increased (but only for the purpose of providing a sufficient
number of authorized Preferred Shares for the payment of dividends on
outstanding Preferred Shares) or decreased (but not below the number of shares
then outstanding) by the directors of the Corporation.

                  (c) Any of the rights of the holders of Series A Preferred
Stock set forth herein may be waived by the affirmative vote of the holders of a
majority of the shares of Series A Preferred Stock then outstanding.

                  (d) Fractional shares of Series A Preferred Stock may be
issued as required in connection with the payment of dividends or transfers of
Preferred Shares among holders.

         10.      NOTICES.


                                      -15-


                  (a) Any notices required to be given to any holder of Series A
Preferred Stock shall be deemed properly given if deposited in the United States
mail, postage prepaid, or sent by facsimile or by overnight or express delivery
service, followed by duplicate notice via United States first class mail,
postage prepaid, and addressed to the holder of record at such holder's address
appearing at the books of the Corporation.

                  (b)      In case:

                           i.       of any capital reorganization of the
                                    Corporation, any reclassification of the
                                    capital stock of the Corporation, any
                                    consolidation or merger of the Corporation
                                    with or into another corporation, or any
                                    conveyance of all or substantially all of
                                    the assets of the Corporation to another
                                    corporation; or

                           ii.      of any voluntary or involuntary dissolution,
                                    liquidation or winding up of the
                                    Corporation; or

                           iii.     any other event specified in this
                                    Certificate requiring the taking of such a
                                    record,

                  Then, and in each such case, the Corporation shall mail or
cause to be mailed to each holder a notice specifying, as the case may be, the
date on which a record is to be taken for the foregoing purposes and providing
the information reasonably required in order enable the holders of record of
Preferred Shares to exercise the rights conferred by this Certificate of
Designation.

         THIRD: The reclassification of authorized but unissued shares as set
forth in this Certificate of Designation does not increase the authorized
capital of the Corporation or the aggregate par value thereof.


                                      -16-


         IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation for its Series A 8% Convertible Preferred Stock to be duly executed
by its President and by its Secretary, respectively, this 11th day of September,
2000.

                                          BIOQUEST, INC.


                                          By: /s/ WARREN C. LAU
                                              ----------------------------------
                                              Warren C.  Lau
                                              President

                                          By: /s/ ROBERT D. WHITWORTH
                                              ----------------------------------
                                              Robert D. Whitworth
                                              Secretary

         [Corporate Seal]


                                      -17-


                                                                       EXHIBIT A

                           BIOQUEST, INC. CORPORATION

                             NOTICE OF CONVERSION OF

                     SERIES A 8% CONVERTIBLE PREFERRED STOCK

        (To be Executed by the Registered Holder in order to Convert the
                            Series A Preferred Stock)


         The undersigned Holder hereby irrevocably elects to convert ____ shares
of Series A Preferred Stock, represented by stock certificate No(s). ___________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of BioQuest, Inc. according to the conditions set forth in the
Certificate of Designation for Series A Preferred Stock, as of the date written
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged to
the Holder for any conversion, except for transfer taxes, if any. A copy of each
of the Preferred Stock Certificates being converted is attached hereto.

         Date of Submission:        _________________________

         Number of Shares of Series A 8% Convertible
         Preferred  Stock to be Converted: ___________________


         Name of Holder: _____________________________

         By:      _____________________________________
                              (Signature)

         Title:   _____________________________________

         Address:  ___________________________________

         Social Security or

         Federal Taxpayer ID No:_______________________


                                      -18-


IMPORTANT

         No shares of Common Stock will be issued until the original Series A
Preferred Stock Certificate(s) to be converted and the Notice of Conversion are
received by the Corporation. The Holder shall fax, or otherwise deliver, a copy
of this completed and fully executed Notice of Conversion to the Corporation at
the office of the Corporation or such other location designated by the
Corporation and shall deliver, at the same time, the original Series A Preferred
Stock Certificate(s) representing the Series A Preferred Stock being converted,
duly endorsed for transfer.


                                      -19-



                                                                    Exhibit 10.1

                     PATENT AND TECHNOLOGY LICENSE AGREEMENT

THIS thirteen (13) page AGREEMENT ("AGREEMENT") is made on this day of
June 14, 1996 by and between the BOARD OF REGENTS ("BOARD") of THE UNIVERSITY
OF TEXAS SYSTEM ("SYSTEM"), an agency of the State of Texas, whose address is
201 West 7th Street, Austin, Texas 78701, THE UNIVERSITY OF TEXAS M. D.
ANDERSON CANCER CENTER ("MDA"), a component Institution of the SYSTEM and
BioQuest, Inc., a Houston, Texas corporation having a principal place of
business located at 333 N. Sam Houston Pkwy, Suite 1150, Houston, Texas 77060
("LICENSEE").

                                TABLE OF CONTENTS

         RECITALS                                                     Page 2

I.       EFFECTIVE DATE                                               Page 2

II.      DEFINITIONS                                                  Page 2

III.     LICENSE                                                      Page 3

IV.      CONSIDERATION, PAYMENTS AND REPORTS                          Page 4

V.       SPONSORED RESEARCH                                           Page 6

VI.      PATENTS AND INVENTIONS                                       Page 6

VII.     INFRINGEMENT BY THIRD PARTIES                                Page 7

VIII.    PATENT MARKING                                               Page 7

IX.      INDEMNIFICATION                                              Page 7

X.       USE OF BOARD AND COMPONENT'S NAME                            Page 8

XI.      CONFIDENTIAL INFORMATION                                     Page 8

XII.     ASSIGNMENT                                                   Page 8

XIII.    TERMS AND TERMINATION                                        Page 9

XIV.     WARRANTY:  SUPERIOR-RIGHTS                                   Page 10

XV.      GENERAL                                                      Page 11

         SIGNATURES                                                   Page 12


         EXHIBIT I                                                    Page 13


                                       2


                                    RECITALS

A. BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED
SUBJECT MATTER, which were developed at MDA, a component institution of SYSTEM.

B. BOARD desires to have the LICENSED SUBJECT MATTER developed in the LICENSED
FIELD and used for the benefit of LICENSEE, the inventor, BOARD, and the public
as outlined in the Intellectual Property Policy promulgated by the BOARD.

C. LICENSEE wishes to obtain a license from BOARD to practice LICENSED SUBJECT
MATTER.

NOW, THEREFORE, in consideration of the mutual covenants and premises herein
contained, the parties hereto agree as follows:

                                I. EFFECTIVE DATE

1.1 Subject to approval by BOARD, this AGREEMENT shall be effective as of the
date written herein above ("EFFECTIVE DATE").

                                 II. DEFINITIONS

As used in this AGREEMENT, the following terms shall have the meanings
indicated:

2.1 AFFILIATE shall mean any business entity more than 50% owned by LICENSEE,
any business entity which owns more than 50% of LICENSEE, or any business entity
that is more than 50% owned by a business entity that owns more than 50% of
LICENSEE.

2.2 LICENSED FIELD shall mean all fields of use within the LICENSED SUBJECT
MATTER.

2.3 LICENSED PRODUCTS shall mean any product or service SOLD by LICENSEE
comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

2.4 LICENSED SUBJECT MATTER shall mean inventions and discoveries defined herein
as PATENT RIGHTS or as TECHNOLOGY RIGHTS.

2.5 LICENSED TERRITORY shall mean all national and international political
jurisdiction in which LICENSED PRODUCTS are sold.

2.6 NET SALES shall mean the gross revenues received by LICENSEE from the SALE
of LICENSED PRODUCTS less sales and/or use taxes actually paid, import and/or
export duties actually paid, outbound transportation prepaid or allowed, and
amounts allowed or credited due to returns (not to exceed the original billing
or invoice amount).


                                       3


2.7 PATENT RIGHTS shall only mean any and all of BOARD'S rights in information
or discoveries claimed in invention disclosures, patents, and/or patent
applications, whether domestic or foreign, and all divisionals, continuations,
continuations-in-part, reissues, reexaminations or extensions thereof, and any
letters patent that issue thereon as defined in Exhibit I hereto subject to the
limitations, if any, set forth therein.

2.8 SALE or SOLD shall mean the transfer or disposition of a LICENSED PRODUCT
for value to a party other than LICENSEE or an AFFILIATE.

2.9 Subject to the limitations, if any, set forth in Exhibit I hereto,
TECHNOLOGY RIGHTS shall mean BOARD'S rights in any technical information,
know-how, process, procedure, composition, device, method, formula, protocol,
technique, software, design, drawing or data created by the inventors listed in
Exhibit I hereto and relating to LICENSED SUBJECT MATTER which is not claimed in
PATENT RIGHTS but which is necessary for practicing PATENT RIGHTS regardless of
whether any patent is actually issued during the term of this AGREEMENT.

                                  III. LICENSE

3.1 BOARD hereby grants to LICENSEE a royalty-bearing, exclusive license under
LICENSED SUBJECT MATTER to manufacture, have manufactured, use and/or sell
LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD and,
subject to Paragraph 4.5 herein, shall extend to BOARD's undivided interest in
any LICENSED SUBJECT MATTER developed during the term of this AGREEMENT and
jointly owned by BOARD and LICENSEE. This grant shall be subject to Paragraph
14.2 and 14.3, hereinbelow, the payment by LICENSEE to BOARD of all
consideration as provided in Paragraph 4.1 of this AGREEMENT, (as well as the
timely payment of all amounts due under any Sponsored Research Agreement between
MDA and LICENSEE in effect during the term of this AGREEMENT) and shall be
further subject to rights retained by BOARD and MDA to:

(a) Publish the general scientific findings from research related to LICENSED
SUBJECT MATTER; AND

(b) Subject to the provisions of ARTICLE XI herein below, use any information
contained in LICENSED SUBJECT MATTER for research, teaching, patient care, and
other educationally-related purposes.

3.2 LICENSEE shall have the right to extend the license granted herein to any
AFFILIATE provided that such AFFILIATE consents to be bound by all of the terms
and conditions of this AGREEMENT.


                                       4


3.3 Subject to the Paragraph 3.4 herein below, LICENSEE shall have the right to
grant sublicenses under LICENSED SUBJECT MATTER consistent with the terms of
this AGREEMENT provided that LICENSEE shall be responsible for its sublicensees
relevant to this AGREEMENT, and for diligently collecting all amounts due
LICENSEE from subicensees. In the event a sublicensee pursuant hereto becomes
bankrupt, insolvent or is placed in the hands of a receiver or trustee,
LICENSEE, to the extent allowed under applicable law and in a timely manner,
agrees to use its best reasonable efforts to collect any and all consideration
owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a
court of proper jurisdiction.

3.4 LICENSEE agrees to deliver to BOARD a true and correct copy of each
sublicense granted by LICENSEE, and any modification or termination thereof,
within thirty (30) days after execution, modification, or termination.

3.5 Upon termination of this AGREEMENT, BOARD agrees to accept as successors to
LICENSEE, existing sublicensees in good standing at the date of termination
provided that such sublicensees consent to be bound by all of the terms and
conditions of this AGREEMENT.

                     IV. CONSIDERATION, PAYMENTS AND REPORTS

4.1 In consideration of rights granted by BOARD to LICENSEE under this
AGREEMENT, LICENSEE agrees to pay MDA the following:

(a) Reimbursement for all out-of-pocket expenses paid by MDA through May 31,
1996 in filing, prosecuting, enforcing and maintaining PATENT RIGHTS licensed
hereunder as follows: (i)      due September 1, 1996, (ii)       due April 1,
1997, and (iii)       due January 1, 1998; and all future expenses paid by MDA,
for so long as, and in such countries as, this AGREEMENT remains in effect.
MDA will invoice LICENSEE in accordance with the schedule herein, and upon a
quarterly basis thereafter beginning March 1, 1998 for expenses paid by MDA
after May 31, 1996 and the amounts invoiced will be due and payable by
LICENSEE within thirty (30) days thereafter; AND

                                       5


(b) A running royalty equal to        of LICENSEE's NET SALES of LICENSED
PRODUCTS in national political jurisdictions in the LICENSED TERRITORY where
LICENSED SUBJECT MATTER is covered by one (1) or more issued patents or
pending patent applications and        of LICENSEE'S NET SALES of LICENSED
PRODUCTS in national political jurisdictions in the LICENSED TERRITORY where
LICENSED SUBJECT MATTER is NOT covered by one (1) or more issued patents or
pending patent applications, and        (or        when LICENSEE has expended
or committed to expend and is current in its obligations to expend        on
research and development of the LICENSED SUBJECT MATTER) of all consideration
other than Research and Development ("R&D") money received by LICENSEE from
(i) any sublicensee pursuant to Paragraphs 3.3 and 3.4 herein above, and (ii)
any assignee pursuant to Paragraph 12.1 hereinbelow including but not limited
to royalties, up-front payments, marketing, distribution, franchise, option,
license, or documentation fees, bonus and milestone payments and equity
securities, all payable within thirty (30) days after March 31, June 30,
September 30, and December 31 of each year during the term of this AGREEMENT,
at which time LICENSEE shall also deliver to BOARD and MDA a true and
accurate report, giving such particulars of the business conducted by
LICENSEE and its sublicensees, if any exist, during the preceding three (3)
calendar months under this AGREEMENT as necessary for BOARD are to account
for LICENSEE's payments hereunder. Such report shall include all pertinent
data, including, but not limited to: (a) the total quantities of LICENSED
PRODUCTS produced; (b) the total SALES, (c) the calculation of royalties
thereon; (d) the total royalties (or minimum royalties) so computed and due
MDA; and (e) all other amounts covered and due herein. Simultaneously with
the delivery of each such report, LICENSEE shall pay to MDA the amount, if
any, due for the period of such report. If no payments are due, it shall be
so reported. Should LICENSEE be obligated to pay running royalties to third
parties to avoid infringing such third parties' patent rights which dominate
BOARD'S PATENT RIGHTS, LICENSEE may reduce the running royalty due MDA by
such running royalties to such third parties, provided, however, the running
royalty due MDA shall in no case be less than one-half the rates stated
herein.

4.2 During the Term of this AGREEMENT and for one (1) year thereafter, LICENSEE
shall keep complete and accurate records of its and its sublicensees' SALES and
NET SALES of LICENSED PRODUCTS to enable the royalties payable hereunder to be
determined. LICENSEE shall permit MDA or its representatives, at MDA's expense,
to periodically examine its books, ledgers, and records during regular business
hours for the purpose of and to the extent necessary to verify any report
required under this AGREEMENT. In the event that the amounts due to MDA are
determined to have been underpaid in an amount equal to or greater than five
percent (5%) of the total amount due during the period of time so examined,
LICENSEE shall pay the cost of such examination, and accrued interest at the
highest allowable rate.


                                       6


4.3 Upon the request of BOARD or MDA but not more often than once per calendar
year, LICENSEE shall deliver to BOARD and MDA a written report as to LICENSEE'S
(and sublicensees') efforts and accomplishments during the preceding year in
diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and
LICENSEE'S (and sublicensees') commercialization plans for the upcoming year.

4.4 All amounts payable hereunder by LICENSEE shall be payable in United States
funds without deductions for taxes, assessments, fees, or charges of any kind.
Checks shall be made payable to The University of Texas M. D. Anderson Cancer
Center and mailed by U.S. Mail to Box 297402, Houston, Texas 77297 Attention:
Manager, Sponsored Programs.

4.5 No payments due or royalty rates under this AGREEMENT shall be reduced as
the result of co-ownership of LICENSED SUBJECT MATTER by BOARD and another
party, including LICENSEE.

                              V. SPONSORED RESEARCH

5.1 If LICENSEE desires to fund sponsored research within the LICENSED SUBJECT
MATTER, and particularly where LICENSEE receives money for sponsored research
payments pursuant to a sublicense under this AGREEMENT, LICENSEE shall notify
MDA in writing of all opportunities to conduct such sponsored research
(including clinical trials, if applicable), shall solicit research and/or
clinical proposals from MDA for such purpose, and shall give good faith
consideration to funding such proposals at MDA.

                           VI. PATENTS AND INVENTIONS

6.1 If after consultation with LICENSEE it is agreed by BOARD and LICENSEE that
a new patent application should be filed for LICENSED SUBJECT MATTER, BOARD will
prepare and file appropriate patent applications, and LICENSEE will pay the cost
of searching, preparing, filing, prosecuting and maintaining same. If LICENSEE
notifies BOARD that it does not intend to pay the cost of an application, or if
LICENSEE does not respond or make an effort to agree with BOARD on the
disposition of rights of the subject invention, then BOARD may file such
application at its own expense and LICENSEE shall have no rights to such
invention. BOARD shall provide LICENSEE with a copy of the application for which
LICENSEE has paid the cost of filing, as well as copies of any documents
received or filed during prosecution thereof.


                                       7


                       VII. INFRINGEMENT BY THIRD PARTIES

7.1 LICENSEE shall have the obligation of enforcing at its expense any patent
exclusively licensed hereunder against infringement by third parties and shall
be entitled to retain recovery from such enforcement. LICENSEE shall pay MDA a
royalty on any monetary recovery to the extent that such monetary recovery by
LICENSEE is held to be damages or a reasonable royalty in lieu thereof. In the
event that LICENSEE does not file suit against a substantial infringer of such
patents within six (6) months of knowledge thereof, then BOARD shall have the
right to enforce any patent licensed hereunder on behalf of itself and LICENSEE
(MDA retaining all recoveries from such enforcement) and/or reduce the license
granted hereunder to non-exclusive.

7.2 In any suit or dispute involving an infringer, the parties shall cooperate
fully, and upon the request and at the expense of the party bringing suit, the
other party shall make available to the party bringing suit at reasonable times
and under appropriate conditions all relevant personnel, records, papers,
information, samples, specimens, and the like which are in its possession.

                              VIII. PATENT MARKING

8.1 LICENSEE agrees that all packaging containing individual LICENSED
PRODUCT(S), and documentation therefor, sold by LICENSEE, SUBSIDIARIES, and
sublicensees of LICENSEE will be marked permanently and legibly with the number
of the applicable patent(s) licensed hereunder in accordance with each country's
patent laws, including Title 35, United States Code.

                               IX. INDEMNIFICATION

9.1 LICENSEE shall hold harmless and indemnify BOARD, SYSTEM, MDA, its Regents,
officers, employees, students, and agents from and against any claims, demand,
or causes of action whatsoever, costs of suit and reasonable attorney's fees
including without limitation those costs arising on account of any injury or
death of persons or damage to property caused by, or arising out of, or
resulting from, the exercise or practice of the license granted hereunder by
LICENSEE or its officers, employees, agents or representatives.


