EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

dated as of April 18, 2001

among

DURECT CORPORATION

MAGNOLIA ACQUISITION CORPORATION

and

SOUTHERN BIOSYSTEMS, INC.

TABLE OF CONTENTS

                                                                                  Page
                                                                                  ----
ARTICLE I THE MERGER............................................................     2
     Section 1.1    Effective Time of the Merger................................     2
     Section 1.2    Closing.....................................................     2
     Section 1.3    Effects of the Merger.......................................     2
     Section 1.4    Directors and Officers......................................     2
ARTICLE II CONVERSION OF SECURITIES.............................................     3
     Section 2.1    Conversion of Capital Stock.................................     3
     Section 2.2    Escrow Agreement............................................     5
     Section 2.3    Dissenting Shares...........................................     5
     Section 2.4    Exchange of Certificates....................................     6
     Section 2.5    Distributions with Respect to Unexchanged Shares............     7
     Section 2.6    No Fractional Shares........................................     7
     Section 2.7    Tax and Accounting Consequences.............................     7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET............................     8
     Section 3.1    Organization of Target......................................     8
     Section 3.2    Target Capital Structure....................................     9
     Section 3.3    Authority; No Conflict; Required Filings and Consents.......    10
     Section 3.4    Financial Statements; Absence of Undisclosed Liabilities....    11
     Section 3.5    Tax Matters.................................................    12
     Section 3.6    Absence of Certain Changes or Events........................    14
     Section 3.7    Title and Related Matters...................................    15
     Section 3.8    Proprietary Rights..........................................    16
     Section 3.9    Employee Benefit Plans......................................    18
     Section 3.10   Bank Accounts...............................................    20
     Section 3.11   Contracts...................................................    21
     Section 3.12   Orders, Commitments and Returns.............................    22
     Section 3.13   Compliance With Law.........................................    23
     Section 3.14   Labor Difficulties; No Discrimination.......................    23
     Section 3.15   Trade Regulation............................................    24
     Section 3.16   Insider Transactions........................................    24
     Section 3.17   Employees, Independent Contractors and Consultants..........    24
     Section 3.18   Insurance...................................................    25
     Section 3.19   [Reserved]..................................................    25
     Section 3.20   Litigation..................................................    25
     Section 3.21   Governmental Authorizations and Regulations.................    25
     Section 3.22   Environmental Matters.......................................    25
     Section 3.23   Corporate Documents.........................................    28
     Section 3.24   No Brokers..................................................    29
     Section 3.25   Customers and Suppliers.....................................    29
     Section 3.26   Target Action...............................................    29
     Section 3.27   Offers......................................................    29
     Section 3.28   [Reserved]..................................................    29
     Section 3.29   Disclosure..................................................    29
     Section 3.30   Disclosure to Shareholders..................................    30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB...................    30

TABLE OF CONTENTS

                                                                                  Page
                                                                                  ----
     Section 4.1    Organization of Acquiror and Sub.............................   30
     Section 4.2    Valid Issuance of Acquiror Common Stock......................   30
     Section 4.3    Authority; No Conflict; Required Filings and Consents........   31
     Section 4.4    Commission Filings; Financial Statements.....................   31
     Section 4.5    Interim Operations of Sub....................................   32
     Section 4.6    Stockholders Consent.........................................   32
     Section 4.7    SEC Filings and Proxy Statement..............................   32
     Section 4.8    Absences of Changes..........................................   33
     Section 4.9    Disclosure...................................................   33
ARTICLE V PRECLOSING COVENANTS OF TARGET.........................................   33
     Section 5.1    Approval of Target Stockholders..............................   33
     Section 5.2    Advice of Changes............................................   34
     Section 5.3    Operation of Business........................................   34
     Section 5.4    Access to Information........................................   36
     Section 5.5    Satisfaction of Conditions Precedent.........................   36
     Section 5.6    Other Negotiations...........................................   37
ARTICLE VI PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB....................   37
     Section 6.1    Advice of Changes............................................   37
     Section 6.2    Reservation of Acquiror Common Stock.........................   37
     Section 6.3    Satisfaction of Conditions Precedent.........................   37
     Section 6.4    Stock Options................................................   38
     Section 6.5    Registration of Merger Shares................................   39
     Section 6.6    Procedures for Sale of Shares Under Registration Statement...   43
     Section 6.7    Certain Employee Benefit Matters.............................   43
ARTICLE VII OTHER AGREEMENTS.....................................................   45
     Section 7.1    Confidentiality..............................................   45
     Section 7.2    No Public Announcement.......................................   45
     Section 7.3    Regulatory Filings; Consents; Reasonable Efforts.............   45
     Section 7.4    Further Assurances...........................................   46
     Section 7.5    Escrow Agreement.............................................   46
     Section 7.6    FIRPTA.......................................................   46
     Section 7.7    Blue Sky Laws................................................   46
     Section 7.8    Other Filings................................................   46
     Section 7.9    Assumption of Indemnification Obligations....................   46
     Section 7.10   Supplemental Disclosure......................................   47
     Section 7.11   Listing of Shares............................................   47
ARTICLE VIII CONDITIONS TO MERGER................................................   47
     Section 8.1    Conditions to Each Party's Obligation to Effect the Merger...   48
     Section 8.2    Additional Conditions to Obligations of Acquiror and Sub.....   48
     Section 8.3    Additional Conditions to Obligations of Target...............   50
ARTICLE IX TERMINATION AND AMENDMENT.............................................   51
     Section 9.1    Termination..................................................   51
     Section 9.2    Effect of Termination........................................   52
     Section 9.3    Fees and Expenses............................................   52

TABLE OF CONTENTS

                                                                                  Page
                                                                                  ----
     Section 9.4    Certain Agreement Following Termination.....................    54
ARTICLE X ESCROW AND INDEMNIFICATION............................................    54
     Section 10.1   Indemnification.............................................    54
     Section 10.2   Escrow Fund.................................................    54
     Section 10.3   Escrow Periods..............................................    55
     Section 10.4   Claims Upon Escrow Fund.....................................    55
     Section 10.5   Valuation...................................................    56
     Section 10.6   Objections to Claims........................................    56
     Section 10.7   Resolution of Conflicts.....................................    56
     Section 10.8   Shareholders' Agents........................................    58
     Section 10.9   Actions of the Shareholders' Agents.........................    59
     Section 10.10  Claims......................................................    59
ARTICLE XI MISCELLANEOUS........................................................    59
     Section 11.1   Survival of Representations and Covenants...................    59
     Section 11.2   Notices.....................................................    60
     Section 11.3   Interpretation..............................................    61
     Section 11.4   Counterparts................................................    61
     Section 11.5   Entire Agreement; No Third Party Beneficiaries..............    61
     Section 11.6   Governing Law; Jurisdiction.................................    61
     Section 11.7   Assignment..................................................    61
     Section 11.8   Amendment...................................................    62
     Section 11.9   Extension; Waiver...........................................    62
     Section 11.10  Specific Performance........................................    62
     Section 11.11  Severability................................................    62

EXHIBITS
EXHIBIT A - EMPLOYMENT AND NON-COMPETITION AGREEMENT EXHIBIT B - SHAREHOLDERS AGREEMENT
EXHIBIT C - ESCROW AGREEMENT
EXHIBIT D - SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET EXHIBIT E - SUBJECT MATTER OF OPINION OF COUNSEL TO ACQUIROR

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of April 18, 2001 (this "Agreement"), is entered into by and among Durect Corporation, a Delaware corporation ("Acquiror"), Magnolia Acquisition Corporation, an Alabama corporation and a wholly owned Subsidiary of Acquiror ("Sub"), Southern BioSystems, Inc., an Alabama corporation ("Target"), and certain shareholders of Target ("Principal Shareholders").

RECITALS

A. The Boards of Directors of Acquiror, Sub and Target deem it advisable and in the best interests of each corporation and their respective stockholders that Acquiror and Target combine in order to advance the long-term business interests of Acquiror and Target;

B. The combination of Acquiror, Sub and Target shall be effected by the terms of this Agreement through a transaction in which Sub will merge with and into Target, Target will become a wholly owned Subsidiary of Acquiror and the stockholders of Target will become stockholders of Acquiror (the "Merger");

C. For Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");

D. For accounting purposes, it is intended that the Merger shall be accounted for under purchase method accounting;

E. Contemporaneously with the execution of this Agreement, certain Target shareholders holding, in the aggregate, at least sixty seven percent (67%) of the Common Stock of Target and options to purchase Common Stock of Target, have executed and delivered voting agreements, pursuant to which such shareholders have, among other things, agreed to vote their shares of Target capital stock in favor of the Merger and to grant Acquiror irrevocable proxies to vote such shares;

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:

ARTICLE I

THE MERGER

(a) Subject to the provisions of this Agreement, articles of merger (the "Articles of Merger") in such mutually acceptable form as is required by the relevant provisions of the Alabama Business Corporation Act ("Alabama Law") shall be duly executed and delivered by the parties hereto and therefor delivered to the Secretary of State of the State of Alabama for filing on the Closing Date (as defined in Section 1.2).

