GENAISSANCE PHARMACEUTICALS INC
EXHIBIT 10.42
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>3
<FILENAME>a2034853zex-10_42.txt
<DESCRIPTION>EXHIBIT 10.42
<TEXT>

<PAGE>


                                                                   Exhibit 10.42


                              THIRD LOAN AGREEMENT

                               Dated July 26, 2000


                        GENAISSANCE PHARMACEUTICALS, INC.


                                       AND


                      CONNECTICUT INNOVATIONS, INCORPORATED


                              LOCATION OF PROPERTY:

                                Five Science Park
                             New Haven, Connecticut


<PAGE>


                                    CONTENTS

<TABLE>
<CAPTION>

ARTICLE                                                                 Page
<S>      <C>                                                            <C>

1        Particular Terms and Definitions                                  4

2        Loan Advances                                                     8

3        Representations and Warranties of Borrower                        9

4        Covenants of Borrower                                            11

5        Conditions Precedent to Lender's Obligation                      15
         to Make First Advance

6        Conditions of Lender's Obligation to Make                        18
         Advances after the First Advance

7        Events of Default                                                18

8        General Conditions                                               20

         Exhibit A - Budget

         Exhibit B - Permitted Encumbrances

         Exhibit C - Schedule of Plans and Specifications

         Exhibit D - Legal Description
</TABLE>


                                       2
<PAGE>


                                 LOAN AGREEMENT


           This Loan Agreement is dated as of the 26th of July, 2000 by and
between CONNECTICUT INNOVATIONS, INCORPORATED with an address at 999 West
Street, Rocky Hill, Connecticut (hereafter referred to "Lender") and GENAISSANCE
PHARMACEUTICALS, INC. with an address at Five Science Park, New Haven,
Connecticut (hereinafter referred to as "Borrower").


                              W I T N E S S E T H :

         WHEREAS, Lender and Borrower entered into that Loan Agreement dated
September 15, 1998 (the "First Loan Agreement") pursuant to which Lender loaned
to Borrower the principal amount of $950,000, and Borrower is indebted to Lender
for said amount, as evidenced by the promissory note of Lender dated September
15, 1998 in said principal amount (referred to herein as the "First Note");

         WHEREAS, Lender and Borrower entered into that Loan Agreement dated
December 1, 1999 (the "Second Loan Agreement") pursuant to which Lender loaned
to Borrower the principal amount of $2,720,000, and Borrower is indebted to
Lender for said amount, as evidenced by the promissory note of Lender dated
December 1, 1999 in said principal amount (referred to herein as the "Second
Note");

         WHEREAS, Borrower has requested Lender to make available to it an
additional loan in an amount not to exceed $1,500,000 (the "Third Loan") to
construct additional leasehold improvements on the Premises (as defined herein);

         WHEREAS, Borrower will undertake the additional leasehold improvements
in (i) approximately 6,470 rentable square feet in the East Wing in the rear of
the first floors of Building 5 North, (ii) approximately 9,112 rentable square
feet in the East Wing of Building 5 South, (iii) 4,083 rentable square feet on
the third floor of the West Wing of Building 5 North, (iv) 185 rentable square
feet on the third floor of Building 5 South, and (v) walkway connector between
the first floor East Wing of Buildings 5 North and South in Science Park, New
Haven, Connecticut consisting of an area of approximately 19,850 rentable square
feet (the "Third Amendment Improvements");

         WHEREAS, the obligations of Borrower to Lender with respect to the
Third Loan are evidenced by its promissory note in the original principal amount
of $1,500,000 dated of even date herewith (referred to herein as the "Third
Note" together with the "Second Note" and the First Note, the "Notes"); and

         WHEREAS, the Notes are secured, INTER ALIA, by a Second Amended and
Restated Open-End Leasehold Mortgage, Security Agreement and Financing Statement
(Construction Mortgage) of even date herewith from Borrower to Lender on the
Premises; and


                                       3
<PAGE>


         WHEREAS, in consideration for making the Third Loan and in order to
more fully set forth the terms and conditions on which advances on account of
the Third Loan may be made, Borrower and Lender have entered into this
Agreement;

         NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower hereby agree as follows:


                                    ARTICLE 1
                        PARTICULAR TERMS AND DEFINITIONS


                        PARTICULAR TERMS AND DEFINITIONS

         As used in this Agreement, the following terms shall have the
respective meanings indicated opposite each of them:


"Additional Available Amounts"           The funds determined by Lender to be
                                         available to Borrower from other
                                         sources to pay for the design,
                                         engineering, procurement and
                                         construction of Improvements.

"Aggregate Change Order Amount"          $100,000

"Architect"                              Svigals Associates (or any successor
                                         engaged by Borrower with the consent
                                         of Lender).

"Borrower"                               Genaissance Pharmaceuticals,  Inc., a
                                         Delaware corporation with its
                                         principal place of business at Five
                                         Science Park, New Haven, Connecticut
                                         06511

"Borrower's Interest"                    The leasehold interest of the Borrower
                                         in the Premises and Borrower's
                                         ownership of the Improvements.

"Budget"                                 The budget annexed as EXHIBIT A, as
                                         amended from time to time with
                                         Lender's approval.

"Change Order Amount"                    $10,000

"Change Orders"                          Any amendments or modifications to the
                                         Budget, the Plans, the General
                                         Contracts or any Subcontract.

"Closing"                                The time of the execution and delivery
                                         hereof by Borrower and Lender.


                                       4
<PAGE>


"Collateral Assignments"                 The several collateral assignments
                                         from Borrower to Lender, and dated
                                         July __, 2000 of the agreements
                                         between the Architect and Borrower, the
                                         General Contractor and Borrower, and
                                         Borrower's Permits and the related
                                         consents by the Architect and General
                                         Contractor for the Improvements.

"Commitment"                             Letter dated June 2, 2000, from Lender
                                         to Borrower.

"Completion Date"                        The Completion Date shall be a date no
                                         later than April 1, 2001.

"Environmental Indemnity Agreement"      The Environmental Indemnity dated of
                                         even date herewith.

"Event of Default"                       The occurrence of any one of the
                                         events in Article 7 of this Agreement.

"First Loan"                             The loan from Lender to Borrower in
                                         the principal amount of $950,000,
                                         evidenced by the First Note.

"General Contract"                       The contract having a Guaranteed
                                         Maximum Price equal to or less than
                                         $2,619,411, between Borrower and the
                                         General Contractor for Improvements
                                         dated July __, 2000, as amended from
                                         time to time with the Lender's
                                         approval.

"General Contractor"                     The Fusco Corporation (or any
                                         successor engaged by Borrower with the
                                         consent of Lender).


"Governmental Authority"                 The United States, the State of
                                         Connecticut, the City of New Haven,
                                         and any political subdivision
                                         thereof, and any agency, department,
                                         commission, board, bureau or
                                         instrumentality of any of them.

"Improvements"                           The Improvements, EXCLUDING, HOWEVER,
                                         the Leased Lab Equipment and the
                                         Landlord's Interior Work, as defined
                                         and referred to in the Lease.