                                       8


                      X. USE OF BOARD AND COMPONENT'S NAME

10.1 LICENSEE shall not use the name of (or the name of any employee of) MDA,
SYSTEM or BOARD without the advance, express written consent of BOARD secured
through:

                           The University of Texas
                           M. D. Anderson Cancer Center
                           Office of Public Affairs
                           1515 Holcombe Boulevard
                           Box 229
                           Houston, Texas  77030
                           ATTENTION:  Stephen C. Stuyck


                          XI. CONFIDENTIAL INFORMATION

11.1 BOARD and LICENSEE each agree that all information contained in documents
marked "confidential" which are forwarded to one by the other shall be received
in strict confidence, used only for the purposes of this AGREEMENT, and not
disclosed by the recipient party (except as required by law or court order), its
agents or employees without the prior written consent of the other party, unless
such information (a) was in the public domain at the time of disclosure, (b)
later became part of the public domain through no act or omission of the
recipient party, its employees, agents, successors or assigns, (c) was lawfully
disclosed to the recipient party by a third party having the right to disclose
it, (d) was already known by the recipient party at the time of disclosure, (e)
was independently developed or (f) is required to be submitted to a government
agency pursuant to any preexisting obligation.

11.2 Each party's obligation of confidence hereunder shall be fulfilled by using
at least the same degree of care with the other party's confidential information
as it uses to protect its own confidential information. This obligation shall
exist while this AGREEMENT is in force and for a period of three (3) years
thereafter.

                                 XII. ASSIGNMENT

12.1 Except in connection with the sale of substantially all of the assets of
LICENSEE to a third party, this AGREEMENT may not be assigned by LICENSEE
without the prior written consent of BOARD.


                                       9


                           XII. TERMS AND TERMINATION

13.1 Subject to Articles 13.2, 13.3, 13.4, and 13.5 hereinbelow, the term of
this AGREEMENT shall extend from the Effective Date set forth hereinabove to the
full end of the term or terms for which PATENT RIGHTS have not expired, and if
only TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS are applicable, for a
term of fifteen (15) years.

13.2 BOARD shall have the right at any time after one (1) year from the
EFFECTIVE DATE of this AGREEMENT to terminate the license granted herein in any
national political jurisdiction within the LICENSED TERRITORY if LICENSEE,
within ninety days after written notice from BOARD of such intended termination,
fails to provide written evidence satisfactory to BOARD that LICENSEE has
commercialized or is actively and effectively attempting to commercialize an
invention licensed hereunder within such jurisdiction(s). Accurate, written
evidence provided by LICENSEE to BOARD within said ninety (90) day period that
LICENSEE has an effective, ongoing and active research, development,
manufacturing, marketing, or sales program, as appropriate, directed toward
obtaining regulatory approval and/or production and/or sale of LICENSED PRODUCTS
incorporating PATENT RIGHTS or incorporating TECHNOLOGY RIGHTS within such
jurisdiction shall be deemed satisfactory evidence.

13.3 Subject to any rights herein which survive termination, this AGREEMENT will
earlier terminate in its entirety:

(a) automatically if LICENSEE shall become bankrupt or insolvent and/or if the
business of LICENSEE shall be placed in the hands of a receiver or trustee,
whether by voluntary act of LICENSEE or otherwise; or

(b) (i) upon thirty (30) days written notice by BOARD if LICENSEE shall breach
or default on the payment obligations of ARTICLE IV, or use of name obligations
of ARTICLE X; or (ii) upon ninety (90) days written notice by BOARD if LICENSEE
shall breach or default on any other obligation under this AGREEMENT; provided,
however, LICENSEE may avoid such termination if before the end of such thirty
(30) or ninety (90) day period if LICENSEE provides notice and accurate, written
evidence satisfactory to BOARD that such breach has been cured and the manner of
such cure; or.

(c) at any time by mutual written agreement between LICENSEE and BOARD, or
without cause upon one hundred eighty (180) days written notice by LICENSEE to
BOARD, subject to any terms herein which survive termination.


                                       10


13.4 Upon termination of this AGREEMENT for any cause:

(a) nothing herein shall be construed to release either party of any obligation
matured prior to the effective date of such termination.

(b) LICENSEE covenants and agrees to be bound by the provisions of ARTICLES IX,
X AND XI of this AGREEMENT.

(c) LICENSEE may, after the effective date of such termination, sell all
LICENSED PRODUCTS and parts therefore that it may have on hand at the date of
termination, provided that LICENSEE pays the earned royalty thereon and any
other amounts due pursuant to ARTICLE IV of this AGREEMENT.

(d) LICENSEE grants to BOARD a non-exclusive royalty bearing license with the
right to sublicense others with respect to improvements made by LICENSEE
(including improvements licensed by LICENSEE from third parties) in the LICENSED
SUBJECT MATTER. LICENSEE and BOARD agree to negotiate in good faith the royalty
rate for said non-exclusive license. BOARD's right to sublicense others
hereunder shall be solely for purposes of permitting others to develop and
commercialize the entire technology package.

13.5 This AGREEMENT shall automatically terminate if LICENSEE fails to deliver
to MDA by September 1, 1996 (i) payment of        pursuant to 4.1(a) hereinabove
and (ii) notice that LICENSEE has legally binding funding commitments from its
investors totaling or more.

                         XIV. WARRANTY: SUPERIOR-RIGHTS

14.1 Except for the rights, if any, of the Government of the United States as
set forth hereinbelow, BOARD represents and warrants its belief that it is the
owner of the entire right, title, and interest in and to LICENSED SUBJECT
MATTER, and that it has the sole right to grant licenses thereunder, and that it
has not knowingly granted licenses thereunder to any other entity that would
restrict rights granted hereunder except as stated herein.

14.2 LICENSEE understands that the LICENSED SUBJECT MATTER may have been
developed under a funding agreement with the Government of the United States of
America and, if so, that the Government may have certain rights relative
thereto. This AGREEMENT is explicitly made subject to the Government's rights
under any such agreement and any applicable law or regulation, including P.L.
96-517 as amended by P.L. 98-620. To the extent that there is a conflict between
any such agreement, applicable law or regulation and this AGREEMENT, the terms
of such Government agreement, applicable law or regulation shall prevail.


                                       11


14.3 LICENSEE understands and agrees that BOARD, by this AGREEMENT, makes no
representation as to the operability or fitness for any use, safety, efficacy,
approvability by regulatory authorities, time and cost of development,
patentability, and/or breadth of the LICENSED SUBJECT MATTER. BOARD, by this
AGREEMENT, makes no representation as to whether there are any patents now held,
or which will be held, by others or by BOARD in the LICENSED FIELD, nor does
BOARD make any representation that the inventions contained in PATENT RIGHTS do
not infringe any other patents now held or that will be held by others or by
BOARD.

14.4 LICENSEE, by execution hereof, acknowledges, covenants and agrees that
LICENSEE has not been induced in anyway by BOARD, SYSTEM, MDA or employees
thereof to enter into this Agreement, and further agrees that LICENSEE has
conducted sufficient due diligence with respect to all items and issues
pertaining to Article XIV herein and all other matters pertaining to this
Agreement and agrees to accept all risks inherent herein.

                                   XV. GENERAL

15.1 This AGREEMENT constitutes the entire and only AGREEMENT between the
parties for LICENSED SUBJECT MATTER and all other prior negotiations,
representations, agreements and understandings are superseded hereby. No
agreements altering or supplementing the terms hereof may be made except by
means of a written document signed by the duly authorized representatives of the
parties.

15.2 Any notice required by this AGREEMENT shall be given by prepaid, first
class, certified mail, return receipt requested, and addressed in the case of
BOARD to:

                                            BOARD OF REGENTS
                                            The University of Texas System
                                            201 West Seventh Street
                                            Austin, Texas  78701
                                            ATTENTION:  System Intellectual
                                            Property Office

         with copy to:                      The University of Texas
                                            M.D. Anderson Cancer Center
                                            Office of Technology Development
                                            1020 Holcombe Boulevard, Suite 1405
                                            Houston, Texas 77030
                                            ATTENTION:  William J. Doty

         or in the case of LICENSEE to:     BioQuest, Inc.
                                            333 N. Sam Houston Pkwy, Suite 1150
                                            Houston, Texas  77060
                                            ATTENTION: Warren C. Lau


                                       12


         or such other address as may be given from time to time under the terms
         of this notice provision.

15.3 LICENSEE covenants and agrees to comply with all applicable federal, state
and local laws and regulations in connection with its activities pursuant to
this AGREEMENT.

15.4 This AGREEMENT shall be construed and enforced in accordance with the laws
of the United States of America and of the State of Texas.

15.5 Failure of BOARD to enforce a right under this AGREEMENT shall not act as a
waiver of that right or the ability to later assert that right relative to the
particular situation involved.

15.6 Headings included herein are for convenience only and shall not be used to
construe this AGREEMENT.

15.7 If any provision of this AGREEMENT shall be found by a court to be void,
invalid or unenforceable, the same shall be reformed to comply with applicable
law or stricken if not so conformable, so as not to affect the validity or
enforceability of this AGREEMENT.

IN WITNESS WHEREOF, parties hereto have caused their duly authorized
representatives to execute this AGREEMENT.

THE UNIVERSITY OF TEXAS                    BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER                UNIVERSITY OF TEXAS SYSTEM


By /s/ DAVID J. BACHRACH                   By /s/ RAY FARABEE
   -----------------------------------        ----------------------------------
        David J. Bachrach                         Ray Farabee
        Executive Vice President                  Vice Chancellor and
        for Administration and Finance            General Counsel


APPROVED AS TO CONTENT:                    APPROVED AS TO FORM:

By /s/ WILLIAM J. DOTY                     By /s/ DUDLEY R. DOBIE. JR
   ------------------------------------       ----------------------------------
       William J. Doty                            Dudley R. Dobie, Jr.
       Director, Technology Development           Manager, Intellectual Property

BIOTEX,INC.

By /s/ WARREN C. LAU
   ------------------------------------
       Warren C. Lau
       President


                                       13


                                    EXHIBIT I

 Ralph Arlinghaus, Ph.D., et al, Principal Investigator

         o        (MDA REF: UTSC:060-1) (CIP of UTSC:060) entitled "Prophylaxis
                  and Therapy of Acquired Immunodeficiency Syndrome"

         o        U.S. Patent No. 5,128,319 entitled "Prophylaxis and Therapy of
                  Acquired Immunodeficiency Syndrome", (MDA REF: UTSC:234)

         o        MDA REF: UTSC:242 entitled "Methods and Compositions for the
                  Priming of Specific Cytotoxic T-Lymphocyte Response"

         o        MDA REF: UTSC:267 (Divisional of UTSC:234) "Prophylaxis and
                  Therapy of Acquired Immunodeficiency Syndrome"

         o        MDA REF: UTSC:305 entitled "Compositions and Methods for
                  Eliciting Immune or Anti-Infective Responses"

         o        MDA REF: UTSC:331 entitled "CD4 Peptides for Binding to Viral
                  Envelope Proteins"

         o        MDA REF: UTSC:381 entitled "Peptides for Inhibitiing the
                  Infection of Target Cells by Lentiviruses"


                                       14



                                                                    Exhibit 10.2

                               AMENDMENT NO. 1 TO

                     PATENT AND TECHNOLOGY LICENSE AGREEMENT

         This AMENDMENT NO. 1 dated and effective as of the 15th day of June,
2000, to the Patent and Technology License Agreement dated June 14, 1996
(hereinafter referred to as the "AGREEMENT") is between THE UNIVERSITY OF TEXAS
M.D. ANDERSON CANCER CENTER (hereinafter referred to as "MDA"), located at 1515
Holcombe Boulevard, Houston, Texas, and which is a component institution of THE
UNIVERSITY OF TEXAS SYSTEM (hereinafter referred to as "SYSTEM") which is
governed by a BOARD OF REGENTS (hereinafter referred to as "BOARD") and
BioQuest, Inc., which subsequently merged to become BIOKEYS PHARMACEUTICALS,
INC., a Delaware corporation, located at 333 N. Sam Houston Parkway, Suite 1035,
Houston, Texas 77060 (hereinafter referred to as "LICENSEE").

                                    RECITALS

A.       On or about __________________, BIOQUEST, INC. merged to become BIOKEYS
         PHARMACEUTICALS, INC., wherein LICENSEE agreed to accept all terms and
         conditions of the 1996 Agreement.

B.       MDA, BOARD and LICENSEE wish to amend the terms of the AGREEMENT as set
         forth below to modify the consideration for the license granted under
         the AGREEMENT to provide for the payment by LICENSEE of a portion of
         such modified consideration by issuing and delivering shares of Common
         Stock of LICENSEE to MDA as prepaid royalties, and to incorporate
         additional LICENSED SUBJECT MATTER.

         NOW, THEREFORE, it is hereby agreed as follows:

         The AGREEMENT is hereby amended as follows:

1.       EXHIBIT 1 of the AGREEMENT is hereby replaced in its entirety with the
         following:

         EXHIBIT I Ralph Arlinghaus, Ph.D., et al, Principal Investigator

         1)       MDA Ref: UTSC:060-1 (CIP of UTSC:060) entitled "Prophylaxis
                  and Therapy of Acquired Immunodeficiency Syndrome"

         2)       U.S. Patent No. 5,128,319 entitled "Prophylaxis and Therapy of
                  Acquired Immunodeficiency Syndrome", (MDA Ref: UTSC:234)

         3)       MDA Ref: UTSC:242 entitled "Methods and Compositions for the
                  Priming of Specific Cytotoxic T-Lymphocyte Response"

         4)       MDA Ref: UTSC:267 (Divisional of UTSC:234) "Prophylaxis and
                  Therapy of Acquired Immunodeficiency Syndrome"


         5)       MDA Ref: UTSC:305 entitled "Compositions and Methods for
                  Eliciting Immune or Anti-Infective Responses"

         6)       MDA Ref: UTSC:331 entitled "CD4 Peptides for Binding to Viral
                  Envelope Proteins"

         7)       MDA Ref: UTSC:381 entitled "Peptides for Inhibiting the
                  Infection of Target Cells by Lentiviruses"

         8)       MDA Ref: UTSC:538 entitled "Compositions and Methods for
                  Eliciting Immune or Anti-Infective Responses"

         9)       MDA Ref: UTSC:561PZ1 entitled "HIV-Specific T-Cell Induction"

         10)      MDA Ref: UTSC:561PZ2 entitled "HIV-Specific T-Cell Induction"

2.       New Section 5.2 below is added to the existing Article 5:

5.2      The parties agree that all amounts and balances due to MDA or the BOARD
         under existing sponsored research agreements (i) SR96-006 Studies on
         Therapeutic Potential of HIV Synthetic Peptides, (ii) SR96-006/A1
         Studies on Therapeutic Potential of HIV Synthetic Peptides: Clinical
         and Preclinical Studies and (iii) SR96-006/A2 Studies on Therapeutic
         Potential of HIV Synthetic Peptides: Development of Peptidometic Form
         of R15K ((i), (ii) and (iii) collectively referred to as the "Existing
         Sponsored Research Agreements"), shall be considered paid in full and
         upon the execution by all parties of this AMENDMENT NO. 1 LICENSEE
         shall owe nothing to MDA or BOARD under the Existing Sponsored Research
         Agreements. The parties agree that all amounts paid under AMENDMENT NO.
         1, paragraph 3 relating to Section 4.1(e) for new sponsored research
         agreements, further relating to AMENDMENT No. 4 to Research
         Agreement(SR96-006/A4), are not part of the amounts and balances due
         under the Existing Sponsored Research Agreements. The parties also
         agree to terminate the Existing Sponsored Research Agreements and enter
         into new sponsored research agreements in compliance with this
         AMENDMENT NO. 1.

3.       Article 4.1 is hereby replaced in its entirety with the following:

         In consideration of rights granted by BOARD to LICENSEE under this
         AGREEMENT, LICENSEE agrees to pay MDA the following:

                  (a)      Payment of $   for reimbursement of all out-of-pocket
                           expenses paid by MDA through June 15, 2000 in filing,
                           prosecuting, enforcing and maintaining PATENT RIGHTS
                           licensed hereunder (the "Balance Payment"), to be
                           paid by LICENSEE within six (6) weeks of the date the
                           Office of the General Counsel of MDA approves this
                           AMENDMENT NO. 1. LICENSEE agrees to pay all future
                           expenses paid by MDA, for so


                                      -2-


                           long as, and in such countries as this Agreement
                           remains in effect. The Balance Payment may be made to
                           MDA either in the form of a cash payment or in lieu
                           of such cash payment, LICENSEE will give BOARD a
                           total of    duly authorized, validly issued and fully
                           paid shares of Common Stock of LICENSEE, the amount
                           of such shares of Common Stock being calculated by
                           dividing the Balance Payment by the average
                           stock-split adjusted closing price of the LICENSEE's
                           Common Stock during the 10-day period, beginning May
                           28, 2000 and ending June 7, 2000. Such shares of
                           Common Stock shall be issued by LICENSEE in the name
                           of BOARD within six (6) weeks of the date The
                           University of Texas System Office of the General
                           Counsel approves this AMENDMENT NO. 1. In connection
                           with its receipt of such shares, BOARD is making the
                           representations, and shall have the registration and
                           other rights (subject to the conditions), set forth
                           in Exhibit 2 hereto; and

                  (b)      A running royalty equal to one and      of LICENSEE's
                           NET SALES of LICENSED PRODUCTS in national political
                           jurisdictions in the LICENSED TERRITORY where
                           LICENSED SUBJECT MATTER is covered by one (1) or more
                           issued patents or pending patent applications;     of
                           LICENSEE'S NET SALES of LICENSED PRODUCTS in national
                           political jurisdictions in the LICENSED TERRITORY
                           where LICENSED SUBJECT MATTER is not covered by one
                           (1) or more issued patents or pending patent
                           applications; and     of all consideration other than
                           payments covering direct, out-of-pocket Research and
                           Development (R&D) expenses received by LICENSEE from
                           (i) any sublicensee pursuant to Paragraphs 3.3 and
                           3.4 of the PATENT AND TECHNOLOGY LICENSE AGREEMENT,
                           and (ii) any assignee pursuant to Paragraph 12.1 of
                           the PATENT AND TECHNOLOGY LICENSE AGREEMENT,
                           including but not limited to royal-ties, up-front
                           payments, marketing, distribution, franchise, option,
                           license, or documentation fees, bonus and milestone
                           payments and equity securities, all payable within
                           thirty (30) days after March 31, June 30, September
                           30, and December 31 of each year during the term of
                           this AGREEMENT, at which time LICENSEE shall also
                           deliver to MDA a true and accurate report, giving
                           such particulars of the business conducted by
                           LICENSEE and its sublicensees, if any, during the
                           preceding three (3) calendar months under this
                           AGREEMENT as necessary for MDA to account for
                           LICENSEE's payments hereunder. Such report shall
                           include all pertinent data, including, but not
                           limited to: (a) the total quantities of LICENSED
                           PRODUCTS produced; (b) the total SALES, (c) the
                           calculation of royalties thereon; (d) the total
                           royalties (or minimum royalties) so


                                      -3-


                           computed and due MDA; and (e) all other amounts
                           covered and due herein and (f) copies of all executed
                           agreements between LICENSEE and third parties
                           pursuant to Paragraphs 3.3, 3.4 and 12.1 of the
                           PATENT AND TECHNOLOGY LICENSE AGREEMENT.
                           Simultaneously with the delivery of each such report,
                           LICENSEE shall pay to MDA the amount, if any, due for
                           the period of such report. If no payments are due, it
                           shall be so reported. Should LICENSEE be obligated to
                           pay running royalties to third parties to avoid
                           infringing such third parties' patent rights which
                           dominate BOARD's PATENT RIGHTS, LICENSEE may reduce
                           the running royalty due MDA by such running royalties
                           to such third parties, provided, however, the running
                           royalty due MDA shall in no case be less than
                           one-half the rates stated herein. For the avoidance
                           of any doubt, the parties hereto acknowledge and
                           agree that any running royalties due MDA under this
                           Paragraph 4.1(b) shall in no event be reduced by any
                           of the consideration due MDA under Paragraph 4.1(a),
                           (c), (d) and (e).

