Exchange Option Agreement Dated May 6, 1996

EXCHANGE OPTION AGREEMENT


EXCHANGE OPTION AGREEMENT dated May 6, 1996, effective as of March 1, 1996 (the "Effective Date") between SmithKline Beecham Biologicals Manufacturing s.a., a Belgian company ("SKB"), MicroCarb Inc., a Delaware corporation ("MicroCarb") and MicroCarb Human Vaccines Inc., a Delaware corporation ("Vaccines").


WITNESSETH:


WHEREAS, pursuant to a Stock Purchase Agreement (the "Purchase Agreement") dated May 6, 1996 effective as of March 1, 1996 among SKB, MicroCarb and Vaccines, SKB has (i) purchased 262.5 shares of the common stock, par value $.01 per share of Vaccines (the "Vaccines Common Stock"), representing 26 1/4% of the authorized shares of Vaccines Common Stock and (ii) the right to purchase up to 175 additional shares of Vaccines Common Stock, representing an additional 17 1/2% of the authorized shares of Vaccines Common Stock;


WHEREAS, in order to induce SKB to enter into the Purchase Agreement and the transactions contemplated by the Purchase Agreement, subject to the terms and conditions herein, MicroCarb is hereby granting SKB and its successors and permitted assigns the irrevocable option (the "Option"), exercisable in whole or in part, to exchange up to a total of 350 shares of Vaccines Common Stock, representing 35% of the authorized shares of Vaccines Common Stock, for a total of 4,793,685 shares of the Common Stock of MicroCarb, par value $.01 per share (the "Common Stock"); and


WHEREAS, in order to induce SKB to enter into the Purchase Agreement and the transactions contemplated by the Purchase Agreement, MicroCarb is also granting SKB and its successors and permitted assigns a warrant (the "Warrant") of even date herewith to purchase certain shares of the Common Stock.


NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements and undertakings set forth herein


2 and in the Purchase Agreement and the Warrant, the parties hereto, intending to be legally bound, agree as follows:


1. Defined Terms. Defined terms shall have the meanings ascribed to them in the Purchase Agreement, unless expressly defined herein.


2. Grant of the Option. Subject to the limitations set forth in the following sentence, MicroCarb hereby grants SKB and its successors and permitted assigns (collectively the "Optionee") the Option to exchange, at the exchange ratio per share set forth in Section 3, up to a total of 350 shares of Vaccines Common Stock for up to a total of 4,793,685 shares of the Common Stock. Notwithstanding the immediately preceding sentence, in the event that the Optionee has previously exercised the Warrant or this Option and received shares of the Common Stock pursuant to such exercise or previously purchased from third parties (whether in the open market or in privately-negotiated transactions), the number of shares of the Common Stock for which the Optionee may exchange shares of Vaccines Common Stock shall be limited to that number of shares of the Common Stock which together with all shares of the Common Stock (x) previously received pursuant to the exercise of the Warrant or this Option by the Optionee and (y) previously purchased from third parties (whether in the open market or in privately-negotiated transactions) and held by the Optionee on the date of any determination of the number of shares of the Common Stock for which the Optionee may exchange shares of Vaccines Common Stock, is equal to 28% of the total number of shares of the Common Stock from time to time issued and outstanding during the term of the Option set forth in Section 4.


3. Exchange Ratio of Shares of Vaccines Common Stock for Shares of the Common Stock. Subject to Section 2, the Optionee may exchange each share of Vaccines Common Stock owned by it for 13,696.242 shares of the Common Stock.


4. Term of the Option. The Optionee may exchange its shares of Vaccines Common Stock for shares of the Common Stock on any date after the date of this Agreement through and including the date which is 7 years and 6 months after the Effective Date, unless this period is reduced by the mutual agreement of the parties.


5. Exercise of the Option. The Optionee may exercise the Option in whole or in part by delivering to MicroCarb and Vaccines


2 3 a written notice in substantially the form of Exhibit A hereto which specifies the number of shares of Vaccines Common Stock that the Optionee elects to exchange for the number of shares of the Common Stock determined in accordance with Sections 2 and 3; provided that, at least 50% of the number of shares of Vaccines Common Stock that the Optionee may exchange for shares of the Common Stock on the date of the exercise of the Option are exchanged for shares of the Common Stock. MicroCarb will deliver to the Optionee by internationally recognized air courier delivery a stock certificate representing the number of shares of the Common Stock specified in such Optionee's written notice within 20 calendar days of MicroCarb's receipt of such written notice.


6. Character of Shares of the Common Stock Issuable Upon Exercise of the Option. All shares of the Common Stock issuable upon exercise of the Option shall, when issued, be duly authorized, validly issued, fully paid and non-assessable.


7. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, Etc. If at any time MicroCarb shall be a party to any transaction (including without limitation a merger, consolidation, sale of all or substantially all of MicroCarb's assets or a recapitalization of the Common Stock) in which the previously outstanding shares of the Common Stock shall be changed into or exchanged for different securities of MicroCarb or changed into or exchanged for common stock or other securities of another corporation or other property (including cash) or any combination of any of the foregoing (each such transaction being hereinafter referred to as the "Transaction"), then, as a condition to the consummation of the Transaction, lawful and adequate provisions shall be made so that, upon the basis and the terms and in the manner provided in this Section 7, the Optionee, upon the exercise of the Option at any time after the consummation of the Transaction, shall be entitled to receive, in lieu of the shares of the Common Stock issuable upon such exercise prior to such consummation, at the election of the Optionee given by notice to MicroCarb on or before the later of (x) the day on which the holders of the Common Stock approve the Transaction, or (y) the thirtieth day following the date of delivery or mailing to such Optionee of the last proxy statement relating to the vote on the Transaction by the holders of the Common Stock the stock and other securities, cash and property to which the Optionee would have been entitled upon the consummation of the Transaction if the Optionee had exercised the Option immediately prior to the date of


3 4 the consummation of the Transaction in respect of all shares of Vaccines Common Stock then held by it which may be exchanged under this Agreement for shares of the Common Stock.


Notwithstanding anything contained in this Agreement to the contrary, MicroCarb shall not effect any Transaction unless prior to or simultaneously with the consummation of such Transaction the survivor or successor corporation (if other than MicroCarb) resulting from such Transaction shall assume by written instrument executed and delivered to the Optionee, the obligation to deliver to the Optionee such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Optionee may be entitled to receive, and containing the express assumption by such successor corporation of the due and punctual performance and observance of every provision of this Agreement to be performed and observed by MicroCarb and of all liabilities and obligations of MicroCarb hereunder.


8. Certain Agreements of MicroCarb. MicroCarb covenants and agrees that:


A. Will Reserve Shares. MicroCarb will authorize, reserve and set apart and have available for issuance at all times, free from preemptiv ...