"Landlord"                               Science Park Development Corporation, a
                                         Connecticut corporation with its
                                         principal place of business at Five
                                         Science Park, New Haven, CT 06511

"Lease"                                  That Lease dated as of September 15,
                                         1998, as amended by the First Lease
                                         Amendment, Second Lease Amendment and
                                         Third Lease Amendment between Landlord
                                         and Borrower regarding the Premises.


                                       5
<PAGE>


"Leased Lab Equipment"                   The kitchen appliances, laboratory
                                         equipment, laboratory fume hoods,
                                         laboratory casework and the controlled
                                         environment room, identified as such
                                         in the Budget.

"Lender"                                 Connecticut Innovations, Incorporated,
                                         a body politic and corporate
                                         constituting a public instrumentality
                                         and political subdivision of the State
                                         of Connecticut having a place of
                                         business at 999 West Street, Rocky
                                         Hill, Connecticut 06067

"Lender's Counsel Fees"                  The fees of Lender's counsel for
                                         services rendered to the closing in
                                         connection with or arising out of
                                         the Loan.

"Loan Documents"                         All documents, including collateral
                                         pledges and assignments, which
                                         evidence or secure the First Loan, the
                                         Second Loan, and the Third Loan
                                         including, without limitation, the
                                         First Loan Agreement, the Second Loan
                                         Agreement, Notes, Mortgage,
                                         Collateral Assignments, Environmental
                                         Indemnity Agreements and this
                                         Agreement.

"Local Authority"                        Any Governmental Authority which
                                         exercises jurisdiction over the
                                         Premises or construction thereon.

"Major Subcontract"                      Any Subcontract between the General
                                         Contractor and a Subcontractor with
                                         respect to work with a value in excess
                                         of $50,000.

"Major Subcontractor"                    Any party, other than the General
                                         Contractor, to a Major Subcontract.

"Mortgage"                               The Second Amended and Restated
                                         Open-End Leasehold Mortgage,
                                         Security Agreement and Financing
                                         Statement (Construction Mortgage)
                                         dated of even date herewith made by
                                         Borrower to secure the Notes, to be
                                         recorded on the New Haven, Connecticut
                                         Land Records.

"Mortgaged Property"                     The property defined as the "Mortgaged
                                         Property" in the Mortgage.

"Permitted Encumbrances"                 Those items set forth on EXHIBIT B.


                                      6
<PAGE>


"Plans"                                  The plans and specifications for the
                                         construction of the Improvements
                                         prepared by the Architect, and approved
                                         as required herein, which plans and
                                         specifications for Improvements are set
                                         forth on EXHIBIT C, and all amendments
                                         and modifications thereof made by
                                         approved Change Orders. The term shall
                                         include the plans and specifications
                                         for segments of the Improvements.

"Premises"                               The Original Premises, First Amendment
                                         Space (as defined in the Lease), the
                                         Third Amendment Space, and Additional
                                         Space (all as defined in the Lease) as
                                         more fully described in EXHIBIT D
                                         hereof.

"Request for Advance"                    A statement of Borrower setting forth
                                         the amount sought in such form and
                                         manner as the Lender may request, which
                                         statement shall contain, or if not so
                                         contained, shall be deemed an
                                         affirmation that the representations
                                         and warranties of Article 2 remain true
                                         and correct and that there is no Event
                                         of Default hereunder as of the date
                                         thereof and unless Lender is notified
                                         to the contrary prior to the
                                         disbursement of the requested advance,
                                         will be so on the date thereof.

"Requirement or Local Requirement"       Any law, ordinance, order, rule or
                                         regulation of a Governmental Authority
                                         or a Local Authority respectively.

"Second Lease Amendment"                 That Second Amendment to Lease dated
                                         December 1, 1999.

"Second Loan"                            Up to $2,720,000.

"Second Note"                            The Note dated December 1, 1999, in the
                                         principal amount of the Second Loan
                                         made by Borrower to Lender.

"Soft Costs"                             Costs incurred by Borrower due to the
                                         Architect or Borrower's engineer in
                                         connection with the design,
                                         engineering, procurement and
                                         construction of the Improvements.

"Third Amendment Space Improvements"     The improvements to be made to the
                                         Third Amendment Space, including the
                                         Unimproved Space.

"Third Amendment Space"                  The portion of the Premises leased to
                                         Borrower pursuant to the Third Lease
                                         Amendment.

"Third Lease Amendment"                  That Third Amendment to Lease dated
                                         June 1, 2000.


                                        7
<PAGE>


"Third Loan"                             Up to $1,500,000

"Third Note"                             The Note dated the date hereof in the
                                         principal amount of the Third Loan to
                                         be made by Lender to Borrower.

"Title Insurer"                          Lawyers Title Insurance Corporation
                                         (or any other title insurance company)
                                         engaged by Borrower with the consent of
                                         Lender).

"Unimproved Space"                       That portion of the Third Amendment
                                         Space consisting of 4,083 rentable
                                         square feet on the third floor of the
                                         West Wing of Building 5 North, which
                                         space is not being improved or financed
                                         under this Loan Agreement.


                                    ARTICLE 2
                                  LOAN ADVANCES

         1. AMOUNT OF ADVANCES. Subject to the provisions of this Agreement,
Lender will make and Borrower will accept, the Third Loan in an amount not to
exceed the Third Note. The proceeds of the Third Loan shall be advanced as
construction progresses with respect to the Third Amendment Space Improvements,
whether or not said improvements are being constructed simultaneously, upon
satisfaction of the conditions set forth in Articles 5 and 6 this Agreement, but
not more frequently than once a month, in amounts which shall be determined for
each trade as follows:

                  (a) the estimated total cost of the construction of the Third
Amendment Space Improvements attributable to the line item in question as set
forth on the Budgets, (which may be modified as permitted hereunder) multiplied
by

                  (b) the percentage of completion of construction then attained
by the appropriate line item in question, multiplied by

                  (c) 92.5%, less

                  (d) amounts theretofore advanced with respect to such line
item.

         Notwithstanding the above, Lender agrees that the amounts advanced with
respect to the items identified in the Budget as "General Conditions" or
"Profit" shall be determined by using 100% as the multiplier under subparagraph
(c) above.

         2. PERCENTAGE OF COMPLETION. The percentage of completion of
construction at any time and the estimated total cost of construction of the
Third Amendment Space Improvements shall be determined by the Architect,
exercising professional judgment. The portion of Third Loan proceeds not
advanced during the course of construction shall be paid to Borrower upon
satisfaction of the conditions for the receipt of the Final Advance set forth in
Article 6 hereof.

         3. DISBURSEMENT OF ADVANCES. All advances are to be made at the
principal office of Lender, or at such other place as Lender may designate.
Lender may, upon


                                       8
<PAGE>


prior notice to Borrower, designate the Title Insurer or other entity or person
to act as disbursement agent for Third Loan advances. Requests for Advances
shall be submitted not less than five (5) days prior to the date of the
requested advance.