                  (c)      As a prepaid royalty,       duly authorized, validly
                           issued and fully paid shares of Common Stock in
                           LICENSEE, which, the parties agree, had a value of
                                  , calculated by dividing      by the average
                           stock-split adjusted closing price of the LICENSEE's
                           Common Stock for the ten (10) day period of May 28,
                           2000 through June 7, 2000. Such shares of Common
                           Stock shall be issued in the name of BOARD within
                           five days following execution of this AMENDMENT
                           NO. 1, and, in connection with its receipt of such
                           shares, MDA is making the representations, and shall
                           have the limitations as well as registration and
                           other rights (subject to the conditions), set forth
                           in Exhibit 2 hereto.

                  (d)      As a prepaid royalty, the number of duly authorized,
                           validly issued and fully paid shares of Common Stock
                           in LICENSEE equal to a value of     , calculated by
                           dividing      by the average closing price of the
                           LICENSEE's Common Stock during the ten (10)day period
                           immediately prior to the LICENSEE enrolling the first
                           patient in the first Phase I Trial of any product
                           which utilizes LICENSED SUBJECT MATTER; provided,
                           however, that, the minimum price of the shares so
                           calculated shall be no lower than per share and that
                           no more      shares will be issued under this
                           paragraph, as adjusted for stock splits. Such shares
                           of Common Stock shall be issued in the name of BOARD
                           within fifteen days following such enrollment of the
                           first patient, and, in connection with its receipt of
                           such shares, MDA is making the representations, and
                           shall have the registration and other rights (subject
                           to the conditions), set forth in Exhibit 2 hereto.


                                      -4-


                  (e)      LICENSEE shall enter into one or more sponsored
                           research agreement(s) with MDA (which agreement shall
                           be satisfactory in form and substance to the
                           parties), in which LICENSEE agrees to provide MDA
                           researchers with at least one million dollars      in
                           sponsored research funding by December 31, 2001. The
                           monies owed MDA under Amendment No. 4 to Research
                           Agreement (SR96-006/A4) signed September 7, 2000
                           shall count towards this one million dollars    owed
                           MDA under this section.

4.       New Section 6.2 below is added to the existing Article 6:

6.2      Any new invention, development, or discovery made in the laboratories
         of a MDA researchers receiving sponsored research monies from LICENSEE
         and resulting from the LICENSED SUBJECT MATTER (the "New Technology")
         shall be promptly disclosed in writing to the LICENSEE under a
         confidentiality agreement (which agreement shall be satisfactory in
         form and substance to the parties), provided that the LICENSEE has a
         sponsored research agreement(s) in effect with MDA at that time under
         which MDA is due to receive payments from LICENSEE aggregating at least
         Two Hundred Thousand ($200,000) Dollars per year. LICENSEE is hereby
         granted, without an option fee other than consideration of research
         sponsored by LICENSEE and the reimbursement of the BOARD for all patent
         expenses incurred to the date of disclosure related to the New
         Technology, an option to acquire an exclusive, worldwide, royalty
         bearing license of BOARD' rights to such New Technology, which option
         shall continue for a period of one hundred and twenty (120) days after
         LICENSEE' receipt of a reasonable written disclosure concerning the New
         Technology; If LICENSEE notifies BOARD in writing of its intent to
         exercise its option within the option period, then the parties will
         proceed in good faith to negotiate a license agreement on commercially
         reasonable terms within one hundred and twenty (120) days of BOARD's
         notification to LICENSEE of New Technology. If LICENSEE does not
         exercise this option, or notifies BOARD that it will not exercise this
         option, or the parties fail to sign a license agreement within said one
         hundred and twenty (120) day period, then LICENSEE shall no longer have
         an option or any other rights in the New Technology.

5.       Article 13.3 is hereby replaced in its entirety with the following:

13.3     Subject to any rights herein, which survive termination, this AGREEMENT
         will earlier terminate in its entirety:

                  (a)      automatically if LICENSEE shall become bankrupt or
                           insolvent and/or if the business of LICENSEE shall be
                           placed in the hands of a receiver or trustee, whether
                           by voluntary act of LICENSEE or otherwise; or

                  (b)      (i) upon thirty (30) days written notice by MDA if
                           LICENSEE shall breach or default on the payment
                           obligations of ARTICLE


                                      -5-


                           IV, or use of name obligations of ARTICLE X, ; (ii)
                           or upon ninety (90) days written notice by MDA if
                           LICENSEE shall breach or default on any other
                           obligation under this AGREEMENT; provided, however,
                           LICENSEE may avoid such termination if before the end
                           of such thirty (30) or ninety (90) day period,
                           LICENSEE provides notice and accurate, written
                           evidence satisfactory to MDA that such breach has
                           been cured and the manner of such cure; or

                  (c)      at any time by mutual written agreement between
                           LICENSEE and MDA, or without cause upon one hundred
                           eighty (180) days written notice by LICENSEE to MDA,
                           subject to any terms herein which survive
                           termination.

         6.       New Section 13.6 below is added to the existing Article 13:

         13.6     Termination of the AGREEMENT will not obligate MDA, the SYSTEM
                  or the BOARD to return the shares of Common Stock issued
                  pursuant to Article 4, nor will it affect the status of such
                  shares as duly authorized, validly issued, fully paid and
                  non-assessable shares of Common Stock.

OTHERWISE, the terms and provisions of the AGREEMENT shall remain in full force
and effect, provided, however, that in the event of a conflict in the terms and
conditions between this AMENDMENT NO. 1 and the AGREEMENT, AMENDMENT NO. 1 shall
prevail. THIS AMENDMENT NO. 1 and AGREEMENT constitute the entire agreement
between the parties in connection with the subject matter hereof and thereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties.

         IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this AMENDMENT NO. 1.

THE UNIVERSITY OF TEXAS                       BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER                   UNIVERSITY OF TEXAS SYSTEM


By:  /s/ LEON LEACH                           By: /s/ JOHN MENDELSOHN, M.D.
    ------------------------------------         -------------------------------
Leon Leach                                    John Mendelsohn, M.D.
Executive Vice President                      President, MDA

Date:                                         Date:
     -----------------------------------           -----------------------------

APPROVED AS TO CONTENT                        APPROVED AS TO FORM


By: /s/ WILLIAM J. DOTY                       By: /s/ BETHLYNN MAXWELL, ESQ.
   -------------------------------------         -------------------------------
     William J. Doty                          BethLynn Maxwell, Esq.


                                      -6-


      Director, Technology Development        Office of General Counsel

Date:                                         Date:
     -----------------------------------


BIOKEYS PHARMACEUTICALS, INC.


By: /s/ WARREN LAU
    ------------------------------------
    Warren Lau
    President

Date:
     -----------------------------------


                                      -7-


                                    EXHIBIT 2

         The following additional provisions shall apply to the securities being
issued to MDA under this Agreement:

                  (a)      MDA, SYSTEM AND BOARD (collectively or singly,
                           LICENSOR) acknowledge that the securities (together
                           with any securities issued in respect thereof upon
                           any stock split, stock dividend, recapitalization,
                           merger, consolidation or similar event, the
                           "Registrable Securities") being issued under this
                           AGREEMENT, are being acquired from LICENSEE in a
                           transaction not involving a public offering, that
                           they are not being registered for public sale prior
                           to such issuance and that, under such laws and
                           applicable regulations, such securities may not be
                           transferred or resold without registration under the
                           Securities Act of 1933, as amended (the "Securities
                           Act"), or pursuant to an exemption therefrom. For
                           purposes of this Agreement, "HOLDER" shall mean any
                           LICENSOR who holds any of the Registrable Securities
                           and any holder of Registrable Securities to whom the
                           registration rights conferred by this Agreement have
                           been transferred pursuant hereto. In this connection,
                           LICENSOR represents that it is familiar with Rule 144
                           under the Securities act as presently in effect, and
                           understands the resale limitations imposed by the
                           Securities Act and Rule 144.

                  (b)      LICENSOR is acquiring such securities solely for
                           investment purposes and not with a view to a
                           distribution of all or any part thereof. LICENSOR has
                           the financial ability to bear the economic risk of
                           its investment for an indefinite period, and has
                           adequate means of providing for its current needs and
                           anticipated contingencies without reference to the
                           liquidity of the securities, which may be issued to
                           it. LICENSOR is a not-for-profit organization with
                           more than $5,000,000 in total assets. LICENSOR has
                           such knowledge and experience in financial and
                           business matters that it is fully capable of
                           evaluating the merits and risks of an investment in
                           LICENSEE.

                  (c)      If the LICENSEE proposes to make an underwritten
                           public offering of securities solely for cash (except
                           in the case of a first public offering of securities
                           by LICENSEE) the LICENSEE shall, no later than 10
                           days prior to the filing of a registration statement,
                           send notice of such proposed filing, accompanied by a
                           draft copy of the preliminary prospectus included in
                           such registration statement, to each


                                      -8-


                           Holder. Upon the written request of a Holder to be
                           included in such registration statement as a selling
                           stockholder, given within 20 days after receipt of
                           such notice, the LICENSEE shall include in such
                           registration statement all or any portion of the
                           securities of such Holder, as such Holder shall so
                           request. However, if the managing underwriter of such
                           public offering shall express objection to the
                           inclusion of all or part of such securities of Holder
                           in such public offering because of prevailing market
                           conditions or other factors, the amount of such
                           securities of such Holder to be so registered in such
                           offering shall be reduced to the level which such
                           managing underwriter deems appropriate in relation to
                           the size of the underwritten offering and the ability
                           of the market to accommodate the sale of such
                           securities of such Holder, provided, however, that if
                           any securities are being included in such offering on
                           behalf of any selling stockholders other than such
                           Holder, any reduction of offered securities imposed
                           on such Holder shall be proportional to any reduction
                           imposed on such other selling stockholders.
                           Notwithstanding any provision hereof to the contrary,
                           LICENSEE shall not be required to include any
                           securities of Holder in a registration statement
                           covering a first public offering of securities by
                           LICENSEE.

                  (d)      Each Holder hereby agrees that such Holder will not,
                           without the prior written consent of the LICENSEE,
                           during the period commencing on the date hereof and
                           ending March 15, 2002 (i) lend, offer, pledge, sell,
                           contract to sell, sell any option or contract to
                           purchase, purchase any option or contract to sell,
                           grant any option, right or warrant to purchase, or
                           otherwise transfer or dispose of, directly or
                           indirectly, any Common Stock or (ii) enter into any
                           swap or other arrangement that transfers to another,
                           in whole or in part, any of the economic consequences
                           of ownership of the Common Stock, whether any such
                           transaction described in clause (i) or (ii) above is
                           to be settled by delivery of Common Stock or such
                           other securities, in cash or otherwise. The foregoing
                           provisions of this paragraph (d) shall not apply to
                           the sale of any shares to an underwriter pursuant to
                           an underwriting agreement.

                  (e)      If Holder does not sell all of the Common Stock owned
                           by it under paragraph (c) above, such Holder shall
                           have additional rights to include such securities in
                           any underwritten public offering of securities to be
                           undertaken by the LICENSEE, and the terms and
                           conditions of


                                      -9-


                           paragraph (c) above and this paragraph (e) shall be
                           applicable to any registration request of such Holder
                           in connection with any such subsequent public
                           offering. The rights of Holder under this paragraph
                           (e) shall cease when it no longer owns at least 1% of
                           the outstanding Common Stock.

                  (f)      Whenever required under this Exhibit 2 to effect the
                           registration of any securities, the LICENSEE shall,
                           as expeditiously as reasonably possible:

                           (i)      Prepare and file with the SEC a registration
                                    statement with respect to such securities
                                    and use its best efforts to cause such
                                    registration statement to become effective,
                                    and, upon the request of the Holder, keep
                                    such registration statement effective for at
                                    least nine (9) months.

                           (ii)     Prepare and file with the SEC such
                                    amendments and supplements to such
                                    registration statement and the prospectus
                                    used in connection with such registration
                                    statement as may be necessary to comply with
                                    the provisions of the Securities Act with
                                    respect to the disposition of all securities
                                    covered by such registration statement.

                           (iii)    Furnish to the Holder such numbers of copies
                                    of a prospectus, including a preliminary
                                    prospectus, in conformity with the
                                    requirements of the Act, and such other
                                    documents as they may reasonably request in
                                    order to facilitate the disposition of
                                    securities owned by them.

                           (iv)     Use its best efforts to register and qualify
                                    the securities covered by such registration
                                    statement under the securities laws of such
                                    jurisdictions as shall be reasonably
                                    requested by the Holder for the distribution
                                    of the securities covered by the
                                    registration statement, provided that the
                                    LICENSEE shall not be required in connection
                                    therewith or as a condition thereto to
                                    qualify to do business or to file a general
                                    consent to service of process in any such
                                    jurisdiction.

                           (v)      In the event of an underwritten public
                                    offering, enter into and perform its
                                    obligations under an underwriting agreement
                                    with terms generally


                                      -10-


                                    satisfactory to the LICENSEE and the
                                    managing underwriter of such offering.

                           (vi)     Notify the Holders promptly after the
                                    LICENSEE shall have received notice thereof,
                                    of the time when the registration statement
                                    becomes effective or any supplement to any
                                    prospectus forming a part of the
                                    registration statement has been filed.

                           (vii)    Notify the Holders of any stop order
                                    suspending the effectiveness of the
                                    registration statement and use its
                                    reasonable best efforts to remove such stop
                                    order.

                           (viii)   Notify the Holders if the registration
                                    statement is no longer effective or the
                                    registration statement or the prospectus or
                                    any prospectus supplement is required to be
                                    amended in order to comply with the
                                    provisions of the Securities Act with
                                    respect to the disposition of all securities
                                    covered by such registration statement.

                  (g)      It shall be a condition precedent to the obligations
                           of the LICENSEE to take any action pursuant to this
                           Exhibit 2 that the Holder shall furnish to the
                           LICENSEE such information in writing regarding
                           itself, the securities held by it, and the intended
                           method of disposition of such securities, as the
                           LICENSEE shall reasonably request and as shall be
                           required to effect the registration of such
                           securities. In that connection, the Holder shall be
                           required to represent to the LICENSEE that all such
                           information, which is given, is both complete and
                           accurate in all material respects. Holder shall also
                           deliver to the LICENSEE a statement in writing that
                           it has a bona fide intention to sell, transfer or
                           otherwise dispose of such securities.

                  (h)      "Registration Expenses" shall mean all expenses
                           incurred by the LICENSEE in complying with this
                           Exhibit 2, including, without limitation, all
                           registration and filing fees, printing expenses, fees
                           and disbursements of counsel for the LICENSEE, blue
                           sky fees and expenses, and the expense of any special
                           audits incident to or required by any such
                           registration. Registration Expenses shall also
                           include fees and disbursements of one special counsel
                           for Holders and other selling stockholders, in an
                           amount not to exceed $10,000. "Selling Expenses"
                           shall mean all underwriting


                                      -11-


                           discounts, selling commissions and underwriters'
                           expense allowances applicable to the sale of the
                           securities of Holders. All Registration Expenses
                           incurred in connection with any registration,
                           qualification or compliance pursuant to this Exhibit
                           2 shall be borne by the LICENSEE, and all Selling
                           Expenses shall be borne by the Holders.

                  (i)      If the Holders propose to distribute their securities
                           through an underwriter, the LICENSEE shall enter into
                           an underwriting agreement in customary form with the
                           underwriter or underwriters, provided that the terms
                           thereof shall not be materially less favorable to the
                           LICENSEE than those customarily arranged in
                           comparable underwritten offerings.

                  (j)      Holders shall have no right to obtain or seek an
                           injunction restraining or otherwise delaying any such
                           registration as the result of any controversy that
                           might arise with respect to the interpretation or
                           implementation of this Exhibit 2.

                  (k)      Nothing contained herein shall be deemed to limit the
                           rights of the Holders to offer or make a public sale
                           of all or any portion of such securities under Rule
                           144 of the SEC or any other applicable provisions of
                           federal and state securities laws. Furthermore, if,
                           in the opinion of counsel for a Holder, the offering
                           or transfer by such Holder in the manner proposed
                           (including, without limitation, the number of shares
                           proposed to be offered or transferred and the method
                           of offering or transfer) is exempt from the
                           registration requirements of the Securities Act under
                           Rule 144 or otherwise, LICENSEE shall not be required
                           to effect any registration of such securities under
                           the Securities Act.

                  (l)      At such time as LICENSEE is eligible to register its
                           Common Stock for public sale under the Securities Act
                           using Form S-3 (or similar successor form), Holders
                           shall have a one-time right to demand that the
                           LICENSEE file a registration statement on Form S-3
                           covering the offering and sale by Holders of all or a
                           portion of the shares owned by them, such sales to be
                           either at the market from time to time or in an
                           underwritten public offering, or both. LICENSEE will
                           as promptly as practicable after the receipt of such
                           demand file such registration statement and take such
                           other actions with respect to such registration
                           statement as are required by the provisions of
                           paragraphs (f) through (i) of this Exhibit 2. The
                           rights of the Holders under this paragraph (k) shall
                           cease when they no longer


                                      -12-


                           own collectively at least 1% of the outstanding
                           Common Stock of LICENSEE.

                  (m)      The rights to cause LICENSOR to register a Holder's
                           securities granted by LICENSOR under this Exhibit 2
                           may be transferred or assigned by a Holder to a
                           transferee or assignee of any Registrable Securities.


                                      -13-



                                                                    Exhibit 10.3

                          OPTION AND LICENSE AGREEMENT

1.       INTRODUCTION

         THIS AGREEMENT is between the UNVERSITY OF SOUTHERN CALIFORNIA,
(hereinafter USC) a California nonprofit corporation with its principal place of
business at University Par, Los Angeles, California 90089, and Biokeys, Inc., a
Delaware corporation, with its principal place of business at 16 South Market
Street, Petersburg, Virginia 23803 (hereinafter Licensee).