(b) The Merger shall become effective upon the due and valid filing of the Articles of Merger with the Secretary of State of the State of Alabama or at such time thereafter as is provided in the Articles of Merger (the "Effective Time").

(a) At the Effective Time (i) the separate existence of Sub shall cease and Sub shall be merged with and into Target and Target will be the surviving corporation of the Merger (Sub and Target are sometimes referred to herein as the "Constituent Corporations" and Target following consummation of the Merger is sometimes referred to herein as the "Surviving Corporation"),
(ii) the Articles of Incorporation of the Surviving Corporation shall be Amended to be as set forth in Exhibit A to the Articles of Merger until further amended in accordance with applicable law and (iii) the Bylaws of Sub as in effect immediately prior to the Effective Time shall become the Bylaws of the Surviving Corporation.

(b) At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of Alabama Law. Without limiting the generality of the foregoing, at and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises, and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations.

ARTICLE II

CONVERSION OF SECURITIES

(i) Subject to Sections 2.2 and 2.4, each issued and outstanding share of Target Common Stock (other than shares to be canceled in accordance with Section 2.1(b) and any Dissenting Shares as defined in and to the extent provided in Section 2.3) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive a number of a fully paid and nonassessable shares of Acquiror Common Stock (as defined in Section 4.2) equal to the "Exchange Ratio", as defined in and determined in accordance with the provisions of this Section 2.1(c), the right to receive Adjusted Consideration shares, if any, as set forth in Section 2.1(d) and the right to receive cash in lieu of fractional shares of Acquiror Common Stock to be paid in consideration therefor in accordance with Section
2.6. All such shares of Target Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Acquiror Common Stock to be issued, and any cash in lieu of fractional shares of Acquiror Common Stock to be paid, in consideration therefor upon the surrender of such certificate in accordance with Section 2.4, without interest.

(ii) The "Closing Consideration Shares" shall be equal to a number of shares of Acquiror Common Stock calculated by dividing (u) $25,000,000 less Target's legal, accounting, investment banking, broker's and finder's fees and expenses related to the Merger

(iii) If, on or after the date of this Agreement and prior to the Effective Time, the outstanding shares of Acquiror Common Stock or Target capital stock shall have been changed into a different number of shares or a different class by reason of any reclassification, split-up, stock dividend or stock combination, then the Exchange Ratio shall be correspondingly adjusted. The Exchange Ratio shall not change as a result of fluctuations in the market price of Acquiror Common Stock between the date of this Agreement and the Effective Time.

number of shares of Acquiror Common Stock issuable upon exercise of such option, and the per share exercise price of such Acquiror Option will be adjusted accordingly; and

(iii) Acquiror shall take all corporate action necessary to (A) reserve for issuance a sufficient number of shares of Acquiror Common Stock to be issued as Adjusted Consideration Shares, (b) cause such Adjusted Consideration Shares to be registered on the Registration Statement or on the Form S-8 (or any successor or other appropriate forms) filed with respect to the Target Options concurrent with the filing of the Registration Statement (described in Section 6.5) and (c) cause Adjusted Consideration Shares issuable pursuant to Section 2.2(d)(ii) to be promptly delivered to the Former Target Shareholders.

(a) Notwithstanding any provision of this Agreement to the contrary, any shares of Target Common Stock held by a holder who has exercised such holder's appraisal rights in accordance with Article 13 of Alabama Law, and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be converted into or represent a right to receive Acquiror Common Stock pursuant to Section 2.1, but the holder of the Dissenting Shares shall only be entitled to such rights as are granted by Alabama Law.

(c) Target shall give Acquiror (i) prompt notice of any written demands for payment with respect to any shares of capital stock of Target pursuant to Article 13 of Alabama Law, withdrawals of such demands, and any other instruments served pursuant to Alabama Law and received by the Target and
(ii) the opportunity to participate at its own expense in all negotiations and proceedings with respect to demands for appraisal rights under Alabama Law. Target shall not, except with the prior written consent of Acquiror, voluntarily make any payment with respect to any demands for appraisal rights with respect to Target Common Stock or offer to settle or compromise any such demands.

(b) If any shares of Acquiror Common Stock are to be issued in the name of a person other than the person in whose name the Certificate(s) surrendered in exchange therefor is registered, it shall be a condition to the issuance of such shares that (i) the Certificate(s) so surrendered shall be transferable, and shall be properly assigned, endorsed or accompanied by appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii) the person requesting such transfer shall pay Acquiror, or its exchange agent, any transfer or other taxes payable by reason of the foregoing or establish to the satisfaction of Acquiror that such taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither Acquiror

nor Target shall be liable to a holder of shares of Target Common Stock for shares of Acquiror Common Stock issuable to such holder pursuant to the provisions of Article II of this Agreement that are delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

(c) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed, Acquiror shall issue in exchange for such lost, stolen or destroyed Certificate the shares of Acquiror Common Stock issuable in exchange therefor pursuant to the provisions of Article II of the Agreement and shall pay cash in lieu of fractional shares of Acquiror Common Stock to be paid in consideration therefor in accordance with Section
2.6. The Board of Directors of Acquiror may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate to provide to Acquiror an indemnity agreement against any claim that may be made against Acquiror with respect to the Certificate alleged to have been lost, stolen or destroyed.

(a) It is intended by the parties hereto that the Merger shall constitute a "reorganization" within the meaning of Section 368 of the Code. The parties hereto adopt this

Agreement as a "plan of reorganization" within the meaning of Sections 1.368- 2(g) and 1.368-3(a) of the United States Income Tax Regulations. Each of the parties agrees to cooperate in order to qualify the transaction as a reorganization within the meaning of Section 368 of the Code and to report the Merger for federal and state income tax purposes in a manner consistent with such characterization.

(b) It is intended by the parties hereto that the Merger shall be accounted for as a purchase transaction.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF TARGET

Target represents and warrants to Acquiror and Sub that the statements contained in this Article III are true and correct on and as of the date of this Agreement and shall be true and correct at all times until the Closing Date, except as expressly set forth in the disclosure schedule delivered by Target to Acquiror on the date of this Agreement (the "Target Disclosure Schedule"). The Target Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III. Notwithstanding anything in this Agreement to the contrary, any representation and warranty set forth in this Article III, as it applies to any action or omission of Southern Research Technologies, Inc. ("SRT"), the predecessor entity of Target, or any of its officers, directors, employees, agents or other representatives or any matter arising out of facts or circumstances relating to SRT occurring or existing prior to May 19, 1998, shall be qualified by, and shall be limited to, the Knowledge of Target. In making representations and warranties in this Article III, Target assumes that all parties to agreements other than Target were qualified to do business in each jurisdiction where such qualification is required.

attributable or relating to conditions affecting the industry or industry sector in which the Target or any of its Subsidiaries or the Acquiror or any of its Subsidiaries, as applicable, participates or the U.S. economy as a whole; (d) any adverse change, event or effect attributable or relating to (i) out-of- pocket fees and expenses (including legal, accounting, investment banking and other fees and expenses) incurred in connection with the transactions contemplated by this Agreement to the extent such fees and expenses are less than or equal to amounts set forth in Section 9.3(b) or are paid as provided in this Agreement, or (ii) the payment of any amounts due to, or the provision of any other benefits to, any officers or employees under employment contracts, non-competition agreements, employee benefit plans, severance arrangements or other arrangements in existence as of the date of this Agreement to the extent disclosed to Acquiror in the Target Disclosure Schedules on or prior to the date of this Agreement; (e) any adverse change, event or effect attributable or relating to compliance with the terms of, or the taking of any action required by, this Agreement or the taking of any action consented to by the other party to this Agreement; (f) any adverse change, event or effect attributable or relating to any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof; or (g) any adverse change, event or effect attributable or relating to actions required to be taken under applicable laws, rules, regulations, contracts or agreements. The Target Disclosure Schedule contains a true and complete listing of the locations of all sales offices, manufacturing facilities, and any other offices or facilities of Target and each of its Subsidiaries and a true and complete list of all states in which Target maintains any employees. The Target Disclosure Schedule contains a true and complete list of all states in which Target or any Subsidiary is duly qualified or licensed to transact business as a foreign corporation.