         4. RESTRICTIONS ON ADVANCES. At no time shall Lender be obligated (i)
to advance to Borrower more than what Borrower is then required to fund to the
party seeking payment or, in the case of reimbursement, to the party seeking
reimbursement; or (ii) to make a Third Loan advance if the undisbursed portion
of the Third Loan plus Additional Available Amounts shall be deemed by Lender to
be insufficient to pay for the completion of the Third Amendment Space
Improvements; or (iii) to advance Third Loan proceeds in amounts which exceed,
separately or in the aggregate, the individual line items set forth in the
Budgets; PROVIDED, HOWEVER, that Borrower may increase a particular line item in
the Budget by reducing a budgeted line item amount in another cost category in
the Budget, or if Borrower demonstrates a cost savings in a line item or has
unallocated funds from any cost category or contingency in the Budget, Borrower
shall be permitted to use such cost savings or contingency funds to pay for cost
overruns in other line items and cost categories in either Budget or (iv) to
advance more than the actual cost incurred by Borrower with respect to the
Improvements thus far completed; or (vi) to advance any Third Loan proceeds with
respect to any Change Order which serves to increase the cost of construction
for Third Amendment Space Improvements above $1,500,000 plus the Aggregate
Change Order Amount, unless otherwise approved by the Lender.

         5. ADVANCES TO GENERAL CONTRACTOR OR ARCHITECT. Lender, at its option,
may make advances directly to the General Contractor or the Architect, upon
prior notice to Borrower, and the execution of this Agreement by Borrower shall,
and hereby does, constitute an irrevocable direction and authorization to so
advance the funds. No further direction or authorization from Borrower shall be
necessary to warrant such direct advances and all such advances shall satisfy
PRO TANTO the obligations of Lender hereunder and shall be secured by the
Mortgage as fully as if made to Borrower, regardless of the disposition thereof
by the General Contractor or the Architect. The making of any advance by Lender
shall not be deemed an acceptance or approval by Lender (for the benefit of
Borrower or any third party) of the work done or improvements constructed or
renovated.

         6. OFF-SITE MATERIALS. Lender shall have no obligation to advance any
of the Third Loan proceeds for materials not incorporated into the work unless
such materials are securely stored on the site or otherwise procured and
securely stored.


                                    ARTICLE 3
                   REPRESENTATIONS AND WARRANTIES OF BORROWER

         Borrower represents and warrants to and agrees with Lender that:

         1. EXISTENCE; LEASE. (a) Borrower has and will continue to have a valid
leasehold interest in the Lease and has or will have when acquired by Borrower
title to the Third Amendment Space Improvements, subject to no liens,
encumbrances or restrictions, other than the Permitted Encumbrances and
Landlord's rights pursuant to the Lease; (b) the Lease is in full force and
effect and no default or event of default exists under the Lease; (c) except as
may be provided in the Lease, there is not and will not be any contract or other
obligation providing for or requiring Borrower to convey the Borrower's Interest
to any party, and no party other than Borrower has any beneficial or


                                       9
<PAGE>


equitable right, title or interest in the Premises, the Third Amendment Space
Improvements or any part thereof; and (d) Borrower is a duly organized Delaware
corporation, authorized to do business in the State of Connecticut, and has full
power and authority to consummate the transactions contemplated in the
Agreement.

         2. AUTHORIZATION. Borrower has taken all the action necessary to
authorize the execution and delivery and performance of its obligations under
this Agreement and the other Loan Documents.

         3. ADEQUACY OF PLANS. (a) The Plans are, or will be, satisfactory to
Borrower, and, to the extent required by applicable law, by all appropriate
Local Authorities. To Borrower's knowledge, there are no structural defects
affecting the Premises except such as will be corrected pursuant to the Plans,
and no violation of any Requirement or Local Requirement exists with respect to
the Premises, and the anticipated use and operation of the Premises complies and
will comply with all applicable zoning ordinances, regulations, environmental
protection laws, and restrictive covenants affecting the Premises, and all
Requirements and Local Requirements for such use and operation have been or will
be satisfied.

                  (b) The list of preliminary plans for Third Amendment Space
Improvements annexed hereto as EXHIBIT C is the same list annexed to the General
Contract for Third Amendment Space Improvements. All demolition and/or
construction hereafter performed will comply with all statutes, rules and/or
regulations of any Governmental Authority or Local Authority having jurisdiction
over the same. The Third Amendment Space Improvements will be constructed and/or
renovated wholly within the perimeter of the Premises in accordance with the
Plans for Improvements approved by the Architect.

         4. LITIGATION. Except as disclosed in writing to Lender, there are no
actions, suits or proceedings pending with respect to Borrower, affecting the
Premises or involving the validity or enforceability of the Mortgage or the
priority of the lien thereof, at law or in equity, or before or by any
Governmental Authority. Borrower is not in default with respect to any order,
writ, judgment, decree or demand of any court or any Governmental Authority.

         5. BINDING EFFECT. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Borrower, enforceable against
it in accordance with their respective terms except in each case as
enforceability may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally.

         6. NO OFFSETS. The Borrower has no offsets or defenses with respect to
the First Loan, the Second Loan, the Third Loan, the Notes or any other Loan
Documents.

         7. COMPLIANCE WITH AGREEMENT. The consummation of the transactions
hereby contemplated and performance of this Agreement and the other Loan
Documents will not result in any breach of, or constitute a default under, any
mortgage, deed of trust, lease, loan or credit agreement, corporate charter,
by-laws or other instrument or document to which Borrower is a party or by which
it may be bound or affected.

         8. REQUEST FOR ADVANCE. Each Request for Advance, or the receipt of the
funds requested thereby, shall have the effect stated in the definition of the
term Request for Advance.


                                       10
<PAGE>


         9. ABSENCE OF LIENS. (a) Except for the Lease and Permitted
Encumbrances, Borrower has made no contract or arrangement of any kind, the
performance of which by the other party thereto would give rise to a lien on the
Premises or the Improvements, except for its arrangements with the Architect,
the General Contractor and the Environmental Contractor.

                  (b) All materials and labor, if any, heretofore supplied or
performed in connection with the Premises and/or the respective Improvements
have been paid for in full or will be paid for out of the applicable first
advance.

         10. ABSENCE OF DEFAULTS. There is no Event of Default under this
Agreement, and no event has occurred and is continuing which with notice or the
passage of time or either would constitute an Event of Default hereunder.

         11. PERMITS. All authorizations, certificates and permits necessary for
the construction of Improvements in accordance with applicable building codes
and environmental protection laws have been or will be obtained and maintained
in full force and effect, and all construction work done to date has been done
in accordance with said authorizations, certificates, permits, codes and laws.

         12. BUDGETS. The Budget for Third Amendment Space Improvements does
include Borrower's best estimate of the present cost of the Third Amendment
Space Improvements, and Lender is justified in relying thereon. There have been
no material variations or deviations from the Budget for the Third Amendment
Space Improvements, and Borrower knows of no circumstances presently existing or
reasonably likely to occur which would or could have a materially adverse effect
on the construction of the Third Amendment Space Improvements including, but not
limited to, a material variation or deviation from the Budget for the Third
Amendment Space Improvements.

         13. USE OF PROCEEDS. Borrower will employ all of the proceeds of the
Third Loan solely to pay for the costs of the construction of the Third
Amendment Space Improvements.