         WHEREAS USC warrants that it is the owner and that it has the right to
exclusively license those inventions which are the subject matter of the patents
and patent applications listed in Appendix A and of which the inventors are
Colin Spears and Sang-Ihn Kang (File 2199A) and Colin Spears and Bengt
Gustavsson (Files 2266B & 2266C) (Hereinafter Inventors);

         WHEREAS Licensee desires to obtain an exclusive license in the defined
FIELD OF USE to manufacture and market products utilizing the inventions as
hereinafter defined:

         WHEREAS, USC is willing to grant a worldwide, exclusive license in the
defined FIELD OF USE to Licensee subject to the terms, conditions, limitations,
and restrictions set forth below:

         NOW, THEREFORE, in consideration of the covenants herein contained, the
parties agree as follows:

2.       DEFINITIONS

         For the purposes of this Agreement the following terms have meanings
specified below:

         a.       The term "PATENT" or "PATENTS" shall mean any and all patents
                  listed in Appendix A, and all patent applications listed in
                  Appendix A including any and all patents issued thereon or any
                  continuation, division, extensions or reissue thereof.

         b.       "PRODUCT" or "PRODUCTS" shall mean any article, composition,
                  apparatus, substance, chemical, material, method or service
                  which is made, used, distributed or sold by Licensee which:

                  i. is covered in whole or in part by one or more pending or
                  unexpired claims contained in a PATENT in the country in which
                  the PRODUCT(S) is made, used, distributed or sold;


                  ii. is manufactured using a method or process which is covered
                  in whole or in part by one or more pending or un-expired
                  claims contained in a PATENT in the country in which (a) the
                  PRODUCT(S) is made, used, distributed or sold, or (b) the
                  method or process is used or sold; or

                  iii. the use of which is covered in whole or in part by one or
                  more pending or un-expired claims contained in a PATENT in the
                  country in which (a) the PRODUCT(S) is made, used, distributed
                  or sold, or (b) the method or process is used or sold.

         A PRODUCT is covered by a pending or un-expired claim of a PATENT if in
the course of manufacture, use distribution or sale, it would in the absence of
this Agreement, infringe one or more claims of the PATENT which has not been
held invalid by a court from which no appeal can be taken.

         c. "FIELD OF USE" shall mean all fields.

         d. "NET SALES PRICE" shall mean:

                  i. the gross billing price of any PRODUCT received by Licensee
                  or SUBLICENSEE for the sale or distribution of any PRODUCT,
                  less the following amounts actually paid by Licensee or
                  SUBLICENSEE:

                  (1)      discounts allowed;

                  (2)      returns;

                  (3)      transportation charges or allowances;

                  (4)      packing and transportation packing material costs
                           (not including product containers or product packing
                           containers as manufactured by the Company);

                  (5)      customs and duties charges: and

                  (6)      sales, transfer and other excise taxes or other
                           governmental charges levied on or measured by the
                           sales but no franchise or income tax of any kind
                           whatsoever.

                  ii. Every commercial use or disposition of any PRODUCT, in
addition to a bona fide sale to a customer, shall be considered a sale of such
PRODUCT. The NET SALES PRICE, in the case or a use or disposition other than a
bona fide sale, shall be equivalent the then payable NET SALES PRICE of such
PRODUCT in an arm's length transaction. Excluded from the calculation of NET
SALES PRICE shall be any PRODUCT that is: (1) used by Licensee or provided to
SUBLICENSEE free of charge for testing and/or conducting clinical trials; (2)
that is donated by Licensee or a SUBLICENSEE to a charitable


                                       2


organization; (3) sales between Licensee and any subsidiary, or between Licensee
or any subsidiary and a SUBLICENSEE, provided they are for development, testing
or re-sale purposes (the latter of which licensee will pay USC a royalty for
such re-sale) and not for intended end use;

         e. "SUBLICENSEE" shall mean any third party licensed by Licensee to
make, or sell any PRODUCT in accordance with the terms of this Agreement.

         f. "EFFECTIVE DATE" of this Agreement shall be the date when the last
party has signed this agreement.

3.       OPTION PHASE

         a. USC hereby grants Licensee the exclusive rights to conduct various
technical, pre-clinical, marketing, patent, and other studies on PRODUCTS in the
FIELD OF USE during a six (6) month period commencing on the EFFECTIVE DATE of
this Agreement.. The option period may be extended by mutual written agreement
of the parties.

4.       LICENSE PHASE

         a. In consideration of the license fees and royalties, and subject to
the terms and conditions, as set forth in this Agreement and effective upon
written notification to USC during the option phase that Licensee desires to
license the PATENT(S), USC hereby grants to Licensee:

                  i. the exclusive worldwide license in the FIELD OF USE to use
the PATENT to manufacture and sell the PRODUCT(S); and

                  ii. the right to grant sublicenses to any PATENT licensed
exclusively hereunder, provided that any SUBLICENSEE agrees to be bound by the
terms and conditions of this Agreement applicable to SUBLICENSEES.

         b. If USC is not notified of Licensee's desire to enter the license
phase by the end of the option phase or any extensions thereto, this Agreement
and the license granted herein shall immediately terminate.

         c. All licenses pursuant to 4.a. and 4.b. to inventions conceived or
first actually reduced to practice during the course of research funded by a
U.S. Federal Agency are subject to the rights, conditions and limitations
imposed by U.S. Law. USC agrees to use reasonable efforts to comply with the
requirements of such laws and applicable regulations. The words "exclusive
license" as used herein shall mean exclusive except for the royalty free
non-exclusive license granted to the U.S. government by USC pursuant to 35 USC
Section 202(c)(4) for any PATENT claiming an invention subject to 35 USC Section
201 and except for the rights of USC and Inventors as set forth in Paragraphs 6.


                                       3


         d. In addition to the royalty referred to in Paragraph 5 the Licensee
shall pay USC a license fee of     payable within thirty (30) days of the first
private placement of equity in Biokeys (exclusive of the original capital
invested by the founders Licensee) and an additional license fee of      due and
payable within thirty (30) days of the first public offering of equity in
Biokeys.

5.       ROYALTY

         a. On all sales of Products anywhere in the world by Licensee or
SUBLICENSEE, Licensee shall pay USC a royalty of      of the NET SALES PRICE.

         b. Licensee shall pay to USC a prepaid royalty of       due and payable
within thirty (30) days of market approval of a NEW DRUG APPLICATION (NDA) by
the FDA for any product covered by the claims of any PATENT. The prepaid royalty
shall be deductible from running royalties based on sales made after the date
that the prepaid royalty is due.

         c. The obligation to pay a royalty under this Agreement on the NET
SALES PRICE of a PRODUCT shall be imposed only once with respect to the same
unit of the PRODUCT regardless of the number of valid issued or, assuming they
were to issue, pending claims included within the PATENTS.

         d. In the event Licensee is required to pay third party royalty(ies) on
patents not owned by USC in order to manufacture, use or sell a PRODUCT, then
the royalty rate on the NET SALES PRICE of such PRODUCT shall be reduced by the
following formula:

                  New Royalty Rate =      minus either (i) one
                  and       or (ii)          of the
                  royalty rate owed to the third party, whichever is less.

         e. Licensee shall pay such royalties to USC on a calendar quarter
basis. With each quarterly payment, Licensee shall deliver to USC a full and
accurate accounting to include at least the following information:

                  i.       Quantity of each PRODUCT sold (by country) by
                           Licensee and its SUBLICENSEES;

                  ii.      Total receipts for each PRODUCT (by country);

                  iii.     Quantities of each PRODUCT used by Licensee and its
                           SUBLICENSEES;

                  iv.      Names and addresses of SUBLICENSEES of Licensee;

                  v.       Total number of PRODUCTS manufactured (by country);
                           and


                                       4


                  vi.      Total royalties payable to USC.

         f. In each year the amount of royalty due shall be calculated quarterly
as of March 31, June 30, September 30 and December 31 and shall be paid
quarterly within the thirty next (30) days following such date. Every such
payment shall be supported by the accounting prescribed in Paragraph 5.e. and
shall be made in United States currency. Whenever for the purpose of calculating
royalties conversion from foreign currency shall be required, such conversion
shall be at the rate of exchange thereafter published in the Wall Street Journal
for the business day closest to the applicable end of calendar quarter.

         g. The royalty payments due under this Agreement shall, if overdue,
bear interest until payment at a per annum rate equal to     in effect at 5:00pm
(Eastern Time) on the due date, not to exceed the maximum permitted by law. The
payments of such interest shall not preclude USC from exercising any other
rights it may have as a consequence of the lateness of the payment.

6.       RIGHTS RETAINED BY UNIVERSITY

         Notwithstanding the exclusive license granted in Paragraph 4a, USC and
Inventors will have the absolute, nontransferable right to use the technology
covered by the PATENTS and all improvements thereof, for conducting research and
educational purposes.

7.       PATENT PROSECUTION

         a. USC shall prosecute and maintain the PATENTS during the course of
this Agreement.

         b. Licensee shall reimburse all reasonable legal expenses incurred and
paid by USC in filing, prosecuting and maintaining the U.S. and foreign PATENTS,
including the expenses associated with parent patent applications listed in
Appendix A whether such expenses were incurred before or after the date of this
Agreement. These legal expenses shall include the attorneys' and agents' fees,
filing fees and out-of-pocket costs associated with responding to office actions
and any other fees and costs directly related to obtaining and/or maintaining
patent protection. Licensee shall advance payments of maintenance fees and
annuities as part of such legal expenses to be reimbursed by Licensee within
thirty (30) days of request by USC, unless Licensee is advised otherwise by
timely notice from USC.

         c. The first reimbursement payment made by Licensee shall be for the
reimbursement of USC's patent expenses to date and shall be made upon the
earlier of (i) thirty (30) days following the first public offering of equity in
Biokeys or (ii) one year from the date that the option granted herein is
exercised by Licensee. Thereafter, reimbursement payments shall be made by
Licensee within thirty (30) days of receipt of an invoice from USC citing any
additional expenses.


                                       5


          d. If the Licensee elects (i) not to pursue a PATENT or (ii) to
terminate the prosecution or maintenance of a PATENT, the Licensee surrenders
its right to make, use or sell PRODUCTS covered by the non-elected PATENT and
shall grant to USC the exclusive rights previously granted to Licensee, without
limitation. Licensee agrees to execute all necessary documents to carry out this
grant of rights to USC. Payments referred to in Paragraphs 7.b. and 7.c. shall
not be refunded upon such non-election or termination.

8.       PATENT INFRINGEMENT

         a. Defensive Controversy.

         Licensee shall promptly notify USC of all claims, allegations and
notifications of infringement of third party patents. Except for the placing in
escrow of a portion of royalties as referred to hereinafter, USC shall have no
obligation or liability in the event that legal action is brought against
Licensee for patent infringement. Such obligation and liability shall be borne
by Licensee. Licensee may choose legal counsel and defend the patent
infringement lawsuit. During such lawsuit, Licensee may place all of the
royalties derived from the sale of the PRODUCT in the country where such
lawsuit, Licensee may place all of the royalties derived from sales of the
PRODUCT in the country where such lawsuit is pending in an interest-bearing
escrow account. The escrow account shall be established in a bank mutually
acceptable to both parties under escrow instructions insulating the funds from
claims of any creditor. Upon termination of the action, one half (1/2) of any
judgement amount, reasonable attorneys' fees and costs, or $100,000, whichever
amount is greater, may be paid from this escrow account to be applied against
such judgement, fees and costs. If the application of the escrow funds is not
sufficient to pay for one half (1/2) of such judgement, fees, and costs, then up
to (1/2) of all royalties payable to USC may be applied against any such
deficit. In addition, should the settlement of any such patent infringement
lawsuit involve payment of royalties by Licensee to a third party for the
continued right to manufacture, use and sell the PRODUCT, then funds in the
escrow account and royalties payable to USC may be applied against up to one
half (1/2) of such royalties to a third party. Any funds thereafter remaining in
the escrow shall be paid to USC. The above shall constitute USC's sole liability
and responsibility in the event of such action. During the patent infringement
litigation both parties shall keep each other informed in writing of significant
developments in the lawsuit.

         b. Offensive Controversy.

         Licensee shall promptly notify USC of any potential infringement of a
PATENT. In the event that a third party infringes on a PATENT, Licensee shall
have the right but not an obligation to bring legal action to enforce any such
patent. If Licensee exercises such right, Licensee shall select legal counsel
and pay all legal fees and costs of prosecution of such action. In the event
that Licensee shall choose not to take such action, USC shall have the right, at
its option and at its own expense, to prosecute any action to enjoin such
infringement or to prosecute any claim for damages. The party prosecuting any
such action shall be entitled to retain any funds received as a result of
settlement or judgement of such action. The parties may also agree to jointly
pursue infringers. After deduction and payment to the parties of their
respective costs and fees (including without limitation reasonable attorneys'
fees) incurred in


                                       6


prosecuting any such actions, the net funds obtained as a result of settlement
or of judgement of any such jointly prosecuted action shall be divided in the
following manner: 25% of all net funds shall be divided equally by the parties
and 75% of all the net funds shall be divided between the parties in the
proportion to the amount of legal fees and costs incurred by the parties in the
prosecution of such actions. If funds are insufficient to pay all costs and fees
then all of the funds shall be paid to the parties in said proportion.

         c. During any litigation hereunder both parties shall keep each other
timely informed of any significant development in the litigation and provide all
reasonably requested technical assistance. During any said controversy, full
royalty payment shall continue, except as otherwise provided herein.

9.       RECORDS

         Licensee shall keep and shall require its SUBLICENSEES to keep
complete, true and accurate books of account and records for the purpose of
showing the derivation of all amounts payable to USC under this Option and
License Agreement. Said books and records shall be kept at Licensee's principal
place of business for at least four (4) years following the end of the calendar
year to which they pertain, and shall be open at all reasonable times for
inspection by a representative of USC for the purpose of verifying Licensee's
royalties statement or Licensee's compliance in other respects with this Option
and License Agreement. All information obtained as a result of such audit shall
be maintained in confidence, except that the representative may disclose to USC
the aggregate amount of royalties due to USC during each year, as determined in
such audit. Should an audit by USC show an underpayment of royalties by more
than 10%, Licensee shall immediately pay such underpayment and all interest, as
well as for USC's reasonable audit expenses.

10.      SERVICES OF INVENTORS

         USC shall make reasonable efforts to make Inventors available during
regular business hours to answer questions concerning certain technical aspects
of the technology. Should Licensee desire to use the services of Inventors for
further testing and/or market studies of the technology, a separate research and
development and/or consulting agreement should be negotiated with Inventors and
the USC Office of Contracts and Grants.

11.      SUBLICENSE PERMISSION

         Licensee may sublicense the PATENT(S) only with prior written
permission from USC, which permission will not be unreasonably withheld.
Notwithstanding the foregoing, no


                                       7


permission will be granted for a sublicense unless the SUBLICENSEE agrees in
writing to be bound by the terms of this Agreement.

12.      PATENT MARKETING

         Licensee shall use reasonable efforts to place all appropriate patent
and other intellectual property notices, markings and indicia on product and
marketing literature for the PRODUCTS as needed to protect the patent and other
intellectual property rights of USC and right for damages for infringement
thereof.

13.      PUBLICATIONS

         Nothing in this Agreement shall limit or prevent USC or Inventors from
publishing any information about the PATENT. Thirty (30) days prior to
submission for publication, USC and Inventors will use their reasonable efforts
to submit the proposed publication, for review only, to Licensee.

14.      PUBLICITY

         Neither party shall use the name, trade name, trademark or other
designation of the other party in connection with any products, promotion or
advertising without the prior written permission of the other party.

15.      ASSIGNMENTS/TRANSFERS

         Licensee may not assign or transfer this Agreement in whole or part to
any third party without the prior written permission of USC, which permission
shall be granted in the sole discretion of USC. However, the Licensee may assign
the entire Agreement to successors of the entire business of the PRODUCTS if the
successor agrees to be bound by this Agreement and prior written notice is
provided to USC.

16.      TERMINATION

         a. Upon the breach or default under this Option and License Agreement
by either party, the non-breaching party may terminate this Option and License
Agreement by forty-five (45) days written notice to the breaching party.
Notwithstanding, USC may terminate this Option and License Agreement upon twenty
(20) days written notice to Licensee if the Licensee fails to obtain and
maintain the insurance coverages required by Paragraph 24 hereof. Said notice
shall be effective at the end of such period unless during said period breaching
party shall remedy such defect or default. Licensee may also terminate this
Agreement at any time, for any reason, by providing USC a thirty (30) days
written notice. No option fees, license fees, or royalties shall be returnable.
This Agreement may also be terminated immediately by USC upon


                                       8


notice to Licensee upon the occurrence of any of the following: (i) Licensee
attempts to use, sublicense, transfer or assign its rights or obligations under
this Agreement in any manner contrary to the terms of this Agreement or in
derogation of USC's proprietary rights; or ii) Licensee is determined to be
insolvent or makes an assignment for the benefit of creditors, or has a
bankruptcy petition filed by or against it, or a receiver or trustee in
bankruptcy or similar officer is appointed to take charge of all or part of
Licensees property. Upon termination of the Agreement all rights granted to or
provided by each party to the other shall automatically and irrevocably revert
to the granting party.

         b. Surviving any termination are:

                           i.       Licensee's obligation to pay royalties
                                    accrue or accruable.


                           ii.      Licensee's obligation of Paragraph 9 to keep
                                    and allow a final audit.


                           iii.     Any cause of action or claim of Licensee or
                                    USC, accrue or to accrue, because of any
                                    breach or default by the other party.


                           iv.      The provisions of paragraphs 22, 23 and 24.

         c. Upon termination of this Agreement, Licensee agrees to immediately
discontinue the manufacture and sale of the PRODUCTS and the use of the PATENTS.
Within twenty (20) days after such termination, Licensee shall provide USC with
a written inventory of all PRODUCTS currently in its stock as of the date of
termination (the "INVENTORY"). USC shall have the option to grant to Licensee
the privilege of disposing of such INVENTORY at its normal prices within three
(3) months after said termination. Licensee shall dispose of this INVENTORY only
to customers who had previously purchased PRODUCTS from Licensee during the term
of this Agreement, and in no event shall Licensee sell such INVENTORY to
wholesalers, diverters, jobbers or any other entity which does not sell at
retail exclusively or to any one else who intends to sell such INVENTORY at
close-out. The disposition of all such INVENTORY, however, shall be subject to
all of the terms and conditions of this Agreement. After the three (3) month
sell-off period, Licensee shall destroy or return to USC all remaining unsold
PRODUCTS, all packaging and marketing materials, and shall certify their
destruction or return to USC specifying the number of each destroyed or
returned. All royalty obligations, shall be accelerated and shall become
immediately due and payable. In addition, Licensee shall immediately deliver to
USC (i.) all materials relating to the PATENTS, together with all copies
thereof, and (ii) all market studies or other tests or studies conducted by
Licensee with respect to the PRODUCTS, all at no cost whatsoever to USC. This
Paragraph 16.c. shall not apply if the termination of this Agreement arises from
the expiration of the term of this Agreement under Paragraph 21.


                                       9


         d. Licensee acknowledges and agrees that any violation of Agreement by
Licensee would result in irreparable harm to USC. Accordingly, Licensee consents
and agrees that, if Licensee violates any of the provisions of this Agreement,
USC shall be entitled, in addition to other remedies available to it, to an
injunction to be issued by any court of competent jurisdiction restraining
Licensee from committing or continuing any violation of this Agreement, without
the need for posting any bond or any other undertaking.

