EXHIBIT 10.5

DURECT CORPORATION, INC.

All options granted hereunder shall be nonstatutory stock options.

If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan has been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock that are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option, or any withholding taxes due with respect to such exercise, shall be treated as not issued and shall continue to be available under the Plan. If Shares that were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan.

(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.

(ii) Each Outside Director shall be automatically granted an Option to purchase 20,000 Shares, (the "Initial Option") on the date on which such person first becomes an Outside Director after the effective date of this Plan, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy.

(iii) Each Outside Director, including an Outside Director who did not receive an Initial Option grant, shall be automatically granted an Option to purchase 5,000 Shares (the "Annual Option") on the date of each Annual Meeting of the Company's shareholders immediately following which such Outside Director is serving on the Board, provided that, on such date, he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting.

(iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.

(v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof.

(vi) The terms of each Initial Option granted hereunder shall be as follows:

(1) each Initial Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in
Section 9 below;

(2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each Initial Option, determined in accordance with Section 8 hereof;

(3) each Initial Option shall vest and become exercisable at the rate of thirty three and one-third percent (33 1/3%) of the Shares subject to the Initial Option on each of the first, second and third anniversaries of the date of grant of the Initial Option.

(vii) The terms of each Annual Option granted hereunder shall be as follows:

(1) each Annual Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in
Section 9 below;

(2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each Annual Option, determined in accordance with Section 8 hereof;

(3) each Annual Option shall vest and become exercisable at the rate of one hundred percent (100%) of the Shares subject to the Annual Option on the first anniversary of the date of grant of the Annual Option.

The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time.

to the Company's initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer

agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

For purposes of this Section 11(b), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such Change of Control, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the occurrence of such transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided however that if such consideration received in the transaction was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely

common stock of the successor corporation or its Parent equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction.

As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law.

DURECT CORPORATION, INC.

2000 DIRECTORS' STOCK OPTION PLAN

((Optionee))
((Optionee Address 1))
((Optionee Address 2))

Date of Grant                               ((Grant Date))

Vesting Commencement Date                   ((Vesting Start Date))

Exercise Price per Share                    ((Exercise Price))

Total Number of Shares Granted              ((Shares Granted))

Total Exercise Price                        ((Total Exercise Price))

Expiration Date                             ((Expir Date))

Vesting Schedule:                           This Option may be exercised,
----------------
                                            in whole or in part, in
                                            accordance with the following
                                            schedule: [_________ of the
                                            Option Shares shall vest and be
                                            exercisable on each _____
                                            anniversary of the Vesting
                                            Commencement Date.]

Termination Period:                         This Option may be exercised
------------------
                                            for 90 days after termination
                                            of Optionee's Continuous Status
                                            as a Director, or such longer
                                            period as may be applicable
                                            upon death or Disability of
                                            Optionee as provided in the
                                            Plan, but in no event later
                                            than the Expiration Date as
                                            provided above.

By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 2000 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement, all of which are attached and made a part of this document.

OPTIONEE:                                    DURECT CORPORATION, INC.

                                             By:__________________________
_____________________________
Signature
                                             Title:_______________________

_____________________________
Print Name

DURECT CORPORATION, INC.

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

(a) cash;

(b) check;

(c) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or

(d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Nonstatutory Stock Option Agreement and fully understands all provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Nonstatutory Stock Option Agreement.

DURECT CORPORATION, INC.

_______________________________ By:_________________________________
((Optionee))

Title:______________________________

The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Nonstatutory Stock Option Agreement.

To:       Durect Corporation, Inc.

Attn:     Stock Option Administrator

Subject:  Notice of Intention to Exercise Stock Option
          --------------------------------------------

Grant Number:                                __________________________

Date of Purchase:                            __________________________

Number of Shares:                            __________________________

Purchase Price:                              __________________________

Method of Payment of
Purchase Price:                              __________________________

Social Security No.:                         __________________________

The shares should be issued as follows:      __________________________

     Name:     __________________________

     Address:  __________________________

               __________________________

               __________________________

Signed: __________________________

Date: __________________________

CONFIDENTIAL
EXHIBIT 10.6

SECOND AMENDED AND RESTATED

DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

between

ALZA CORPORATION

and

DURECT CORPORATION

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

TABLE OF CONTENTS

PAGE

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

This Second Amended and Restated Development and Commercialization Agreement (the "Agreement") is effective as of April 28, 1999 ("Effective Date") between ALZA Corporation, a Delaware corporation ("ALZA"), and Durect Corporation, a Delaware corporation ("Durect").

A. ALZA and Durect have previously entered into that certain Development and Commercialization Agreement with an effective date of April 21, 1998 and subsequently entered into an Amended and Restated Development and Commercialization Agreement with an effective date of April 28, 1999 (collectively "Previous Agreement") for the development, manufacture and marketing of pharmaceutical products utilizing proprietary technology of ALZA relating to the DUROS(R) System for the controlled delivery of drugs in certain fields, as set forth herein.

B. The parties wish to amend such Previous Agreement and restate their understandings herein.

NOW THEREFORE, in consideration of the mutual covenants and agreements provided herein, the parties hereby agree as follows:

For purposes of this Agreement, the following terms shall have the respective meanings set forth below:

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

common control with, the designated party, but only for so long as the relationship exists. "Control" shall mean ownership of shares of stock having at least 50% of the voting power entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

To provide further clarification, the Durect Fields shall not include applications of any ALZA drug delivery technology other than applications of DUROS(R) Technology as set forth in this Agreement.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

with the Program, and any Technical Information developed by one party using any other Program Information or any of the other party's Confidential Information.

Subterritory A -- [* * *] Subterritory B -- [* * *] Subterritory C -- [* * *] Subterritory D -- [* * *]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

1.32 "Work Plan" and "Cost Estimate" shall have the meaning set forth

                ---------       -------------
in Section 2.3.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

reasonably necessary, in order to carry out its obligations. In the event Durect desires to initiate development work on a new product, it shall send to ALZA a written notice setting forth a description of the proposed new product and projected target dates for the filing of an IND, start of Phase III and filing of an NDA (each a "Milestone"), which target dates shall be reasonable by industry standards and shall be consistent with the timeline used by Durect for internal planning and presentation to investors. Upon ALZA's written approval of the target dates for the Milestones, which approval shall not be unreasonably withheld, the proposed new product shall be added as a Product Candidate to Schedule 1. From time to time, the parties will review the target dates for the Milestones in good faith and, by mutual written agreement, revise and update the target dates if necessary. Durect shall notify ALZA in writing when a Product Candidate is ready to pass into the clinical development stage as outlined in Exhibit C, in which event it shall be added as a Product to Schedule 2. Subject to the terms and conditions of this Agreement, the addition or deletion of a Product Candidate or Product to Schedule 1 or Schedule 2 shall be determined based on the reasonable, good faith judgment of Durect, provided that any proposed Product Candidate or proposed Product will not be added in the event that: (i) such proposed Product Candidate or proposed Product was within the past 12 months removed by ALZA from the Program pursuant to Section 2.5; or (ii) ALZA determines, reasonably and in good faith, based on medical or technical reasons, that the proposed Product Candidate or proposed Product is not suitable for development because development or Commercialization of such proposed Product or Product Candidate would be likely to be harmful to the reputation of ALZA and/or DUROS Technology, provided, however, that: (a) ALZA's determination pursuant to this clause (iii) shall be subject to review by a mutually acceptable third party expert in the event of disagreement by the parties as to such determination, and (b) ALZA shall not initiate development of such proposed Product Candidate (or proposed Product), pursuant to Section 5.3 or otherwise, for its own account or with a third party for a period of [***] from the date of ALZA's determination without first proposing such proposed Product Candidate (or proposed Product) to Durect for development and providing Durect with a period of [***] in which to accept or reject such proposed Product Candidate (or

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Proposed Product) in writing and diligently initiate development under the terms of this Agreement.

(b) Development work for the System may be performed by Durect or ALZA (to the extent agreed upon in the Work Plans). Durect shall have the right to subcontract to third parties development of System components (but not

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

System design). The subcontracting of all other System development work will be subject to the prior written consent of ALZA. If Durect desires to subcontract out the development of System components as permitted herein to any third party, prior to providing any information relating to Systems to such third party, Durect shall notify ALZA of the identity of such third party, and Durect shall enter into a confidentiality and invention assignment agreement with such third party in a form previously approved by ALZA which expressly makes ALZA a third- party beneficiary of such agreement and permits ALZA to directly enforce its terms. Unless agreed to in writing by ALZA, the rights granted to Durect to perform development work for the System pursuant to this Section 2.3 shall terminate after a change in control of Durect in which Durect becomes controlled by a third party company, in which event ALZA shall have the right to elect to perform all development work relating to the System and ALZA and Durect shall enter into a Work Plan for such System development work which shall provide for the continued diligent performance of such System development work so as to minimize disruption of Product timelines. If ALZA elects not to perform development work relating to the System after such change in control, then Durect shall continue to have the right to perform development work relating to the System as set forth in this Section 2.3. For the purposes of this Section 2.3, "control" shall have the same meaning as set forth in Section 1.1. All other Product development activities may be performed by Durect, ALZA (to the extent agreed upon in Work Plans) or subcontracted to third parties.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Fields in accordance with Exhibit F. If Durect fails to meet the diligence requirements relating to a Durect Field as set forth in Exhibit F, for which such failure continues for [* * *] after-the delivery of written notice thereof by ALZA, then ALZA's sole and exclusive remedy shall be to terminate the restrictions on ALZA provided for in Section 5.3 upon written notice from ALZA solely in the Durect Field in which such requirements were not met (or such Durect Field as is otherwise provided for in Exhibit F under "Consequences for Fields"), in which event such Durect Field shall be deemed to be eliminated from the "Durect Fields" definition, and thereafter no Product Candidates shall be added to Schedule 1 within such Durect Field and no Products shall be added to Schedule 2 for such Durect Field except for those Product Candidates existing at the time of such elimination and for which the screening stage has been or subsequently is successfully completed. Notwithstanding the elimination of any Durect Field hereunder, Durect shall continue to have rights to the Product Candidates and Products already included in Schedules 1 and 2 as of the date that such field is eliminated so long as it continues to meet its obligations for such Product Candidates and/or Products, including those set forth in Exhibit F, provided, however, that if Durect fails to meet such obligations with respect to a Product Candidate or Product and such failure continues for [* * * ] after the delivery of written notice thereof by ALZA, then ALZA may eliminate such Product Candidate or Product from this Agreement and ALZA shall have the rights set forth in Section 11.6.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Territory. ALZA may be delegated certain duties relating to clinical and regulatory activities under the Program on a Product-by-Product basis by mutual agreement as set forth in Work Plans. The CMC Section of any regulatory filing, to the extent it relates to the System, may be maintained by ALZA, in one or more of ALZA's Drug Master Files to the extent permissible under applicable laws and regulations, for which Durect shall have the right of reference for each Product hereunder. Durect shall prepare the CMC Section subject to ALZA's review and decision-making authority under Section 2.6(b).

(b) Notwithstanding the allocation of regulatory responsibilities in this Section 2.6, the representatives of each party shall have the right to review and comment upon all regulatory filings proposed to be made with respect to any Product for each country of the Territory as to which Durect maintains rights hereunder, provided that for any such comments to be considered, the comments shall be provided within [* * *] after the receipt of any draft filings for review. To the extent ALZA performs review of regulatory filings or attends meetings with regulatory agencies as to matters beyond the requirements of its activities under the Program (and not at Durect's request), it shall do so at its cost and expense. Durect shall have the right to make final decisions with regard to any regulatory filings relating to any Product, provided that notwithstanding anything to the contrary herein, due to ALZA's continuing interest in development and production of Systems for multiple applications, ALZA shall have the right to approve regulatory matters relating to the System or its function, manufacture or safety, including manufacturing specifications and the relevant portions of the CMC Section of an NDA or its equivalent. Each party shall with reasonable promptness provide the other party with copies of all correspondence from or to such regulatory authorities concerning each such Product. ALZA shall have the right to participate in any conference or meeting with regulatory authorities with respect to each Product. Durect shall notify ALZA in writing of its receipt of regulatory approval to market the Product in any country of the Territory within [* * *] after receipt of any such approval.

(c) Representatives of each party shall have the right to review and comment on all proposed protocols for any clinical studies to be conducted by

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

either party with respect to any Product, and each party shall make such changes in such protocols as may be reasonably requested by the other in writing within
[* * *] after receiving the proposed protocols, provided that Durect shall make final decisions on the protocols and their implementation. To the extent ALZA conducts review of protocols as to matters beyond the requirements of its activities in the Program (and not at Durect's request), ALZA shall do so at its cost and expense.

(d) From time to time during the term of this Agreement, ALZA may wish to include certain patent information in the patent certification of an NDA filed or which may be filed by or on behalf of Durect under this Agreement relating to a Product. If ALZA advises Durect in writing of the patent number and expiration date, or such other information as the FDA may from time to time require, of patents to be included in the NDA patent certification or any amendment thereof, Durect shall include such information in the NDA, or amend the NDA, within the applicable time limits required by law.

(e) Nothing contained in this Section 2.6 or elsewhere in this Agreement is intended to conflict with any applicable regulations and laws relating to procuring and maintaining regulatory approval for the Products in all countries of the Territory where the Products will be developed and Commercialized, and in the event of any conflict with the terms of this Agreement and applicable laws, the applicable laws will control.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

subject to Section 4.1, allow personnel of the other party to consult with its staff at mutually agreeable times, to discuss and review such Confidential Information and Program Information. All Confidential Information and Program Information heretofore or hereafter disclosed by either party to the other relating to the subject matter hereof shall be deemed to have been disclosed pursuant to this Agreement and shall be subject to the provisions of this Agreement including, but not limited to, Section 4.1.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

parties under appropriate terms and conditions including confidentiality provisions substantially equivalent to those in this Agreement for consulting, manufacturing, development, external testing and marketing trials with respect to the Product; (C) published, if and to the extent such publication has been approved in writing by ALZA, to the extent it relates to ALZA Confidential Information, or Durect, to the extent it relates to Durect Confidential Information; or (D) disclosed to the extent required by applicable laws or regulations or as ordered by a court or other regulatory body having competent jurisdiction. In each of the foregoing cases, the recipient will use its reasonable efforts to limit the disclosure and maintain confidentiality to the extent possible.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

[***] and (iii) the rights of ALZA under this Agreement shall not be prejudiced or in any other way reduced or limited by such subcontracting arrangement. Subject to the terms and conditions of this Agreement, ALZA hereby grants to Durect and its Affiliates a license under Intellectual Property Rights covering ALZA Confidential Information (including information owned by ALZA as of April 21, 1998 relating to catheters and mechanisms for docking catheters to the Systems), ALZA Program Information, and the Systems solely to the extent necessary for Durect to Commercialize and Manufacture (subject to Section 5.6 hereof) Products, to perform development activities as contemplated herein, and to otherwise perform its obligations in accordance with this Agreement.