                                    ARTICLE 4
                              COVENANTS OF BORROWER

         Borrower covenants with Lender as follows:

         1. DISPOSITION OF MORTGAGED PROPERTY. Except for Borrower's right to
share the Premises with an Affiliate (as defined in the Lease) pursuant to
Section 15.1C of the Lease, Borrower will not directly or indirectly, by
transfer, mortgage, conveyance or sale, or sale of any interest in Borrower
permit, do or suffer the assignment, subletting, transfer, sale, conveyance or
encumbrance of the Mortgaged Property or any part thereof or any interest
therein or interest in Borrower, nor assign this Agreement or the proceeds of
the Loan without the prior written consent of Lender, which consent shall not be
unreasonably withheld.

         2. COMPLIANCE WITH LAWS. Borrower will comply promptly with any
Requirement or Local Requirement (including without limitation any relating to
the obtaining of all certificates of occupancy or certificates of like nature
upon completion


                                       11
<PAGE>


of the Improvements) and furnish Lender, on demand, copies of official
inspections to the extent in its possession made by any Local Authority.

         3. ACCESS TO PREMISES. Upon reasonable prior notice, Borrower will
permit Lender and the Architect to enter upon the Premises, inspect the
Improvements and all materials to be used in the construction thereof and to
examine all detailed plans and shop drawings which are or may be kept at the
construction site and will cooperate, and cause the General Contractor or
Subcontractors to cooperate with the Architect to enable it to perform its
functions hereunder.

         4. FEES. Borrower will pay Lender's Counsel Fees promptly upon receipt
of bills therefor submitted by Lender at the Closing, and will pay all costs and
expenses required to satisfy the conditions of this Agreement including, without
limitation, all taxes and recording expenses. To the extent Lender, after the
Closing, deems it necessary to employ counsel for whatever purpose relative to
the First Loan, the Second Loan or the Third Loan, the reasonable fees and
expenses of such counsel shall be borne by Borrower, and Borrower hereby agrees
to indemnify and hold Lender harmless with respect to all such fees and expenses
incurred by Lender in connection with the enforcement of this Agreement and the
other Loan Documents.

         5. CONSTRUCTION OF THIRD AMENDMENT SPACE IMPROVEMENTS. Borrower will
undertake the construction of the Third Amendment Space Improvements with
reasonable diligence, and will obtain any necessary certificate of completion or
such other permits or approvals as will permit the operation of the
Improvements, all on or before the Completion Date. Borrower shall not commence
construction until Borrower has obtained all permits, licenses and approvals
required under any Requirement or Local Requirement for construction of the
Third Amendment Space Improvements.

         6. EVIDENCE OF TITLE. Borrower will deliver to Lender or Architect,
upon request, certified copies of any contracts, bills of sale, statements,
receipted vouchers or agreements, under which Borrower claims title to any
materials, fixtures or articles incorporated in the Improvements or subject to
the lien of the Mortgage.

         7. CORRECTIVE ACTION. Borrower will, upon request by the Architect,
correct any material departure from the Plans not approved by the Architect in
writing. The advance of any Loan proceeds shall not constitute a waiver of
Lender's right to require compliance with this covenant with respect to any such
defects or departures from the Plans not theretofore discovered by, or called to
the attention of the Architect.


         8. COMPLIANCE WITH LEASE. With respect to the Lease:

                  (a) Borrower will not execute, modify, or amend the Lease or
enter into any sublease or any lease for additional space (including without
limitation the "ROFR" space, as that term is defined and referred to in the
Lease) without the prior written consent of Lender;

                  (b) The lease of any additional space, if approved by Lender,
shall be added to the Mortgaged Property and made subject to the lien of the
Mortgage. In connection with the lease of any additional space, Borrower shall
execute and deliver to Lender such amendments to the Mortgage or such additional
mortgages, endorsements to title insurance policies, subordination and
nondisturbance agreements as Lender may reasonably request;


                                       12
<PAGE>


                  (c) Borrower will, promptly following Lender's written
request, use its best efforts to obtain and deliver to Lender, in form and
substance satisfactory to Lender such other or further documents, data or
information as Lender may reasonably request.

                  (d) Borrower shall give Lender a copy of any notice required
to be given to Landlord of Borrower's election to exercise Borrower's option to
extend the term of the Lease simultaneously with the giving of the notice to
Landlord.

                  (e) Borrower will timely and fully comply with the "Tenant's"
obligations under the Lease.

         9. MANDATORY PREPAYMENTS. Borrower shall prepay the unpaid principal
balance of the Third Loan, together with any and all unpaid interest upon the
expiration or earlier termination of the Lease.

         10. CHANGE ORDERS. Borrower will not permit the performance of any work
pursuant to any Change Order in excess of the Change Order Amount nor pursuant
to any Change Order which, together with the aggregate amount of all prior
Change Orders, will result in an increase in the Guaranteed Maximum Price under
the General Contract for Improvements in excess of the Aggregate Change Order
Amount unless Borrower shall have received the specific written approval of
Lender and Architect to such Change Order.

         11. CONTRACTOR TERMS. Borrower will require covenants from the General
Contractor and Major Subcontractors to the same effect as the covenant made by
Borrower in the preceding paragraph; Borrower will, upon request, deliver to the
Architect and Lender the names and addresses of all persons with whom it has
contracted or intends to contract for the construction of the Third Amendment
Space Improvements or for the furnishing of labor or materials.

         12. COMPLIANCE WITH PERMITS. Borrower will comply with all covenants
and agreements affecting the Premises and the Third Amendment Space
Improvements, and will keep all permits, licenses and authorizations pertaining
to the Third Amendment Space Improvements that it is obligated to maintain in
full force and effect.

         13. PAYMENTS BY LENDER. Lender may apply amounts due under this
Agreement to the satisfaction of the conditions hereof, and amounts so applied
shall be part of the Loan and shall be secured by the Mortgage and shall have
the same lien priority as had the Mortgage at its inception.

         14. AMENDMENT OF GENERAL CONTRACTS AND MAJOR SUBCONTRACT. Borrower will
not, without the prior written consent of Lender in each instance, amend or
terminate or permit to be amended or terminated any Major Subcontract or the
General Contracts.

         15. OCCUPANCY. Borrower will not permit occupancy of any part of the
Premises prior to completion of the Third Amendment Space Improvements without a
written waiver of approval from the insurance company issuing a builder's risk
insurance policy, a copy of which shall be delivered to Lender prior to any
occupancy of the Premises.


                                       13
<PAGE>


         16. ZONING. Borrower will not, without Lender's prior written consent,
initiate, approve, participate in any change in or modification to the zoning in
effect for the Premises or any portion thereof. It will promptly notify Lender
of an anticipated or proposed change in the zoning for the Premises or any
portion thereof or any other property with respect to which a change in zoning
would affect the zoning or Borrower's use and enjoyment of the Premises, or any
part thereof, promptly upon its learning of any such anticipated or proposed
change. Subject to Landlord's consent, Lender shall have the right to
participate in any and all proceedings, judicial, administrative or otherwise,
with respect to or in any way affecting the Premises, including, without
limitation, zoning, environmental and other matters.

         17. COMPLIANCE WITH AGREEMENTS. Borrower will cause all conditions of
the Lease, this Agreement, the Notes, the Mortgage, all other Loan Documents,
the General Contracts and the agreements with the Architect on Borrower's part
to be observed or performed to be satisfied. Borrower will immediately (upon
transmission or receipt) deliver to Lender copies of all notices with respect to
such documents from parties other than Lender.