17.      NOTICES, REPORTS AND PAYMENTS

         Any notice, report or payment permitted or required under this
Agreement shall be in writing, and shall be sent or delivered to the receiving
party at the address set forth below or at such address as either party may from
time to time designate in writing.

USC:          Office of Patent and Copyright Administration
              University of Southern California
              3716 South Hope Street, Suite 313
              Los Angeles, CA 90007-4344 (U.S.A.)

Attn: Director

LICENSEE:     Biokeys Incorporated
              709 Hamptons Lane
              Chesterfield, MO 63017

Attn: Francis E. O'Donnell Jr., Chief Executive Officer

18.      PARAGRAPH HEADINGS

         Paragraph headings are for the convenience of this Agreement only and
shall not add to or detract from any of the terms or provisions.

19.      SEVERABILITY

         If any provision of this Agreement is held invalid under any law
applicable to the parties, SUBLICENSEES and/or assignees, that provision shall
be considered severable and its invalidity shall not affect the remainder of
this Agreement, which shall continue in full force and effect.

20.      CONTROLLING LAW, JURISDICTION AND VENUE


                                       10


         This Agreement shall be deemed to be executed and to be performed in
the State of California, and shall be construed in accordance with the laws of
the State of California as to all matters, including but not limited to matters
of validity, construction, effect and performance. In the event of any
controversy, claim or dispute between the parties hereto arising out of or
relating to this agreement, such controversy, claim or dispute may be tried
exclusively in the courts of the State of California or in the United States
Federal District Court for the Central District of California, as either party
may elect. Each of the parties hereby waives any defense of lack of in personam
jurisdiction, improper venue and forum non conveniens, and agrees that service
of process of such court may be made upon each of them by personal delivery or
by mailing certified or registered mail, return receipt requested, to the other
party at the address provided for in Paragraph 16 hereof. Both parties hereby
submit to the jurisdiction of the court so selected, to the exclusion of any
other courts which may have had jurisdiction apart from this Paragraph 20.

21.      TERMS OF AGREEMENT

         Except as otherwise terminated pursuant to the other provisions of this
OPTION AND LICENSE AGREEMENT, this Agreement shall terminate upon expiration of
the last to expire of the PATENTS.

22.      NEGATION OF WARRANTIES

         a. Nothing in this Agreement shall be construed as:

                  i. a warranty or representation by USC as to the validity or
scope of the PATENT and/or PATENT Application; or

                  ii. a warranty or representation that any PRODUCTS made, used,
sold or otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents of third parties; or

                  iii. an obligation to bring or prosecute actions or suits
against third parties for infringement; or

                  iv. conferring the rights to use in advertising, publicity or
otherwise any trademark, trade name, or names or any contraction, abbreviation,
simulation or adoption thereof, of USC or Licensee; or

                  v. any obligation to furnish any know-how not provided.

         b. USC MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, nor does USC represent that the rights granted
hereunder will result in PRODUCTS that are commercially successful.


                                       11


         c. Licensee further agrees that it will not rely upon technical
information provided by USC and Inventors in developing and manufacturing any
PRODUCTS hereunder, but will independently test, analyze and evaluate all
PRODUCTS prior to manufacture and distribution of such PRODUCTS.

23.      INDEMNITY

         a. Licensee shall defend, indemnify and hold harmless USC and its
trustees, officers, medical and professional staff, employees and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against all
liabilities, demands, losses, costs, and expenses (including without limitation
attorneys' fees) incurred by or imposed upon the Indemnitees or any one of them
in connection with any claims, suits, actions, demands or judgements arising out
of any theory of liability (including but not limited to, actions in the form of
tort, warrantee, or strict liability) for death, personal injury, illness, or
property damage arising from Licensee's use, sale, or other disposition of the
PRODUCTS.

         b. Licensee agrees, at its own expense, to provide attorneys reasonably
acceptable to USC to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of indemnity contained
herein, whether or not such actions are rightfully brought.

24.      INSURANCE

         a. Prior to Licensee exercising the option granted herein, Licensee
shall at its sole cost and expense, procure and maintain in effect a
comprehensive general liability policy of insurance in single limit coverage of
not less than     per incident and     annual aggregate for death, bodily injury
or illness and       annual aggregate in property damage. Such comprehensive
general liability insurance shall provide (i) product liability coverage and
(ii) broad form contractual liability coverage for Licensee's
indemnification. If Licensee elects to self-insure all or part of the limits
described above (including deductibles or retention which are in excess of
      annual aggregate) such self-insurance program must be acceptable to USC.
Each such policy of insurance shall name USC as an additional insured and
shall provide for not less than thirty (30) days prior written notice before
any cancellation or material change in coverage shall be effective. A
Certificate evidencing the comprehensive general liability policy herein
defined shall be delivered to USC within ten (10) days of the EFFECTIVE DATE
of this Agreement. Licensee shall maintain such comprehensive general
liability insurance until such time as the policy in Paragraph 25.b. is
procured, or until fifteen (15) years after the term of this Agreement.

         b. During such time and in each country where PRODUCT, or any
modification thereof, is administered to humans, manufactured or distributed for
any purpose (including for the purpose of obtaining regulatory approvals)
Licensee or any SUBLICENSEE, Licensee shall at its sole cost and expense,
procure and maintain in effect a comprehensive general liability policy of


                                       12


insurance in single limit coverage of not less than      per incident and
       annual aggregate for death, bodily injury, illness or property damage.
Such comprehensive general liability insurance shall provide (i) product
liability coverage and (ii) broad form contractual liability coverage for
Licensee's indemnification. If Licensee elects to self-insure all or part of
the limits described above (including deductibles or retention which are in
excess of      annual aggregate) such self-insurance program must be acceptable
to USC. Each such policy of insurance shall name USC as an additional insured
and shall provide for not less than thirty (30) days prior written notice
before any cancellation or material change in coverage shall be effective. A
Certificate evidencing the comprehensive general liability policy herein
defined shall be delivered to USC prior to any manufacture, sale,
distribution or administration to humans. Licensee shall maintain such
comprehensive general liability insurance during the period that the PRODUCT
or any modification thereof is being manufactured, sold, distributed or
administered to humans by the Licensee or its SUBLICENSEES and a reasonable
period thereafter which in no event shall be less than fifteen (15) years.

         c. Alternatively, Licensee and USC may obtain an independent opinion
from legal counsel mutually agreeable to the parties in each country in which
Licensee intends to manufacture and/or distribute PRODUCTS, such opinion to
assist in determining the amount of general and products liability insurance
required to be carried by Licensee in such country. Where independent legal
counsel determines that little or no liability risk to USC exists under the
present and reasonably anticipated future legal trends in that country, Licensee
will be required to maintain liability insurance on USC's behalf which is
determined by USC to be reasonably adequate to pay litigation defense costs.
Where independent legal counsel determines that the risk of liability on the
part of USC is more than minimal in that country, USC and Licensee will evaluate
such risk and negotiate in good faith to determine the amounts of liability
insurance necessary to reasonably insure USC's interests. If USC and Licensee
cannot agree on the amounts and types of insurance reasonably necessary to
protect USC's interest in a particular country, Licensee will not manufacture or
market PRODUCTS in that country.

         d. In the event that Licensee does not maintain such insurance, but is
self-insured, or carries a substantial self-retention, USC may grant permission
for such self-insurance only if, in the sole discretion of USC, the net worth,
assets and earnings of the Licensee are deemed sufficient to protect USC's
economic interests in the event of claims, liability, demands, damages, expenses
and losses from death, personal injury, illness, or property damage.

         e. The minimum amounts of insurance coverage required under this
Paragraph (subparts 24.a., 24.b., and 24.c.) shall not be construed to create a
limit of Licensee's liability with respect to its indemnification in Paragraph
23 or any other provision of this Agreement.

         f. By SUBLICENSEES

         As a condition precedent to a grant of permission by USC for Licensee
to sublicense the PATENT rights herein, the prospective SUBLICENSEE shall agree
to indemnify Licensee and USC to the same extent and degree as Licensee has
agreed to indemnify USC herein. Such


                                       13


SUBLICENSEE shall also provide insurance identical in coverage and amount to
that required of Licensee in subparagraph b, above, naming both Licensee and USC
as additional insured. A Certificate evidencing the product liability coverage
shall be delivered prior to first manufacture of any PRODUCTS by the
SUBLICENSEE. In the event a prospective SUBLICENSEE does not maintain such
insurance, but rather is self-insured, or carries a substantial self-retention,
USC may grant permission for such sublicense only if, in the sole discretion of
USC, the net worth, assets and earnings of such prospective SUBLICENSEE are
deemed sufficient to protect USC's economic interests in the event of claims,
liability, demands, damages, expenses and losses from death, personal injury,
illness, or property damage.

26.      PRODUCT DEVELOPMENT

         If Licensee exercises its option, Licensee shall use its reasonable
efforts to test, develop the PRODUCT for commercial purposes through the world.
On or before January 1 of each year during the term of this Agreement,
commencing January 1, 1998, Licensee shall submit to USC a report detailing its
research, regulatory approval, marketing and product development objectives the
coming year as well as the research, regulatory approval, marketing and
development activities which Licensee undertook during the preceding year. The
reports shall identify specific future milestones (regulatory approval and
product development) and information demonstrating that the Licensee is
providing sufficient financial and manpower resources to evidence its use of
reasonable efforts. Within six (6) months after the signing of this Agreement
and each two (2) years thereafter, a representative of the Office of Patent and
Copyright Administration of USC, at Licensee's expense (including
transportation, and, if appropriate, lodging and meals), shall visit the
manufacturing and marketing facilities of Licensee and be presented with an
in-depth updating of the manufacturing capability and marketing network of
Licensee.

27.      EXPORT CONTROLS

         It is understood that USC is subject to United State laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (such laws include the Arms Export
Control Act, as amended and the Export Administration Act), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities by the Licensee may require a license from the cognizant agency of
the United States Government and/or written assurances by Licensee that Licensee
shall not export data or commodities to certain foreign countries without prior
approval of such agency. USC neither represents that a license shall not be
required nor that, if required, it shall be issued. Licensee shall not engage in
any activity in connection with this Agreement that is in violation of any
applicable U.S. law.

28.      INDEPENDENT CONTRACTOR


                                       14


         In rendering performances under this Agreement, Licensee will function
solely as an independent contractor and not as an agent, partner, employee or
joint venturer with USC. Nothing in this Agreement shall be deemed or construed
to create the relationship of principal and agent, or of partnership or joint
venture, and neither party shall hold itself out as an agent, legal
representative, partner, subsidiary, joint venturer, servant or employee of the
other. Neither party nor any officer, employee, agent or representative thereof
shall, in any event, have any right collectively or individually, to bind the
other party, to make any representations or warranties, to accept service of
process, to receive notice or to perform any act or thing on behalf of the other
party, except as expressly authorized under this Agreement or in writing by such
other party in its sole discretion.

29.      WAIVER

         No waiver by either party of any default or breach shall be deemed as a
waiver of prior or subsequent default or breach of the same or other provisions
of this Agreement.

30.      ENTIRE AGREEMENT

         This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof. No amendment, modification, extension or
cancellation of this Agreement shall be binding on the parties unless mutually
agreed to and executed in writing by each of the parties.

UNIVERSITY OF SOUTHERN CALIFORNIA               BIOKEYS, INC.


/s/ DENNIS F. DOUGHERTY                         /s/ FRANCIS E. O'DONNELL, JR.
--------------------------------                --------------------------------
Signature                                       Signature

Dennis F. Dougherty                             Francis E. O'Donnell, Jr.
Sr. V.P. Admin                                  Chairman
1/20/98                                         1/23/98


                                       15



                                                                    EXHIBIT 10.4

                                 FIRST AMENDMENT
                                       TO
                                LICENSE AGREEMENT


This First Amendment (the "Amendment") to the License Agreement effective
January 23, 1998 (the "License Agreement") between the University of Southern
California, ("USC") and Biokeys, Inc., ("Licensee") is made by and between USC
and Licensee as follows:

1.       Section 7 of the License Agreement is amended to read in its entirety
         as follows:

         7.       PATENT PROSECUTION

                  a.             USC shall file, prosecute and maintain, during
                           the course o this Agreement, the patent applications
                           and patents listed in Appendix A. Should Licensee
                           require the filing of foreign patents, USC shall take
                           responsibility for filing, prosecuting and
                           maintaining said foreign patents.

                  b.             Licensee shall reimburse all reasonable legal
                           expenses incurred and paid by USC in filing,
                           prosecuting and maintaining the U.S. and foreign
                           applications listed (or to be listed pursuant to
                           Paragraph 2.a.) in Appendix A, whether such expenses
                           were incurred before or after the date of this
                           Agreement. These legal expenses shall include the
                           attorneys' and agents' fees, foreign filing fees and
                           out-of-pocket costs associated with responding to
                           office actions and any other fees and costs directly
                           related to obtaining and/or maintaining patent
                           protection in the countries listed Appendix A.
                           Licensee shall advance payments of maintenance fees
                           and annuities as part of such legal expenses to be
                           reimbursed by Licensee within thirty (30) days of
                           request by USC, unless Licensee is advised otherwise
                           by timely notice from USC.

                  c.             Licensee agrees to pay to USC an initial
                           deposit of Five Thousand Dollars ($5,000.00) within
                           fifteen (15) days of the EFFECTIVE DATE of this
                           Amendment. Such deposit will be gild in a trust
                           account. Licensee authorized USC to use that account
                           to pay all legal expenses incurred pursuant to
                           Paragraph 7.b. When the trust account drops below
                           Five Thousand Dollars ($5,000.00), Licensee agrees to
                           pay within thirty (30) days of USC's written demand,
                           the amount to maintain the balance of the trust
                           account at a minimum of Five Thousand Dollars
                           ($5,000.00). Upon termination of this Agreement, any
                           unused deposit shall be refunded.





                  d.             If the Licensee elects (i.) Not to pursue a
                           PATENT or (ii) to terminate to prosecution or
                           maintenance of a PATENT in any country, the Licensee
                           surrenders its right to make, use or sell PRODUCTS
                           covered by the non- elected PATENT in that particular
                           country shall grant to USC the exclusive rights
                           previously granted to Licensee, without limitation,
                           for that country. Licensee agrees to execute all
                           necessary documents to carry out this grant of rights
                           to USC. Payments referred to in Paragraphs 7.a and
                           7.b shall not be refunded upon such non-election or
                           termination.

IN WITNESS WHEREOF, this Amendment is executed as of August 16, 2000.

                                     "USC"

                                     The University of Southern California

                                     By: /s/ Dennis F. Dougherty
                                        ----------------------------------------
                                        Dennis F. Dougherty
                                        Senior Vice President, Administration



                                     "LICENSEE"

                                     BIOKEYS Pharmaceuticals

                                     BY: /s/ Nicholas Jon Virca
                                        ----------------------------------------
                                        Nicholas Jon Virca
                                        President and CEO

Exhibit 10.5

OPTION & LICENSE AGREEMENT

1. INTRODUCTION

THIS AGREEMENT is between the UNIVERSITY OF SOUTHERN CALIFORNIA,
(hereinafter USC) a California nonprofit corporation with its principal place of
business at University Park, Los Angeles, California 90089, and BioKeys, Inc., a
Delaware corporation, with its principal place of business at 11466 Winding
Ridge Drive, San Diego, California 92141 (hereinafter Licensee).

WHEREAS USC warrants that it is the owner and that it has the right to
exclusively license those rights it has in the inventions which are the subject
matter of the patent applications listed in Appendix A and of which the inventor
is Charles McKenna of USC (hereinafter Inventor);

WHEREAS Licensee desires to obtain an exclusive license in the defined
FIELD OF USE to manufacture and market products utilizing the inventions as
hereinafter defined;

WHEREAS, USC is willing to grant a worldwide, exclusive license in the
defined FIELD OF USE to Licensee subject to the terms, conditions, limitations,
and restrictions set forth below;

NOW, THEREFORE, in consideration of the covenants herein contained, the
parties agree as follows:

2. DEFINITIONS

For all purposes of this Agreement the following terms shall have the
meanings specified below:

a. The term "PATENT" or "PATENTS" shall mean any and all patent
applications listed in Appendix A (Appendix A may be added to from time to time
by USC and USC shall notify Licensee of any such additions), any and all patents
issued thereon or any continuation, division, extensions or reissue thereof, and
any and all foreign patents issuing from any application filed which corresponds
to claims contained in any of the foregoing patents or applications.

b. "PRODUCT" or "PRODUCTS" shall mean any article, composition,
apparatus, substance, chemical, material, method or service which is made, used,
distributed or sold by Licensee which:

i. is covered in whole or in part by one or more pending or
unexpired claims contained in a PATENT in the country in which
the PRODUCT(S) is made, used, distributed or sold;

ii. is manufactured using a method or process which is covered in
whole or in part by one or

more pending or unexpired claims contained in a PATENT in the country
in which (a) the PRODUCT(S) is made, used, distributed or sold, or (b)
the method or process is used or sold; or

iii. the use of which is covered in whole or in part by one or more
pending or unexpired claims contained in a PATENT in the country in
which (a) the PRODUCT(S) is made, used, distributed or sold, or
(b) the method or process is used or sold;

iv. incorporates technology transferred to Licensee pursuant to the
confidential disclosure agreement dated May 22, 2000 between USC and
Licensee.

A PRODUCT is covered by a pending or unexpired claim of a PATENT if in
the course of manufacture, use, distribution or sale, it would, in the absence
of this Agreement, infringe one or more claims of the PATENT which has not been
held invalid by a court from which no appeal can be taken.

c. "FIELD OF USE" shall mean use of thiophosphonoformic acid (TPFA) and
derivatives thereof for treatment of infection by Human Immunodeficiency Virus
(HIV), Human Papillomavirus (HPV) and other viral infections.

d. "NET SALES PRICE" shall mean the gross billing price of any PRODUCT
received by Licensee or its SUBLICENSEE for the sale or distribution of any
PRODUCT, less the following amounts actually paid by Licensee or SUBLICENSEE:

i. discounts allowed;

ii. returns;

iii. transportation charges or allowances;

iv. packing and transportation packing material costs (not
including product containers or product packing containers as
manufactured by the Company);

v. customs and duties charges; and

vi. sales, transfer and other excise taxes or other governmental
charges levied on or measured by the sales but no franchise or
income tax of any kind whatsoever.

Every commercial use or disposition of any PRODUCT, in addition to a
bona fide sale to a customer, shall be considered a sale of such PRODUCT. The
NET SALES PRICE, in the case of a use or disposition other than a bona fide
sale, shall be equivalent to the then payable NET SALES PRICE of such PRODUCT in
an arm's length transaction.

e. "SUBLICENSEE" shall mean any third party licensed by Licensee to
make, or sell any PRODUCT in accordance with the terms of this Agreement.

f. "EFFECTIVE DATE" of this Agreement shall be the date when the last
party has signed this Agreement.