(b) Subject to the terms and conditions of this Agreement, including but not limited to Section 5.3, Durect shall have the exclusive right to Commercialize each Product on Schedule 2: (A) in Subterritories A, B and C for a period of [* * *] from the [* * *] in such Subterritory; (B) in Subterritory D for a period of [* * *] from the [* * *]

(c) Subject to the terms and conditions of this Agreement, Durect shall have an option to extend year-by-year the period of Commercialization rights granted under Section 5.1(a) on a Product-by-Product, Subterritory-by-Subterritory basis (with respect to the Products, Subterritories and countries for which Durect has retained rights), by written notice to ALZA given at least [* * *] prior to the expiration of Durect's rights under Section 5.1(b) for such Product in such Subterritory.

(d) If the option to extend Commercialization rights is exercised in accordance with Section 5.1(c) for any Product in any Subterritory, Durect shall commence making payments automatically under the provisions of
Section 6.3 for such

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Product with respect to such Subterritory as the obligations to make Product Payments for such Product in such Subterritory under Section 6.1 expire. In the event that Durect exercises its option to extend its rights described in Section 5.1(c), the Commercialization rights granted under Section 5.1(a) for such Product in such Subterritory shall continue for the extension term(s) and under the conditions set forth in Section 6.3.

[***]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

for which neither Durect or its Affiliates or Subcontractors are, nor have been for at least the preceding [* * *], diligently seeking regulatory approval to Commercialize the Product in such country (the "Identified Country"). ALZA and Durect shall attempt in good faith, for up to [* * *] from the date of such notice, to seek a mutually acceptable means of Commercializing the Product in such Identified Country, which may include both ALZA and Durect negotiating an agreement with a third party. If after such [* * *] no such means has been agreed upon, then ALZA may, by written notice to Durect, terminate the rights of Durect hereunder to Commercialize such Product in such Identified Country. For each Product with respect to which Durect does not retain Commercialization rights in any particular country ("Terminated Countries"), ALZA shall have the rights to such Product in such Terminated Countries in accordance with Section 11.6.

(A) ALZA may not itself develop or Commercialize, nor grant rights to a third party to develop or Commercialize any product using the System which incorporates Sufentanil so long as Durect and/or a Subcontractor (including ALZA) is diligently developing or Commercializing the non- catheterized Product using Sufentanil as the Drug ("Sufentanil Product") in accordance with the terms of this Agreement.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(B) In the event ALZA (or a third party to whom ALZA has granted rights) Commercializes a product using the System which incorporates an opioid compound (other than Sufentanil) as the active ingredient, then starting upon the FDA approval for such other product and during such period as Durect and/or a Subcontractor is diligently developing or Commercializing the Sufentanil Product in accordance with the terms of this Agreement, [***]

(C) In the event that ALZA (or a third party to whom ALZA has granted rights) Commercializes the Sufentanil Product as a result of ALZA's exercise of its option right under Section 5.5(a), then if ALZA (or any third party to whom ALZA has granted rights) commences Commercialization of any product using the System which incorporates any opioid other than Sufentanil, then commencing upon the FDA approval of such other product, [* * *] in which event [* * *]

If Durect can reasonably show that a third party contractor of ALZA is manufacturing or Commercializing products using the System, which products are being used in the Durect Fields, then ALZA agrees to notify such third party contractor of Durect's rights in the Durect Fields and, to the extent it has the legal right to do so, to use its reasonable commercial efforts to stop such third party from manufacturing or Commercializing such products in the Durect Fields. However, Durect acknowledges that ALZA may not have the right to limit uses of products that are not designed for use in a Durect Field. The obligations of ALZA under Section 5.3 shall continue only for such period as is covered by specifically agreed-upon diligence requirements as set forth in
Section 2.5 or Exhibit F.

(b) From time to time during the term of this Agreement, Durect and ALZA may, at their discretion, discuss opportunities to add either additional products or additional fields of products to the definition of Durect Fields under this Agreement, by written agreement of the parties; provided that neither party shall be obligated to enter into negotiations or into such an agreement, or to reserve for the other party rights to any additional products or fields until such time as an agreement is

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

made to that effect. In addition, if any such additional Products, or Products in such additional fields, involves clinical applications in the areas of [* * *] or delivery of drugs to the [* * *] and subject to the exception provided in the next sentence below, then ALZA shall have an option to obtain exclusive Commercialization rights to such Products as set forth in Section 5.5(a). The foregoing option to ALZA shall not apply to any Product which Durect Commercializes through a Subcontractor who holds exclusive rights (by ownership or exclusive license) to a United States patent which: (i) covers the Drug incorporated into such Product, or the Drug's manufacture or use which but for a license from the Subcontractor would preclude Durect from the development, Commercialization or manufacture of such Product incorporating such Drug, and
(ii) will provide at least [***] from the time Durect and the Subcontractor enter into an agreement for the development and/or Commercialization of such Product (any such Product shall herein be referred to as "Proprietary Product").

(c) Notwithstanding Section 5.3(a), if ALZA is requested by a third party to develop a product using the System without a catheter, which product is designed for use in the Cancer Antigen Field, then ALZA shall notify Durect in writing of such opportunity. Durect shall notify ALZA within [* * *] after the receipt of such notice from ALZA as to whether or not Durect wishes to pursue such opportunity as a Product under this Agreement with such third party. If Durect and such third party enter into a written agreement providing for the development and Commercialization of the product within [* * *] after Durect's receipt of the notice from ALZA described in the first sentence of this Section 5.3(c), then such product shall be developed as a Product under this Agreement, and if such condition has not been met, then ALZA shall be free to pursue such opportunity using the System without a catheter with such third party; provided, however, that: (A) ALZA may not develop or grant rights to a third party to develop or Commercialize any such product using the System in the Cancer Antigen Field which product incorporates the same Drug as a Product which is then being developed or Commercialized diligently by Durect or a Subcontractor under this

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Agreement in the Cancer Antigen Field; and (B) for a period of [* * *] ("Exclusion Period"), ALZA will refrain from developing or granting rights to a third party to Commercialize any such product in the Cancer Antigen Field which product is designed for the same clinical use for which a Product is then being developed or Commercialized diligently by Durect or a Subcontractor under this Agreement in the Cancer Antigen Field. Durect may extend such Exclusion Period, by written notice to ALZA at least [* * *] before expiration of such Exclusion Period, by up to an additional [* * *] if Durect (i) has met and continues to meet all of its diligence requirements under Section 2.5 in a timely manner, and
(ii) is [* * *] in the Cancer Antigen Field, but in no event shall any extension to the Exclusion Period be granted beyond [* * *] Subject to the foregoing,
[* * *]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

all rights of Durect in such Durect Field shall terminate; provided, however, such deletion of any Durect Field by Durect shall not affect the rights and obligations of the parties with respect to any other Durect Fields not deleted in accordance with this Section 5.4.

(i) enter into an agreement with Durect to develop and Commercialize such Product, in which case the parties shall negotiate in good faith an agreement for the development and Commercialization of such Product, which agreement shall require ALZA to Commercialize such Product with the same degree of diligence as required of Durect under Section 5.2; or

(ii) not obtain Commercialization rights to such Product, in which event Durect shall be entitled to enter into an agreement with a third party to develop and Commercialize such Product; or

(iii) solely with respect to an Option Product, extend the Option Period by increments of [***] until such time as [* * *] and thereafter by increments of [***] until such time [***] (each increment an "Extension Period"), provided that ALZA shall be required to fund development work for such

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Product during each such Extension Period, but provided further that ALZA shall not be required to fund development work on more than [***] in order to extend its options for all Products in such Durect Field. [***]

If ALZA elects to exercise its option to the Sufentanil Product or any other Product subject to this Section 5.5(a) at any time during the Option Period or any Extension Period, and the parties are unable to agree on terms for such Commercialization rights within [***] after such exercise, either party may elect to submit the determination of such terms to special arbitration in accordance with Section 15, provided that judgment must be rendered no later than [***] after the commencement of arbitration (as defined in Section 15). In such arbitration, the arbitrators shall be instructed to make a determination as to the fair market value of the rights granted to the Product in question as between two independent companies negotiating at arms' length and shall determine appropriate terms, including reasonable diligence provisions, taking into account, among other things, evidence presented concerning the terms agreed upon by other parties in arms' length negotiations for products at a similar stage of development and with similar market potential. Upon such decision by the arbitrators, the decision shall become a binding agreement of the parties.

[***]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

[***]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

hereto, and ALZA and Durect shall enter into a written supply agreement for such manufacture and supply to Durect, its Affiliates and Subcontractors which shall include such provisions for interim supply to ensure uninterrupted supply of Products (at a price to Durect of ALZA's [* * *] until ALZA is able to fully meet Durect and its Affiliates and Subcontractor's requirements after such a change in control. If ALZA elects not to supply Durect and its Affiliates and Subcontractor's requirements after such a change in control, then Durect shall continue to have the right to Manufacture Product as set forth in this Section
5.6. For the purposes of this Section 5.6(a), "control" shall have the same meaning as set forth in Section 1.1.

(b) The parties acknowledge that ALZA has provided Durect with reasonable assistance (including making available scientific, engineering and manufacturing and other personnel) and transferred to Durect appropriate documentation relating to Systems manufacture in accordance with a work plan agreed upon by the Parties. All such materials and information shall remain the sole property of ALZA. At the request of ALZA, Durect shall promptly transfer back to ALZA any and all improvements, documentation or other Technical Information that may be developed by Durect or its subcontractors relating to Manufacture of Systems. To the extent such transfer requires technical assistance from Durect, ALZA shall reimburse Durect for the cost of such assistance as determined in accordance with Exhibit E.

(c) All Manufacturing of Product by Durect hereunder shall be in strict accordance with all applicable laws and regulations, including the "current good manufacturing practices" regulations of the U.S. Food and Drug Administration. If Durect desires to subcontract any part of manufacturing of Systems as permitted herein to any third party, prior to providing any manufacturing information relating to Systems to such third party, Durect shall notify ALZA of the identity of such third party, and Durect shall enter into a confidentiality and invention assignment agreement in a form previously approved by ALZA with such third party which expressly makes ALZA a third-party beneficiary of such agreement and permits ALZA to directly enforce its terms.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) Product Payments on Net Sales of Product due under this
Section 6.1 for any calendar year shall be based on the prior calendar year's total Net Sales of Product in the Territory, with payment rates for such calendar year to be the applicable percentages set forth herein. The applicable payment rate shall be calculated by [* * *] but shall not be [* * *]. During the first calendar year of Product sales, the payment rate will be [* * *].

Examples:

     Sales in Year X-1*   Payment Rate
         ($ Million)      For Year X**
     ------------------   ------------

[* * * * * *]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

[* * * * * *]
[* * * * * *]
[* * * * * *]
[* * * * * *]

* Net Sales in the Territory by Durect, its Affiliates and Subcontractors for the prior calendar year. ** The applicable payment rate for the current calendar year.

(b) In addition to Product Payments under Section 6.1(a), Durect shall make payments to ALZA equal to [* * *] with respect to Products after deducting from such consideration: (i) any tax or other government charge (other than income tax) levied on such consideration to the extent borne by Durect, its Affiliates and Subcontractors and (ii) any payments (or portions thereof) that constitute reimbursement of (and are determined based upon) genuine research, development and/or manufacturing costs incurred by Durect, its Affiliates and Subcontractors including but not limited to reimbursement of expenses for reagents, materials, equipment, salaries, testing, clinical trials, insurance and any overhead reasonably attributable to such research, development or manufacture.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Subterritory        Minimum Payment Commences With
------------        ------------------------------

A or B*             First Minimum Payment Year
A or B**            Second Minimum Payment Year
C                   Third Minimum Payment Year

* Whichever of Subterritory A or B in which the Product is first approved in a Major Market Country. ** The other of Subterritory A or B.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

in such country, ALZA and Durect will use all reasonable efforts to oppose the grant of such license or rights and to obtain the highest royalty or payment rate possible if such compulsory license cannot be avoided. In the event that a third party obtains such compulsory license in such country, Durect shall have the benefit of any more favorable payment terms with respect to such Product in such country as is granted under such compulsory license or right, from the date of first commercial sale by the third party of the Product in such country.

(iii) Simultaneously with the execution of this Agreement, Durect is issuing to ALZA warrants to purchase, 1,000,000 shares of Durect Common Stock pursuant to the Warrant Agreement attached hereto as Exhibit J.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Period as to which payments are due. Each payment under this Section 7.2 shall be accompanied by a report setting forth the calculations of the amounts payable to ALZA on a Product-by-Product and Subterritory-by-Subterritory basis.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

and the accuracy of such books of account. Such examination shall be made during normal business hours at the place of business of the party being audited. The parties agree that information furnished as a result of any such examination shall be limited to a written statement by such certified public accountants to the effect that they have reviewed the books of account of the party being audited and either (i) the amounts of the payments due or charges made under this Agreement are in conformity with such books of account and the applicable provisions of this Agreement or (ii) setting forth any required adjustments. The fees and expenses of the accountants performing such verification shall be borne by the party requesting the audit. If any such audit shows any underpayment or overcharge, a correcting payment or refund shall be made within 30 days after receipt of the written statement described above. Notwithstanding the foregoing, if any such audit results in any underpayment or overcharge with respect to any Payment Computation Period of more than the greater of (i) [[* * *] or (ii) [[*
* *] of the payment or charge actually due, then the party being audited shall bear all costs of the audit.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

the foregoing, all Program Information relating to the System or its manufacture or to any combination of Systems with other components, active agents, features or processes and any Technical Information developed by Durect (whether or not pursuant to the Program) that relates to DUROS Technology shall be the sole property of ALZA (and shall be included in ALZA Technical Information for purposes of this Agreement). Durect shall promptly disclose to ALZA any such Program Information and Technical Information, and Durect and its personnel and Subcontractors working on the Program shall execute and deliver such assignments, confirmations of assignments, or other written instruments as are necessary to vest in ALZA clear and marketable title to Program Information assigned to ALZA hereunder. In addition to the foregoing, to the extent Durect develops any Technical Information relating to [***] and subject to ALZA abiding by the terms and conditions of the Amended and Restated Market Stand-Off Agreement entered into between Durect and ALZA dated June 19, 1998 and attached hereto as Exhibit H, Durect grants to ALZA a worldwide, royalty free, nonexclusive license, with the right to grant sublicenses, to any such Technical Information.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) The party becoming so aware shall forthwith give written notice to the other ("Notice"). If there is disagreement as to whether the act complained of is in fact an infringement of an ALZA patent, the parties shall refer such issue to a mutually acceptable independent patent counsel. The costs incurred in this regard shall be shared equally.