(a) The authorized capital stock of Target consists of 1,000,000 shares of Target Common Stock, par value $0.01 per share. As of the date of this Agreement, there are (a) 375,559 shares of Target Common Stock issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and none of which are subject to repurchase rights, (b) options (the "Target Options") to purchase 47,167 shares of Target Common Stock issued pursuant to Target's 1995 Nonqualified Stock Option Plan of Southern Research Technologies, Inc. and 128,225 shares of Target Common Stock issued pursuant to Target's 1993 Stock Option Plan of Southern BioSystems, Inc. (each a "Target Option Plan") and (c) warrants to purchase 24,174 shares of Target Common Stock issuable pursuant to warrant agreements. The issued and outstanding shares of Target Common Stock, Target Options and warrants to purchase shares of Target Common Stock ("Target Warrants") are held of record by the persons set forth and identified on Schedule 3.2(a) of the Target Disclosure Schedule as of the date hereof. All outstanding shares of Target Common Stock and all options or warrants to purchase Target Common Stock (collectively "Target Securities") were issued in compliance with applicable federal and state securities laws. Except as set forth in the Target Disclosure Schedule, there are no obligations, contingent or otherwise, of Target or its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Target Common Stock or capital stock of any Subsidiary or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. An updated Schedule 3.2(a) reflecting changes permitted by this Agreement in the capitalization of Target between the date hereof and the Effective Time shall be delivered by Target to Acquiror on the Closing Date. Except as set forth

in the Target Disclosure Schedule, no outstanding shares of Target's Common Stock were, at the time they were issued, subject to a right of repurchase by Target under any circumstances.

(b) Except as set forth in this Section 3.2, there are no equity securities of any class or series of Target, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding. Except as set forth in this Section 3.2, there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which Target is a party or by which it is bound obligating Target or any Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Target or any Subsidiary or obligating Target or any Subsidiary to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. Except as provided in this Agreement and the other Transaction Documents (as defined in Section 3.3(a)) or any transaction contemplated hereby or thereby, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the shares of capital stock of Target or any Subsidiary.

(c) Except as set forth in this Section 3.2, (i) Target owns, directly or indirectly through a Subsidiary, all of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect directors or other performing similar functions with respect to such Subsidiary) of each of Target's Subsidiaries, and (ii) each of the outstanding shares of capital stock of each of Target's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by Target free and clear of all liens, pledges, security interests, claims or other encumbrances. The Target Disclosure Schedule sets forth for each Subsidiary of Target: (i) its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or share or equity capital; (iii) the number of issued and outstanding shares of capital stock or share or equity capital; (iii) the number of issued and outstanding shares of capital stock or share or equity capital; and (iv) the holder or holders of such shares. Except for interests in the Target's Subsidiaries or as set forth in the Target Disclosure Schedule, neither Target or any of its Subsidiaries owns directly or indirectly any interest or investment (whether equity or debt) if any corporation, partnership, joint venture, business, trust or other entity.

(a) Target has all requisite corporate power and authority to enter into this Agreement and all Transaction Documents (as defined below) to which it is or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary corporate action on the part of Target, and on or before the Closing Date the principal terms of the Merger shall have been approved by Target's shareholders under the provisions of Alabama Law and Target's Articles of Incorporation and Bylaws. This Agreement has been and such Transaction Documents have been or, to the extent not executed by Target as of the date hereof, will be duly executed and delivered by Target. This Agreement and each of the Transaction Documents to which Target is a party constitutes, and each of the Transaction Documents to which Target will become a party, when executed and delivered by Target, will constitute, assuming the due authorization,

execution and delivery by the other parties hereto and thereto, the valid and binding obligation of Target, enforceable by Acquiror against Target in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity, and except that no representation is made with respect to the enforceability of any provision restricting competition or other business activities. For purposes of this Agreement, "Transaction Documents" means all documents or agreements required to be delivered by any party under this Agreement including the Articles of Merger, the Escrow Agreement, the Stockholders Agreements and the Noncompetition Agreements.

(b) The execution and delivery by Target of this Agreement and the Transaction Documents to which it is or will become a party does not, and the consummation of the transactions contemplated by this Agreement and the Transaction Documents to which it is or will become a party will not (assuming receipt of all consents, approvals, authorizations, filings, registrations, permits, certificates and orders disclosed as required in the Target Disclosure Schedule), (i) conflict with, or result in any violation or breach of any provision of the Articles of Incorporation or Bylaws of Target, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Target or any Subsidiary is a party or by which it or any of their respective properties or assets may be bound, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Target or any Subsidiary or any of their respective properties or assets, except in the case of (ii) and (iii) for any such conflicts, violations, breaches, defaults, terminations, cancellations or accelerations which would not have a Material Adverse Effect.

(c) None of the execution and delivery by Target of this Agreement or of any other Transaction Document to which Target is or will become a party or the consummation of the transactions contemplated by this Agreement or such Transaction Document will require any consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity"), except for (i) the filing of the Articles of Merger with the Alabama Secretary of State, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iii) such other consents, authorizations, filings, approvals and registrations which are listed on the Target Disclosure Schedule or which, if not obtained or made, are not reasonably likely to have a Material Adverse Effect.

(a) Target has delivered to Acquiror copies of Target's audited consolidated balance sheets as of December 31, 2000 (the "Most Recent Balance Sheet"), and the related audited consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2000, respectively and Target's unaudited consolidated balance sheets and consolidated statements of operations, stockholder'' equity and cash flows for the two month

period ended February 28, 2001 (together with the Most Recent Balance Sheet, the "Target Financial Statements").

(b) The Target Financial Statements are in accordance with the books and records of Target and its Subsidiaries and present fairly in all material respects, subject to adjustments approved by both Acquiror and Target, the financial position, results of operations and cash flows of Target and its Subsidiaries as of their historical dates and for the periods indicated. The Target Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") (except that unaudited financial statements do not have notes thereto and may be subject to ordinary year-end adjustments) applied on a basis consistent with prior periods. The reserves, if any, reflected on the Target Financial Statements were adequate in light of the contingencies with respect to which they were made at the date of such financial statements.

(c) To the Knowledge of Target, neither Target nor any Subsidiary has any debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Most Recent Balance Sheet, except for those that may have been incurred after the date of the Most Recent Balance Sheet. To the Knowledge of Target, all debts, liabilities, and obligations incurred after the date of the Most Recent Balance Sheet were incurred in the ordinary course of business and are not material both individually and in the aggregate to Target or its Subsidiaries or their respective businesses.

(a) For purposes of this Section 3.5 and other provisions of this Agreement relating to Taxes, the following definitions shall apply:

(i) The term "Taxes" shall mean all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, (A) imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to, federal income taxes and state income taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation premiums and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which are required to be paid, withheld or collected, (B) any liability for the payment of amounts referred to in (A) as a result of being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any obligations to indemnify another person.

(ii) The term "Returns" shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in

connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties.

(b) All Returns required to be filed prior to the date hereof by or on behalf of Target and its Subsidiaries have been duly filed on a timely basis, and such Returns are true, complete and correct in all material respects. All Taxes shown to be payable on such Returns or on subsequent assessments with respect thereto, and all payments of estimated Taxes required to be made prior to the date hereof by or on behalf of Target or its Subsidiaries under Section 6655 of the Code or comparable provisions of state, local or foreign law, have been paid in full on a timely basis or have been accrued on the books of Target from which the Target Financial Statements are derived, and no other Taxes are payable by Target or its Subsidiaries with respect to items or periods covered by such Returns (whether or not shown on or reportable on such Returns). Each of Target and its Subsidiaries has withheld and paid over all Taxes required to have been withheld and paid over prior to the date hereof, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. There are no liens on any of the assets of Target or its Subsidiaries with respect to Taxes, other than liens for Taxes not yet delinquent or for Taxes that Target or its Subsidiaries is contesting in good faith through appropriate proceedings and for which appropriate reserves have been established on the books of Target from which the Target Financial Statements are derived. Neither Target nor any Subsidiary has at any time been (i) a member of an affiliated group of corporations filing consolidated, combined or unitary income or franchise tax returns, or (ii) a member of any partnership or joint venture for a period for which the statue of limitations for any Tax potentially applicable as a result of such membership has not expired.

(c) The amount of Target's liability for unpaid Taxes (whether actual or contingent) for all periods through the date of the Most Recent Balance Sheet does not, in the aggregate, exceed the amount of the current liability accruals for Taxes reflected on the Most Recent Balance Sheet, and the Most Recent Balance Sheet reflects proper accrual in accordance with GAAP applied on a basis consistent with prior periods of all liabilities for Taxes payable after the date of the Most Recent Balance Sheet attributable to transactions and events occurring prior to such date. No liability for Taxes has been incurred (or to the Knowledge of Target prior to and including the Effective Time will be incurred) and no material amount of gross taxable income has been realized (or to the Knowledge of Target prior to the Effective Time will be realized) since such date other than in the ordinary course of business.