3. OPTION PHASE

a. USC hereby grants Licensee the exclusive right to conduct various
technical, pre-clinical, marketing, patent, and other studies on PRODUCTS in the
FIELD OF USE during a three (3) month period commencing on the EFFECTIVE DATE of
this Agreement. The option period may be extended by mutual written agreement of
the parties.

The consideration for the grant of this option phase shall be . Such payment
shall be due on the earlier to occur of: (i) within three (3) months of the
EFFECTIVE DATE of this Agreement or (ii) thirty (30) days from the date Licensee
raises its next round of private funding.

4. LICENSE PHASE

a. In consideration of the license fee and royalties, and subject to
the terms and conditions, as set forth in this Agreement and effective upon
written notification to USC during the option phase that Licensee desires to
license the PATENT(S), USC hereby grants to Licensee:

i. the exclusive worldwide license to use the PATENT to
manufacture and sell the PRODUCT(S) for application in the FIELD OF USE; and

ii. the right to grant sublicenses to any PATENT licensed
exclusively hereunder, provided that any SUBLICENSEE agrees to be bound by the
terms and conditions of this Agreement applicable to SUBLICENSEES.

b. In addition to the consideration referred to in Paragraph 3.b.,
Licensee and USC shall during the option phase negotiate in good faith the terms
of a mutually agreeable research agreement for the purpose of testing and
developing the PRODUCT(S) for commercial purposes throughout the world.

c. If USC is not notified of Licensee's desire to enter the license
phase by the end of the option phase or any extensions thereto and Licensee and
USC are not able to agree to the terms of a research agreement pursuant to
Paragraph 4.b., this Agreement and the license granted herein shall immediately
terminate. Payments referred to in Section 3 shall not be refunded upon such
termination.

d. All licenses pursuant to Paragraphs 4.a. and 4.c. to inventions
conceived or first actually reduced to practice during the course of research
funded by a U.S. federal agency are subject to the rights, conditions and
limitations imposed by U.S. law, including but not limited to the following:

i. The words "exclusive license" as used herein shall mean
exclusive except for the

royalty free non-exclusive license granted to the U.S. government by USC
pursuant to 35 USC Section 202(c)(4) for any PATENT claiming an invention
subject to 35 USC Section 201 and except for the rights of USC and Inventor as
set forth in Paragraph 6.

ii. Licensee agrees that PRODUCTS used or sold in the United
States shall be manufactured substantially in the United States, unless a
written waiver is obtained in advance from the relevant U.S. federal agency.

5. ROYALTY

a. On all sales of PRODUCTS anywhere in the world by Licensee, Licensee
shall pay USC a royalty of the NET SALES PRICE.

b. If any PRODUCT is manufactured and sold under sublicense from the
Licensee, the Licensee shall pay USC a royalty equal to of all of the
Licensee's revenue received from the sublicense, including but not limited to
earned royalty, prepaid royalty and license fees.

c. The Licensee will pay an annual minimum royalty. The minimum royalty
on each PRODUCT will be commencing on the first anniversary date of this
Agreement, on the second anniversary date and on the third anniversary date
and thereafter for each succeeding year up to the date of expiration of the
last PATENT. Minimum royalties are to be paid biannually to USC, one half due
and payable on January 1 of each year and the second half due and payable on
July 1 of each year. Should Licensee fail to make earned royalty payments
sufficient to meet said minimum royalty requirements, it may pay the
difference between the earned royalty and the minimum royalty requirement to
keep this Agreement in force.

d. Licensee shall pay such royalties to USC on a calendar quarter
basis. With each quarterly payment, Licensee shall deliver to USC a full and
accurate accounting to include at least the following information:

i. Quantity of each PRODUCT sold (by country) by Licensee and its
SUBLICENSEES;

ii. Total receipts for each PRODUCT (by country);

iii. Quantities of each PRODUCT used by Licensee and its
SUBLICENSEES;

iv. Names and addresses of SUBLICENSEES of Licensee;

v. Total number of PRODUCTS manufactured (by country); and

vi. Total royalties payable to USC.

e. In each year the amount of royalty due shall be calculated quarterly
as of March 31, June 30,

September 30 and December 31 and shall be paid quarterly within the next thirty
(30) days following such date. Every such payment shall be supported by the
accounting prescribed in Paragraph 5.d. and shall be made in United States
currency. Whenever for the purpose of calculating royalties conversion from
foreign currency shall be required, such conversion shall be at the rate of
exchange thereafter published in the Wall Street Journal for the business day
closest to the applicable end of calendar quarter.

f. The royalty payments due under this Agreement shall, if overdue,
bear interest until payment at a per annum rate equal to one and a half
above the prime rate in effect at Bank of America on the due date, not to
exceed the maximum permitted by law. The payments of such interest shall not
preclude USC from exercising any other rights it may have as a consequence of
the lateness of any royalty payment.

6. RIGHTS RETAINED BY UNIVERSITY

Notwithstanding the exclusive license granted in Paragraph 4.a., USC
and Inventor will have the absolute, nontransferable right to use the technology
covered by the PATENTS and all improvements thereof, for conducting research and
educational purposes.

7. PATENT PROSECUTION

a. USC shall file, prosecute and maintain, during the course of this
Agreement, the patent applications and patents listed in Appendix A. Should
Licensee require the filing of foreign patents, USC shall take responsibility
for filing, prosecuting and maintaining said foreign patents.

b. Licensee shall reimburse all reasonable legal expenses incurred and
paid by USC in filing, prosecuting and maintaining the U.S. and foreign
applications listed (or to be listed pursuant to Paragraph 2.a.) in Appendix A,
whether such expenses were incurred before or after the date of this Agreement.
These legal expenses shall include the attorneys' and agents' fees, foreign
filing fees and out-of-pocket costs associated with responding to office actions
and any other fees and costs directly related to obtaining and/or maintaining
patent protection in the countries listed in Appendix A. Licensee shall advance
payments of maintenance fees and annuities as part of such legal expenses to be
reimbursed by Licensee within thirty (30) days of request by USC, unless
Licensee is advised otherwise by timely notice from USC.

c. Licensee agrees to pay to USC an initial deposit of Twenty-Five
Thousand Dollars ($25,000.00) within fifteen (15) days of the EFFECTIVE DATE of
this Agreement. Such deposit will be held in a trust account. Licensee
authorizes USC to use that account to pay all legal expenses incurred pursuant
to Paragraph 7.b. When the trust account drops below Twenty-Five Thousand
Dollars ($25,000.00), Licensee agrees to pay within thirty (30) days of USC's
written demand, the amount to maintain the balance of the trust account at a
minimum of Twenty-Five Thousand Dollars ($25,000.00). Upon termination of this
Agreement, any unused deposit shall be refunded.

d. If the Licensee elects (i) not to pursue a PATENT or (ii) to
terminate the prosecution or maintenance of a PATENT in any country, the
Licensee surrenders its right to make, use or sell PRODUCTS covered by the
non-elected PATENT in that particular country and shall grant to USC the
exclusive rights previously granted to Licensee, without limitation, for that
country. Licensee agrees to execute all necessary documents to carry out this
grant of rights to USC. Payments referred to in Paragraphs 7.a. and 7.b. shall
not be refunded upon such non-election or termination.

e. If the Licensee decides to terminate this agreement pursuant to
Paragraph 16, Licensee shall reimburse all reasonable legal expenses incurred up
to six (6) months from the date written notification of termination is sent to
Licensee; provided, however, such legal expenses shall not exceed .

8. PATENT INFRINGEMENT

a. Defensive Controversy.

Licensee shall promptly notify USC of all claims, allegations and
notifications of infringement of third party patents. Except for the placing in
escrow of a portion of royalties as referred to hereinafter, USC shall have no
obligation or liability in the event that legal action is brought against
Licensee for patent infringement. Such obligation and liability shall be borne
by Licensee. Licensee may choose legal counsel and defend the patent
infringement lawsuit. During such lawsuit, Licensee may place all of the
royalties derived from sales of the PRODUCT in the country where such lawsuit is
pending in an interest-bearing escrow account. The escrow account shall be
established in a bank mutually acceptable to both parties under escrow
instructions insulating the funds from claims of any creditor. Upon termination
of the action, one-half (1/2) of any judgment amount, reasonable attorneys' fees
and costs, may be paid from this escrow account. Should the settlement of any
such patent infringement lawsuit involve payment of royalties by Licensee to a
third party for the continued right to manufacture, use, and sell the PRODUCT,
then funds in the escrow account and royalties payable to USC may be applied
against up to one-half (1/2) of such royalties to a third party. Any funds
thereafter remaining in the escrow shall be paid to USC. The above shall
constitute USC's sole liability and responsibility in the event of such action.
Royalties paid to third parties as provided for above shall be included when
determining whether the minimum royalty provided for in this Agreement has been
paid in a given year. During the patent infringement litigation both parties
shall keep each other informed in writing of significant developments in the
lawsuit.

b. Offensive Controversy.

Licensee shall promptly notify USC of any potential infringement of a
PATENT. In the event that a third party infringes on a PATENT, Licensee shall
have the right but not an obligation to bring legal action to enforce any such
patent. If Licensee exercises such right, Licensee shall select legal counsel
and pay all legal fees and costs of prosecution of such action. In the event
that Licensee shall choose not to take such action, USC shall have the right, at
its option and at its own expense, to prosecute any action to enjoin such
infringement or to prosecute any claim for damages. The party prosecuting any
such action shall be entitled to retain any funds received as a result of
settlement or judgment of such action. The parties may also agree to jointly
pursue infringers. After deduction and payment to the parties of their
respective costs and fees (including without limitation reasonable

attorneys' fees) incurred in prosecuting any such actions, the net funds
obtained as a result of settlement or of judgment of any such jointly prosecuted
action shall be divided in the following manner: 25% of all net funds shall be
divided equally by the parties and 75% of all the net funds shall be divided
between the parties in the proportion to the amount of legal fees and costs
incurred by the parties in the prosecution of such actions. If funds are
insufficient to pay all costs and fees then all of the funds shall be paid to
the parties in said proportion.

c. During any litigation hereunder both parties shall keep each other
timely informed of any signifi cant development in the litigation and provide
all reasonably requested technical assistance. During any said controversy, full
royalty payment shall continue, except as otherwise provided herein.

9. RECORDS

Licensee and SUBLICENSEES shall keep complete, true and accurate books
of account and records for the purpose of showing the derivation of all amounts
payable to USC under this Option and License Agreement. Said books and records
shall be kept at Licensee's principal place of business for at least four (4)
years following the end of the calendar year to which they pertain and shall be
open at all reasonable times for inspection by a representative of USC for the
purpose of verifying Licensee's royalties statement or Licensee's compliance in
other respects with this Option and License Agreement. All information obtained
as a result of such audit shall be maintained in confidence, except that the
representative may disclose to USC the aggregate amount of royalties due to USC
during each year, as determined in such audit. Should an audit by USC show an
underpayment of royalties by more than 10%, Licensee shall immediately pay such
underpayment and all interest, as well as for USC's reasonable audit expenses.

10. SERVICES OF INVENTOR

USC shall make reasonable efforts to make Inventor available during
regular business hours to answer questions concerning technical aspects of the
technology necessary to understand the PATENT(S). Should Licensee desire to use
the services of Inventor for further technical information and/or market studies
of the technology, a separate research and development and/or consulting
agreement should be negotiated with Inventor and the USC Office of Contracts and
Grants.

11. SUBLICENSE PERMISSION

Licensee may sublicense the PATENT(S) only with prior written
permission from USC, which permission will not be unreasonably withheld.
Notwithstanding the foregoing, no permission will be granted for a sublicense
unless the SUBLICENSEE agrees in writing to be bound by the terms of this
Agreement.

12. PATENT MARKING

Licensee shall use reasonable efforts to place all appropriate patent
and other intellectual property notices, markings and indicia on product and
marketing literature for the PRODUCTS as needed to protect the patent and other
intellectual property rights of USC and right for damages for infringement
thereof.

13. PUBLICATIONS

Nothing in this Agreement shall limit or prevent USC or Inventor from
publishing any information about the PATENT. Thirty (30) days prior to
submission for publication, USC and Inventor will use their reasonable efforts
to submit the proposed publication, for review only, to Licensee.

14. PUBLICITY

Neither party shall use the name, trade name, trademark or other
designation of the other party in connection with any products, promotion or
advertising without the prior written permission of the other party.

15. ASSIGNMENTS/TRANSFERS

Licensee may not assign or transfer this Agreement in whole or part to
any third party without the prior written permission of USC, which permission
shall be granted in the sole discretion of USC. The Licensee may only assign the
entire Agreement to successors of the entire business of the PRODUCTS if the
successor agrees to be bound by this Agreement and prior written notice is
provided to USC.

16. TERMINATION

a. Upon the breach of or default under this Option and License
Agreement by either party, the non-breaching party may terminate this Option and
License Agreement by forty-five (45) days written notice to the breaching party.
Said notice shall be effective at the end of such period unless during said
period breaching party shall remedy such defect or default. Licensee may also
terminate this Agreement at any time, for any reason, by providing USC a thirty
(30) day written notice and paying to USC the legal expenses incurred up to six
(6) months from the date written termination is sent to Licensee. No option
fees, license fees, or royalties shall be returnable. This Agreement may also be
terminated immediately by USC upon notice to Licensee upon the occurrence of any
of the following: (i) Licensee attempts to use, sublicense, transfer or assign
its rights or obligations under this Agreement in any manner contrary to the
terms of this Agreement or in derogation of USC's proprietary rights; (ii)
Licensee fails to obtain and maintain the insurance coverages required by
Paragraph 24 hereof; or (iii) Licensee is determined to be insolvent or makes an
assignment for the benefit of creditors, or has a bankruptcy petition filed by
or against it, or a receiver or trustee in bankruptcy or similar officer is
appointed to take charge of all or part

of Licensee's property. Upon termination of the Agreement all rights granted to
or provided by each party to the other shall automatically and irrevocably
revert to the granting party.

b. Surviving any termination are:

i. Licensee's obligation to pay the amount for
consideration for the grant of the option phase and
royalties accrued or accruable.

ii. Licensee's obligation of Paragraph 9 to keep and
allow a final audit.

iii. Any cause of action or claim of Licensee or USC,
accrue or to accrue, because of any breach or default
by the other party.

iv. The provisions of Paragraphs 22, 23 and 24.

c. Upon termination of this Agreement, Licensee agrees to immediately
discontinue the manufacture and sale of the PRODUCTS and the use of the PATENTS.
Within twenty (20) days after such termination, Licensee shall provide USC with
a written inventory of all PRODUCTS currently in its stock as of the date of
termination (the "INVENTORY"). USC shall have the option to grant to Licensee
the privilege of disposing of such INVENTORY at its normal prices within three
(3) months after said termination. Licensee shall dispose of this INVENTORY only
to customers who had previously purchased PRODUCTS from Licensee during the term
of this Agreement, and in no event shall Licensee sell such INVENTORY to
wholesalers, diverters, jobbers or any other entity which does not sell at
retail exclusively or to anyone else who intends to sell such INVENTORY at
close-out. The disposition of all such INVENTORY, however, shall be subject to
all of the terms and conditions of this Agreement. After the three (3) month
sell-off period, Licensee shall destroy or return to USC all remaining unsold
PRODUCTS, all equipment used in the manufacture of the PRODUCTS and all
packaging and marketing materials, and shall certify their destruction or return
to USC specifying the number of each destroyed or returned. All royalty
obligations, including any unpaid portions of the minimum royalty, shall be
accelerated and shall become immediately due and payable. In addition, Licensee
shall immediately deliver to USC (i) all materials relating to the PATENTS,
together with all copies thereof, and (ii) all market studies or other tests or
studies conducted by Licensee with respect to the PRODUCTS, all at no cost
whatsoever to USC.

d. LICENSEE acknowledges and agrees that any violation of this
Agreement by Licensee would result in irreparable harm to USC. Accordingly,
Licensee consents and agrees that, if Licensee violates any of the provisions of
this Agreement, USC shall be entitled, in addition to other remedies available
to it, to an injunction to be issued by any court of competent jurisdiction
restraining Licensee from committing or continuing any violation of this
Agreement, without the need for posting any bond or any other undertaking.

17. NOTICES, REPORTS AND PAYMENTS

Any notice, report or payment permitted or required under this
Agreement shall be in writing, and shall be sent or delivered to the receiving
party at the address set forth below or at such address as either party may from
time to time designate in writing.

USC: Office of Technology Licensing
University of Southern California
3716 South Hope Street, Suite 313
Los Angeles, California 90007-4344 (U.S.A.)

Attn: Director

LICENSEE: BioKeys, Inc.
11466 Winding Ridge Drive
San Diego, California 92141

Attn: Nicholas Jon Virca
President & Chief Executive Officer

18. PARAGRAPH HEADINGS

Paragraph headings are for the convenience of this Agreement only and
shall not add to or detract from any of the terms or provisions.

19. SEVERABILITY

If any provision of this Agreement is held invalid under any law
applicable to the parties, SUBLICENSEES and/or assignees, that provision shall
be considered severable and its invalidity shall not affect the remainder of
this Agreement, which shall continue in full force and effect.

20. CONTROLLING LAW, JURISDICTION AND VENUE

This Agreement shall be deemed to be executed and to be performed in
the State of California, and shall be construed in accordance with the laws of
the State of California as to all matters, including but not limited to matters
of validity, construction, effect and performance. In the event of any
controversy, claim or dispute between the parties hereto arising out of or
relating to this agreement, such controversy, claim or dispute may be tried
exclusively in the courts of the State of California or in the United States
Federal District Court for the Central District of California, as either party
may elect. Each of the parties hereby waives any defense of lack of in personam
jurisdiction, improper venue and forum non conveniens, and agrees that service
of process of such court may be made upon each of them by personal delivery or
by mailing certified or registered mail, return receipt requested, to the other
party at the address provided for in Paragraph 17 hereof. Both parties hereby
submit to the jurisdiction of the court

so selected, to the exclusion of any other courts which may have had
jurisdiction apart from this Paragraph 20.

21. TERM OF THE AGREEMENT

Except as otherwise terminated pursuant to the other provisions of this
OPTION AND LICENSE AGREEMENT, this Agreement shall terminate upon expiration of
the last to expire of the patents or fifteen (15) years from the Effective Date
of this Agreement, whichever is longer.