(b) If, with or without the advice of independent counsel, ALZA desires to litigate such alleged third party infringement, ALZA shall bear all costs thereof and shall be entitled to all recoveries. ALZA shall have the right to join Durect in such suit at ALZA's cost and expense. ALZA shall notify Durect within 90 days after the delivery of Notice by one party to the other above whether it intends to so litigate.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(c) If ALZA determines not to litigate in accordance with paragraph
(b) above, the parties will promptly confer, and if both parties jointly desire to litigate such third party infringement, they shall share any costs thereof and any recovery therein equally, unless otherwise agreed by the parties.

(d) With respect to alleged infringement of such patents, the claims of which are limited to applications of DUROS Technology in the Durect Fields, and which do not include claims for other applications, if no action is taken or agreed to be taken under paragraph (b) or (c) above within 90 days after the Notice and (i) the unit sales volume of the Infringing Product in any country is equal to or exceeds [* * *] of the unit sales volume by Durect and its Affiliates and Subcontractors of the Product that is substantially similar to the Infringing Product in such country, and (ii) the patent counsel described in paragraph (a) above has opined that the act complained of is, or most likely is, an infringement in such country, then Durect may, in its sole discretion, and at its sole cost and expense, bring suit in its name (or, if ALZA is an indispensable party, in the name of and on behalf of ALZA) to restrain such third party infringement in such country, and in such instance, Durect shall be entitled to receive and retain, for its own use and benefit, any recovery awarded in such suit.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Agreement upon [* * *] written notice to the breaching or defaulting party. Failure to pay any amounts due under this Agreement within [* * *] after notice that such amounts are overdue shall be deemed a material breach of this Agreement.

(b) Either party may terminate this Agreement and the rights granted hereunder, effective upon giving written notice of such termination to the other party, if such other party is liquidated or dissolved, or enters into any proceeding, whether voluntary or otherwise, in bankruptcy, reorganization, or arrangement for the appointment of a receiver or trustee to take possession of such other party's assets or any other proceeding under any law for the relief of creditors, or makes an assignment for the benefit of creditors.

11.5 [***]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

[***]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

to a specified country or countries). Notwithstanding the foregoing, in the event of the elimination of a Product under this Agreement, if Durect has developed and successfully filed an NDA covering such Product prior to such elimination, then in consideration of the rights granted ALZA respecting such Product ALZA shall pay Durect [* * *] after the obligation to make payments under the preceding sentence has expired, provided that the obligations to pay royalties shall expire for the Territory [* * *] In each case, such payments by ALZA will be subject to adjustments under the same terms as are applicable to Durect's Product Payment obligations under this Agreement.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

such Durect Indemnitee: (i) provides reasonable notice to ALZA of such Loss and permits ALZA to control, in a manner not adverse to such Durect Indemnitee, the defense, settlement, adjustment or compromise of any such Claim using counsel reasonably acceptable to such Durect Indemnitee; and (ii) reasonably cooperates with ALZA in the defense of any such Claim, subject to ALZA's payment of all reasonable costs and expenses associated with such cooperation, and further provided that ALZA shall not be liable for any such costs or expenses incurred without its prior written authorization. ALZA shall not enter into any settlement that affects a Durect Indemnitee's rights or interest without prior written approval by the Durect Indemnitee. The Durect Indemnitee shall have no authority to settle any claim for Losses on behalf of ALZA. The Durect Indemnitee shall have the right to participate, at its own expense, in the defense of any such claim or demand to the extent it so desires.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties.

If to ALZA:    ALZA Corporation
               1900 Charleston Rd.
               Mountain View, CA  94309

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Attention: General Counsel

If to Durect: Durect Corporation 10240 Bubb Road Cupertino, CA 95014 Attention: Chief Executive Officer

All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 16.4.

(a) Neither party shall, without the prior written consent of the other party, disclose to third parties, nor originate any publicity, news release or public announcement, written or oral, whether to the public, the press, stockholders or otherwise, referring to the existence or terms of this Agreement, including its existence, the subject matter to which it relates, the performance under it or any of its specific terms and conditions, except such announcements or disclosures as, in the opinion of the counsel for the party making such announcement, are required by law, including United States securities laws, and each party may disclose the existence of this Agreement and the material terms and conditions hereof under circumstances that

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

reasonably ensure the confidentiality thereof to: (i) any government or regulatory authorities, including without limitation the United States Securities and Exchange Commission to the extent required by applicable law,
(ii) its legal representatives, advisors and prospective investors, and (iii) to prospective Subcontractors to the extent required for entering into agreements with such Subcontractors. If a party decides to make an announcement it believes to be required by law with respect to this Agreement, it will give the other party such notice as is reasonably practicable and an opportunity to comment upon the announcement.

(b) Durect shall submit for review to ALZA, and obtain ALZA's prior written consent for any reference to or description of ALZA or its technology, proprietary rights or products that is to be disseminated to third parties.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Agreement (including the exhibits hereto) is intended to define the full extent of the parties' respective agreements, arrangements and obligations with respect to the subject matter hereof, and each party represents that it is not relying on any such other discussions, conversations, negotiations, correspondence, writings and memoranda in executing and delivering this Agreement or performing its respective obligations hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their duly authorized representatives.

DURECT
CORPORATION                             ALZA CORPORATION


By: /s/ Peter Staple                    By: /s/ James E. Brown
    __________________________              __________________________

Title: Executive Vice President         Title:  Chief Executive Officer
      __________________________              __________________________

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

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**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT B - Manufacturing Process Transfer

[work plan attached]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT C - Development Stages

[* * *]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT D - Countries of Sub-Territory C [***]

[* * *]

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT E - Cost Calculation for Purposes of Section 2.3(a)

Development Costs are equal to the sum of (i) research expenses, (ii) general and administrative expenses and (iii) capital asset expenditures.

(i) Research expenses include both direct expenses and indirect expenses.

(a) Direct expenses include direct research salaries (including project management and temporary labor), clinical expenses, supplies and other expenses incurred specifically in connection with the Program.

(b) Indirect expenses include general research management and support costs of the research and product development organization. Indirect expenses are allocated to all projects and billed to clients at a fixed rate* of 160% of direct research salaries.

Examples of items included in direct and indirect expenses are listed on Exhibit E-1

(ii) General and administrative expenses are allocated among the research and product development, manufacturing and marketing organizations. The portion allocated to the research and product development organization is then allocated to all research and development projects and billed to clients at a fixed rate* of 80% of direct research salaries.

Examples of items included in general and administrative expenses are listed on Exhibit E-1.

(iii) Capital asset expenditures are the actual costs of new capital assets acquired specifically for the project.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT E-1 - Examples of Research Expenses

Direct Expenses

Direct research salaries*
Project clinical expenses and outside services Project specific supplies
Project travel and related expenses
Miscellaneous project expenses
Regulatory and filing fees and maintenance payments

Indirect Expenses

Research management and indirect salaries* General research supplies and materials
General research consulting and outside services Facilities expenses
Telephone and communications
Equipment depreciation, rent, maintenance and services Research travel and related expenses
Patent and trademark expenses
Miscellaneous indirect research expenses

Corporate management, administrative, and indirect salaries* Telephone and communications
Equipment depreciation, rent, maintenance and services Board of directors and corporate consulting Annual audit, accounting and legal expenses Facilities expenses
Information services (data processing) expenses Interest expense
Miscellaneous general and administrative expenses

*Salaries include fringe benefits at a fixed rate of 52% of salaries. This fixed rate will not be changed prior to January 1, 1999 and, if changed on or after January 1, 1999, such changes will be limited to not more than one change per calendar year and shall be a maximum of 10% of the rate in effect at the time of the increase.

EXHIBIT F - Minimum Diligence Obligations

Durect will comply with the following minimum diligence obligations of Durect respecting research and development of Products:

                                        Number of        Total development
                  Products being        separate        costs per Contract
                   developed in      Products being        Year for each
Contract Year    Fields identified      funded(1)      Product ($mm)/(2)//(3)/
-------------------------------------------------------------------------------
(Partial) 1      [* * *]                [* * *]        [* * *]

          2      [* * *]                [* * *]        [* * *]

          3      [* * *]                [* * *]        [* * *]

          4      [* * *]                [* * *]        [* * *]

          5      [* * *]                [* * *]/(4)/   [* * *]

          6      [* * *]                [* * *]/(4)/   [* * *]

          7      [* * *]                [* * *]/(4)/   [* * *]

(2) During the year a Product is initiated after Contract Year 1, the "total development cost" for that year can be the year-end spending rate based on at least 3 months' activity.

(3) For each Contract Year for which more than one cost level is given, the lower cost figures apply to the Products in earlier stages of development.

(4) At least [* * *] Products which shall be [[* * *].

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Notwithstanding the table above, Durect shall be deemed to be meeting its minimum obligations under this Part A with respect to a particular Field (other than the [* * *]) during Contract Years 5, 6, and 7 if Durect funds at least
[[* * *]] during each such year for development of at least [* * *] Product in that Field and conducts a research program to determine the feasibility of other Products in that Field in an amount equal to at least [[* * *]] for each such year. -

Proof of Principle will be positively established for at least [* * *] Secondary Field in Contract Year 3, for [* * *] Secondary Field by the end of Contract Year 4, and for the [* * *] by the end of Contract Year 5; for each such year in which Durect has not met the foregoing Proof of Principle requirements, ALZA will have the right to [* * *].

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT G - Manufacturing Costs

"Cost of Manufacturing" shall mean ALZA's standard cost of manufacturing Product, including packaging thereof, determined in accordance with generally accepted accounting procedures and consistent with ALZA's accounting practices on its other products, and including the cost of materials, direct labor and benefits, and allocated overhead, the total expressed as Manufacturing Cost per Unit of Product manufactured.

A. Materials. Includes those items which form an integral and direct part of the Product, or are necessary for its production, as well as cartons, labels, package inserts, shippers, etc.

B. Direct Labor and Benefits. Includes labor and related payroll taxes and employment benefits spent in the actual production of the Product. It is that portion of basic wages, taxes and benefits which can be identified with or charged to a specific product.

C. Overhead. Overhead includes all operating expenses incurred by and in support of all manufacturing cost centers and quality operations. Cost elements included are:

- Direct labor, related payroll taxes and employee benefits

- Depreciation

- Taxes

- Insurance

- Rent

- Repairs and maintenance

- Supplies, scrap and inventory expenses

- Utilities

- Factory administration expenses

- Other similar cost elements of factory overhead

- Allocation of general and administrative overhead allocated to Product manufacturing centers and quality operations.

EXHIBIT H - Amended and Restated Market Stand-Off Agreement

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT I - Common Stock Purchase Agreement

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT J - Warrant Agreement

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

SCHEDULE 1 - Product Candidates

**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

SCHEDULE 2 - Products

EXHIBIT 10.7

PRODUCT ACQUISITION AGREEMENT

PRODUCT ACQUISITION AGREEMENT, dated as of April 14, 2000, by and between DURECT Corporation, a Delaware corporation, and ALZA Corporation, a Delaware corporation.

RECITALS

WHEREAS, Seller manufactures and sells osmotic, miniature, implantable pumps for research use in laboratory animals (the "Business"); and

WHEREAS, Seller desires to sell and cause to be transferred to Buyer (including either existing Affiliates of Buyer or those organized for that purpose), and Buyer (including such Affiliates) desires to purchase and accept the transfer from Seller certain assets and properties of Seller used primarily in the Business, including the Product as defined below, all as hereinafter specifically provided;

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties and agreements herein contained, the parties hereto hereby agree as follows:

ARTICLE I
DEFINITIONS

1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such definitions to be equally applicable to both the singular and plural forms of the terms defined):

"Accessory Products" means any products or devices including without limitation those products set forth on Schedule 1 and other products or devices,
e.g., catheters and cannulas, to the extent such products and devices are sold specifically for use with the Product or an Improvement.

"Action" means any notice of material noncompliance or violation, or any claim, demand, action, suit, audit, assessment or arbitration, or any other request (including any request for information), proceeding or investigation, by or before any Governmental Authority or any nongovernmental arbitration, mediation or other nonjudicial dispute resolution body.

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations under the Securities Exchange Act of 1934, as amended.

"Agreement" means this Product Acquisition Agreement, including all schedules and exhibits hereto, as it may be further amended from time to time as herein provided.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

"Ancillary Agreements" means the General Support Services Agreement, Coating Services Agreement and New Models Development Agreement attached hereto as Exhibit A, Exhibit B and Exhibit C respectively, each of which is required by this Agreement to be executed and delivered by the parties hereto at or before the Closing.

"Assets" has the meaning specified in Section 2.1.

"Assumed Liabilities" has the meaning specified in Section 3.1.

"Books and Records" means all of the following which are maintained at Seller's facilities in Mountain View, California and the Vacaville Facility which relate solely to the making, using and sale of the Product and Accessory Products: books, records, manuals and other materials, accounting books and records, property records for property, plant and equipment, files, computer tapes, disks and other storage media and records, advertising matter, market research, catalogues, price lists, correspondence, mailing lists, lists of customers and suppliers, distribution lists, photographs, production data (for two years), sales and promotional materials and records, purchasing materials and records, personnel records, credit records, manufacturing and quality control records and procedures, lot records, blueprints, copies of research and development files, data and laboratory books, trademark files and disclosures, media materials and plates, sales order files, and artwork.

"Business" has the meaning specified in the Recitals to this Agreement.

"Buyer" means DURECT Corporation, a Delaware corporation, and, as applicable, Affiliates of Buyer used or formed for the purpose of consummating the transactions contemplated by this Agreement.

"Buyer Indemnified Parties" has the meaning specified in Section 8.2.

"Buyer Loss" has the meaning specified in Section 8.2.

"Closing" means the closing of the transactions contemplated by this Agreement as specified in Section 4.1.

"Contracts" has the meaning specified in subsection 2.1(c).

"Employee" has the meaning specified in Section 5.9.

"Encumbrance" means any interest (including any security interest), pledge, mortgage, lien (including environmental liens), charge, claim (including any adverse claim) or other right of third Persons, whether created by law or in equity, including any such restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

"Environmental Laws" means all laws, regulations, ordinances, codes, policies, Governmental Orders and consent decrees, and any judicial or administrative interpretations thereof, of Governmental Authorities, or any common law doctrines, in effect from time to time relating to pollution or protection of the environment, natural resources or protection of health

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

from Hazardous Material exposure, including those relating to emissions, discharges, releases or threatened releases of Hazardous Material into the environment (including ambient air, surface water, groundwater or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material.

"Governmental Authority" means any international, national, federal, state, territorial or provincial, municipal or local government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, political subdivision, court, tribunal, official, arbitrator or arbitral body.

"Governmental Order" means any order, writ, rule, judgment, injunction, decree, stipulation, determination, award, citation or notice of violation entered by or with any Governmental Authority

"Hazardous Material" means all substances, materials, chemicals, compounds, pollutants or wastes regulated by, under or pursuant to any Environmental Laws.

"Improvements" means an improved version of the Product which meets all of the following criteria: [ * * * ]

"Inventories" has the meaning specified in subsection 2.1(a).

"Lease" has the meaning specified in subsection 2.1(d).