         18. CONNECTICUT PRESENCE. Borrower shall not relocate (as that term is
defined in Section 32-5a of the Connecticut General Statutes) outside of the
State of Connecticut and shall maintain a "Connecticut Presence". A Connecticut
Presence shall mean (a) maintaining Borrower's principal place of business
(including its executive offices and officers) in the State of Connecticut; (b)
basing a majority of its employees and those of its subsidiaries in the State of
Connecticut; (c) conducting a majority of its operations and those of its
subsidiaries, including manufacturing activities conducted directly or through
subcontactors and vendors, in the State of Connecticut; and (d) maintaining
Borrower's and each subsidiary's principal bank accounts in the State of
Connecticut.

         19. EMPLOYMENT PRACTICES. With respect to employment practices:

                  (a) Borrower shall create jobs in the State of Connecticut and
shall use its best efforts to employ residents of Connecticut in these jobs.

                  (b) If Borrower is located in an enterprise zone designated
pursuant to Section 32-70 of the Connecticut General Statutes, Borrower shall
not relocate (as that term is defined in Section 32-5a of the Connecticut
General Statutes) within the State of Connecticut without first obtaining the
express written consent of Lender, which consent the Lender may withhold in its
discretion. If Borrower relocates within the State of Connecticut, it will offer
employment at its new location to its employees from the original location if
such employment is available.

                  (c) Borrower shall furnish to Lender copies of the quarterly
reports filed by Borrower and any of its subsidiaries with the Connecticut
Department of Labor and upon request, employment records and such other
personnel records to the extent permitted by law as Lender may reasonably
request to verify the creation or retention of Connecticut employment.

                  (d) Borrower hereby authorizes Lender to examine, and will at
any time at the request of the Lender provide Lender with such additional
authorization satisfactory to the Connecticut Department of Labor as may be
necessary to enable Lender to examine all records of said Department relating to
Borrower and/or any of its subsidiaries.


                                       14
<PAGE>


         20. EQUAL OPPORTUNITY. Borrower is an equal opportunity employer and it
does not discriminate. Borrower further agrees and warrants that:

                  (a) Borrower will not discriminate or permit discrimination
against any employee or applicant for employment because of sex, sexual
orientation, race, color, religious creed, age, marital status, mental
retardation, physical disability, national origin, or ancestry. Such action
shall include, but not be limited to, the following: Employment upgrading,
demotion or transfer; recruitment advertising; lay-off or termination; rates of
pay or other forms of compensation; and selection for training, including
apprenticeship.

                  (b) Borrower agrees to take affirmative action to insure that
applicants with job-related qualifications are employed.

                  (c) Borrower will, in its solicitation for employees, state
that it is an "affirmative action-equal opportunity employer".

                  (d) Borrower agrees to provide each labor union or
representative of workers with which Borrower has a collective bargaining
agreement or other contract or understanding and each vendor with which Borrower
has a contract or understanding, a notice to be provided by the Commission of
Human Rights and Opportunities (the "CHRO") and to post copies of the notice in
conspicuous places available to employees and applicants for employment.

                  (e) Borrower agrees to cooperate with Lender, the State of
Connecticut and/or or any of its agencies and the CHRO to insure that the
purpose of this equal opportunity clause is being carried out.

                  (f) Borrower agrees to comply with all relevant regulations
and orders issued by the CHRO to provide the CHRO with such information as it
may request, and to permit the CHRO access to pertinent books, records, and
accounts concerning the contractor's employment practices and procedures.

                  (g) Borrower agrees to comply with all of the requirements set
out by Section 4a-60 of the Connecticut General Statutes, as it may be amended.

                  (h) Borrower agrees to post a notice of this acceptance of the
foregoing equal employment opportunity provisions at its place of business,
clearly visible, in such form as is satisfactory to Lender.


                                    ARTICLE 5
                   CONDITIONS PRECEDENT TO LENDER'S OBLIGATION
                              TO MAKE FIRST ADVANCE

         Lender shall not be obligated to make an advance of Loan proceeds with
respect to the Third Amendment Space Improvements until each of the following
conditions shall have been satisfied:

         1. NO EVENT OF DEFAULT. As of the date of the advance, the
representations and warranties made in Article 2 hereof shall be true and
correct, there shall be no Event of Default under this Agreement, no state of
facts shall exist which, with or without notice and/or lapse of time, would
constitute an Event of Default hereunder;


                                       15
<PAGE>


         2. NO CASUALTY. The respective Third Amendment Space Improvements shall
not have been injured or damaged by fire or other casualty, unless the proceeds
of any insurance maintained by Borrower have been received by Lender and the
amount of such proceeds, PLUS (a) the balance, if any, of the Third Loan
remaining to be advanced and (b) Additional Available Funds are sufficient to
restore and complete the Third Amendment Space Improvements.

         3. BORROWER'S SUBMISSIONS. Lender shall have received:

                  (a) Executed counterparts of each of the Loan Documents;

                  (b) A certificate from the Architect upon which Lender may
reply, that the Plans for the Third Amendment Space Improvements have been
approved by the Architect and by each necessary Local Authority, that the Third
Amendment Space Improvements comply with applicable zoning ordinances, and other
regulations of Governmental Authorities, that the applicable Budget has been
approved, and that the Improvements can be completed by the Completion Date;

                  (c) A true copy of the Plans;

                  (d) An executed copy of the contract between Borrower and
Architect certified by Borrower to be true and complete, valid and binding;

                  (e) An executed copy of the applicable General Contract
certified by Borrower to be true and complete, valid and binding.

                  (f) Evidence that all authorizations, certificates and
permits, if any, required by any Governmental Authority for the operation of the
Premises and Improvements for the purposes contemplated by the applicable Plans
(including any authorizations required with respect to applicable environmental
protection regulations and/or laws) which are presently procurable have been
obtained and are in full force and effect;

                  (g) The authorization or permit from Local Authorities to
construct the Improvements, and a list and description of any bonds or other
deposits required to be made in connection with the construction of the Third
Amendment Space Improvements;

                  (h) Letters from the Architect and the General Contractor
consenting to the collateral assignment of such contracts to Lender, in form and
substance and satisfactory to Lender;

                  (i) A current title report from the Title Insurer, which shall
set forth a description of the Premises and shall have attached thereto copies
of all instruments which appear as exceptions in the report;

                  (j) An executed counterpart of the Lease;

                  (k) Executed counterparts of a Third Amended and Restated
Consent and Intercreditor Agreement with Science Park Development Corporation,
The Connecticut Development Authority and the Connecticut Housing Finance
Authority and subordination, nondisturbance and attornment agreements from each
mortgagee of


                                       16
<PAGE>


the Premises in form and substance satisfactory to Lender, except that no
non-disturbance agreement shall be required from the United States Department of
Commerce, Economic Development Administration, with regard to the mortgage from
Science Park Development Corporation recorded in Volume 3755 at Page 206 of the
New Haven Land records;

                  (l) An opinion of Borrower's counsel, in the form and
satisfactory to Lender;

                  (m) Request for Advance;

                  (n) The certificates of insurance, including builder's risk
coverage (non-reporting form) and flood insurance, if required, evidencing the
coverage required by the Mortgage, accompanied by evidence of the payment of the
premiums;

                  (o) A paid title insurance policy in the amount of the Note,
insuring the Mortgage to be a valid first lien on the Borrower's Interest in the
Premises, free and clear of all defects and encumbrances except the Permitted
Encumbrances and except such as Lender and its counsel shall approve, and which
shall contain:

                      (i)   full coverage against mechanics' liens;

                      (ii)  a "pending disbursement" endorsement; and

                      (iii) endorsements providing affirmative insurance
coverage regarding access and such other endorsements as Lender may require;

                  (p) A Certificate from the Architect on which Lender is
entitled to rely to the effect that the construction of the Third Amendment
Space Improvements performed to the date of such advance, was performed in
accordance with the Plans.