(d) Target has made available to Target true and complete copies of
(i) relevant portions of income tax audit reports, statements of deficiencies, closing or other agreements received by or on behalf of Target or its Subsidiaries relating to Taxes, and (ii) all federal and state income or franchise tax Returns and state sales and use tax Returns for or including Target for all periods since the inception of Target or its Subsidiaries. Neither Target nor any Subsidiary does business in or derives income from any state other than states for which Returns have been duly filed and furnished to Acquiror.

(e) None of the Returns of or including Target or its Subsidiaries is being audited by a government or taxing authority, nor has any such audit to the Knowledge of Target

been threatened (either in writing or verbally, formally or informally). No deficiencies exist or have been asserted (either in writing or verbally, formally or informally), and neither Target nor any Subsidiary has received notice (either in writing or verbally, formally or informally) that it has not filed a Return or paid Taxes required to be filed or paid. Neither Target nor any Subsidiary is a party to any action or proceeding for assessment or collection of Taxes, nor has such event been asserted or threatened (either in writing or orally, formally or informally) against Target, any Subsidiary or any of their respective assets. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of Target or any Subsidiary. Target has disclosed on its federal and state income and franchise tax Returns all positions taken therein that could give rise to a substantial understatement penalty within the meaning of Code Section 6662 or comparable provisions of applicable state, local, foreign or other tax laws. For purposes of this Agreement, the term "Knowledge of Target" shall mean the actual knowledge of the representatives of Target set forth on Schedule 3.5 hereto after reasonable investigation.

(f) Except as may be required as a result of the Merger, Target and its Subsidiaries have not been and will not be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing.

(g) Neither Target nor its Subsidiaries is or has ever been a party to any tax sharing agreement.

(h) Neither Target nor its Subsidiaries is or has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and Acquiror is not required to withhold tax by reason of Section 1445 of the Code. Neither Target nor its Subsidiaries is or has ever been a "reporting corporation" subject to the information reporting and record maintenance requirements of Section 6038A and the regulations thereunder. Each of Target and its Subsidiaries is in compliance with the terms and conditions of any applicable tax exemptions, agreements or orders of any foreign government to which it may be subject or which it may have claimed, and the transactions contemplated by this Agreement will not have any adverse effect on such compliance.

(a) suffered any Material Adverse Effect;

(b) suffered any damage, destruction or loss, whether covered by insurance or not in excess of $10,000;

(c) granted or agreed to make any increase in the compensation payable or to become payable by Target or any Subsidiary to their respective directors, officers, employees or consultants;

(d) declared, set aside or paid any dividend or made any other distribution on or in respect of the shares of the capital stock of Target or any Subsidiary or declared any direct

or indirect redemption, retirement, purchase or other acquisition by Target or any Subsidiary of such shares;

(e) issued any shares of capital stock or any warrants, rights, options or entered into any commitment relating to the shares of Target or any Subsidiary, except for the issuance of shares of Target capital stock pursuant to the exercise of options or warrants to purchase shares of Target Common Stock;

(f) made any change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates adopted therein, except as may be required to be adopted under GAAP;

(g) sold, leased, abandoned or otherwise disposed of any real property or any machinery, equipment or other operating property with an individual net book value in excess of $25,000, except with respect to property worn out in the ordinary course of business;

(h) sold, assigned, transferred, licensed or otherwise disposed of any patent, trademark, trade name, brand name, copyright (or pending application for any patent, trademark or copyright) invention, work of authorship, process, know-how, formula or trade secret or interest thereunder;

(i) permitted or allowed any of its property or assets to be subjected to any mortgage, deed of trust, pledge, lien, security interest or other encumbrance of any kind (except those permitted under Section 3.7);

(j) made any capital expenditure or commitment individually in excess of $25,000 or in the aggregate in excess of $50,000;

(k) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with, any of its Affiliates (as defined in Section 3.16), officers, directors or stockholders or any Affiliate of any of the foregoing, except for travel advances in the ordinary course of business;

(l) made any amendment to or terminated any agreement which, if not so amended or terminated, would be required to be disclosed on the Target Disclosure Schedule; or

(m) agreed to take any action described in this Section 3.6 or outside of its ordinary course of business or which would constitute a breach of any of the representations and warranties of Target contained in this Agreement.

any, as required by GAAP is made therefor in the books of Target from which the Target Financial Statements are derived; (iii) minor defects, irregularities in title, easements, rights of way, servitudes and similar rights (whether affecting fee interests, a landlord's interest in leased properties or a tenant's interest in leased properties) that individually or in the aggregate have not had, and are not reasonably likely to have, a Material Adverse Effect on the ability of the Target or its Subsidiaries to use such property in the manner previously owned or used by the Target or its Subsidiaries; (iv) liens securing the Target's or its Subsidiaries' indebtedness reflected on the books of Target from which the Target Financial Statements are derived; and (v) liens affecting a landlord's interest in property leased to the Target or its Subsidiaries so long as such lien does not breach and is not reasonably likely to breach a customary covenant or quiet enjoyment (due to the existence of a non-disturbance agreement or other arrangement in which the tenant's interest is recognized and protected). The equipment of Target and its Subsidiaries used in the operation of their respective businesses is, taken as a whole, (i) adequate for the business presently conducted by Target or its Subsidiary, as the case may be and (ii) in good operating condition and repair, ordinary wear and tear excepted. All personal property leases to which Target or any Subsidiary is a party are valid, binding, enforceable against the parties thereto and in effect in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, or other laws affecting the enforcement of creditors' rights generally and by principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. To the Knowledge of Target, there is not under any of such leases any existing material default or event of default or event which, with notice or lapse of time or both, would constitute a material default. The Target Disclosure Schedule contains a description of all items of capital assets with an individual net book value in excess of $1,000 and real property leased, in each case either or owned by Target or any Subsidiary, describing its interest in said property. True and correct copies of Target's and any Subsidiary's real property and personal property leases have been provided to Acquiror or its representatives. Neither Target nor any Subsidiary holds title, either directly or through a third party, to any real property.

(a) Each of Target and its Subsidiaries owns all right, title and interest in and to, or otherwise possesses legally enforceable rights, or is licensed to use, all patents, copyrights, technology, formulas, compositions of matter, software, software tools, know-how, processes, trade secrets, trademarks, service marks, trade names, Internet domain names and other proprietary rights used in the conduct of their respective business as conducted as of the date of this Agreement, including, without limitation, the technology, formulations, and all proprietary rights developed or discovered or used in connection with or contained in all materials and products sold by Target or it Subsidiaries or any product which has been or is being distributed or sold by Target or its Subsidiaries or, to the Knowledge of Target, currently is under development by Target or its Subsidiaries (collectively, the "Target Products"), and with respect to the foregoing which Target and its Subsidiaries own all right, title and interest therein and thereto, free and clear of all liens, claims and encumbrances (including without limitation licensing and distribution rights) (all of which are referred to as "Target Proprietary Rights"). The Target Disclosure Schedule contains an accurate and complete (i) description of all patents, trademarks (with separate listings of registered and unregistered trademarks), trade names, Internet domain names and registered copyrights in or related to the Target Products or otherwise