"Liabilities" means any and all debts, liabilities and obligations of any nature whatsoever, whether accrued or fixed, absolute or contingent, mature or unmatured or determined or determinable, including those arising under any law, rule, regulation, Action, Governmental Order, and those arising under any contract, agreement, commitment or undertaking.

"Material Adverse Effect" means any event(s) with respect to, change(s) in, or effect(s) on, the Product or the Assets or the Business which, individually or in the aggregate, may be adverse to the Business or the results of operations, the condition (financial or otherwise), assets, properties, Liabilities of the Business in a manner that is material to the Business taken as a whole, excluding any effects of a general nature which do not affect the Business uniquely.

"Person" shall include any individual, trustee, firm, corporation, partnership, limited liability company, Governmental Authority or other entity, whether acting in an individual, fiduciary or any other capacity.

"Product" means the ALZET(R) osmotic, implantable pumps for research use in laboratory animals as existing on the Closing Date, as described on Schedule 1.

"Product Trademark" means the ALZET(R) trademark, including all common law rights and applications and registrations therefor, throughout the world.

"Purchase Price" has the meaning specified in Section 2.4.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

"Retained Liabilities" has the meaning specified in Section 3.2.

"Seller" means ALZA Corporation, a Delaware corporation.

"Seller Indemnified Parties" has the meaning specified in Section 8.3.

"Seller Loss" has the meaning specified in Section 8.3.

"Vacaville Facility" means Seller's facility used for the manufacture of Product prior to the Closing located in Vacaville, California.

1.2 Other Defined Terms. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement and, whenever such terms are used in this Agreement, they shall have their respective defined meanings.

ARTICLE II
PURCHASE AND SALE OF ASSETS

2.1 Purchase of Assets. Upon the terms and subject to the conditions herein set forth, in consideration of the payment of the Purchase Price, Seller hereby sells, conveys, assigns, transfers and delivers to Buyer, and Buyer hereby purchases and acquires from Seller, subject only to the express representations set forth in Article V, all of Seller's rights, title and interests in and to the following (collectively, the "Assets"):

(a) the Product and all raw materials and inventories, including inventories of work in process, stores, supplies and finished goods, which are used solely in the manufacture, use or sale of the Product and Accessory Products as listed on Schedule 2.1(a) (collectively, the "Inventories");

(b) that machinery, manufacturing equipment, laboratory and testing equipment, computers, tools and other tangible personal property, whether owned, leased or subleased, set forth on Schedule 2.1(b) (collectively, the "Fixed Assets");

(c) the contracts listed on Schedule 2.1(c) (collectively, the "Contracts");

(d) subject to the consent by the landlord to the assignment, the lease to the Vacaville Facility described on Schedule 2.1(d) (the "Lease"), together with all of Seller's rights to improvements thereon and fixtures thereto;

(e) (1) the Product Trademark and other trademarks listed on Schedule 2.1(e), including all applications and registrations therefor, and any and all common law trademarks pertaining to the Product or as used with Accessory Products throughout the world and the goodwill associated with the foregoing trademarks; (2) all copyrights, including any common law copyrights and applications therefor throughout the world for Product and Accessory Products related advertising material, and (3) the good will associated with the Product (collectively, the "Intangible Personal Property"); and

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(f) all Books and Records and the marketing assets as listed in Schedule 2.1(f).

In the event that assets which are used primarily in the manufacture, use or sale of the Product and Accessory Products are inadvertently omitted from the above schedules, then Buyer and Seller shall in good faith, upon mutual agreement, revise the schedules to include such assets.

2.2 License. Seller hereby grants to Buyer a nonexclusive license to Seller's know-how, trade secrets, confidential information, software, technical information, process technology, plans, drawings, analytical and process methods related to the manufacture, testing and packaging of the Product, designs, inventions, research records, procedures, manuals and blue prints in order for Buyer to make, use and sell the Product.

2.3 Product Trademark.

(a) Buyer acknowledges that the Product Trademark is similar to Seller's name and that Seller has a continuing interest in the manner that the Product Trademark is used. Buyer agrees to use the Product Trademark only in connection with the Product, Improvements and Accessory Products and will not without Seller's prior written consent: (a) modify or alter in any way the Product Trademark; (b) transfer the Product Trademark, other than to an Affiliate of Buyer; or (c) authorize any use of the Product Trademark other than in connection with the Product, Improvements or Accessory Products. Buyer further agrees not to use the DUROS(R) trademark, Seller's name or any other trademark of Seller in any manner in association with the Product, Improvements or Accessory Products except as provided in Section 7.8.

(b) Buyer shall notify ALZA in writing of any conflicting uses of, or of any acts of infringement, unfair competition or imitation by others involving the Product Trademark promptly after such matters are brought to Buyer's attention or Buyer obtains knowledge thereof.

2.5 Full Possession. Subject to the terms and conditions of this Agreement, and subject to the Ancillary Agreements, at the Closing, Seller shall put Buyer and its Affiliates into full and actual possession and enjoyment of the Product and the Assets. The sale of the Product and the Assets contemplated hereby shall be effected by instruments of conveyance, transfer and assignment as Buyer may request that are necessary to vest in Buyer all of the rights, title and interests of Seller in the Product and the Assets as provided herein and to put Buyer in full and actual possession, enjoyment and operating control of the Product and the Assets.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

ARTICLE I
ASSUMPTION OF LIABILITIES

3.1 Assumption of Liabilities. Effective as of the Closing, without any further responsibility or Liability of or recourse to Seller or any of Seller's Affiliates, subsidiaries, stockholders, officers, directors, employees, agents, successors or assigns, Buyer hereby absolutely and irrevocably assumes, and shall pay, perform and be liable and responsible for, only the following Liabilities of Seller (collectively, the "Assumed Liabilities"):

(a) all obligations of Seller arising after the Closing Date under the Contracts; and

(b) subject to the assignment of the Lease to Buyer, all obligations of Seller arising after the Closing Date under the Lease.

3.2 Retained Liabilities. Except as provided in Section 3.1, Buyer and its Affiliates shall not assume and shall not be responsible for, and there shall not be transferred to or assumed by Buyer or any of its Affiliates, any Liabilities of Seller or its Affiliates (or any predecessors thereof).

ARTICLE I
CLOSING

4.1 Closing. The consummation of the transactions contemplated by this Agreement and the Ancillary Agreements (the "Closing") shall take place at Seller's principal executive offices located at 1900 Charleston Road, Mountain View, CA, at 2 p.m., local time, on April 14, 2000 or at such other place, time and date as the parties hereby may agree in writing. The consummation of such transactions is herein collectively referred to as the "Closing." The date and time of the Closing are sometimes referred to herein as the "Closing Date."

4.2 Seller's Obligations at Closing. At the Closing, Seller shall deliver or cause to be delivered to Buyer:

(a) All bills of sale and other instruments of conveyance, transfer and assignment, including a trademark assignment in connection with the trademarks assigned in Section 2.1(e) in the form attached as Exhibit D, that are necessary to vest in Buyer all of the rights, title and interests of Seller in the Assets, free and clear of all Encumbrances;

(b) This Agreement and the Ancillary Agreements, duly executed by Seller.

4.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver or cause to be delivered to Seller:

(a) The Purchase Price, which shall be delivered to Seller by wire transfer of immediately available funds to an account or accounts designated in writing by Seller;

(b) A California resale certificate pursuant to Sections 6091 et seq of the California Revenue and Taxation Code; and

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(c) This Agreement and the Ancillary Agreements, duly executed by Buyer or its Affiliates, as the case may be.

ARTICLE I
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer as follows:

5.1 Organization, Standing and Power. Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own its assets and properties and to conduct its business as and where it is being conducted, including to own the Assets owned by it and conduct its business as and where it is being conducted by it. Seller is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not result in a Material Adverse Effect.

5.2 Authorization.

(a) Seller has full corporate power and authority to enter into this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller. This Agreement constitutes, and upon the execution and delivery thereof by Seller each Ancillary Agreement will constitute, a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

(b) Except for transfer of Seller's interest in the Lease, no consent, waiver, approval, order or authorization of, notice to, or registration, declaration, designation, qualification or filing with, any Governmental Authority or third Person, domestic or foreign, is or has been or will be required on the part of Seller in connection with the execution and delivery of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby, except where the failure to obtain such consent would not result in a Material Adverse Effect.

5.3 Non-Contravention. Neither the execution and delivery of this Agreement or any Ancillary Agreement, nor the consummation of the transactions contemplated hereby or thereby, will violate or conflict with or provide a right of termination to any Person under (a) any provision of the Charter or Bylaws of Seller, (b) any law, rule, regulation or Governmental Order to which Seller or the Product and the Assets are bound or subject or (c) any agreement, indenture, undertaking, permit, license or other instrument to which Seller is a party or by which it or any of

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

its properties may be bound or affected, other than (x) the requirements of any applicable bulk sales or bulk transfer laws or (y) where such violation, conflict or right of termination would not result in a Material Adverse Effect.

5.4 Disclosure. There is no fact (other than matters of a general societal, economic or political nature which do not affect the business of Seller or Buyer uniquely) known to Seller, and there have been no events or transactions or information which have come to the attention of Seller, which might reasonably be expected to have a Material Adverse Effect on the Product or the Assets.

5.5 Real Property.

(a) The Lease is a legal, valid and binding agreement enforceable in accordance with its terms and is in full force and effect. There are no existing material defaults under the Lease by Seller and no event of default on the part of Seller or, to the knowledge of Seller, on the part of any other party thereto has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default thereunder permitting landlord to terminate. Subject to consent by the landlord to assignment of the Lease to Buyer, upon consummation of the transactions contemplated by this Agreement, the Lease will continue in full force and effect without penalty or other adverse consequence and shall be unaffected by such transactions. The Lease has not been amended or otherwise affected by any side letter, interpretation or correspondence relating thereto except for amendments provided to Buyer. Seller has made available to Buyer true and correct copies of the Lease.

5.6 Title to Assets. Seller has good and marketable title to the Product and all of the Assets, free and clear of any Encumbrances.

5.7 Intangible Personal Property.

(a) The execution, delivery and performance of this Agreement, the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not breach, violate or conflict with any instrument or agreement governing any intellectual property necessary or required for, or used in, the conduct of the Business as presently conducted; and

(b) Seller has not been notified of any claim by a third party that Seller's manufacture or sales of the Product violate any proprietary right of any other party. The Product Trademark is subsisting and Seller has no notice of any claims that a third party has any rights thereto. There are no existing or pending patents held by Seller that would prevent Buyer from manufacturing, using or selling the Product. Seller has not received any notice asserting that the manufacture, use or sale of the Product conflicts with the rights of any other party. Seller is not aware of any material unauthorized use, infringement or misappropriation on the part of any third party of the Assets or the Intangible Personal Property.

5.8 Litigation; Legal Matters. There is no Action pending or, to the knowledge of Seller, threatened against or involving Seller or any of the officers, directors, stockholders, properties, assets or businesses of Seller, whether at law or in equity, or before or by any

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Governmental Authority, nor any Governmental Order against, or the subject of which is, the Product or the Assets.

5.9 Employees; Employee Benefit Plans; Labor.

(a) Schedule 5.9 contains a complete and correct list of all employees of Seller whose employment is primarily devoted to the manufacture or sale of the Product (collectively, the "Employees").

(b) There are no employment agreements or other similar arrangements that pertain to any Employee, except standard secrecy agreements for all employees.

(c) Except to the extent provided in Article X, Buyer will incur no Liability with respect to, or on account of, and Seller will retain any Liability for, and on account of, any employee benefit plan of Seller including, but not limited to, Liabilities Seller may have to such employees under all employee benefit schemes, incentive compensation plans, bonus plans, pension and retirement plans, vacation, profit-sharing plans (including any profit-sharing plan with a cash-or-deferred arrangement) share purchase and option plans, savings and similar plans, medical, dental, travel, accident, life, disability and other insurance and other plans or arrangements, whether written or oral and whether "qualified" or "non-qualified," or to any employee as a result of termination of employment by Seller as contemplated by this Agreement.

(d) No Employee is covered under any collective bargaining agreement. With respect to the use of the Assets: (a) there is no unfair labor practice complaint against Seller pending or, to the knowledge of Seller, threatened before the National Labor Relations Board or any comparable state or local Governmental Authority; (b) there is no labor strike, dispute, slowdown or stoppage actually pending or, to the knowledge of Seller, threatened against or directly affecting Seller; (c) no union representation question exists or negotiations regarding union representation have taken place or are ongoing respecting the employees of any of the Business and no notice or demand for union recognition has been received by Seller; (d) no grievance or any Action arising out of or under collective bargaining agreements is pending and no claims therefor exist; (e) no collective bargaining agreement which is binding on Seller prevents it from relocating or closing any of its operations; (f) Seller has not experienced any work stoppage or other labor difficulty; and (g) there are no pending or, to the knowledge of Seller, threatened unfair employment practice charges or administrative proceedings relating to any past or present employees of the Business.

5.10 Environmental Matters. Except as set forth in Schedule 5.10:

(a) to Seller's knowledge, prior to the Closing, Seller has operated and maintained the Business and the Assets, in compliance with all applicable Environmental Laws and Governmental Orders and the requirements of all Environmental Permits held or required to be held by Seller and Seller has not received a notice of violation or other demand from a third Person alleging that the Business is in violation of any Environmental Law;

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(b) to Seller's knowledge, no Environmental Permits are necessary or required for any activities currently conducted by or on behalf of the Business except for the permit required for the coating process currently conducted in Seller's Mountain View facility;

(c) to Seller's knowledge, there are no underground storage tanks at the Vacaville Facility containing Hazardous Materials or which formerly contained Hazardous Materials; nor is there, to Seller's knowledge, Hazardous Material in any of the fixtures, structures, soils, groundwater, surface water or air on, under or about or emanating from the Assets or the Vacaville Facility,

(d) to Seller's knowledge, the Vacaville Facility is not listed nor proposed for listing on the U.S. National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq. or on the Comprehensive Environmental Response Compensation Liability Information System or any foreign or state list of sites requiring investigation, remediation or cleanup;

(e) Seller has provided Buyer with true, accurate and complete copies of any Governmental Orders applicable to the Product, the Vacaville Facility and the Assets, and written reports, if any, of material releases of Hazardous Materials on, under, or emanating from the Vacaville Facility in Seller's possession or reasonable control.

5.11 Contracts and Commitments.

(a) True and complete copies of all Contracts (together with all ancillary documents thereto, including any amendments, consents for alterations and documents regarding variations) set forth in Schedule 2.1(c) have been delivered to Buyer.

(b) With respect to the Contracts, (i) each is a legal, valid and binding obligation of Seller and, to the knowledge of Seller, each other party thereto, and is in full force and effect, and (ii) Seller has not been notified that it is in breach of any such Contract, nor has Seller notified the other party that it is in breach of any such Contract.

5.12 Compliance With Laws. Seller has not been notified of any violation of laws or regulations in connection with its manufacture and sale of Product.