                  (q) Lender's Counsel Fees.

         4. APPROVAL OF PLANS. Lender, Architect and Borrower (a) shall have
approved the Plans for the Third Amendment Space Improvements, the state of the
title to the Premises reflected in the title insurance policy, and such other
documents and matters as Lender may specify, and (b) shall have agreed to accept
the certification of the Architect in satisfaction of any condition requiring
certification as to conformance of the construction and completion of the Third
Amendment Space Improvements in accordance with the applicable Plans.

         5. ADDITIONAL MATERIALS. Lender shall have received such other
documents as it may deem appropriate to effect the intent of this Agreement.

         6. TERMINATION OF OBLIGATIONS. This Agreement and the obligations of
Lender shall terminate, without liability to Borrower, if the first advance for
work completed under the General Contract for Third Amendment Space Improvements
has not occurred prior to November 1, 2000.


                                       17
<PAGE>


                                    ARTICLE 6
                        CONDITIONS OF LENDER'S OBLIGATION
                    TO MAKE ADVANCES AFTER THE FIRST ADVANCE

         Lender's obligation to make any advance after the first advance for
either of the Improvements shall be subject to the satisfaction of the following
conditions:

         1. FIRST ADVANCE CONDITIONS PRECEDENT. All conditions of the first
advance shall have been satisfied, and those specified in paragraphs 1, 2 and
3(n) of Article 5 shall be satisfied as of the date of each advance after the
first advance.

         2. REQUEST FOR ADVANCE. Lender shall have received a Request for
Advance;

         3. FINAL ADVANCE. In the case of the final advance, all of the above
conditions shall have been satisfied and, in addition, Lender shall have
received:

                  (a) Evidence of the approval by the Local Authority of the
Third Amendment Space Improvements in their entirety for permanent occupancy to
the extent any such approval is a condition of the lawful use and occupancy of
the Improvements;

                  (b) Advice from the Architect to the effect that the Third
Amendment Space Improvements have been completed in accordance with the
applicable Plans and that all utilities serving the Improvements have been
connected and are operating;

                  (c) Evidence that Borrower (beyond possibility of appeal) has
acquired all permits, approvals and/or certificates required by all Requirements
or Local Requirements (including all applicable environmental protection laws)
for the operation of the Third Amendment Space Improvements for their intended
purposes;

         5. ADDITIONAL CONDITIONS. Lender may insist on the performance of any
requirements set forth herein in Articles 4 and 5 which have not been performed
by the first advance or any subsequent advance, and Lender shall not be deemed
to have waived any requirement unless such waiver is expressly made in writing.


                                    ARTICLE 7
                                EVENTS OF DEFAULT

         1. EVENT OF DEFAULT. The following shall constitute Events of Default
hereunder:

                  (a) If Borrower fails to comply with any of the covenants made
by it in this Agreement and Borrower fails to cure the same within fifteen (15)
days following notice; except that a violation of paragraph 1 of Article 3 shall
be an immediate Event of Default hereunder, no notice being required;

                  (b) If any default or event of default shall occur under the
Lease, the General Contract for the Third Amendment Space Improvements, the
First Note, the Second Note, the Third Note, the Mortgage or any other of the
Loan Documents in each instance, beyond any applicable notice and cure period;

                  (c) If at any time any representation or warranty, as updated
subsequently to its initially being made, made by Borrower in this Agreement or
in any other instrument or document delivered to Lender in connection with the
First Loan, the Second Loan or the Third Loan shall be incorrect, in a material
respect, whether or not such representation or warranty was originally or
previously incorrect and Borrower fails


                                       18
<PAGE>


to cure the same within fifteen (15) days following notice; PROVIDED, HOWEVER,
the same are capable of being be cured within such fifteen (15) day period;

                  (d) If after the date of the first advance, the construction
of the Third Amendment Space Improvements be not carried on with reasonable
dispatch or at any time be discontinued for twenty (20) consecutive days, other
than as may be specifically provided for in this Agreement or either of the
General Contracts.

                  (e) If, after prior notice, Lender or the Architect shall not
be permitted, at all reasonable times, to enter upon the Premises, inspect the
Third Amendment Space Improvements and the construction thereof and all
materials, fixtures and articles used or to be used in the construction and to
examine all detailed plans, shop drawings and specifications which relate to the
Third Amendment Space Improvements, or if Borrower shall fail to furnish to
Architect, Lender or its authorized representative, copies of such plans,
drawings and specifications upon request by Lender;

                  (f) If any of the materials, fixtures or articles used in the
construction of the Third Amendment Space Improvements or the appurtenances
thereto, or to be used in the operation thereof, be not in accordance with the
Plans for Third Amendment Space Improvements, as approved by the Architect and
the condition be not corrected to the satisfaction of Lender within thirty (30)
days from its receipt of notice thereof;

                  (g) Other than contemplated by the Permitted Encumbrances, if
Borrower executes any conditional bill of sale, chattel mortgage or other
security instrument covering any materials, fixtures or articles intended to be
incorporated in the Improvements, or files a financing statement publishing
notice of such security instrument, or if any of such materials, fixtures or
articles are not purchased so that the ownership thereof will vest
unconditionally in Borrower (subject, however, to Landlord's rights pursuant to
the Lease), free from encumbrances, on incorporation into the Third Amendment
Space Improvements or if Borrower does not produce to Lender upon demand the
contracts, bills of sale, statements, receipted vouchers or agreements, or any
of them under which Borrower claims title to such materials, fixtures and
articles;

                  (h) If the Third Amendment Space Improvements in the judgment
of Architect are not substantially completed on the Completion Date;

                  (i) If the Third Amendment Space Improvements in the judgment
of Architect cannot with reasonable diligence be completed on or before the
Completion Date;

                  (j) If a lien for the performance of work or the supply of
materials is filed against the Premises and remains unsatisfied or unbonded at
the time of any Request for Advance or for a period of thirty (30) days after
the filing thereof or if the Premises or Third Amendment Space Improvements are
encumbered by any other lien or encumbrance as a result of any act or omission
of Borrower not approved by Lender; and

                  (k) If Borrower assigns, surrenders, terminates or sublets all
or any part of the Premises in violation of this Agreement or ceases to use and
occupy the Premises or the Lease expires or terminates; PROVIDED, HOWEVER, that
a termination of the Third Lease Amendment under Section 5 thereof shall not be
a default hereunder.