included in the Target Proprietary Rights and all applications therefor, including the jurisdictions in which each such Target Proprietary Right has been issued or registered or in which any such application of such issuance and registration has been filed, (ii) list of all licenses and other agreements with third parties (the "Third Party Licenses") relating to any patents, copyrights, trade secrets, formulations, software, inventions, technology, know-how, processes or other proprietary rights that Target or any Subsidiary is licensed or otherwise authorized by such third parties to use, market, distribute or incorporate in Target Products (such patents, copyrights, trade secrets, formulations, software, inventions, technology, know-how, processes or other proprietary rights are collectively referred to as the "Third Party Technology"), provided that such list need not include any license for standard generally commercially available "off-the-shelf" third party products, and (iii) list of all licenses and other agreements with third parties relating to any information, compilations, formulations or compositions of matter that Target or any Subsidiary is licensed or otherwise authorized by such third parties to use, market, disseminate distribute or incorporate in Target Products, provided that such list need not include any license for standard generally commercially available "off-the-shelf" third party products. All of Target's or any Subsidiary's patents, copyrights, trademarks, trade names or Internet domain name registrations are valid and in full force and effect, and consummation of the transactions contemplated by this Agreement will not alter or impair any such rights. No claims have been asserted or, to the Knowledge of Target, threatened against Target or any Subsidiary (and, to the Knowledge of Target, there are no claims which are likely to be asserted or threatened against Target or any Subsidiary or which have been asserted or threatened against others relating to Target Proprietary Rights or Target Products) by any person challenging Target's or any Subsidiary's use, possession, manufacture, sale or distribution of Target Products under any Target Proprietary Rights (including, without limitation, the Third Party Technology) or challenging or questioning the validity or effectiveness of any material license or agreement relating thereto to which Target or any Subsidiary is a party (including, without limitation, the Third Party Licenses) or alleging a violation of any confidentiality rights. To the Knowledge of Target, there is no valid basis for any claim of the type specified in the immediately preceding sentence which could in any material way relate to or interfere with the continued enhancement and exploitation by Target or any Subsidiary of any of the Target Proprietary Rights or Target Products. None of the Target Products or, to the Knowledge of Target, products currently under development nor the use or exploitation of any Target Proprietary Rights in Target's or any Subsidiary's current business infringes on the rights of or constitutes misappropriation of any proprietary information or intangible property right of any third person or entity, including without limitation any patent, trade secret, copyright, trademark or trade name, and neither Target nor any Subsidiary has been sued or named in any pending suit, action or proceeding which involves a claim of such infringement, misappropriation or unfair competition.

(b) Neither Target nor any Subsidiary has granted any third party any right to make, use, sell, distribute, market or exploit any of the Target Products or any derivatives thereof or any Target technology under development.

(c) All inventions, methods, formulations, designs, drawings, specifications, documentation, flow charts, diagrams, data lists, databases, compilations and information incorporating, embodying or reflecting any of the Target Proprietary Rights or Target Products at any stage of their development (the "Target Components") were written, developed and created solely and exclusively by employees of Target without the assistance of any third party or entity

or were created by third parties who assigned ownership of their rights to Target by means of valid and enforceable confidentiality and invention assignment agreements, copies of which or the form of which have been delivered to Acquiror. Target has at all times used commercially reasonable efforts to treat the Target Proprietary Rights that are not otherwise protected by patents, patent applications, or copyrights ("Confidential Information") as containing Confidential Information or trade secrets and has not disclosed or otherwise dealt with such items in a manner intended or reasonably likely to cause the loss of the nature of such confidential information or such trade secrets by release into the public domain.

(d) To the Knowledge of Target, no employee, contractor or consultant of Target is in violation of any term of any written employment contract, intellectual property disclosure agreement or any other written contract or agreement relating to the relationship of any such employee, consultant or contractor with Target or, to Target's knowledge, any other party because of the nature of the business conducted by Target or proposed to be conducted by Target. The Target Disclosure Schedule lists all employees, contractors and consultants who have participated in any way in the development of any material portion of the Target Products or the Target Proprietary Rights.

(e) Each person presently or previously employed by Target (including independent contractors, if any) has executed a confidentiality and non- disclosure agreement pursuant to the form of agreement previously provided to Acquiror or its representatives.

(f) No unresolved product liability or warranty claims have been communicated in writing to or to the Knowledge of Target threatened against Target or Subsidiary.

(g) To the Knowledge of Target, there is no unauthorized use, disclosure, infringement or misappropriation of any Target Proprietary Rights, or any Third Party Technology to the extent licensed by or through Target, by any third party, including any employee or former employee of Target. Target has not entered into any agreement to indemnify any other person or entity against any charge of infringement of any Target Proprietary Rights or for any other reason.

(h) All use, disclosure or appropriation by Target or, to the Knowledge of Target, by another party pursuant to rights granted to it by Target, of Confidential Information owned by Target to a third party has been pursuant to the terms of a written agreement between Target and such third party or between such other party and such third party. All use, disclosure or appropriation by Target of Confidential Information not owned by Target has been pursuant to the terms of a written agreement between Target and the owner of such Confidential Information, or is otherwise lawful.

(a) The Target Disclosure Schedule lists, with respect to Target and any trade or business (whether or not incorporated) which is treated as a single employer with Target (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security

Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer employee, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management of Target and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, for the benefit of, or relating to, any present or former employee, consultant or director of Target as to which (with respect to any of items (i) through (v) above) any potential liability is borne by Target (together, the "Target Employee Plans").

(b) Target has delivered to Acquiror or its representatives a copy of each of the Target Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and has, with respect to each Target Employee Plan which is subject to ERISA reporting requirements, provided copies of any Form 5500 reports filed for the last three plan years. Any Target Employee Plan intended to be qualified under Section 401(a) of the Code is so qualified, and has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination with respect to such Target Employee Plan and applicable from the date of its adoption. Target has also furnished Acquiror with the most recent Internal Revenue Service determination letter issued with respect to each such Target Employee Plan, and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax-qualified status of any Target Employee Plan subject to Code Section 401(a).

(c) Except as set forth in the Target Disclosure Schedule: (i) None of the Target Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the participant or the participant's beneficiary; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Target Employee Plan; (iii) each Target Employee Plan has been administered in accordance with its terms and in compliance in all material respects with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), and Target and each Subsidiary or ERISA Affiliate have performed all material obligations required to be performed by them under, are not in any material respect in default, under or violation of, and to the Knowledge of Target, there is no material default or violation by any other party to, any of the Target Employee Plans; (iv) neither Target nor any Subsidiary or ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the Target Employee Plans; (v) all contributions required to be made by Target or any Subsidiary or

ERISA Affiliate to any Target Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Target Employee Plan for the current plan years; (vi) with respect to each Target Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; (vii) no Target Employee Plan is covered by, and neither Target nor any Subsidiary or ERISA Affiliate has incurred or expects to incur any material liability under Title IV of ERISA or Section 412 of the Code; (viii) with respect to each Target Employee Plan subject to ERISA as either an employee pension plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely filed all requisite governmental reports (which were true and correct in all material respects as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Target Employee Plan; (ix) no suit, administrative proceeding, action or other litigation has been brought, or to the Knowledge of Target is threatened, against or with respect to any such Target Employee Plan, including any audit or inquiry by the IRS or United States Department of Labor; and (x) neither Target nor any ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multi-employer plan" as defined in Section 3(37) of ERISA or any plan maintained by more than one employer within the meaning of Section 413(c) of the Code.

(d) With respect to each Target Employee Plan, Target has complied in all material respects with (i) the applicable health care continuation and notice provisions of COBRA and the regulations thereunder, (ii) the applicable requirements of the Family Medical Leave Act of 1993 and the regulations thereunder or any similar applicable state law, and (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the regulations thereunder.

(e) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or other service provider of Target or any other ERISA Affiliate to severance benefits or any other payment (including, without limitation, unemployment compensation, golden parachute or bonus), except as expressly provided in this Agreement, (ii) accelerate the time of payment or vesting of any such benefits, or (iii) increase or accelerate any benefits or the amount of compensation due any such employee or service provider or (iii) result in compensation paid or payable to any employee of Target which compensation is non-deductible by reason of the application of Section 162(m) or 280(G) of the Code.

(f) There has been no amendment to, written interpretation or announcement (whether or not written) by Target or other ERISA Affiliate relating to, or change in participation or coverage under, any Target Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal year included in the Target Financial Statements.

institutions at which Target or any Subsidiary maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom.

(a) Except as identified in Schedule 3.11(a):

(i) Neither Target nor any Subsidiary has agreements, contracts or commitments that provide for the sale, licensing or distribution by Target or its Subsidiaries of any Target Products or Target Proprietary Rights. Without limiting the foregoing, except as set forth on the Target Disclosure Schedule, neither Target nor its Subsidiaries has granted to any third party (including, without limitation, partners, distributors, original equipment manufacturers ("OEMs") and customers) any rights to manufacture use, sell or distribute any of the Target Products or products covered by Target Proprietary Rights, nor has Target or any Subsidiary granted to any third party any exclusive rights of any kind (including, without limitation, territorial exclusivity or exclusivity with respect to particular versions, implementations or embodiments of any of the Target Products or products covered by Target Proprietary Rights), nor has Target or any Subsidiary granted any third party any right to market any of the Target Products or products covered by Target Proprietary Rights.

(ii) [reserved]

(iii) Neither Target nor any Subsidiary has any agreements, contracts or commitments that call for fixed and/or contingent payments or expenditures in excess of $25,000 annually with respect to each such agreement, contract or commitment by or to Target or such Subsidiary.

(iv) Neither Target nor any Subsidiary has any outstanding supply or development contract, commitment or proposal (including, without limitation, any feasibility studies, or testing agreements).