5.13 Inventory. All of the Inventories consist of a quality and quantity usable and salable in the ordinary course of business.

5.14 Brokers and Finders. Neither Seller nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fee, commission or finder's fee in connection with the transactions contemplated by this Agreement.

5.15 Permits. Except as disclosed in Section 5.10(b), to Seller's knowledge, there are no governmental licenses, permits, approvals, license applications and product registrations required for the making, using and selling of the Product.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

5.16 Patents. As of the Closing Date, there are no unexpired patents (or equivalent rights) nor applications pending anywhere in the world which are owned or controlled by Seller which would be infringed by the manufacture, use and sale of the Product.

ARTICLE I
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

6.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

6.2 Authorization.

(a) Buyer has full corporate power and authority to enter into this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer. This Agreement constitutes, and upon the execution and delivery thereof by Buyer, each Ancillary Agreement will constitute, a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

(b) No consent, waiver, approval, order or authorization of, notice to, or registration, declaration, designation, qualification or filing with, any Governmental Authority or third Person, domestic or foreign, is or has been or will be required on the part of Buyer or any of its Affiliates in connection with the execution and delivery of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby.

6.3 Non-Contravention. Neither the execution and delivery of this Agreement or any Ancillary Agreement, nor the consummation of the transactions contemplated hereby or thereby, will violate or conflict with (a) any provision of the charter or bylaws of Buyer or any of its Affiliates, (b) any law, rule, regulation or Governmental Order to which Buyer or any such Affiliate or any of their business or assets are bound or subject or (c) any agreement, indenture, undertaking, permit, license or other instrument to which Buyer or any such Affiliate is a party or by which any of them or any of their properties may be bound or affected.

ARTICLE II
CERTAIN COVENANTS

7.1 Access to Information. To the extent reasonably requested by Buyer, Seller shall provide Buyer with information about the Product and the Business following the Closing.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

7.2 Transition. For the [* * *], Seller will conduct the Business on behalf of Buyer under the General Support Services Agreement.

7.3 Confidentiality. After the Closing Date, each party shall, and shall cause its representatives, Affiliates and employees: (a) to treat and hold as confidential (and not to disclose or provide access to any Person to) any confidential information of the other party disclosed in connection with this transaction or in performance of this Agreement or the Ancillary Agreements; and
(b) in the event that any of them becomes legally compelled to disclose any such information: (i) to provide the other party with prompt written notice of such requirement so that such other party or an Affiliate thereof may seek a protective order or other remedy or waive compliance with this Section 7.3; (ii in the event that such protective order or other remedy is not obtained, or such other party waives compliance with this Section 7.3, to furnish only that portion of such information which is legally required to be provided and to exercise its best efforts to obtain assurances that confidential treatment will be accorded such information; and (iii) to the extent permitted by law, to promptly furnish (prior to, at, or as soon as practicable following such required disclosure) to the other party any and all copies (in whatever form or medium) of all such disclosed information; provided, however, that this sentence shall not apply to any information which, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement, or is subsequently disclosed to the public, or to Seller or Buyer by a third party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 7.3 may be inadequate and that in addition thereto the other party (or its Affiliate) shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach.

7.4 Bulk Sales Compliance. Buyer will not seek to enforce compliance by Seller with the provisions of any bulk sales or transfers law or similar law of any jurisdiction in respect of the transactions contemplated by this Agreement and the Ancillary Agreements.

7.5 Restrictive Covenants.

(a) Except to perform its obligations under this Agreement or the Ancillary Agreements, for a period of [* * *], Seller will not sell for research use in laboratory animals any products that compete directly with the Product and that work in substantially the same way as the Product, or manufacture any such products for such purpose, nor will Seller grant rights to any third party to do so, or own, directly or indirectly, more than [* * *] in any other entity that engages in such activity. Nothing herein shall be deemed to limit the activities of any entity that is the successor or assignee of all or substantially all of Seller's business.

(b) For a period of [* * *], Seller shall not, without Buyer's written consent, solicit for employment at Seller nor hire any Employee, unless such Employee has ceased to be employed by Buyer or any of its Affiliates for at least [* * *]; provided, however, the restriction in this Section 7.5(b) shall not apply to any Employee who Buyer has terminated at its own initiative.

(c) Seller agrees and acknowledges that remedies at law for any breach of Seller's obligations under this Section 7.5 may be inadequate and that in addition thereto Buyer (or its

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Affiliate) shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach.

7.6 Purchase of Inventory. On the Closing Date, Buyer shall purchase the Inventories from Seller at the per unit standard cost set forth on Schedule 7.6. Buyer shall pay Seller the purchase price for the Inventories in accordance with the following schedule: [* * *]; provided, however, that the purchase price shall be paid in full within [* * *], if such purchase price has not been paid in full by that time.

7.7 Product Discussions. At the request of Seller, Buyer shall participate in periodic discussions with Seller summarizing the type and quantity of products sold in connection with the Business, the identity of all customers of the Business and, to the extent known by Buyer, the purpose for which each such product was ordered.

7.8 Promotional and Marketing Material.The parties acknowledge that Buyer intends to continue to utilize the Product Trademark in the marketing and sale of the Product after the Closing. As soon as practicable after the Closing Date, Buyer shall make such changes to the packaging, product labeling, and promotional and marketing materials in connection with the Business as necessary to reflect (i) Buyer as the manufacturer and seller of the Product and (ii) to include Seller's logo and identify Seller as the developer of the Product; provided, however, that finished Product in the Inventories as of the Closing Date may be sold as currently packaged in the ordinary course of business so long as such packaging is modified to indicate Buyer as the seller of such products.

7.9 Vendors. Upon written request by Buyer, after the Closing Date Seller will provide all reasonable assistance to Buyer in contacting and establishing an ongoing business relationship with vendors of supplies, raw materials and services used by Seller in connection with the manufacture and sale of the Product prior to the Closing Date.

7.10 Exploitation of the Business; Discontinuation of the Business. After the Closing, Buyer will use its [* * *]. If at any time after the Closing Date, Buyer discontinues the Business (other than as a result of transferring the Business to a third party), Seller may, at its sole discretion, obtain from Buyer (i) all rights, title and interest in the Product and the Assets (to the extent then existing) at a purchase price to be negotiated by the parties and
(ii) the Product inventory then in Buyer's possession at the standard cost incurred by Buyer therefor.

7.11 No Action. Seller, on behalf of itself, its assigns, successors and Affiliates, hereby covenants that neither it nor its Affiliates, assigns or successors will institute or bring any Action against Buyer, its assigns, successors or Affiliates alleging that the making, using, selling, offering for sale or importation of the Product and Improvements will infringe any patent or equivalent intellectual property rights anywhere in the world owned or controlled by Seller or any of its Affiliates, provided that such Products and Improvements are sold solely for research use in laboratory animals.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

ARTICLE III
INDEMNIFICATION, LIMITATION OF LIABILITY
AND DISCLAIMER OF WARRANTY

8.1 Survival. All representations and warranties of Seller and Buyer and their Affiliates contained in this Agreement and the Ancillary Agreements (including all schedules and exhibits hereto and thereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement and the Ancillary Agreements) shall survive the consummation of the transactions contemplated hereby and thereby. All indemnification obligations of Seller and Buyer in this Agreement or the Ancillary Agreements (including all schedules and exhibits thereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement and the Ancillary Agreements) shall survive indefinitely. All covenants, obligations and agreements of Buyer and Seller and their Affiliates contained in this Agreement and the Ancillary Agreements (including all schedules and exhibits hereto and thereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement and the Ancillary Agreements) shall survive the consummation of the transactions contemplated hereby and thereby.

8.2 Indemnification by Seller. Seller shall indemnify and hold harmless Buyer, its subsidiaries and Affiliates, any assignee or successor thereof, and each officer, director, employee, agent and representative of each of the foregoing (collectively, the "Buyer Indemnified Parties") from and against, and pay or reimburse the Buyer Indemnified Parties for, any and all losses, Actions, Liabilities, damages, claims, costs and expenses (including reasonable expenses of investigation and legal fees and costs in connection therewith), interest, awards, judgments, penalties and Encumbrances suffered or incurred by any of the Buyer Indemnified Parties (hereinafter a "Buyer Loss") to the extent arising from any Action instituted by a third party against any of the Buyer Indemnified Parties relating to the manufacture, use, sale, distribution, import, export or testing of Products, the operation of the Business or the use, operation, ownership, lease, possession, control, occupancy, maintenance or condition of the Assets, in each case, prior to the Closing.

8.3 Indemnification by Buyer. Buyer shall indemnify and hold harmless Seller, any assignee or successor of Seller, and each officer, director, employee, agent and representative of each of the foregoing (collectively, the "Seller Indemnified Parties") from and against, and pay or reimburse the Seller Indemnified Parties for, any and all losses, Actions, Liabilities, damages, claims, costs and expenses (including reasonable expenses of investigation and legal fees and costs in connection therewith), interest, awards, judgments, penalties and Encumbrances suffered or incurred by any of the Seller Indemnified Parties (hereinafter a "Seller Loss") to the extent arising from any Action instituted by a third party against any of the Seller Indemnified Parties relating to any Assumed Liability or the manufacture, use, sale, distribution, import, export or testing of Products, the operation of the Business or the use, operation, ownership, lease, possession, control, occupancy, maintenance or condition of the Assets, in each case, after the Closing.

8.4 General Indemnification Provisions.

(a) For the purposes of this Section 8.4, the term "Indemnitee" shall refer to the Person or Persons indemnified, or entitled, or claiming to be entitled, to be indemnified, pursuant

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

to the provisions of Section 8.2 or 8.3, as the case may be; the term "Indemnitor" shall refer to the Person having the obligation to indemnify pursuant to such provisions; and "Losses" shall refer to Seller Losses or Buyer Losses, as the case may be.

(b) Within a reasonable time following the determination thereof, an Indemnitee shall give the Indemnitor written notice of any matter which such Indemnitee has determined has given rise to a right of indemnification under this Agreement stating the amount of the Loss, if known, and method of computation thereof, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises (subject to the last sentence of this subsection). The obligations and Liabilities of any party under this Article VIII with respect to Losses arising from claims, assertions, events or proceedings of any third party (including claims by any assignee or successor of the Indemnitee or any Governmental Authority), which are subject to the indemnification provided for in this Article VIII ("Third Party Claims") shall be governed by and be subject to the following additional terms and conditions:
If any Indemnitee shall receive written notice of any Third Party Claim, the Indemnitee shall promptly give the Indemnitor written notice of such Third Party Claim (subject to the last sentence of this subsection) and shall permit the Indemnitor, at its option, to participate in the defense of such Third Party Claim by counsel of its own choice and at its expense. If the Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee hereunder against any Loss (without limitation) that may result from such Third Party Claim, then the Indemnitor shall be entitled, at its option, to assume and control the defense against such Third Party Claim at its expense and through counsel of its choice if it gives written notice of its intention to do so to the Indemnitee within 15 calendar days of the receipt of notice of such Third Party Claim from Indemnitee, unless, in the reasonable opinion of counsel for the Indemnitee, there is a conflict or a potential conflict of interest between the Indemnitee and the Indemnitor in such Action, in which event the Indemnitee shall be entitled to direct the defense with respect to those issues as to which such conflict exists with separate counsel of its choice reasonably acceptable to the Indemnitor. The fees and expenses of any such separate counsel shall be borne by the Indemnitor. In the event that the Indemnitor exercises its right to undertake the defense against any such Third Party Claim as provided above, the Indemnitee shall cooperate with the Indemnitor in such defense and make available to the Indemnitor, at Indemnitor's expense, all witnesses, pertinent records, materials and information in its possession or under its control reasonably relating thereto as is required by the Indemnitor. Similarly, in the event the Indemnitee is, directly or indirectly, conducting the defense against any Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and make available to it all witnesses, pertinent records, materials and information in its possession or under its control reasonably relating thereto as is reasonably required by the Indemnitee. No such Third Party Claim, except the settlement thereof which involves the payment of money only either by a party other than the Indemnitee or for which the Indemnitee is totally indemnified (without limitation) by the Indemnitor and the unconditional release from all related liability of the Indemnitee, may be settled by the Indemnitor without the written consent of the Indemnitee. In the event that an Indemnitee reasonably determines, and gives notification to the Indemnitor, that the failure to resolve a Third Party Claim is having a material adverse effect on the Indemnitee's ongoing business, and as a result the Indemnitee wishes to propose a settlement of the Third Party Claim and the third party will unconditionally release the Indemnitor from any and all Liabilities relating

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

to or arising from such Third Party Claim, then the Indemnitor shall not unreasonably withhold its consent to such settlement. If the Indemnitor does not consent to such settlement, the Indemnitee may settle the Third Party Claim on the terms proposed without discharging the Indemnitor from its liability hereunder with respect to such Third Party Claim. The foregoing notwithstanding, the failure of any Indemnitee to give any notice required to be given hereunder shall not affect such Indemnitee's right to indemnification hereunder except to the extent the Indemnitor from whom such indemnity is sought shall have been actually and materially prejudiced in its ability to defend the claim or action for which such indemnification is sought by reason of such failure.

(c) Payment by an Indemnitee to a third party with respect to a Loss shall not affect such Indemnitee's rights to indemnification pursuant to this Article VIII.

8.5 Limitation on Liability.

(a) EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTIONS
8.2 AND 8.3 OR AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT, REGARDLESS OF THE FORM OF THE CLAIM, INCLUDING WITHOUT LIMITATION CLAIMS FOR INDEMNIFICATION, TORT, BREACH OF CONTRACT, WARRANTY, REPRESENTATION OR COVENANT OR ANY LOSS OF PROFITS, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES AND WHETHER OR NOT SUCH DAMAGES ARE REASONABLY FORESEEABLE.

(b) Except for the indemnification obligations set forth in Sections 8.2 and 8.3, Buyer's obligation to pay for the inventory set forth in section 7.6 or as otherwise expressly provided in this Agreement, (i) Seller or Buyer's aggregate liability arising out of or related to the transaction contemplated by this Agreement, regardless of the form of the claim or action, is limited to the amount [* * *], and (ii) neither party shall have any claim against the other for any inaccuracy in any representation or breach of warranty set forth in Articles V and VI unless such party shall have given the other party notice of such claim not later than [* * *] after the Closing Date.

8.6 Disclaimer of Warranty. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND OTHER THAN EXPRESSLY SET FORTH IN THIS AGREEMENT, SPECIFICALLY DISCLAIMS ALL SUCH WARRANTIES.

ARTICLE II
TAX MATTERS

9.1 Taxes Relating to Transactions Contemplated by This Agreement. All sales and use taxes imposed in connection with the transfer of the Assets, whether such taxes are

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

assessed initially against Seller or Buyer or any Affiliate of Buyer, shall be borne and paid by Buyer.

ARTICLE I
EMPLOYEES AND EMPLOYEE BENEFIT PLANS

10.1 Business Employees.

(b) Seller will coordinate with Buyer in communicating with the Employees so offered employment by Buyer.