22. NEGATION OF WARRANTIES

a. Nothing in this Agreement shall be construed as:

i. a warranty or representation by USC as to the validity or
scope of the PATENT and/or PATENT Application; or

ii. a warranty or representation that any PRODUCTS made, used,
sold or otherwise disposed of under any license granted in
this Agreement is or will be free from infringement of patents
of third parties; or

iii. an obligation to bring or prosecute actions or suits against
third parties for infringement; or

iv. conferring the rights to use in advertising, publicity or
otherwise any trademark, trade name, or names or any
contraction, abbreviation, simulation or adoption thereof, of
USC or Licensee; or

v. any obligation to furnish any know-how not provided.

b. USC MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, nor does USC represent that the rights granted
hereunder will result in PRODUCTS that are commercially successful.

c. Licensee further agrees that it will not rely upon technical
information provided by USC and Inventor in developing and manufacturing any
PRODUCTS hereunder, but will independently test, analyze and evaluate all
PRODUCTS prior to manufacture and distribution of such PRODUCTS.

d. UNDER NO CIRCUMSTANCES SHALL USC BE LIABLE TO LICENSEE OR ANY OF ITS
SUBLICENSEES FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE AGREEMENT. NOTWITHSTANDING THE
FOREGOING, UNDER NO CIRCUMSTANCE SHALL USC HAVE ANY CUMULATIVE LIABILITY FOR ANY
CLAIM ARISING FROM THIS AGREEMENT IN EXCESS OF THE TOTAL AMOUNTS PAID BY
LICENSEE TO USE UNDER THIS AGREEMENT.

23. INDEMNITY

a. Licensee shall defend, indemnify and hold harmless USC and its
trustees, officers, medical and professional staff, employees and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against all
liabilities, demands, losses, costs, and expenses (including without limitation
attorneys' fees) incurred by or imposed upon the Indemnitees or any one of them
in connection with any claims, suits, actions, demands or judgments arising out
of any theory of liability (including but not limited to, actions in the form of
tort, warrantee, or strict liability) for death, personal injury, illness, or
property damage arising from Licensee's use, sale, or other disposition of the
PRODUCT(S).

b. Licensee agrees, at its own expense, to provide attorneys reasonably
acceptable to USC to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of indemnity contained
herein, whether or not such actions are rightfully brought. To the extent that
any proposed settlement directly affects USC, the Licensee shall obtain the
approval of USC before finally agreeing to such settlement proposal, which
consent shall not be unreasonably withheld.

24. INSURANCE

a. Not less than thirty (30) days prior to the exercise of the license
phase of this Agreement, Licensee shall at its sole cost and expense, procure
and maintain in effect a comprehensive general liability policy of insurance in
single limit coverage of not less than per incident and annual aggregate
for death, bodily injury or illness and annual aggregate in property damage.
Such comprehensive general liability insurance shall provide (i) product
liability coverage and (ii) broad form contractual liability coverage for
Licensee's indemnification. If Licensee elects to self-insure all or part of
the limits described above (including deductibles or retention which are in
excess of annual aggregate) such self-insurance program must be acceptable to
USC. Each such policy of insurance shall name USC as an additional insured
and shall provide for not less than thirty (30) days prior written notice
before any cancellation or material change in coverage shall be effective. A
Certificate evidencing the comprehensive general liability policy herein defined
shall be delivered to USC within ten (10) days of the EFFECTIVE DATE of this
agreement. Licensee shall maintain such comprehensive general liability
insurance until such time as the policy in Paragraph 24.b. or Paragraph 24.c
is procured, or until fifteen (15) years after the term of this Agreement.

b. During such time and in each country where PRODUCT, or any
modification thereof, is utilized in human clinical trials by Licensee or any
SUBLICENSEE, Licensee shall at its sole cost and expense, procure and maintain
in effect a comprehensive general liability policy of insurance in single limit
coverage of not less than per incident and annual aggregate for death,
bodily injury, illness or property damage. Such comprehensive general
liability insurance shall provide (i) product liability coverage and (ii)
broad form contractual liability coverage for Licensee's indemnification. If
Licensee elects to self-insure all or part of the limits described above
(including deductibles or retention which are in excess of annual aggregate)
such self-insurance program must be acceptable to USC. Each such policy of
insurance shall name USC as an additional insured and shall provide for not
less than thirty (30) days prior written notice before any cancellation or
material change in coverage shall be effective. A Certificate evidencing the
comprehensive general liability

policy herein defined shall be delivered to USC prior to any manufacture,
sale, distribution or administration to humans. Licensee shall maintain such
comprehensive general liability insurance until such time as the policy in
Paragraph 24.c is procured, or until fifteen (15) years after the term of
this Agreement.

c. During such time and in each country where PRODUCT, or any
modification thereof, is administered to humans, manufactured or distributed for
any purpose other than for human clinical trials as specified in Paragraph 23.b
(including for the purpose of obtaining regulatory approvals) by Licensee or any
SUBLICENSEE, Licensee shall at its sole cost and expense, procure and maintain
in effect a comprehensive general liability policy of insurance in single limit
coverage of not less than per incident and annual aggregate for death,
bodily injury, illness or property damage. Such comprehensive general
liability insurance shall provide (i) product liability coverage and (ii)
broad form contractual liability coverage for Licensee's indemnification. If
Licensee elects to self-insure all or part of the limits described above
(including deductibles or retention which are in excess of annual aggregate)
such self-insurance program must be acceptable to USC. Each such policy of
insurance shall name USC as an additional insured and shall provide for not
less than thirty (30) days prior written notice before any cancellation or
material change in coverage shall be effective. A Certificate evidencing the
comprehensive general liability policy herein defined shall be delivered to
USC prior to any manufacture, sale, distribution or administration to humans.
Licensee shall maintain such comprehensive general liability insurance during
the period that the PRODUCT or any modification thereof is being
manufactured, sold, distributed or administered to humans by the Licensee or
its SUBLICENSEES and a reasonable period thereafter which in no event shall
be less than fifteen (15) years.

d. In the event that Licensee does not maintain such insurance, but is
self-insured, or carries a substantial self-retention, USC may grant permission
for such self-insurance only if, in the sole discretion of USC, the net worth,
assets and earnings of the Licensee are deemed sufficient to protect USC's
economic interests in the event of claims, liability, demands, damages, expenses
and losses from death, personal injury, illness, or property damage.

e. The minimum amounts of insurance coverage required under this
Paragraph (subparts 24.a., 24.b., and 24.c.) shall not be construed to create a
limit of Licensee's liability with respect to its indemnification in Paragraph
23 or any other provision of this Agreement.

f. By SUBLICENSEES

As a condition precedent to a grant of permission by USC for Licensee
to sublicense the PATENT rights herein, the prospective SUBLICENSEE shall agree
to indemnify Licensee and USC to the same extent and degree as Licensee has
agreed to indemnify USC herein. Such SUBLICENSEE shall also provide insurance
identical in coverage and amount to that required of Licensee in subparagraph b,
above, naming both Licensee and USC as additional insured. A Certificate
evidencing the comprehensive general liability policy shall be delivered to USC
prior to USC's giving permission for such sublicensing agreement and a
Certificate evidencing the product liability coverage shall be delivered prior
to first manufacture of any PRODUCTS by the SUBLICENSEE. In the event a
prospective SUBLICENSEE does not maintain such insurance, but is self-insured,
or carries a

substantial self-retention, USC may grant permission for such sublicense only
if, in the sole discretion of USC, the net worth, assets and earnings of such
prospective SUBLICENSEE are deemed sufficient to protect USC's economic
interests in the event of claims, liability, demands, damages, expenses and
losses from death, personal injury, illness, or property damage.

25. ATTORNEYS' FEES

In any action on or concerning this Agreement, the prevailing party
shall be awarded its reasonable attorneys' fees, costs and necessary
disbursements, to be paid by the nonprevailing party.

26. PRODUCT DEVELOPMENT

If Licensee exercises its option, Licensee shall use diligent efforts
to test and develop the PRODUCT for commercial purposes throughout the world. On
or before January 1 of each year during the term of this Agreement, commencing
on the EFFECTIVE DATE of this Agreement, Licensee shall submit to USC a report
detailing its research, regulatory approval, marketing and product development
objectives the coming year as well as the research, regulatory approval,
marketing and development activities which Licensee undertook during the
preceding year. The reports shall identify specific future milestones
(regulatory approval and product development) and information demonstrating that
the Licensee is providing sufficient financial and manpower resources to
evidence its use of reasonable efforts. If USC desires to know the status of the
development of PRODUCTS before January 1, USC shall make a request in writing
for the status and Licensee shall provide, within fifteen (15) days, a written
summary of the status of such development of PRODUCT(S). Within six (6) months
after the signing of this Agreement and each two (2) years thereafter, a
representative from the USC Technology Licensing Office, at Licensee's expense
(including transportation, and, if appropriate, lodging and meals), shall visit
the manufacturing and marketing facilities of Licensee and be presented with an
in-depth updating of the manufacturing capability and marketing network of
Licensee.

27. EXPORT CONTROLS

It is understood that USC is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (such laws include the Arms Export
Control Act, as amended and the Export Administration Act), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities by the Licensee may require a license from the cognizant agency of
the United States Government and/or written assurances by Licensee that Licensee
shall not export data or commodities to certain foreign countries without prior
approval of such agency. USC neither represents that a license shall not be
required nor that, if required, it shall be issued. Licensee shall not engage in
any activity in connection with this Agreement that is in violation of any
applicable U.S. law.

28. INDEPENDENT CONTRACTOR

In rendering performances under this Agreement, Licensee will function
solely as an independent contractor and not as agent, partner, employee or joint
venturer with USC. Nothing in this Agreement shall be deemed or construed to
create the relationship of principal and agent, or of partnership or joint
venture, and neither party shall hold itself out as an agent, legal
representative, partner, subsidiary, joint venturer, servant or employee of the
other. Neither party nor any officer, employee, agent or representative thereof
shall, in any event, have any right, collectively or individually, to bind the
other party, to make any representations or warranties, to accept service of
process, to receive notice or to perform any act or thing on behalf of the other
party, except as expressly authorized under this Agreement or in writing by such
other party in its sole discretion.

29. WAIVER

No waiver by either party of any default or breach shall be deemed as a
waiver of prior or subsequent default or breach of the same or other provisions
of this Agreement.

30. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof. No amendment, modification, extension or
cancellation of this Agreement shall be binding on the parties unless mutually
agreed to and executed in writing by each of the parties.

UNIVERSITY OF SOUTHERN CALIFORNIA BIOKEYS, INC.

/s/ DENNIS F. DOUGHERTY /s/ NICHOLAS JON VIRCA
--------------------------------- -----------------------------------
Dennis F. Dougherty Nicholas Jon Virca
Senior Vice President, President & Chief Executive Officer
Administration

8/17/2000 8/17/2000
--------------------------------- -----------------------------------
(Date) (Date)

APPENDIX A

USC# TITLE SERIAL # DATE PATENT # COUNTRY
------------------------------------------------------------------------------------------------------------------------

2227 Preparation and Use of Thiophosphonates 369,468 6/21/89 5,072,032 United States
and Thio-Analogues Of Phosphonoformic
Acid
2227A Preparation and Use of 768,155 9/30/91 5,183,812 United States
Thiophosphonates and Thio-Analogues
Of Phosphonoformic Acid
2633 Improved Preparations of Thiophosphites 09/304,252 5/3/99 United States
and Thiophosphonates
2633 Improved Preparations of Thiophosphites 5/3/00 PCT
and Thiophosphonates
2788A Preparation and Use of Alpha-Keto 09/352,236 7/13/99 United States
Bisphosphonates
2789 Preparation and Use of Sulfur-Containing 60/092,560 7/13/98 United States
Phosphonoformate Analogues
2871 Synthesis and Use Of Lipophilic 60/125,805 3/23/99 United States
Phosphonocarboxylate Derivatives



                                                                    Exhibit 10.6

                         EXECUTIVE EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT, made as of the 1st day of December, 1999, by and
between Warren C. Lau (the "Executive"), an individual residing 16702 Tennison
Court, Spring, Texas, 77379 and BioQuest, Inc. (the "Company") with a place of
business at 333 N. Sam Houston Parkway, Suite 1035, Houston Texas 77060

                              W I T N E S S E T H:

         WHEREAS, the Executive is currently employed by the Company as its
President and Chief Operating Officer, and the Company desires that the
Executive shall continue to be employed by it and render services to it, and the
Executive is willing to continue to be so employed and to render services, all
upon the terms and subject to the conditions set forth herein.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

         1.       EMPLOYMENT, DUTIES AND ACCEPTANCE.

                  1.1 The Company hereby employs Executive, and the Executive
hereby accepts employment, for the term ("Term) set forth in Section 2 hereof,
to render services to Company as its President and Chief Operating Officer. The
Executive represents and warrants to the Company that he has full power and
authority to enter into this Agreement and that he is not under any obligation
of a contractual or other nature to any person, firm or corporation which is
inconsistent or in conflict with this Agreement, or which would prevent, limit
or impair in any way the performance by Executive of his obligations hereunder.


                  1.2 The Executive will serve as President and Chief Operating
Officer of the Company and as a member of its Board of Directors when elected as
such, will have general supervision over the operations of the Company and will
have such other duties and responsibilities, consistent with his position as
President and Chief Operating Officer, as may reasonably be assigned to him by
the Board of Directors of the Company. The Executive will report to the Board of
Directors of the Company.

                  1.3 The Executive shall devote his full business time to the
business and affairs of the Company, and shall use his best efforts, skills, and
abilities to promote the interests of the Company, except for reasonable
vacations and during periods of illness or incapacity, but nothing contained in
this Agreement shall prevent the Executive from engaging in charitable or
community activities provided they do not interfere with the regular performance
of the Executive's duties and responsibilities under this Agreement.

                  1.4 Unless the Executive and the Company shall otherwise
agree, the Executive's principal place of employment shall be in and around
Houston, Texas, but the duties of the Executive shall include such visits to the
Company's research sites, vendors,, customers, and investors and lenders at the
expense of the Company, as may be reasonably required in the performance of the
Executive's responsibilities.

         2. TERM. 2.1 The Term of this Agreement will commence as of December 1,
1999 and will terminate at the close of business on November 30, 2002, unless
sooner terminated in accordance with the provisions of this Agreement. The
employment of the Executive shall continue hereunder for successive one-year
periods (each such one-year period being hereinafter referred to as a "Renewal
Term") following the Term (the first such Renewal


                                       -2-


Term to commence on December 1, 2002) unless the Company or Executive shall give
notice to the other at least sixty (60) days prior to the end of the Term or any
Renewal Term of the election of the Company or the Executive to terminate the
employment of the Executive at the end of the Term or the then current Renewal
Term, as the case may be. The twelve month period from December 1 in any year to
the following November 30 shall be an "Employment Year".

         3.       BASE SALARY.

                  3.1 For all services performed by the Executive under this
Agreement, the Executive shall be paid a base salary ("Base Salary") at the
following annual rates:

                     EMPLOYMENT YEAR              BASE SALARY
                     ----------------             -----------
                          2000                     $ 114,000
                          2001                       114,000
                          2002                       114,000

Notwithstanding the foregoing specified amounts of Base Salary, (i) if the
Consumer Price Index applicable to the Standard Metropolitan Statistical Area in
which the Company's executive offices are located shall increase in any year
during the Term, the Base Salary shall be increased at the end of each
Employment Year to reflect such percentage change in the Consumer Price Index,
and (ii) the Board of Directors may award increases in Base Salary greater than
those provided above after a review taking into account corporate and individual
performance, the Company's prospects and general business conditions.

                  3.2 Base Salary shall be paid in equal monthly or semi-monthly
installments in keeping with the Company's standard payroll policies applicable
to its senior executives.


                                       -3-


4.       ANNUAL BONUS.

                  4.1 The Executive shall be entitled to an annual bonus (the
"Annual Bonus") determined from time to time by the Board of Directors of the
Company (without the active participation of the Executive). In determining the
amount of any Annual Bonus, the Board of Directors may take into consideration
such factors as they deem appropriate, including, but not limited to, the
success of the Company in achieving profitable operations, in attracting
investors, and in accomplishing other goals related to the business of the
Company. Bonuses in addition to the Annual Bonus may be awarded by the Board of
Directors (without the active participation of the Executive) from time to time
for reaching other goals established by the Board of Directors.

         5.       REIMBURSEMENT FOR EXPENSES.

                  5.1 Company shall reimburse Executive for all reasonable
out-of-pocket expenses paid or incurred by him in the course of his employment,
upon presentation by Executive of valid receipts or invoices therefor, utilizing
procedures and forms for that purpose as established by Company from time to
time.

         6.       VACATIONS.

                  6.1 Executive shall be entitled to reasonable vacations (which
shall aggregate no less than three (3) weeks vacation with pay) during each
consecutive 12 month period commencing on the date hereof. Executive may not
accumulate any vacation days which remain unused at the end of any year during
the term hereof without the prior consent of Company.

         7.       EMPLOYEE BENEFIT PROGRAMS, ETC.

                  7.1 Without limiting the generality of Section 5, above, the
Company shall reimburse the Executive by means of a cash allowance for expenses
incurred by the Executive in


                                       -4-


the use if his automobile in the performance of Executive's duties, along with
the cost of garage, insurance, fuel, fluids and maintenance, upon such terms and
conditions as are approved by Company. The Company shall pay or reimburse the
Executive for the costs of a cellular telephone.

                  7.2 Subject to the approval of the Board of Directors of the
Company, the Executive shall be provided with disability insurance providing for
disability payments to the Executive following a termination of Executive's
employment hereunder as a result of Disability (as defined in Section 8.2
below). In the event such policy is not obtained, Executive shall be entitled to
participate in such disability plan(s) as are available to Company executives
generally.

                  7.3 Subject to the Executive's meeting the eligibility
requirements of each respective plan, Executive shall be offered the opportunity
participate in and be covered by each pension, life insurance, accident
insurance, health insurance, hospitalization and any other employee benefit plan
adopted by the Company, as the case may be, made available generally from and
after the date hereof to its respective executives, on the same basis as shall
be available to such other executives without restriction or limitation by
reason of this Agreement; PROVIDED, HOWEVER, that Executive shall not
participate in two or more plans providing duplicative benefits or coverage. The
Company shall use its reasonable efforts to waive any qualifying period for
participation in any such plan by the Executive.

                  7.4 Nothing herein contained shall prevent the Company from at
any time increasing the compensation herein provided to be paid to Executive,
either permanently or for a limited period, or from paying bonuses and other
additional compensation to Executive, whether or not based upon the earnings of
the business of Company, or from increasing or expanding any


                                       -5-


employee benefit program applicable to the Executive, in the event the Company,
in its sole discretion, shall deem it advisable so to do in order to recognize
and compensate Executive fairly for the value of his services.

         8.       DEATH OR DISABILITY.

                  8.1 If Executive shall die during the term hereof, this
Agreement shall immediately terminate, except that Executive's legal
representatives or designated beneficiaries shall be entitled to receive (i) the
Base Salary due to Executive hereunder to the last day of the third month
following the month in which his death occurs, payable in accordance with the
Company's regular payroll practices, (ii) a portion of the Annual Bonus payable
under Section 4 (determined as provided under Section 8.4), based on the
Company's Adjusted Net Income through the month of the bonus year preceding the
month in which death occurs; and (iii) all other payments and entitlements
available upon death under any employee benefit program covering the Executive
as of the date of death. Except for the payments required pursuant to this
Section 8.1, no payments shall be made for any period after Executive's death.