         2. REMEDIES. Lender shall have the right, upon the happening of any
such Event of Default, in addition to any rights or remedies available to it
under the Mortgage


                                       19
<PAGE>


or other Loan Documents, to enter into possession of the Premises and perform
any and all work and labor necessary to complete or to attempt to complete the
Third Amendment Space Improvements substantially in accordance with the Plans;
all sums expended by Lender for such purposes shall be deemed to have been paid
to Borrower and secured by the Mortgage. Lender may use any funds of Borrower
including any balance which may be held in escrow and any funds which may remain
unadvanced hereunder for the purpose of completing or attempting to complete the
Third Amendment Space Improvements in the manner called for in the Plans; to
make such additions and changes and corrections in the Plans which shall be
necessary or desirable to complete or to attempt to complete the Third Amendment
Space Improvements in substantially the manner contemplated by the Plans; to
employ such contractors, subcontractors, agents, architects and inspectors as
shall be required for said purposes; to pay, settle or compromise all existing
bills and claims which are or may be liens against the Premises, or may be
necessary or desirable for the completion of the Improvements or the clearance
of title; to execute all applications and certificates in the name of Borrower
which may be required by any construction contract; and to do any and every act
with respect to the construction of the Third Amendment Space Improvements which
Borrower may do on its own behalf. Upon the happening of an Event of Default,
Lender shall also have power to prosecute and defend all actions or proceedings
in connection with the construction of the Third Amendment Space Improvements on
the Premises and to take such action and require such Performance as is deemed
necessary. If Lender exercises the remedies provided in this Section 7.2, then
Borrower hereby assigns and quit-claims to Lender all sums advanced hereunder
and all sums in escrow subject to the condition that said sums, if any, be used
for the completion of the Improvements.


                                    ARTICLE 8
                               GENERAL CONDITIONS

         The following conditions shall be applicable throughout the term of
this Agreement:

         1. NO WAIVER. No advance of Loan proceeds hereunder shall constitute a
waiver of any of the conditions of Lender's obligation to make further advances
nor, in the event Borrower is unable to satisfy any such condition, shall any
such waiver have the effect of precluding Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided, nor shall any
waiver of any of the provisions or conditions of this Agreement or of any other
Loan Document be construed as a waiver of any of the other provisions or
conditions hereof or thereof.

         2. DOCUMENTS SATISFACTORY. All proceedings taken in connection with the
transactions provided for herein, the status of title to the Premises, all
agreements, certificates and other documents and instruments required or
contemplated by this Agreement, the Mortgage or any Loan Document, all sureties,
and insurers shall be satisfactory to Lender, and the Subcontracts, the Lease,
bonds, guaranties, policies of insurance, agreements, certificates, and other
documents and instruments shall be genuine, valid, subsisting, binding and
enforceable in all respects upon the parties thereto, and Lender's counsel shall
have received copies (or certified copies where appropriate in such counsel's
judgment) of all agreements, certificates, documents and instruments which they
may request in connection therewith.

         3. LENDER'S DISCRETION. Any condition of this Agreement which requires
the submission of evidence of the existence or nonexistence of a specified fact
or facts


                                       20
<PAGE>


implies as a condition the existence or nonexistence, as the case may be, of
such fact or facts and Lender shall, at all times, be free independently to
establish to its satisfaction and in its discretion such existence or
nonexistence.

         4. AVAILABLE FUNDS. Borrower, if required by Lender, shall at
Borrower's option either (a) have Additional Available Funds in an amount equal
to the difference between the estimated cost (including Soft Costs) to complete
the construction of the Improvements as determined by Lender and the amount of
the Loan which remains to be disbursed; or (b) have paid for development and
construction costs (including Soft Costs) in an amount, so that the amount of
the Loan which remains to be disbursed with respect to the Improvements, shall
at all times be sufficient, in the sole judgment of Lender, to complete the
Improvements.

         5. NO RELIANCE BY THIRD PARTIES. All conditions of the obligations of
Lender to make advances hereunder are imposed solely and exclusively for the
benefit of Lender and its assigns and no other person shall have standing to
require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make advances in the absence of
strict compliance with any or all thereof and no other person shall, under any
circumstances, be deemed to be beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender at any time if in its
sole discretion it deems it advisable to do so.

         6. NOTICES. Any notice report, demand or other instrument authorized or
required to be given or furnished under this Agreement to Lender or Borrower
shall be deemed given or furnished (i) when addressed to the party, at the
address of such party hereinbefore set forth, and delivered at such address, for
which a written receipt is received, (ii) one (1) business day after being
delivered to a reputable overnight mail service or (iii) one (1) business day
after being transmitted by facsimile, with receipt confirmed, followed by
delivery on the next business day of a copy by the method in clause (ii). Either
party may change the address to which any such notice, report, demand or other
instrument is to be delivered or mailed, by furnishing written notice of such
change to the other party, but no such notice of change shall be effective
unless and until received by such other party.

         7. PAROL EVIDENCE. Neither this Agreement nor any provision hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.

         8. MERGER. This Agreement and the other Loan Documents set forth the
entire agreement between the parties hereto, and all prior understandings or
communications between the parties are merged in this Agreement and the other
Loan Documents.

         9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument, and any of the parties or signatories hereto may execute this
Agreement by signing any such counterpart.

         10. WAIVER BY LENDER. The Lender shall at all times and at any time
have the right, privilege and power to waive any of the obligations of Borrower
hereunder, and such waiver shall not be deemed a modification of this Agreement.


                                       21
<PAGE>


         11. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Connecticut under the substantive laws of such State and shall be
construed, interpreted, enforced and governed by and in accordance with the laws
of such State applied to contracts entered into and to be wholly performed
within such State.

         12. BINDING EFFECT. This Agreement shall be binding upon Borrower, its
successors, assigns and legal representatives, and inure to the benefit of
Lender, its successors, assigns and legal representatives.

         13. SEVERABILITY. Unenforceability for any reason of any provision of
this Agreement shall not limit or impair the operation or validity of any other
provision of this Agreement or any other of the Loan Documents, and this
Agreement shall be construed as if such unenforceable provision had never been
contained herein.


                                    ARTICLE 9
                              CONVERSION PRIVILEGE

         1. During the first twelve (12) months of the Loan, the aggregate
unpaid principal amount of the Third Note, at the election of the Lender or any
subsequent holder of the Third Note, may be converted to shares of voting Common
Stock of the Borrower equal to 150% of the average closing price for the stock
for the twenty (20) day trading period preceding the notice of conversion. After
the first twelve (12) months of the Loan, the aggregate unpaid principal amount
of the Third Note, at Lender's election, may be converted to shares of voting
Common Stock of the Borrower at a price equal to the then outstanding unpaid
principal balance of the Third Note divided by either (i) the average closing
price per share of the stock for the twenty (20) trading days preceding the
notice of conversion if the stock is registered and publicly traded or (ii) if
the stock is not registered and publicly traded within twelve (12) months from
the date of Closing, the lesser of $12.00 per share or the lowest price per
share of (A) capital stock issued by the Borrower in the private offering of its
capital stock occurring most recently prior to the notice of conversion, or (B)
warrant for voting common stock issued by Borrower most recently prior to the
notice of conversion.

