Common use of Lilly Clause in Contracts

Lilly. Under its agreement with Lilly, the Company received $5.0 million in August 1994 as an advance against Lilly's future purchases of bulk product from the Company. This payment was recorded as deferred revenue due to the refundability of the amount received. In May 1996, the Company amended its Sales and Distribution Agreement with Lilly. The amended agreement states that the Company has no obligation to refund the $5.0 million advance should no bulk purchases be made by Lilly. The Company is still required to provide Lilly with material and pay them a 75% royalty on the purchase of such material, up to $5.0 million. In the quarter ended June 30, 1996, Seragen recorded the entire $5.0 million as revenue upon the amendment of the original agreement. The Company has determined that it is necessary to provide a $1.2 million reserve for the expected cost of providing the bulk material after paying a 75% royalty of up to $5.0 million. The Company has determined that it is necessary to restate its quarter ended June 30, 1996 to provide this reserve in the period in which the $5.0 million of revenue was recorded. Exhibit A Schedule of Exceptions