(c) If the employment of any Employee is terminated by Buyer, other than for cause, at any time within [* * *], Buyer agrees to provide [* * *].

(d) Buyer and Seller acknowledge and agree that the Employees are deemed to be third party beneficiaries of this Article X.

10.2 Modification of Confidentiality and Related Agreements. Seller agrees that disclosure of information relating specifically to manufacture, use or sale of the Product or provision of any services by any Person who becomes an employee of Buyer or its Affiliates in connection with the transactions contemplated hereby (a "New Employee") to Buyer or its Affiliates shall not be a violation of any provision of any trade secret, confidentiality, non-compete or comparable agreements entered into prior to the Closing between Seller, on the one hand, and any New Employee, on the other hand.

ARTICLE II
GENERAL PROVISIONS

11.1 Fees and Expenses. Except as otherwise provided in this Agreement, each party will pay all fees and expenses incurred by it in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

11.2 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or mailed if delivered personally or mailed by registered or certified mail (postage prepaid, return receipt requested), or sent by facsimile transmission, (confirmation received) to the parties at the following addresses and facsimile transmission numbers (or at such other address or number for a party as shall be specified by like notice), except that notices after the giving of which there is a designated period within which to perform an act and notices of changes of address or number shall be effective only upon receipt:

(a) If to Seller

ALZA Corporation
1900 Charleston Road
Mountain View, California 94043 Attention: General Counsel Telecopy No.: 650-564-7848 Telephone No.: 650-564-5260

(b) if to Buyer:

DURECT Corporation
10240 Bubb Road
Cupertino, California 95014-4166 Attention: General Counsel Telecopy No.: (408) 777-3577 Telephone No.: (408) 777-1827

with a copy to:

Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 400 Sansome Street
San Francisco, California 94111 Attention: Richard V. Smith, Esq.

Telecopy No.: (415) 773-5759

Telephone No.: (415) 392-1122

11.3 Interpretation; Conflict Between Agreements.

(a) When a reference is made in this Agreement to Sections, subsections, Schedules or Exhibits, such reference shall be to a Section, subsection, Schedule or Exhibit to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The word "herein" and similar references mean, except where a specific Section or Article reference is

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

expressly indicated, the entire Agreement rather than any specific Section or Article. The table of contents and the headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Except as otherwise expressly provided herein, all monetary amounts referenced in this Agreement shall mean U.S. dollars.

(b) In the event of any inconsistency, conflict or ambiguity as to the rights and obligations of the parties under this Agreement and any Ancillary Agreement, the terms of this Agreement shall control and supersede any such inconsistency, conflict or ambiguity.

11.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of statute, law, regulation, Governmental Order or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. In such event, any such term or provision shall be modified, amended and limited to the extent necessary to render the same and the remainder of this Agreement valid, enforceable and lawful.

11.5 Assignment. This Agreement may not be assigned by operation of law or otherwise, except that either party (including its Affiliates) may assign its rights and benefits hereunder and under the Ancillary Agreements (provided that the assigning party or its Affiliates, as applicable, shall remain responsible for its obligations hereunder) (a) to any Affiliate of the assigning party, (b) to any Person acquiring all or substantially all of the assets and properties of the assigning party or, (c) in the case of Buyer, to any person acquiring all or substantially all of the assets and properties of the Business, as such Business is then conducted by Buyer and its Affiliates. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of Buyer and Seller.

11.6 No Third-Party Beneficiaries. Other than as set forth in Section 10.1(d), this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

11.7 Amendment, Other Remedies and Waiver.

(a) This Agreement may not be amended or modified except by an instrument in writing signed by Seller and Buyer.

(b) The rights and remedies of the parties to this Agreement are cumulative and not alternative of any other remedy conferred hereby or by law or equity, and the exercise of any remedy will not preclude the exercise of any other.

(c) Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or any Ancillary Agreement will operate as a waiver of such right, power or privilege, and single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

other right, power or privilege. To the maximum extent permitted by law, (i) no Action or right arising out of this Agreement or the Ancillary Agreements can be discharged by one party, in whole or in part, by a waiver or renunciation of the Action or right unless in a writing signed by the other party; (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

11.8 Further Assurances. Each of Buyer and Seller agrees to (a) cooperate fully with the other party, and to cause its Affiliates to cooperate fully, (b) execute and cause such Affiliates to execute such further instruments, documents and agreements, and (c) give such further written assurances as may be reasonably requested by Buyer or Seller, as the case may be, to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. If at any time and from time to time after the Closing Date (without limitation as to time or otherwise) Buyer reasonably determines that all of Seller's rights, title and interests in and to an Asset has failed to be fully transferred and conveyed in accordance with this Agreement to Buyer or an Affiliate thereof, as the case may be, then Seller shall cause such Asset to be transferred and conveyed to Buyer or an Affiliate thereof in accordance with this Agreement as soon as reasonably practicable after notice from Buyer to Seller. If requested by Buyer, Seller shall prosecute or otherwise enforce in its own name for the benefit of Buyer any claims, rights or benefits that are transferred to Buyer and its Affiliates by this Agreement and that require prosecution or enforcement in the name of Seller. Any prosecution or enforcement of claims, rights or benefits under this
Section 11.8 shall be solely at Buyer's expense, unless the prosecution or enforcement is made necessary by a breach of this Agreement by Seller. Following the Closing Date, Seller shall refer to Buyer and its Affiliates, as appropriate, as promptly as practicable, any telephone calls, letters, orders, notices, requests, inquiries and other communications relating to the Assets and the Business.

11.9 Mutual Drafting. This Agreement is the joint product of Buyer and Seller and each provision hereof has been subject to the mutual consultation, negotiation and agreement of Buyer and Seller and shall not be construed for or against any party hereto.

11.10 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California (without giving effect to its choice of law principles). Subject to Section 11.11, each of the parties hereto irrevocably submits to the exclusive jurisdiction of (a) the Superior Court of the State of California, San Francisco County, and (b) the United States District Court for the Northern District of California, for the purposes of any Action arising out of this Agreement, any Ancillary Agreement or any transaction contemplated hereby or thereby. Each of the parties hereto agrees to commence any Action relating hereto either in the United States District Court for the Northern District of California, or if such Action may not be brought in such court for jurisdictional reasons, in the Superior Court of the State of California, San Francisco County. Each of the parties hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in
Section 11.2 shall be effective service of process for any Action in

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

California with respect to any matters to which it has submitted to jurisdiction in this Section 11.10. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any Action arising out of this Agreement, any Ancillary Agreement or any transaction contemplated hereby or thereby in (i) the Superior Court of the State of California, San Francisco County, or (ii) the United States District Court for the Northern District of California, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action brought in any such court has been brought in an inconvenient forum.

11.11 Dispute Resolution. Any dispute, controversy or claim between the parties relating to, arising out of or in connection with this Agreement or the Ancillary Agreements (or any subsequent agreements or amendments thereto), including as to their existence, enforceability, validity, interpretation, performance, indemnification, breach or damages, including claims in tort, whether arising before or after the termination of this Agreement, shall be settled only by binding arbitration pursuant to the Commercial Arbitration Rules, as then amended and in effect, of the American Arbitration Association (the "Rules"), subject to the following:

(a) The arbitration shall take place in San Francisco County, California, and in no other place.

(b) There shall be one arbitrator, who shall be selected under the normal procedures prescribed in the Rules.

(c) Subject to legal privileges, each party shall be entitled to discovery in accordance with the Federal Rules of Civil Procedure.

(d) The arbitrators shall comply with Section 11.10, provided that the procedural law shall be the U.S. Arbitration Act, as amended, to the extent not inconsistent with the Rules and this Section 11.11.

(e) At the arbitration hearing, each party may make written and oral presentations to the arbitrator, present testimony and written evidence and examine witnesses.

(f) The arbitrators' decision shall be in writing, shall be binding and final and may be entered and enforced in any court of competent jurisdiction.

(g) The arbitrators shall have the authority to grant injunctive relief and order specific performance.

(h) No party shall be eligible to receive, and the arbitrators shall not have the authority to award, exemplary or punitive damages.

(i) Each party to the arbitration shall bear their own attorney's fees and costs, but shall pay one-half of the fees and expenses of the arbitrators and the American Arbitration Association.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

11.12 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.

11.13 Public Announcements. Neither Buyer, Seller nor the representatives of either of them shall issue to the media any news release or other public announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other party hereto. The foregoing notwithstanding, any such news release or other public announcement may be made if required by applicable law or a securities exchange rule, provided that the party required to make such news release or other public announcement shall confer with the other party concerning the timing and content of such news release or other public announcement before the same is made. Buyer and Seller will consult with each other concerning the means by which employees, customers and suppliers and others having dealings with Seller with respect to the Business will be informed of the transactions contemplated hereby, and Buyer shall be allowed to have present for any such communication a representative of Buyer.

11.14 Entire Agreement. This Agreement, together with all Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties delivered pursuant hereto, constitute the entire agreement and supersede all prior agreements and undertakings, both written and oral, among Buyer and Seller with respect to the subject matter hereof and are not intended to confer upon any other Person any rights or remedies hereunder, except as otherwise expressly provided herein.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

DURECT CORPORATION, INC.,
a Delaware corporation

By:  /s/ James E. Brown
     ________________________________
     Name:  James E. Brown
     Title: Chief Executive Officer

ALZA CORPORATION,
a Delaware corporation

By:  /s/ Peter Staple
     ________________________________
     Name:  Peter Staple
     Title: Executive Vice President

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Exhibit A           General Support Services Agreement

Exhibit B           Coating Services Agreement

Exhibit C           New Models Development Agreement

Exhibit D           Form of Trademark Assignment

Schedule 1          Product and Accessory Products

Schedule 2.1 (a)    Inventories

Schedule 2.1 (b)    Fixed Assets

Schedule 2.1 (c)    Contracts

Schedule 2.1 (d)    Lease

Schedule 2.1 (e)    Trademarks

Schedule 2.1 (f)    Marketing Materials

Schedule 5.9        Employees

Schedule 5.10       Environmental Matters

Schedule 7.6        Inventory Price List

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

GENERAL SUPPORT SERVICES AGREEMENT

This GENERAL SUPPORT SERVICES AGREEMENT (this "Agreement"), dated as of April 14, 2000 (the "Effective Date" ), is made by and between ALZA CORPORATION, a Delaware corporation ("Seller"), and DURECT CORPORATION, a Delaware corporation ("Buyer").

R E C I T A L S

A. Seller and Buyer have entered into a Product Acquisition Agreement of even date herewith (the "Acquisition Agreement"), providing for the sale by Seller to Buyer of certain Assets (as defined in the Acquisition Agreement).

B. Buyer desires that Seller render certain services to Buyer on an interim basis to assist in the operation of the Business (as defined in the Acquisition Agreement) of the manufacture and sale of the Product (as defined in the Acquisition Agreement). Seller is willing to perform such services on the terms and subject to the conditions set forth herein.

A G R E E M E N T

In consideration of the premises and the respective covenants and obligations set forth herein the parties agree as follows:

(c) The services provided by Seller to Buyer under subsection 1(a) and 1(b) are individually and collectively referred to hereafter as the "Services".

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

develop its ability to provide to itself the Services and/or obtain alternate sources of supply for the Services as soon as practicable after the Effective Date. Buyer may terminate this Agreement with respect to any item of Service upon [* * *] prior written notice to Seller. Unless this Agreement is renewed by mutual agreement of the parties, this Agreement shall terminate not later than December 31, 2000; provided that, no such termination shall affect the obligations of Buyer to make payments due hereunder.

With respect to Services during the Transition Period, it is intended that [*  *
*].  Buyer and Seller shall coordinate with each other to account for and
 --
implement the foregoing provision in a mutually acceptable manner.  After the
Transition Period [*  *  *].  Seller's [*  *  *].
                                               --

          4.   Invoicing.  Seller shall invoice Buyer for the Services on one or
               ---------
more invoices at such intervals as Seller shall determine, provided that Seller

will not invoice Buyer more than once per month. All payments shall be due and payable 30 days after the date of the invoice.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

representatives, successors and assigns, from and against any and all claims, liabilities, obligations, losses, deficiencies and damages (except for criminal penalties) or judgments of any kind or nature whatsoever arising from or associated with provision of the Services set forth on Exhibit A, including reasonable fees and expenses of counsel.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) If to Seller

ALZA Corporation
1900 Charleston Road
Mountain View, California 94043Attention: General CounselTelecopy No.: (650) 564-7848 Telephone No.: (650) 564-5260

(b) if to Buyer:

DURECT Corporation10240 Bubb RoadCupertino, California 95014-4166Attention: Jean Liu, Esq.Telecopy No.: (408)777-3577Telephone No.:
(408) 777-1417

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) This Agreement may not be amended or modified except by an instrument in writing signed by Seller and Buyer.

(b) The rights and remedies of the parties to this Agreement are cumulative and not alternative of any other remedy conferred hereby or by law or equity, and the exercise of any remedy will not preclude the exercise of any other.

(c) Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege, and single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by law, (i) no Action or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the Action or right unless in a writing signed by the other party; (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

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

DURECT CORPORATION, ALZA CORPORATION

a Delaware corporation               a Delaware corporation



By: /s/ James E. Brown               By: /s/ Peter Staple
   _________________________            _________________________
   Name:  James E. Brown                Name:  Peter Staple
   Title: Chief Executive Officer       Title: Executive Vice President

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

EXHIBIT A

Schedule of Services

Services to be Provided:

Payment for Services:

[* * *]

*Materials has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

COATING SERVICES AGREEMENT

This COATING SERVICES AGREEMENT (this "Agreement"), dated as of April 14, 2000 (the "Effective Date"), is made by and between ALZA CORPORATION, a Delaware corporation ("Seller"), and DURECT CORPORATION, a Delaware corporation ("Buyer").

R E C I T A L S

A. Seller and Buyer have entered into a Product Acquisition Agreement of even date herewith (the "Acquisition Agreement"), providing for the sale by Seller to Buyer of certain Assets (as defined in the Acquisition Agreement).

B. Buyer desires that Seller render certain services to Buyer on an interim basis to assist in the operation of the Business (as defined in the Acquisition Agreement) of the manufacture and sale of the Product (as defined in the Acquisition Agreement). Seller is willing to perform such services on the terms and subject to the conditions set forth herein.

A G R E E M E N T

In consideration of the premises and the respective covenants and obligations set forth herein the parties agree as follows:

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) If to Seller

ALZA Corporation
1900 Charleston Road
Mountain View, California 94043 Attention: General Counsel Telecopy No.: (650) 564-7848 Telephone No.: (650) 564-5260

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(b) if to Buyer:

DURECT Corporation
10240 Bubb Road
Cupertino, California 95014-4166 Attention: Jean Liu, Esq.

Telecopy No.: (408) 777-3577

Telephone No.: (408) 777-1417

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

(a) This Agreement may not be amended or modified except by an instrument in writing signed by Seller and Buyer.