         2. The aggregate unpaid principal amount of the Third Note may be
converted in full by the surrender of the Third Note, with the notice of
conversion affixed thereto duly executed by the Lender (or by such subsequent
holder thereof), to the Borrower at its chief executive office at Five Science
Park, New Haven, Connecticut. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which the
Third Note shall have been so surrendered to the Borrower; and at such time the
rights of the Lender (or such subsequent holder of the Third Note) shall cease,
and the Lender (or such other person or entity in whose name or names any
certificate or certificates for shares of capital stock of the Borrower shall be
issuable upon such conversion) shall be deemed to have become the holder or
holders of record thereof.


                                       22
<PAGE>


         3. Within ten (10) business days after the conversion of the aggregate
unpaid principal amount of the Third Note, the Borrower will pay to the Lender
(or such subsequent holder of the Third Note) all interest accrued on such
converted amount to and including the date of conversion, without any adjustment
of such interest in respect of any dividend or other distribution payable on the
voting Common Stock of the Borrower issued upon such conversion.

         4. As promptly as practicable after the conversion of the Third Note,
and in any event within thirty (30) days thereafter, the Borrower at its expense
(including the payment by the Borrower of any applicable issue taxes) will issue
and deliver to the Lender (or such subsequent holder of the Third Note), a
certificate or certificates for the number of shares of voting Common Stock of
the Borrower issuable upon such conversion; provided that the certificate or
certificates shall not be delivered until the Lender (or such subsequent holder
of the Third Note) shall have delivered to the Borrower evidence of the
cancellation of the Third Note, termination of all security interests and
release of all mortgage filings in connection therewith.

         5. If there shall occur any capital reorganization or reclassification
of the Borrower's capital stock, then, as part of any such reorganization or
reclassification, as the case may be, lawful provision shall be made so that the
Lender (or any subsequent holder of the Third Note) shall have the right
thereafter to receive upon the conversion of the Third Note the kind and amount
of shares of stock or other securities or property which the Lender (or any
subsequent holder of the Third Note) would have been entitled to receive if,
immediately prior to any such reorganization or reclassification, as the case
may be, the Lender (or such subsequent holder of the Third Note) had held the
number of shares of voting Common Stock of the Borrower which were then able to
be purchased upon the conversion of the Third Note; PROVIDED, HOWEVER, the
Lender (or any subsequent holder) shall not have the right described above if
the event giving rise to the right shall have the same proportionate dilutive
effect on all other holders of Common Stock of the Borrower. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Borrower) shall be made in the application of the provisions
set forth herein with respect to the rights and interest thereafter of the
Lender (or such subsequent holder of the Third Note) such that the provisions
set forth in this Section 9.6 shall thereafter be applicable, as nearly as is
reasonably practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the conversion of the Third Note.

         6. The Borrower will not, by amendment of its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, issue or sale of securities or otherwise, avoid or take any action which
would have the effect of avoiding the observance or performance of any of the
terms to be observed or performed hereunder by the Borrower.

         7. The Borrower shall not be required upon the conversion of the Third
Note to issue any fractional shares, but shall make an adjustment therefor in
cash on the basis of the fair market value per share of voting Common Stock of
the Borrower, as determined in good faith by the Board of Directors of the
Borrower.


                                       23
<PAGE>


         8. The shares of Common Stock of the Borrower issued upon the
conversion of the Third Note shall not be sold or transferred unless either (i)
they first shall have been registered under the Securities Act of 1933, as
amended (the "Act"), or (ii) the Borrower first shall have been furnished with
an opinion of legal counsel, reasonably satisfactory to the Borrower, to the
effect that such sale or transfer is exempt from the registration requirements
of the Act.

         9. The Borrower covenants and agrees that all shares of voting Common
Stock of the Borrower that may be issued upon the conversion of the Third Note
will, upon issuance, be validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue thereof. The
Borrower further covenants and agrees that it will not amend its certificate of
incorporation to eliminate as an authorized class of capital stock that class
denominated as " voting Common Stock" on the date hereof. The Borrower further
covenants and agrees that it will pay when due and payable any and all federal
and state taxes which may be payable in respect of the issue of the Third Note
or any voting Common Stock of the Borrower or certificates therefor issuable
upon the conversion of the Third Note. The Borrower further covenants and agrees
that the Borrower has and will at all times have authorized and reserved, free
from preemptive rights which have not been waived, options, warrants or other
contractual claims, rights or reservations, a sufficient number of shares of
voting Common Stock of the Borrower to provide for the conversion of the Third
Note.

         10. In case at any time:

                  (a) the Borrower shall declare upon the [Class A] Common Stock
of the Borrower any dividend (other than in common stock) or other distribution
to the holders of the voting Common Stock of the Borrower;

                  (b) the Board of Directors of the Borrower shall authorize any
sale of all or substantially all of its assets to, another person or entity;

                  (c) the Board of Directors of the Borrower shall authorize a
voluntary dissolution, liquidation or winding-up of the Borrower;

                  (d) the Borrower shall become subject to involuntary
dissolution, liquidation or winding-up; or

                  (e) all or a substantial portion of the voting Common Stock of
the Borrower is to be sold,

then, in any one of more of such cases, the Borrower shall give notice to the
Lender (or any subsequent holder of the Third Note) of the date on which (a) the
books of the Borrower shall close or a record shall be taken for such dividend
or distribution, or (b) such sale, dissolution, liquidation or winding-up shall
take place or be voted upon by stockholders of the Borrower, as the case may be.
Such notice shall also specify the date as of which the holders of records of
the stock shall participate in such dividend or


                                       24
<PAGE>


distribution, or shall be entitled to exchange their capital stock of the
Borrower for securities or other property deliverable upon such sale,
dissolution, liquidation or winding-up, as the case may be. Such notice shall be
given not less than five (5) and not more than ninety (90) days prior to the
record date or the date on which the Borrower's transfer books are closed in
respect thereto, and such notice shall state that the action in question or the
record date is subject to the effectiveness of a registration statement or to a
favorable vote of stockholders, if either is required.

         11. No provision hereof, in the absence of affirmative action by the
Lender (or any subsequent holder of the Third Note) to convert the Third Note to
shares of voting Common Stock of the Borrower, and no mere enumeration herein of
the rights or privileges of the Lender (or any subsequent holder of the Third
Note), shall give rise to any liability of the Lender (or any subsequent holder
of the Third Note) for the conversion price or as a stockholder of the Borrower,
whether such liability is asserted by the Borrower or by creditors of the
Borrower.

         12. In the event that the Borrower intends to prepay the principal
balance of the Third Note at such time when the Lender (or such subsequent
holder of the Notes) has the right to convert the Third Note to shares of voting
Common Stock of the Borrower as provided in this Section 9, the Borrower shall
give the Lender five (5) Business Days notice to allow the Lender to exercise
its conversion privileges hereunder.

         IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year first above written.

Witnesses:



                                        CONNECTICUT INNOVATIONS,
-------------------------------         INCORPORATED



                                        By /s/ Victor Budnick
-------------------------------            ------------------------------------
                                           Its President and Executive Director



/s/ Jean Bernardi                       GENAISSANCE PHARMACEUTICALS, INC.
-------------------------------



/s/ Regina M. Sweeney                   By /s/ Gerald Vovis
-------------------------------            -----------------------------------
                                           Its Senior Vice President, Genomics



                                       25

</TEXT>
</DOCUMENT>