(v) Neither Target nor any Subsidiary has any outstanding agreements, contracts or commitments with officers, agents, advisors, salesmen, sales representatives, distributors or dealers.

(vi) Neither Target nor its Subsidiary has any employment agreements or any independent contractor or similar agreement, contract or commitment that is not terminable on thirty (30) days' notice or less without penalty, liability or premium of any type, including, without limitation, severance or termination pay.

(vii) Neither Target nor any Subsidiary has any currently effective collective bargaining or union agreements, contracts or commitments.

(viii) Neither Target nor any Subsidiary is restricted by agreement from competing with any person or from carrying on its business anywhere in the world.

(ix) Neither Target nor any Subsidiary has guaranteed any obligations of other persons or made any agreements to acquire or guarantee any obligations of other persons.

(x) Except for credit extended to customers in the ordinary course of business, neither Target nor any Subsidiary has any outstanding loan or advance to any person; nor is it party to any line of credit, standby financing, revolving credit or other similar financing arrangement of any sort which would permit the borrowing by Target or such Subsidiary in excess of $10,000.

(xi) Neither Target nor any Subsidiary has any agreements pursuant to which it has agreed to manufacture for, supply to or distribute to any third party any Target Products or Target Components.

(xii) Other than as disclosed elsewhere in the Target Disclosure Schedules or as provided to Acquiror, there are no agreements, instruments or contracts to which Target or any Subsidiary is a party or by which it is bound that individually involve obligations (contingent or otherwise) of, or payment to, Target or such Subsidiary in excess of $25,000.

The agreements, documents and instruments set forth on the Target Disclosure Schedule are referred to herein as "Material Contracts." True and correct copies of each document or instrument listed on the Target Disclosure Schedule pursuant to this Section 3.11(a) have been provided to Acquiror or its representatives.

(b) All of the Material Contracts listed on the Target Disclosure Schedule are valid, binding, in full force and effect, and enforceable by Target or its Subsidiary, as the case may be, in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. To the Knowledge of Target, no party to any such Material Contract intends to cancel, withdraw, modify or amend such contract, agreement or arrangement.

(c) Neither Target nor any Subsidiary is in default under or in breach or violation of, nor, to the Knowledge of Target, is there any valid basis for any claim of default by Target or any Subsidiary under, or breach or violation by Target or any Subsidiary of, any material provision of any Material Contract. To the Knowledge of Target, no other party is in default under or in breach or violation of, nor is there any valid basis for any claim of default by any other party under or any breach or violation by any other party of, any material portion of any Material Contract.

(d) No claims have been made or to the Knowledge of Target threatened that could require indemnification by Target or any Subsidiary under the indemnification provisions of any Material Contract, and neither Target nor any Subsidiary has paid any amounts to indemnify any third party as a result of any such contractual indemnification provisions.

business. There are no oral contracts or arrangements for the development or sale of any other product or service by Target.

(a) Neither Target nor any Subsidiary is engaged in any unfair labor practice and is not in material violation of any applicable laws respecting employment and employment practices, terms and conditions of employment, and wages and hours. There is no unfair labor practice complaint against Target or any Subsidiary actually pending or, to the Knowledge of Target, threatened before the National Labor Relations Board. There is no strike, labor dispute, slowdown, or stoppage actually pending or, to the Knowledge of Target, threatened against Target or any Subsidiary. To the Knowledge of Target, no union organizing activities are taking place with respect to the business of Target or any Subsidiary. No grievance, nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the Knowledge of Target, no claims therefor exist. No collective bargaining agreement that is binding on Target restricts it from relocating or closing any of its operations. Neither Target nor any Subsidiary has experienced any material work stoppage or other material labor difficulty.

(b) Target and each of its Subsidiaries is in compliance in all material respects with all currently applicable federal, state, local and foreign laws and regulations respecting employment, discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, and is not engaged in any unfair labor practice. There is and has not been any claim against Target, any Subsidiary or their respective officers or employees, or to the Knowledge of Target, threatened against Target, officers or employees, based on actual or alleged race, age, sex, disability or other harassment or discrimination, or similar tortuous conduct, or based on actual or alleged breach of contract with respect to any person's employment by Target or any Subsidiary, nor, to the Knowledge of Target, is there any basis for any such claim.

(c) As of the date of this Agreement, there are no pending claims against Target or any Subsidiary under any workers compensation plan or policy or for long term disability. As of the date of this Agreement, neither Target nor any Subsidiary has any material obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder. There are no proceedings pending or, to the Knowledge of Target, threatened,

between Target or any Subsidiary and any of their respective employees, which proceedings have or could reasonably be expected to have a Material Adverse Effect on Target or any Subsidiary.

(d) Neither Target nor any Subsidiary has incurred any liability under, and have complied in all respects with, the Worker Adjustment Retraining Notification Act (the "WARN Act"), and, to the Knowledge of Target, no fact or event exists that could give rise to liability under the WARN Act, except for actions that may be taken after the Effective Time.

(e) The Target Disclosure Schedule contains a list of all employees who are on a leave of absence (whether paid or unpaid) as of the date of this Agreement, the reasons therefor, the expected return date, and whether reemployment of such employee is guaranteed by contract or statute, and a list of all employees who have requested a leave of absence to commence at any time after the date of this Agreement, the reason therefor, the expected length of such leave, and whether reemployment of such employee is guaranteed by contract or statute.

bonuses, of all persons presently employed by, or performing contract services for, Target or its Subsidiaries as of the date of this Agreement. No bonus or other payment will become due to Target or its Subsidiaries employees or contractors as a result of the Merger.

Section 3.19 [Reserved]

(b) Target represents and warrants:

their respective business as it is now being conducted and use the Property as currently operated by Target and its Subsidiaries. Each Environmental Permit issued to Target or its Subsidiaries is in full force and effect and, to the Knowledge of Target, no information provided by Target in order to obtain such permits was when given or has since become false or inaccurate in any material way. Specifically, and without limiting the generality of the foregoing, Target has received written authorization from Jefferson County to dispose of wastewater to the sanitary sewer while Target's application for a State Indirect Discharge (SID) Permit is under review, and such authorization has not been revoked. Target has received a draft of the proposed SID Permit from the Alabama Department of Environmental Management, a copy of which has been provided to Acquiror. Target and its Subsidiaries are in compliance in all material respects with all requirements, terms and provisions of the Environmental Permits issued to Target and its Subsidiaries and each has filed on a timely basis (and updated as required) all reports, notices, applications or other documents required to be filed pursuant to the Environmental Permits. Target and its Subsidiaries have submitted to Acquiror true and complete copies of all of the Environmental Permits (if any) issued to or held by Target or its Subsidiaries. Target and its Subsidiaries shall take all necessary actions to have such Environmental Permits transferred, renewed or reissued to Target prior to the Closing Date or immediately thereafter so as to allow Surviving Corporation to continue Target's business and use the Property without interruption after the Closing Date. To the Knowledge of Target, there is no reasonable basis to believe that any of the Environmental Permits listed in Section 3.22 of the Target Disclosure Schedule will not transfer, renew or reissue to the Surviving Corporation in the ordinary course.

documents contained therein are the true or facsimile signatures of the persons purporting to have signed the same.

Section 3.28 [Reserved]

misleading in light of the circumstances under which they were made. Target has disclosed to Acquiror all material information which, to the Knowledge of Target, relates specifically to the operations and business of Target and its Subsidiaries as of the date of this Agreement or the transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB

Acquiror and Sub jointly and severally represent and warrant to Target that, except as disclosed in a filing with the Securities and Exchange Commission (the "Commission"), the statements contained in this Article IV are true and correct on and as of the date of this Agreement and shall be true and correct at all times until the Closing Date.

(a) Each of Acquiror and Sub has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary corporate action on the part of Acquiror and Sub. This Agreement has been and such Transaction Documents have been or, to the extent not executed as of the date hereof, will be duly executed and delivered by Acquiror and Sub. This Agreement and each of the Transaction Documents to which Acquiror or Sub is a party constitutes, and each of the Transaction Documents to which Acquiror or Sub will become a party when executed and delivered by Acquiror or Sub will constitute, a valid and binding obligation of Acquiror or Sub, enforceable by Target against Acquiror or Sub, as the case may be, in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity.

(b) The execution and delivery by Acquiror or Sub of this Agreement and the Transaction Documents to which it is or will become a party does not, and consummation of the transactions contemplated by this Agreement or the Transaction Documents to which it is or will become a party will not, (i) conflict with, or result in any violation or breach of any provision of the Certificate of Incorporation or Bylaws of Acquiror or Sub, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Acquiror or Sub is a party or by which either of them or any of their properties or assets may be bound, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Acquiror or Sub or any of their properties or assets, except in the case of (ii) and (iii) for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not have a Material Adverse Effect.