                  8.2 In the event of the Disability (as hereinafter defined) of
the Executive, the Executive shall be entitled to continue to receive from the
Company and its several benefit plans an amount equal to his Base Salary
(prorated as may be necessary) in accordance with the terms of Section 3 hereof
through the last day of the third month following the month in which Executive's
employment hereunder is terminated as a result of such Disability. At any time
after the date of the Notice (as hereinafter defined) and during the continuance
of the Executive's Disability, the Company may at any time thereafter terminate
Executive's employment hereunder by written notice to the Executive. The term
"Disability" shall mean physical or mental illness or


                                       -6-


injury which prevents the Executive from performing his customary duties for the
Company for a period of twenty-five (25) consecutive business days or an
aggregate period of ninety (90) days out of any consecutive twelve (12) months.
The date of commencement of Disability shall be the date set forth in the notice
of a determination of Disability (the "Notice") given by Company to the
Executive at any time following a determination of Disability, which date shall
not be earlier than the date the Notice is given by Company. A determination of
Disability by Company shall be solely for the purposes of this Section 8.2 and
shall in no way affect the Executive's status under any benefit plan applicable
to the Executive.

                  8.3 Upon the occurrence of a Disability, and unless the
Executive's employment shall have been terminated as provided in Section 8.2,
the Executive shall continue to perform such services for Company, consistent
with his duties under Section 1 hereof, as he is reasonably capable of
performing in light of the condition giving rise to a Disability. All payments
due under Section 8.2 shall be payable in accordance with Company's regular
payroll practices. Those payments, together with the aggregate amount of all
periodic payments which the Executive is entitled to receive under all workers
compensation plans, disability plans and accident, health or other insurance
plans or programs maintained for the Executive by Company (or by any company
controlling, controlled by or under common control with the Company), shall be
not less than Executive's Base Salary for the month or period in question.

                  8.4 If the Executive's employment is terminated due to
Disability, the Executive shall be entitled, in addition to the payments
described in Section 8.2, to a pro-rated portion of the Annual Bonus otherwise
payable for the fiscal year in which such Disability occurs, determined by
multiplying the Annual Bonus that would otherwise be payable by a


                                       -7-


fraction, the numerator of which is the number of days the Executive was
employed during such fiscal year and the denominator of which is 360.

         9.       TERMINATION FOR CAUSE.

                  9.1 The employment of the Executive may be terminated by the
Company for Cause. For this purpose, "Cause" shall mean:

                           (i)      conviction of the commission of a felony;

                           (ii)     fraudulent or dishonest acts against the
                                    Company;

                           (iii)    illegal drug use on the premises of the
                                    Company at any time or elsewhere during the
                                    working day;

                           (iv)     willful gross misconduct which in the good
                                    faith opinion of a majority of the Board of
                                    Directors of the Company is likely to cause
                                    either significant financial loss to the
                                    Company or significant damage to its
                                    business reputation;

                           (v)      willful and repeated misconduct constituting
                                    bad faith in performing the Executive's
                                    obligations; or

                           (vi)     repeated gross neglect of the Executive's
                                    duties.

The Executive's employment shall not be terminated for Cause under clauses (ii),
(iv), (v) or (vi) unless (a) the Executive has received at least 15 days notice
of a meeting of the Board of Directors to consider the existence of Cause with
an opportunity to be heard before the Board, and the Board has determined, based
upon credible evidence, that grounds for Cause exist, AND (b) the misconduct or
breaches on which an assertion of Cause is based are not cured within 30 days
thereafter if such misconduct or breaches are capable of being cured.


                                       -8-


                  9.2 In the event of a termination for Cause, the Executive
shall (a) be entitled to any unpaid Base Salary pro rated up to the date of
termination, and (b) have no further rights under this Agreement or under any
Incentive Option issued hereunder.

         10.      TERMINATION UPON CHANGE OF CONTROL OR BY COMPANY WITHOUT
                  CAUSE.

                  10.1 A "Change in Control" shall occur: (A) if any Person, or
combination of Persons, (as hereinafter defined), or any affiliate of any
Person, is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934) directly or indirectly,
of securities of the Company representing twenty- five percent (25%) or more of
the total number of outstanding shares of common stock of the Company; or (B) if
individuals who, at the date of this Agreement, constitute the Board (the
"Incumbent Directors") cease, for any reason, to constitute at least a majority
thereof, provided that any new director whose election was approved by the
favorable vote of at least 75% of the Incumbent Directors shall be treated as an
Incumbent Director. For purposes hereof, "Person" shall mean any individual,
partnership, joint venture, association, trust, or other entity, including a
"group" as referred to in section 13(d)(3) of the Securities Exchange Act of
1934.

                  10.2 If a Change in Control occurs, and if there subsequently
occurs a material adverse change, without the Executive's written consent, in
the Executive's working conditions or status, including but not limited to a
significant change in the nature or scope of the Executive's authority, powers,
duties or responsibilities, or a reduction in the level of support services or
staff, then, whether or not such change would otherwise constitute a breach of
this Agreement by the Company, this Agreement may be terminated by notice given
by the Executive, specifying the Change of Control and significant adverse
change or changes.


                                       -9-


         10.3 Upon the termination of this Agreement in accordance with Section
10.2 above, the Executive will be entitled, without any duty to mitigate
damages, to:

                  (a) All unpaid Base Salary pro-rated up to the date of
         termination; and

                  (b) The greatest of (i) the full Annual Bonus for the entire
         year in which the termination referred to in Section 10.2 takes place,
         or (ii) the portion of the Annual Bonus earned from the first day of
         the fiscal year in which such termination occurred until the date of
         the Change of Control, or (iii) the portion of the Annual Bonus earned
         from the first day of the fiscal year in which such termination
         occurred until the effective date of such termination; and

                  (c) A severance payment equal to the sum of (i) the Base
         Salary in effect for the prior fiscal year and (ii) the Annual Bonus
         paid (or payable) on account of such prior fiscal year; and

                  (d) All benefits available under the Company's employee
         benefit programs, to the extent applicable to senior executives
         voluntarily and amicably retiring from employment with the Company.

                  10.4 In the event that the Company shall actually or
constructively terminate this Agreement without cause (and with or without a
Change of Control), the Executive shall be entitled to the same payments,
compensation and rights as provided in the case of a termination by the
Executive under Section 10.3.

                  10.5 The payments, and other compensation and benefits to
which the Executive is entitled under this Section 10 shall be made available to
the Executive no later than ten (10) days after the date of any termination
referred to in Section 10.2, 10.3 or 10.4.


                                      -10-


                  10.6 In the event that Executive receives the payments, and
other compensation and benefits referred to in this Section 10, he will be bound
by the restrictive provisions of Section 12 for the period therein provided.

         11.      TERMINATION BY EXECUTIVE.

                  11.1 If the Executive shall terminate his employment under
this Agreement prior to the third anniversary of the date hereof without either
(i) a Change of Control or (ii) the express written consent of the Company,
then, for purposes of establishing the rights of the Executive upon such
termination, such termination shall be deemed the equivalent of a termination
for Cause under Section 9.1, and the Executive shall have only those rights with
regard to compensation as are set forth in Section 9.2, and the restrictive
provisions of Section 12 below shall fully apply.

                  11.2 If the Executive shall terminate his employment under
this Agreement after the third anniversary of the date hereof without either (i)
a Change of Control or (ii) the express written consent of the Company, then,
for purposes of establishing the rights of the Executive upon such termination,
the Executive shall be entitled to receive all unpaid Base Salary pro-rated up
to the date of termination.

                  11.3 In the case of a termination pursuant to Section 11.2,
the restrictions set forth in Section 12 shall apply to Executive for the period
therein stated, and the Executive shall receive the compensation set forth
therein.


                                      -11-


         12.      RESTRICTIVE COVENANTS.

                  12.1 During such time as this Agreement shall be in effect
and, except as otherwise explicitly stated herein, for a period of twelve (12)
months following the termination of Executive's employment, and without the
Company's prior written consent (which may be withheld for any reason or for no
reason in Company's sole discretion), Executive shall not do anything in any way
inconsistent with his duties to or adverse to the interests of Company, and
shall not, directly or indirectly, himself or by or through a family member or
otherwise, alone or as a member of a partnership or joint venture, or as a
principal, officer, director, consultant, employee or stockholder of any other
entity, compete with Company or be engaged in or connected with any other
business competitive with that of Company, except that Executive may own as a
passive investment not more than five percent (5%) of the securities of any
publicly held corporation that may engage in a business competitive with that of
Company.

                  12.2 In view of the fact that Executive will be brought into
close contact with many confidential affairs of Company not readily available to
the public, Executive agrees during the Term of this Agreement and thereafter:

                  (a) to keep secret and retain in the strictest confidence all
         information about (i) research and development plans and operations,
         new technology, pending or proposed license agreements, products,
         financial condition and other financial affairs (such as costs,
         pricing, plans for future development, joint ventures, methods of
         operation and marketing goals) of the Company; (ii) its employment
         policies and plans; and (iii) any other proprietary information
         relating to the Company, its operations, businesses, financial
         condition and financial affairs (collectively, the "Confidential
         Information") and,


                                      -12-


         for such time as Company is operating, not to disclose the Confidential
         Information to anyone not then an officer, director or authorized
         employee of Company, either during or after the term of this agreement,
         except in the course of performing his duties hereunder or with
         Company's express written consent or except to the extent that such
         confidential information can be shown to have been in the public domain
         through no fault of Executive; and

                  (b) to deliver to Company within ten days after termination of
         his services, or at any time Company may so request, all memoranda,
         notes, records, reports and other documents relating to Company,
         businesses, financial affairs or operations and all property associated
         therewith, which he may then possess or have under his control.

                  12.3 Executive shall not at any time during the twelve month
period following the termination of his employment for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, (i) employ any individual who was employed by Company at any time
during the such period or during the twelve calendar months immediately
preceding such termination, or (ii) in any way cause, influence or participate
in the employment of any such individual by anyone else in any business that is
competitive with any of the businesses engaged in by Company.

                  12.4 Executive shall not at any time during the twelve (12)
month period following the termination of his employment, for any reason
whatsoever, including termination resulting from the natural expiration of the
term of this Agreement, directly or indirectly (i) persuade or attempt to
persuade any customer or client or research and development venture partner of
Company to cease doing business with Company or any Affiliate or to reduce the


                                      -13-


amount of business it does with Company or (ii) solicit for himself or any
person other than Company, the business of any individual or business which was
a customer or client of Company at any time during the twelve month period
immediately preceding such termination.

                  12.5 Executive acknowledges that the execution and delivery by
him of the covenants set forth in this Section 12 is an essential inducement to
Company to retain Executive and to enter into this agreement, and that Company
would not have retained Executive and entered into this Agreement but for such
covenants. Executive further acknowledges that his services are unique and that
any breach or threatened breach by Executive of any of the foregoing provisions
of this Section 12 cannot be remedied solely by damages. In the event of a
breach or a threatened breach by Executive of any of the provisions of this
Section 12, Company shall be entitled to injunctive relief restraining Executive
and any business, firm, partnership, individual, corporation or other entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of Executive
hereunder.

                  12.6 If any of the provisions of, or covenants contained in,
this Section 12 are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction. If any of the provisions of or covenants contained in this
Section 12 are held to be unenforceable in any jurisdiction because of the
duration or scope thereof, the parties hereto agree that the court making such
determination shall have the power to reduce the duration


                                      -14-


and/or scope of such provision or covenant and, in its reduced form, said
provision or covenant shall be enforceable; PROVIDED, however, that the
determination of such court shall not affect the enforceability, duration or
scope of this Section 12 in any other jurisdiction.

         13.      RELATIONSHIP OF PARTIES.

                  Nothing herein contained shall be deemed to constitute a
partnership between or a joint venture by the parties, nor shall anything herein
contained be deemed to constitute either the Executive or the Company the agent
of the other except as is expressly provided herein. Neither Executive nor
Company shall be or become liable or bound by any representation, act or
omission whatsoever of the other party made contrary to the provisions of this
Agreement.

         14.      KEY MAN INSURANCE.

                  The Company, in its discretion, may apply for and procure in
its own name and benefit, life insurance on a the life of the Executive and
disability insurance in any amount or amounts considered advisable by the
Company, and the Executive shall submit to any medical or other examination and
execute and deliver any application or other instrument in writing, reasonably
necessary to effectuate such insurance.

         15.      NOTICES.

                  All notices and communications hereunder shall be in writing
and delivered by hand or sent by registered or certified mail, postage and
registration or certification fees prepaid, return receipt requested, or by
overnight delivery such as Federal Express, and shall be deemed given when hand
delivered or upon three (3) business days after the date when mailed, or upon
one (1) business day after delivery to an agent for overnight delivery, if sent
in such manner, as follows:


                                      -15-


         If to Company:                     BioQuest, Inc.
                                            333 N. Sam Houston Parkway,
                                            Suite 1035,
                                            Houston Texas 77060
                                            Attn: Board of Directors

         With a copy to:                    Bresler Goodman & Unterman, LLP
                                            521 Fifth Avenue
                                            28th Floor
                                            New York, NY 10175
                                            Attn:  Seymour H. Bucholz

         If to Executive:                   Warren C. Lau
                                            16702 Tennison Court,
                                            Spring, Texas, 77379

The foregoing addresses may be changed by notice given in the manner set forth
in this Section 15.

         16.      DISPUTES.

                  Any dispute or controversy arising under or in connection with
this Agreement shall be resolved in the manner set forth in Schedule A.
Notwithstanding the foregoing, Company shall have the right to apply to any
court having jurisdiction over Executive to seek injunctive or other emergency
relief in the event Executive breaches, or threatens to breach, any of his
covenants set forth in Section 12.

         17.      MISCELLANEOUS.

                  17.1 This Agreement contains the entire understanding of the
parties hereto with respect to the employment of Executive by Company during the
term hereof, and the provisions hereof may not be altered, amended, waived,
terminated or discharged in any way whatsoever except by subsequent written
agreement executed by the party charged therewith. This Agreement supersedes all
prior employment agreements, understandings and arrangements between Executive
and Company pertaining to the terms of the employment of Executive. A waiver by
either of the parties of any of the terms or conditions of this Agreement, or of
any breach hereof, shall not be deemed a waiver of such terms or conditions for
the future or of any other term or condition hereof, or of any subsequent breach
hereof.


                                      -16-


                  17.2 The provisions of this Agreement are severable, and if
any provision of this Agreement is invalid, void, inoperative or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any circumstance, it shall nevertheless remain applicable to all
other circumstances.

                  17.3 Company shall have the right to deduct and withhold from
Executive's compensation the amounts required to be deducted and withheld
pursuant to any present or future law concerning the withholding of income
taxes. In the event that Company makes any payments or incurs any charges for
Executive's account or Executive incurs any personal charges with Company,
Company shall have the right and Executive hereby authorizes Company to recoup
such payments or charges by deducting and withholding the aggregate amount
thereof from any compensation otherwise payable to Executive hereunder.

                  17.4 Executive represents that he is under no disability,
restriction or prohibition from entering this Agreement or performing the
services required hereunder; and also that he has been represented and advised
by independent legal counsel in connection with the negotiation, preparation and
execution of this Agreement.

                  17.5 This Agreement shall be construed and interpreted under
the laws of the State of Delaware applicable to contracts executed and to be
performed entirely therein.

                  17.6 The captions and section headings in this Agreement are
not part of the provisions hereof, are merely for the purpose of reference and
shall have no force or effect for any purpose whatsoever, including the
construction of the provisions of this Agreement.

                  17.7 To the extent any provision of this Agreement
contemplates action after termination hereof or creates a cause of action or
claim on which action may be brought by either party, such provision, cause of
action or claim shall survive termination of Executive's employment or
termination of this Agreement.

                  17.8 Executive may not assign his rights nor delegate his
duties under this Agreement; provided, however, that notwithstanding the
foregoing this Agreement shall inure to


                                      -17-


the benefit of Executive's legal representatives, executors administrators or
successors and to the successors or assigns of Company.

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


                                      BIOQUEST, INC.


                                      By:
                                           ----------------------------------
                                           Chairman of the Board of Directors


                                           /S/ WARREN C. LAU
                                      ------------------------------------------
                                               Warren C. Lau


                                      -18-


                                   SCHEDULE A

                     RESOLUTION OF DISPUTES OR CONTROVERSIES

(a)      If the parties are deadlocked on any issue arising under the terms of
         this Agreement, a tiebreaker shall be chosen by lot from among a panel
         of three persons designated by the Dean of the College of Business
         Administration at the University of Houston. Each party may present its
         proposal to the designated tiebreaker in written form and may, on a
         date established by the tiebreaker within ten calendar days of the day
         the tiebreaker is chosen, make an oral presentation not to exceed two
         hours in length, accompanied by exhibits and written arguments not to
         exceed 20 pages in length. The designated tiebreaker shall then select
         one of the submitted proposals, without any change or adjustment, and
         shall announce to the parties his or her selection within five calendar
         days of the day of submission.

(b)      The general administrative costs of designating the tiebreaker panel
         shall be paid by the Company. The cost of each specific tiebreaker
         decision shall be borne by the party whose proposal was NOT accepted by
         the tiebreaker. Included in the cost of a tiebreaker decision are costs
         for expert advisors, preparation of special data or other submissions
         to the tiebreaker, and legal fees if a proponent has sought the
         assistance of counsel in presenting a matter to the tiebreaker.


                                      -19-



                                                                    Exhibit 11.1


          STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS)


The statement regarding computation of per share earnings (loss) is set forth in
Note 10 of the Notes to the Consolidated Financial Statements of the Company.



                                                                    Exhibit 21.1


                  SUBSIDIARIES OF BIOKEYS PHARMACEUTICALS, INC.


Biokeys Pharmaceuticals. Inc. has one wholly owned subsidiary, Biokeys, Inc., a
Delaware corporation.



                                                                    EXHIBIT 24.1

                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the day of September, 2001.

                                 BIOKEYS PHARMACEUTICALS, INC.

                                 By: /s/ LOUIS R. REIF
                                 Louis R. Reif, Chairman and Chief Executive
                                 Officer

                                 By: /s/ WARREN C. LAU
                                 Warren C. Lau, President and Chief Financial
                                 Officer

                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints LOUIS R. REIF and WARREN C. LAU, or
either of them, as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement of Biokeys
Pharmaceuticals, Inc. on Form 10SB, and any and all amendments (including
post-effective amendments) to such Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agents or any
of them or their or his substitute or substitutes, may unlawfully do or cause to
be done by virtue hereof.

         Pursuant to the requirements of the Securities and Exchange Act of
1934, this Registration Statement or thereto has been signed below by the
following persons in the capacities and on the date indicated.

Signature                                   Title             Date

/s/ LOUIS REIF                              Director          September 26, 2001
    -------------------------------
Louis R.  Reif

/s/ ROBERT D. WHITWORTH                     Director          September 26, 2001
    -------------------------------
Robert D.  Whitworth

/s/ WARREN C. LAU                           Director          September 26, 2001
    -------------------------------
Warren C. Lau

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