(b) The rights and remedies of the parties to this Agreement are cumulative and not alternative of any other remedy conferred hereby or by law or equity, and the exercise of any remedy will not preclude the exercise of any other.

(c) Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege, and single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by law, (i) no Action or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the Action or right unless in a writing signed by the other party; (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

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

DURECT CORPORATION,                  ALZA CORPORATION
a Delaware corporation               a Delaware corporation

By: /s/ James E. Brown                By: /s/ Peter Staple
   -------------------------------       ---------------------------------
   Name: James E. Brown                  Name: Peter Staple
   Title: Chief Executive Officer        Title: Executive Vice President

EXHIBIT A

Schedule of Services

Services to be Provided:

Responsibilities of ALZA in Provision of Services:

Responsibilities of DURECT in Provision of Services:

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

NEW MODELS DEVELOPMENT AGREEMENT

THIS NEW MODELS DEVELOPMENT AGREEMENT ("AGREEMENT") IS ENTERED INTO AS OF
APRIL 14, 2000 BETWEEN ALZA CORPORATION ("ALZA") AND DURECT CORPORATION
("DURECT").

A. ALZA and DURECT are parties to a Product Acquisition Agreement ("Acquisition Agreement") dated the date hereof, whereby DURECT acquired ALZA's right, title and interest in and to the osmotic, miniature, implantable pumps for research use in laboratory animals, sold under the trademark ALZET(R) (the "Product").

B. The parties desire that ALZA continue certain in-process development of two New Models of the Product.

NOW THEREFORE, in consideration of the mutual covenants and agreements provided herein, the parties hereby agree as follows:

2.1 Promptly after execution of this Agreement and approval of a work plan as described in Section 2.2, ALZA will commence the Program activities necessary to continue development of the New Models. In connection with the Program, both parties will make available appropriate scientific, engineering and other

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC. 10

personnel to perform tasks under the Program. The parties will use reasonable commercial efforts to carry out the Program, will participate in periodic conferences to review its status and will cooperate in the prompt preparation and review of, and discussion concerning, work plans and cost estimates and revisions thereto described in Section 2.2.

2.2 ALZA and DURECT agree to cooperate to devise mutually acceptable work plans and cost estimates for the development of the New Models. The parties understand and agree that it is difficult to accurately predict the activities that will be necessary to develop the New Models, or the cost thereof, and significant uncertainties exist in any product development effort. As a result, any such work plan and cost estimate will be diligently reviewed and revised from time to time in order that it remain a faithful best-estimate of work to be done by the parties under the Program and, with regard to ALZA's activities, the Development Costs thereof.

Any inventions and information solely relating to the New Models ("Inventions") and any intellectual property rights therein and thereto will be the property of DURECT, without regard to whether the Inventions are made by employees of DURECT, ALZA or both parties. ALZA shall promptly disclose any such Inventions to DURECT, execute all required instruments to assign ownership of such Inventions to DURECT and cooperate with DURECT to obtain and enforce any patents or other registrations covering such Inventions. This provision will survive the termination of this Agreement for any reason.

4.1 Unless earlier terminated under Section 4.2, this Agreement will remain in effect until completion of the development of the New Models.

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC. 11

4.2 DURECT may terminate this Agreement at any time upon not less than 30 days' written notice to ALZA. ALZA may terminate this Agreement upon not less than 30 days' written notice to DURECT, if DURECT fails to pay any amounts due to ALZA under this Agreement within 30 days after the date of invoice, unless DURECT shall have paid such outstanding amounts within 30 days of DURECT's receipt of ALZA's written notice thereof.

4.3 Termination of this Agreement will be without prejudice to ALZA's right to receive payment of all Development Costs incurred prior to the effective date of the termination. After termination of this Agreement by DURECT or termination by ALZA due to a breach of this Agreement by DURECT, DURECT will reimburse ALZA, within 30 days after invoice, for any uncancellable obligations and expenses incurred by ALZA prior to such termination in connection with the Program and all costs incurred by ALZA in terminating the Program.

5.1 This Agreement will be governed by and construed in accordance with the laws of the State of California, excluding any choice of law rules which may direct the application of the laws of another jurisdiction.

5.2 This Agreement will not be amended or modified except in a writing signed by each of the parties hereto.

5.3 All notices, requests and other communications required or permitted to be given hereunder or with respect hereto will be in writing, and may be given by (i) personal delivery, (ii) registered first-class United States mail, postage prepaid by the sender, return receipt requested, (iii) overnight delivery service, charges prepaid by the sender, or (iv) via facsimile and, in each case, addressed to the other party at the address for such party as set forth below, and will be effective upon receipt in the case of (i) (iii) or (iv) above, and five days after mailing in the case of (ii) above.

If to ALZA:    ALZA Corporation
               1900 Charleston Road
               Mountain View, CA 94043
               Fax #: 650-564-7848
               Attention: Senior Vice President and General Counsel

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC. 12

If to DURECT: DURECT CORPORATION
10240 Bubb Road
Cupertino, CA 95014
Fax #: (408) 777-3577
Attention: General Counsel

Any party may change its address at which notice is to be received by written notice provided pursuant to this Section 5.3.

5.4 Each party will be responsible for assuring that all applicable rules, laws and regulations are met in the performance of its duties hereunder.

5.5 This Agreement, together with the exhibits hereto, sets forth the entire agreement and understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof, whether oral or in writing.

5.6 Neither party will be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise.

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

ALZA CORPORATION DURECT CORPORATION

By:    /s/ Peter Staple                      By:    /s/ James E. Brown
       __________________________                   _________________________

Title: Executive Vice President              Title: Chief Executive Officer
       __________________________                   _________________________

*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC. 13

EXHIBIT A

DEVELOPMENT COSTS

Development Costs are equal to the sum of (i) research expenses, (ii) general and administrative expenses and (iii) capital asset expenditures.

(i) Research expenses include both direct expenses and indirect expenses.

(a) Direct expenses include direct research salaries (including project management and temporary labor), clinical expenses, supplies and other expenses incurred specifically in connection with the Program.

(b) Indirect expenses include general research management and support costs of the research and product development organization. Indirect expenses are allocated to all projects and billed to clients at a fixed rate* of 160% of direct research salaries.

Examples of items included in direct and indirect expenses are listed on Exhibit A-1

(ii) General and administrative expenses are allocated among the research and product development, manufacturing and marketing organizations. The portion allocated to the research and product development organization is then allocated to all research and development projects and billed to clients at a fixed rate* of 80% of direct research salaries.

Examples of items included in general and administrative expenses are listed on Exhibit A-1.

(iii) Capital asset expenditures are the actual costs of new capital assets acquired specifically for the project.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC. 1

EXHIBIT A-1

Direct research salaries*
Project clinical expenses and outside services Project specific supplies
Project travel and related expenses
Miscellaneous project expenses
Regulatory and filing fees and maintenance payments

Research management and indirect salaries* General research supplies and materials
General research consulting and outside services Facilities expenses
Telephone and communications
Equipment depreciation, rent, maintenance and services Research travel and related expenses
Patent and trademark expenses
Miscellaneous indirect research expenses

Corporate management, administrative, and indirect salaries* Telephone and communications
Equipment depreciation, rent, maintenance and services Board of directors and corporate consulting Annual audit, accounting and legal expenses Facilities expenses
Information services (data processing) expenses Interest expense
Miscellaneous general and administrative expenses

*Salaries include fringe benefits at a fixed rate of 52% of salaries. This fixed rate will not be changed prior to January 1, 2001 and, if changed on or after January 1, 2001, such changes will be limited to not more than one change per calendar year and shall be a maximum of 10% of the rate in effect at the time of the increase.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

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. [ * * * ]

. [ * * * ]

Non-Profiled Document

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

The attached inventory list is subject to confirmation by Seller and Buyer.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

     Asset No.            Description
     --------             -----------
[[ * * * ]                                    [ * * * ]
-

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

5. Distributorship Agreement between ALZA and [[ * * * ]

6. Distributorship Agreement between ALZA and [[ * * * ]

7. Distributorship Agreement between ALZA and [ * * * ]

8. Distributorship Agreement between ALZA and [[ * * * ]

9. Distributorship Agreement between ALZA and [[ * * * ]

10. Distributorship Agreement between ALZA and [ * * * ]

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Lease between ALZA and Chevron Land and Development Company dated February 1, 1986, as amended October 15, 1990, January 25, 1995, March 27, 1997 and December 1, 1999.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

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Trademark Name:                   Country Name      Registration No:     Reg. Date:           Classes:
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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ALZET                                [***]              [***]              [***]               [***]
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 Country    Trademark Name:                  Owner Name       Registration No:      Reg. Date:         Classes:
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  [***]        SPECIAL DELIVERY                 [***]              [***]              [***]              [***]
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 Country    Trademark Name:                    Owner        Registration No:     Reg. Date:            Classes:
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  [***]         ALZAID                          [***]              [***]              [***]              [***]
--------------------------------------------------------------------------------------------------------------------

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

[[ * * * ]

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

Name                                  Title
----                                  -----

[ * * * ]                             [ * * * ]
[ * * * ]                             [ * * * ]
[ * * * ]                             [ * * * ]
[ * * * ]                             [ * * * ]
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[ * * * ]                             [ * * * ]
[ * * * ]                             [ * * * ]
[ * * * ]                             [ * * * ]

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

The following are exceptions to the representations and warranties of Seller in
Section 5.10:

[ * * * ]

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

                        Part #                  Price (per Unit)
                        -----                   ----------------

[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]
[ *  *  *  ]          [  *  *  *  ]               [ *  *  *  ]

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

* Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
DURECT CORPORATION

TABLE OF CONTENTS

                                                                              Page
                                                                              ----
1    ACCOUNTING AND OTHER TERMS..............................................  4
     --------------------------

2    LOAN AND TERMS OF PAYMENT...............................................  4
     -------------------------
     2.1  Credit Extensions..................................................  4
     2.2  Interest Rate, Payments............................................  5
     2.3  Fees...............................................................  6

3    CONDITIONS OF LOANS.....................................................  6
     -------------------
     3.1  Conditions Precedent to Initial Credit Extension...................  6
     3.2  Conditions Precedent to all Credit Extensions......................  6

4    CREATION OF SECURITY INTEREST...........................................  7
     -----------------------------
     4.1  Grant of Security Interest.........................................  7

5    REPRESENTATIONS AND WARRANTIES..........................................  7
     ------------------------------
     5.1  Due Organization and Authorization.................................  7
     5.2  Collateral.........................................................  7
     5.3  Litigation.........................................................  7
     5.4  No Material Adverse Change in Financial Statements.................  7
     5.5  Solvency...........................................................  8
     5.6  Regulatory Compliance..............................................  8
     5.7  Subsidiaries.......................................................  8
     5.8  Full Disclosure....................................................  8

6    AFFIRMATIVE COVENANTS...................................................  8
     ---------------------
     6.1  Government Compliance..............................................  8
     6.2  Financial Statements, Reports, Certificates........................  9
     6.3  Inventory; Returns.................................................  9
     6.4  Taxes..............................................................  9
     6.5  Insurance..........................................................  9
     6.6  Primary Accounts...................................................  9
     6.7  Loss; Destruction; or Damage.......................................  9
     6.8  Further Assurances................................................. 10

7    NEGATIVE COVENANTS...................................................... 10
     ------------------

8    EVENTS OF DEFAULT....................................................... 11
     -----------------
     8.1  Payment Default.................................................... 11
     8.2  Covenant Default................................................... 11
     8.3  Material Adverse Change............................................ 11
     8.4  Attachment......................................................... 11
     8.5  Insolvency......................................................... 11
     8.6  Other Agreements................................................... 12
     8.7  Judgments.......................................................... 12
     8.8  Misrepresentations................................................. 12

9    BANK'S RIGHTS AND REMEDIES.............................................. 12
     --------------------------
     9.1  Rights and Remedies................................................ 12
     9.2  Power of Attorney.................................................. 12
     9.3  Accounts Collection................................................ 13

     9.4  Bank Expenses...................................................... 13
     9.5  Bank's Liability for Collateral.................................... 13
     9.6  Remedies Cumulative................................................ 13
     9.7  Demand Waiver...................................................... 13

10   NOTICES................................................................. 13
     -------

11   CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER............................. 14
     -------------------------------------------

12   GENERAL PROVISIONS...................................................... 14
     ------------------
     12.1  Successors and Assigns............................................ 14
     12.2  Indemnification................................................... 14
     12.3  Time of Essence................................................... 14
     12.4  Severability of Provision......................................... 14
     12.5  Amendments in Writing, Integration................................ 14
     12.6  Counterparts...................................................... 15
     12.7  Survival.......................................................... 15
     12.8  Confidentiality................................................... 15
     12.9  Effect of Amendment and Restatement............................... 15
     12.10 Attorneys' Fees, Costs and Expenses............................... 15

13   DEFINITIONS............................................................. 15
     -----------
     13.1  Definitions....................................................... 15

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated December 16, 1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and DURECT CORPORATION ("Borrower"), whose address is 10240 Bubb Road, Cupertino, California 95014.

RECITALS

A. Bank and Borrower are parties to that certain QuickStart Loan and Security Agreement, dated October 29, 1998, as amended (the "Original Agreement").

B. Borrower and Bank desire in this Agreement to set forth their agreement with respect to an equipment line and term loan and to amend and restate in its entirety without novation the Original Agreement in accordance with the provisions herein. This Agreement shall be construed to impart upon Bank a duty to act reasonably at all times.

AGREEMENT

The parties agree as follows:

Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always mean "including (or includes) without limitation," in this or any Loan Document.

2.1 Credit Extensions.

Borrower will pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1 Equipment Advances.

(a) Subject to the terms and conditions of this Agreement, Bank agrees to lend to Borrower, from time to time prior to the Commitment Termination Date, equipment advances (each an "Equipment Advance" and collectively the "Equipment Advances") in an aggregate amount not to exceed the Committed Equipment Line. When repaid, the Equipment Advances may not be re-borrowed. The proceeds of the Equipment Advances will be used solely to reimburse Borrower for the purchase of Eligible Equipment purchased prior to September 30, 1999. Each Equipment Advance shall be considered a promissory note evidencing the amounts due hereunder for all purposes. Bank's obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or
(ii) the Commitment Termination Date. For purposes of this Section, the minimum amount of each Equipment Advance is $750,000 and the maximum number of Equipment Advances that will be made is 1.

(a) (b) To obtain an Equipment Advance, Borrower will deliver to Bank a completed supplement in substantially the form attached as Exhibit C ("Loan Supplement"), copies of invoices for the Financed Equipment, together with a UCC Financing Statement covering the Equipment described on the Loan Supplement, and such additional information as Bank may request at least five (5) Business Days before the proposed funding date (the "Funding Date"). On each Funding Date, Bank will specify in the Loan Supplement for each Equipment Advance, the Basic Rate, the Loan Factor, and the Payment Dates. If Borrower satisfies the conditions of each Equipment Advance specified herein, Bank will disburse such Equipment Advance by

internal transfer to Borrower's deposit account with Bank. Each Equipment Advance may not exceed 100% of the Original Stated Cost.