(c) Neither the execution and delivery of this Agreement by Acquiror or Sub or the Transaction Documents to which Acquiror or Sub is or will become a party or the consummation of the transactions contemplated hereby or thereby will require any consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, except for (i) the filing of the Articles of Merger with the Alabama Secretary of State, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country, and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, could be expected to have a Material Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.

(a) Acquiror has filed with the Commission and made available to Target or its representatives all forms, reports and documents required to be filed by Acquiror with the Commission since September 27, 2000 (collectively, the "Acquiror Commission Reports"). The Acquiror Commission Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended, (the "Securities Act"), and the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Acquiror Commission Reports or necessary in order to make the statements in such Acquiror Commission Reports, in the light of the circumstances under which they were made, not misleading.

(b) Each of the financial statements (including, in each case, any related notes) contained in the Acquiror Commission Reports, including any Acquiror Commission Reports filed after the date of this Agreement until the Closing, complied or will comply as to form in all material respects with the applicable published rules and regulations of the Commission with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission) and fairly presented the consolidated financial position of Acquiror and its Subsidiaries as at the respective dates and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount.

into any of the foregoing documents, whether such information is incorporated indirectly into any of the foregoing documents or forms the basis for information provided by Acquiror.

ARTICLE V

PRECLOSING COVENANTS OF TARGET

(a) accelerate, amend or change the period of exercisability or the vesting schedule of restricted stock granted under any employee stock plan or agreements or authorize cash payments in exchange for any options granted under any of such plans except as specifically required by the terms of such plans or any related agreements or any such agreements in effect as of the date of this Agreement and disclosed in the Target Disclosure Schedule;

(b) declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of such party, or purchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service by such party;

(c) issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into shares of its capital stock, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities, other than (i) the issuance of shares of Target Common Stock issuable upon exercise of options or warrants outstanding as of the date of this Agreement or (ii) the repurchase of shares of Common Stock from terminated employees pursuant to the terms of outstanding stock restriction or similar agreements;

(d) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any other manner, any business or any corporation, partnership or other business organization or division, or otherwise acquire or agree to acquire any assets;

(e) sell, lease, license or otherwise dispose of any of its properties or assets which are material, individually or in the aggregate, to the business of Target, except in the ordinary course of business;

(f) (i) increase or agree to increase the compensation payable or to become payable to its officers or employees, (ii) except as set forth on the Target Disclosure Schedule, grant any additional severance or termination pay to, or enter into any employment or severance agreements with, officers, (iii) grant any severance or termination pay to, or enter into any employment or severance agreement, with any non-officer employee, (iv) enter into any collective bargaining agreement, or (v) establish, adopt, enter into or amend in any material respect any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, trust, fund, policy or arrangement for the benefit of any directors, officers or employees;

(g) revalue any of its assets, including writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business;

(h) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities or guarantee any debt securities of others;

(i) amend or propose to amend its Articles of Incorporation or Bylaws;

(j) incur or commit to incur any capital expenditures in excess of $50,000 in the aggregate or in excess of $25,000 as to any individual matter;

(k) lease, license, sell, transfer or encumber or permit to be encumbered any asset, Target Proprietary Right or other property associated with the business of Target (including sales or transfers to Affiliates of Target);

(1) enter into any lease or contract for the purchase or sale of any property, real or personal except in the ordinary course of business;

(m) fail to maintain its equipment and other assets in good working condition and repair according to the standards it has maintained up to the date of this Agreement, subject only to ordinary wear and tear;

(n) change accounting methods;

(o) amend or terminate any material contract, agreement or license to which it is a party except in the ordinary course of business;

(p) loan any amount to any person or entity, or guaranty or act as a surety for any obligation;

(q) waive or release any material right or claim, except in the ordinary course of business;

(r) make or change any material Tax or accounting election, change any annual accounting period, adopt or change any material accounting method, file any amended Return, enter into any closing agreement, settle any material Tax claim or assessment relating to Target, surrender any right to claim refund of Taxes, consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment relating to Target, or take any other action or omit to take any action outside of the ordinary course of business that would have the effect of increasing the Tax liability of Target or Acquiror;

(s) take any action or fail to take any action that would cause there to be a Material Adverse Effect;

(t) enter into any licenses, joint venture agreements, partnerships, collaboration agreements, OEM agreements, feasibility studies or any exclusive agreements of any kind; or

(u) enter into any agreements not in the ordinary course of business providing for obligations that would extend beyond 30 days of the date of this Agreement or that result in obligations of Target in excess of $5,000; or

(v) take, or agree in writing or otherwise to take, any of the actions described in Sections (a) through (u) above, or any action which is reasonably likely to make any of Target's representations or warranties contained in this Agreement untrue or incorrect in any material respect on the date made (to the extent so limited) or as of the Effective Time.

and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated by this Agreement. Target shall use its best efforts to obtain any and all consents necessary with respect to those Material Contracts listed on Schedule 5.5 of the Target Disclosure Schedule required to consummate the Merger (the "Material Consents").

ARTICLE VI

PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB

make all filings with, and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby.

(b) As soon as practicable after the Effective Time, Acquiror shall deliver to the participants in each Target Option Plan appropriate notice setting forth such participants' rights pursuant thereto and the grants pursuant to the Target Option Plans shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 6.4 after giving effect to the Merger). Acquiror shall comply with the terms of each Target Option Plans and the parties intend that, to the extent required by, and subject to the provisions of, such Target Option Plan and Sections 422 and 424(a) of the Code, that Target Options which qualified as incentive stock options prior the Effective Time continue to qualify as incentive stock options after the Effective Time, and this provision shall be interpreted consistent with that intent.

(c) Prior to the Closing Date, Acquiror shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Acquiror Common Stock for delivery upon exercise of Acquiror Options. Promptly after the Effective Time, Acquiror shall file a registration statement on Form S-8 (or any successor or other appropriate forms) under the Securities Act or another appropriate form with respect to the shares of Acquiror Common Stock subject to such options and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. On the Registration Date, Acquiror shall amend such registration statement or file a registration statement on Form S-8 (or any successor or other appropriate forms) under the Securities Act or another appropriate form with respect to the Adjusted Consideration Shares subject to options pursuant to Section 2.(d) hereof and shall use its best efforts to maintain the effectiveness of such

registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding.

(i) Acquiror will use its best efforts to maintain the effectiveness of the Registration Statement and other applicable registrations, qualifications and compliances

until the first anniversary of the Closing Date (the "Registration Effective Period"). As soon as practicable following the effectiveness of the Registration Statement, Acquiror will furnish to each holder of Registrable Shares such number of copies of the prospectus contained in the Registration Statement in conformity with the requirements of the Securities Act, and such other documents as such holder may reasonably request in order to facilitate the public sale or other disposition of such shares.

(ii) For any offer or sale of any of the Registrable Shares by a stockholder in a transaction that is not exempt under the Securities Act, the stockholder, in addition to complying with any other federal securities laws, will deliver a copy of the final prospectus (or amendment of or supplement to such prospectus) of Acquiror covering the Registrable Shares in the form furnished to the stockholder by Acquiror to the purchaser of any of the Registrable Shares on or before the settlement date for the purchase of such Registrable Shares.

(iii) Following the date on which the Registration Statement is first declared effective, the holder of Registrable Shares will be permitted (subject in all cases to Section 6.6 below) to offer and sell Registrable Shares during the Registration Effective Period in the manner described in the Registration Statement provided that the Registration Statement remains effective and has not been suspended.

selling stockholders, and accounting fees and filing fees, but shall not include underwriting commissions or similar charges.

(i) To the extent permitted by law, Acquiror will indemnify and hold harmless each holder of Registrable Shares, any underwriter (as defined in the Securities Act) for such shareholder, its officers, directors, shareholders or partners and each person, if any, who controls such shareholder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or
(C) any violation or alleged violation by Acquiror of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and Acquiror will pay to each such shareholder (and its officers, directors, stockholders or partners), underwriter or controlling person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 6.5(e)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of Acquiror; nor shall Acquiror be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon (a) a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in the Registration Statement by any such shareholder, or (b) a Violation that would not have occurred if such shareholder had delivered to the purchaser the version of the Prospectus most recently provided by Acquiror to the shareholder as of the date of such sale.