(c) Bank's obligation to lend the undisbursed portion of the Committed Equipment Line will terminate if, in Bank's sole discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospects of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior to the execution of this Agreement.

2.1.2 Term Loan.

(a) Bank will continue to make a Term Loan available to Borrower, pursuant to the Original Agreement.

(b) Borrower will continue to pay its Term Loan obligations in a total of 30 equal installments of principal of $11,111.12 plus Interest (the "Term Loan Payment"). Each Term Loan Payment is payable on the 29th of each month during the term of the loan. Borrower's final Term Loan Payment, due on May 29, 2002, includes all outstanding Term Loan principal and accrued interest.

2.2 Interest Rate, Payments.

2.2.1 Equipment Facility.

Principal and Interest Payments On Payment Dates. Borrower will repay the Equipment Advances on the terms provided in the Loan Supplement. Borrower will make payments monthly of principal and accrued interest for each Equipment Advance (collectively, "Scheduled Payments"), beginning one month following the Funding Date with respect to such Equipment Advance and continuing thereafter during the Repayment Period on the same day of each calendar month (each a "Payment Date"), in an amount equal to the Loan Factor multiplied by the Loan Amount for such Equipment Advance as of such Payment Date. All unpaid principal and accrued interest is due and payable in full on the last Payment Date with respect to such Equipment Advance. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. An Equipment Advance may only be prepaid in accordance with Sections 2.2.1(d) and 2.2.1(f).

(b) Interest Rate. Borrower will pay interest on the Payment Dates (as described above) at the per annum rate of interest equal to the Basic Rate determined by Bank as of the Funding Date for each Equipment Advance in accordance with the definition of the Basic Rate. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the Basic Rate plus five percent (5%) or the maximum permitted by law. If any change in the law increases Bank's expenses or decreases its return from the Equipment Advances, Borrower will pay Bank upon request the amount of such increase or decrease.

(c) Final Payment. On the Maturity Date with respect to each Equipment Advance, Borrower will pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with respect to such Equipment Advance, an amount equal to the Final Payment.

(d) Prepayment Upon an Event of Loss. If any Financed Equipment is subject to an Event of Loss and Borrower is required to or elects to prepay the Equipment Advance with respect to such Financed Equipment pursuant to Section 6.7, then such Equipment Advance shall be prepaid to the extent and in the manner provided in such section.

(e) Mandatory Prepayment Upon an Acceleration. If the Equipment Advances are accelerated following the occurrence of an Event of Default or otherwise (other than following an Event of Loss), then Borrower will immediately pay to Bank (i) all unpaid Scheduled Payments (including principal and interest) with respect to each Equipment Advance, (ii) all remaining Scheduled Payments (including principal and interest unpaid) (iii) all accrued unpaid interest, including the default rate of interest, to the date of the prepayment, (iv) the Final Payment and (v) all other sums, if any, that shall have become due and payable with respect to any Equipment Advance.

2.2.2 Term Loan.

(a) Interest Rate. The Term Loan accrues interest at a per annum rate of 1.25 percentage points above the Prime Rate. After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year for the actual number of days elapsed.

(b) Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue.

2.2.3 Request to Debit Accounts.

Bank may debit any of Borrower's deposit accounts including Account Number 3300076017 for principal and interest payments or any amounts Borrower owes Bank when due. Bank will notify Borrower when it debits Borrower's accounts. These debits are not a set-off.

2.3 Fees.

Borrower will pay:

Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due.

3.1 Conditions Precedent to Initial Credit Extension.

Bank's obligation to make the initial Credit Extension is subject to the condition precedent that it receive the agreements and documents that it reasonably requires and fees that it requires; provided, however, that fees shall not exceed $5,000.

3.2 Conditions Precedent to all Credit Extensions.

Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following:

(a) timely receipt of any Payment/Advance Form; and

(b) the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties of Section 5 remain materially true.

4.1 Grant of Security Interest.

Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower's duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may place a "hold" on any deposit account pledged as Collateral. If this Agreement is terminated, Bank's lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. Notwithstanding the foregoing, at such time as the Term Loan is paid in full, Bank will release the Negative Pledge Agreement and its interest in all Collateral, except for any and all Equipment (including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements, wherever located) financed by Equipment Advances.

Borrower represents and warrants as follows:

5.1 Due Organization and Authorization.

Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could cause reasonably be expected to cause a Material Adverse Change.

5.2 Collateral.

Borrower has good title to the Collateral, free of Liens except Permitted Liens. All Inventory is in all material respects of good and marketable quality, free from material defects.

5.3 Litigation.

Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of Borrower's Responsible Officers, threatened by or against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change.

5.4 No Material Adverse Change in Financial Statements.

All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's

consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.5 Solvency.

The fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6 Regulatory Compliance.

Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. To its knowledge, Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any Subsidiary's properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

5.7 Subsidiaries.

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8 Full Disclosure.

No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results.

Borrower will do all of the following:

6.1 Government Compliance.

Borrower will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower's business or operations. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse

effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change.

6.2 Financial Statements, Reports, Certificates.

(a) Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during the period, in a form and certified by a Responsible Officer acceptable to Bank; (ii) as soon as available, but no later than 90 days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales projections, operating plans or other financial information Bank reasonably requests.

(b) Bank has the right to audit Borrower's Collateral at Borrower's expense, but the audits will be conducted no more often than every quarter unless an Event of Default has occurred and is continuing.

6.3 Inventory; Returns.

Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower's customary practices as they exist at execution of this Agreement. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $50,000.

6.4 Taxes.

Borrower will make, and cause each Subsidiary to make, timely payment or filing of extensions of all material federal, state, and local taxes or assessments and will deliver to Bank, on demand, appropriate certificates attesting to the payment.

6.5 Insurance.

Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank requests. Insurance policies will be in a form, with companies, and in amounts that are reasonably customary for companies similar to Borrower and Borrower's industry. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and all policies will provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Bank's request, Borrower will deliver certified copies of policies and evidence of all premium payments. Subject to Section 6.7(a) below, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy to the replacement or repair of destroyed or damaged property; provided that, after the occurrence and during the continuance of an Event of Default, all proceeds payable under any such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations.

6.6 Primary Accounts.

Borrower will maintain its primary depository and operating accounts with Bank.

6.7 Loss; Destruction; or Damage.

Borrower will bear the risk of the Financed Equipment being lost, stolen, destroyed, or damaged. If during the term of this Agreement any item of Financed Equipment is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason for a period equal to at least the remainder of the term of this Agreement (an "Event of Loss"), then in each case, Borrower:

(a) prior to the occurrence of an Event of Default, at Borrower's option, will (i) pay to Bank on account of the Obligations all accrued interest to the date of the prepayment, plus all outstanding principal, plus the Final Payment; or (ii) repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss and provided further that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment.

(b) during the continuance of an Event of Default, on or before the Payment Date after such Event of Loss for each such item of Financed Equipment subject to such Event of Loss, Borrower will, at Bank's option, pay to Bank an amount equal to the sum of: (i) all accrued and unpaid Scheduled Payments (with respect to such Equipment Advance related to the Event of Loss) due prior to the next such Payment Date, (ii) all Regularly Scheduled Payments (including principal and interest), (iii) the Final Payment plus (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

(c) On the date of receipt by Bank of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such Financed Equipment. If any proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section, Bank shall promptly remit to Borrower the amount in excess of the amount owed to Bank.

6.8 Further Assurances.

Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's security interest in the Collateral or to effect the purposes of this Agreement.

Borrower will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld:

(i) Enter into any transaction outside the ordinary course of business except for the sale of capital stock to venture investors, provided that Borrower promptly delivers written notification to Silicon of any such sale;
(ii) Sell or transfer any Collateral, except in the ordinary course of business;
(iii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (iv) Redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock other than the repurchase of the Borrower's stock upon termination of the employee, consultant or director's relationship with Borrower pursuant to the repurchase provisions of the stock purchase agreement with Borrower; provided, however, such payments shall not exceed $30,000 in any fiscal year and provided further no Event of Default exists, is continuing or would result from such action; (v) Change its name or the chief executive office or principal place of business, move or dispose of any interest in the Collateral, permit any lien or security interest to attach to the Collateral, or enter into any transaction outside the ordinary course of Borrower's business; (vi) Become an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Advance for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to

comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could have a material adverse effect on Borrower's business or operations or cause a Material Adverse Change, or permit any of its Subsidiaries to do so; (vii) Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness; (viii) Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens.

Any one of the following is an Event of Default:

8.1 Payment Default.

If Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default.

If Borrower violates any covenant in Section 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower's attempts within 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default. During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period);

8.3 Material Adverse Change.

If there (i) occurs a material impairment in the perfection or priority of the Bank's security interest in the Collateral or in the value of such Collateral (other than normal depreciation) which is not covered by adequate insurance or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations.

8.4 Attachment.

If any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period);

8.5 Insolvency.

If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed);

8.6 Other Agreements.

If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000 or that could cause a Material Adverse Change or if a default exists or is declared in the Master Lease Agreement between Borrower as Lessee and Bank as Lessor;

8.7 Judgments.

If a money judgment(s) in the aggregate of at least $50,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied); or

8.8 Misrepresentations.

If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document.

9.1 Rights and Remedies.

When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a) Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b) Stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank;

(c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable;

(d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies;

(e) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral; and

(g) Dispose of the Collateral according to the Code.

9.2 Power of Attorney.

Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any checks or other

forms of payment or security; (ii) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower's insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower's name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates.

9.3 Accounts Collection.

When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit.

9.4 Bank Expenses.

If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default.

9.5 Bank's Liability for Collateral.

If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6 Remedies Cumulative.

Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.

9.7 Demand Waiver.

Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery

service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written notice.

California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.1 Successors and Assigns.

This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights under it without Bank's prior written consent which may be granted or withheld in Bank's discretion. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under this Agreement.

12.2 Indemnification.

Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct.

12.3 Time of Essence.

Time is of the essence for the performance of all obligations in this Agreement.

12.4 Severability of Provision.

Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.5 Amendments in Writing, Integration.

All amendments to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents.

12.6 Counterparts.

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

12.7 Survival.

All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run.

12.8 Confidentiality.

In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank's subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank's examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

12.9 Effect of Amendment and Restatement.

This Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All credit extensions or loans outstanding under the Original Agreement are and shall continue to be outstanding under this Agreement. All security interests granted under the Original Agreement are hereby confirmed and ratified and shall continue to secure all Obligations under this Agreement.

12.10 Attorneys' Fees, Costs and Expenses.

In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys' fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled.

13.1  Definitions.

      In this Agreement:

      "Accounts" are all existing and later arising accounts, contract rights,

and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.

"Affiliate" of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members.

"Bank Expenses" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).

"Basic Rate" is, as of the Funding Date, the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) the U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as quoted in The Wall Street Journal on the day the Loan Supplement is prepared, plus (b) the Loan Margin.

"Borrower's Books" are all Borrower's books and records including ledgers, records regarding Borrower's assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.

"Business Day" is any day that is not a Saturday, Sunday or a day on which the Bank is closed.

"Closing Date" is December 31, 1999.

"Code" is the California Uniform Commercial Code.

"Commitment Termination Date" is the Closing Date.

"Committed Equipment Line" is a Credit Extension of up to $750,000.

"Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement.

"Credit Extension" is each Equipment Advance, Term Loan, or any other extension of credit by Bank for Borrower's benefit.

"Eligible Equipment" is general purpose computer equipment, manufacturing and laboratory equipment, test and laboratory equipment, furnishings that complies with all of Borrower's representations and warranties to Bank and which is acceptable to Bank in all respects. All Equipment financed with the proceeds of Equipment Advances shall be new, provided that Bank, in its sole discretion, may finance used equipment.

"Equipment" is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

"Equipment Advance" is defined in Section 2.1.1.

"ERISA" is the Employment Retirement Income Security Act of 1974, and its regulations.

"Final Payment" is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the Maturity Date for such Equipment Advance equal to the Loan Amount for such Equipment Advance multiplied by the Final Payment Percentage.

"Final Payment Percentage" is, for each Equipment Advance, 10%.

"Financed Equipment" is defined in the Loan Supplement.

"Funding Date" is any date on which an Equipment Advance is made to or on account of Borrower.

"GAAP" is generally accepted accounting principles.

"Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.

"Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

"Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.

"Investment" is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

"Lien" is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

"Loan Amount" is the aggregate amount of the Equipment Advance.

"Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or Guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated.

"Loan Factor" is the percentage which results from amortizing the Equipment Advance over the Repayment Period, using the Basic Rate as the interest rate. As an example, based on a treasury note yield of 6.10% for a Treasury Note Maturity as published August 10, 1999, two (2) Loan Factors are derived: (i) the Loan Factor for the first 12 months of the Repayment Period is 1.50%; and (ii) the Loan Factor for the remaining 30 months in the Repayment Period is 3.40%

"Loan Margin" is a negative -303.61 basis points increasing to a positive
+849.24 basis points beginning January 1, 2001.

"Loan Supplement" is attached as Exhibit C

"Material Adverse Change" is defined in Section 8.3.

"Maturity Date" is, with respect to each Equipment Advance, the last day of the Repayment Period for such Equipment Advance, or if earlier, the date of acceleration of such Equipment Advance by Bank following an Event of Default.

"Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management services, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank.

"Original Agreement" has the meaning set forth in recital paragraph A.

"Original Stated Cost" is (i), the original cost to the Borrower of the item of new Equipment net of any and all freight, installation, tax or (ii) the fair market value assigned to such item of used Equipment by mutual agreement of Borrower and Bank at the time of making of the Equipment Advance.

"Permitted Indebtedness" is:

(a) Borrower's indebtedness to Bank under this Agreement or any other Loan Document;

(b) Indebtedness existing on the Closing Date and shown on the Schedule;

(c) Subordinated Debt;

(d) Indebtedness to trade creditors incurred in the ordinary course of business; and

(e) Indebtedness secured by Permitted Liens.

"Permitted Investments" are:

(a) Investments shown on the Schedule and existing on the Closing Date; and

(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit issued maturing no more than 1 year after issue.

"Permitted Liens" are:

(a) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents;

(e) Leases or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property;

"Person" is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

"Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate.

"Repayment Period" as to the Equipment Advances, is 42 months.

"Responsible Officer" is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower.

"Schedule" is any attached schedule of exceptions.

"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing.

"Subsidiary" is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.

"Term Loan" a loan of $333,333 (originally $400,000 advanced under the Original Agreement).

"Term Loan Maturity Date" is May 29, 2002.

"Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt.

"Treasury Note Maturity" is 42 months.

BORROWER:

Durect Corporation

By: /s/ Thomas A. Schreck
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Title: Chief Financial Officer
       -----------------------

BANK:

SILICON VALLEY BANK