(ii) To the extent permitted by law, each selling shareholder will indemnify and hold harmless Acquiror, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls Acquiror within the meaning of the Securities Act, any underwriter, any other stockholder selling securities pursuant to the Registration Statement and any controlling person of any such underwriter or other shareholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation (which includes without limitation the failure of the stockholder to comply with the prospectus delivery requirements under the Securities Act, and the failure of the stockholder to deliver the most current prospectus provided by Acquiror prior to such sale), in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such shareholder expressly for use in the Registration Statement or such Violation is caused by the shareholder's failure to deliver to the purchaser of the stockholder's Registrable Shares a prospectus (or

amendment or supplement thereto) that had been made available to the shareholder by Acquiror; and each such shareholder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this
Section 6.5(e)(ii) in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 6.5(e)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the shareholder, which consent shall not be unreasonably withheld. The aggregate indemnification liability of each shareholder under this Section 6.5(e)(ii) shall not exceed the net proceeds received by such shareholder in connection with sale of shares pursuant to the Registration Statement.

(iv) To the extent that the indemnification provided for in this Section 6.5(e) is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The aggregate contribution liability of each shareholder under this Section 6.5(e)(iv) shall not exceed the net proceeds received by such shareholder in connection with sale of shares pursuant to the Registration Statement.

(a) At the Effective Time, employees of Target whose employment with Target is to be continued after the Effective Time ("Continuing Employees") shall be eligible to participate in those employee benefit plans maintained by Acquiror for similarly situated employees of Acquiror, or substantially similar programs ("Acquiror Employee Plans"), on the same terms applicable to similarly situated employees of Acquiror and to the extent that such plans and programs provide the following benefits: medical/dental/vision care, life insurance, disability income, sick pay, holiday and vacation pay, 401(k) plan coverage, Internal Revenue Code Section 125 benefit arrangements, bonus, profit-sharing or other incentive plans, pension or retirement programs, dependent care assistance, severance benefits, and employee stock option and stock purchase plans. Each Continuing Employee shall be given credit for any vacation and sick leave time accrued, but unused, as of the day immediately preceding the Effective Time less any amounts paid for such Continuing Employee for unused accrued vacation and sick leave, and provided that any Continuing Employee who has been advanced vacation or sick leave prior to accrual under the Target's plans and policies or any agreements with such Continuing Employee shall have such advanced leave deducted from the amount of such leave such Continuing Employee would otherwise accrue under Acquiror Employee Plan. Not withstanding the foregoing, in lieu of causing the Continuing Employees to participate in Acquiror Employee Plans as of the Effective Time, Acquiror may, as to any one or more of such benefits, cause the Continuing Employees to continue to participate in a Target Employee Plan providing the relevant benefit described in the first sentence of this paragraph for a reasonable transition period after the Effective Time. Each Continuing Employee shall be given credit, for purposes of any service requirements for participation or vesting, for his or her period of service with Target credited under a similar plan prior to the Effective Time, subject to appropriate break in service rules. Each such employee shall, with respect to any Acquiror Employee Plans which have co-payment, deductible or other co-insurance features, receive credit for any amounts such individual has paid to date in the plan year as of the Effective Time (or, if later, the time of the transition of such employee from a Target Employee Plan to an Acquiror Employee Plan) under the comparable plans or programs maintained by Target prior to the Effective Time to the extent permitted under the Acquiror Benefit Plan

(b) If the employment of any employee of Target is terminated (x) by Acquiror without Cause (defined below) or (y) by employee if employee's place of employment is relocated to a location outside the Birmingham, Alabama metropolitan area at any time within one year after the Effective Time, provided that the employee signs a general release of all claims against Acquiror and Magnolia, the employee shall be entitled to receive severance benefits consisting of: (i) continuation of such employee's then current monthly base salary, less applicable withholding taxes until the one-year anniversary of the Effective Time, or at Acquiror's election, an equivalent lump sum payment less applicable withholding taxes, (ii) a single cash payment equal to the number of unvested shares, as of the date of termination, subject to an option granted to the employee by Target prior to the Merger and assumed by Acquiror under the terms of this Agreement multiplied by the difference between the exercise price of such shares (after conversion of the exercise price and number of shares pursuant to this Agreement) and the average closing price of Acquiror's Common Stock during the fifteen (15)days prior to the termination date and (iii) prompt reimbursement for premiums paid by the employee for continuation of health insurance benefits until the one-year anniversary of the Effective Time under COBRA, provided that the employee makes a timely election therefor. For

purposes of this Agreement, "Cause" for an employee's termination will exist at any time after the happening of one or more of the following events:

(i) employee's continued failure to substantially perform employee's duties, including employee's refusal to comply in any material respect with the legal directives of the employee's supervisor so long as such directives are not inconsistent with the employee's position and duties, and such refusal to comply is not remedied within ten (10) working days after written notice from the employee's supervisor, which written notice shall specify in reasonable detail the conduct of the employee giving rise to such notice and shall state that failure to remedy such conduct may result in termination for Cause; or

(ii) employee's dishonest or fraudulent conduct, or deliberate attempt to do an injury to Aquiror or Magnolia, or conduct that materially discredits Acquiror or Magnolia or is materially detrimental to the reputation of Acquiror or Magnolia, including conviction of a felony; or

(iii) employee's breach of any element of the confidentiality and inventions assignment agreement entered into between the employee and Magnolia or Acquiror, including without limitation, employee's theft or other misappropriation of proprietary information of Acquiror or Magnolia.

ARTICLE VII

OTHER AGREEMENTS

consummation of the Merger; and (iv) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable.

Incorporation and Bylaws of its Subsidiaries as in effect on the date of this Agreement with respect to any and all persons described in such charter or bylaw provision ("Indemnitees") as to any matter arising out of any action or omission of any such Indemnitee prior to the Closing Date (including, without limitation, indemnification for any claim that is based upon, arises out of or in any way relates to the Merger, this Agreement or any of the transactions contemplated hereby) and that such Indemnitees shall be entitled to the full benefits of, and Acquiror and its Subsidiaries shall be bound by, such charter or bylaw provision as though such charter or bylaw provision continued in full force and effect after the Closing Date as an obligation of Acquiror with respect to such matters.

(b) In addition to the indemnification obligations of Section 7.9(a), Acquiror agrees that for a period of three (3) years from and after the Closing Date it will use its commercially reasonable efforts to maintain in effect directors' and officers' liability insurance coverage for the benefit of the Indemnitees on substantially the same terms and conditions as are currently maintained by Target and its Subsidiaries with respect to their respective directors and officers.

(c) If Acquiror or any of its successors or assigns shall consolidate with or merge into any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any entity, then and in each case, proper provision shall be made so that the successors and assigns of Acquiror shall assume the obligations set forth in this Section 7.9.

(d) The provisions of this Section 7.9 are intended to be for the benefit of and shall be enforceable by, each of the Indemnitees and his or her heirs, executors, administrators and representatives.

ARTICLE VIII

CONDITIONS TO MERGER

changes contemplated by this Agreement; and Acquiror shall have received a certificate signed on behalf of Target by the chief executive officer and the chief financial officer of Target to such effect.

ARTICLE IX

TERMINATION AND AMENDMENT

(a) by mutual written consent of Acquiror and Target;

(b) by either Acquiror or Target, by giving written notice to the other party, if a court of competent jurisdiction or other Governmental Entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, except, if such party relying on such order, decree or ruling or other action shall not have complied with its respective obligations under Sections 5.5 or 6.3 of this Agreement, as the case may be;

(c) by Acquiror, by giving written notice to Target, if the Closing shall not have occurred on or before June 30, 2001 by reason of the failure of any condition precedent under Section 8.1 or 8.2 (unless the failure results primarily from a breach by Acquiror of any representation, warranty, or covenant of Acquiror contained in this Agreement or Acquiror's failure to fulfill a condition precedent to closing or other default);

(d) by Target, by giving written notice to Acquiror, if the Closing shall not have occurred on or before June 30, 2001 by reason of the failure of any condition precedent under Section 8.1 or 8.3 (unless the failure results primarily from a breach by Target of any representation, warranty, or covenant of Target contained in this Agreement or Target's failure to fulfill a condition precedent to closing or other default);

(e) by Target, if Acquiror shall breach any representation, warranty, obligation or agreement hereunder such that the condition set forth in
Section 8.3(a) and (b) would not be satisfied as of the time of such breach and such breach shall not have been cured within five (5) business days following receipt by Acquiror of written notice of such breach, provided that the right to terminate this Agreement by Target under this Section 9.1(e) shall not be available to Target where Target is at that time in breach of this Agreement;

(g) by Acquiror if any required approval of the shareholders of Target shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of shareholders or at any adjournment thereof (other than from the failure of Acquiror to exercise proxies previously delivered to Acquiror); or

(h) by Target if any required approval of the shareholders of Target shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of shareholders or at any adjournment thereof (provided that the right to terminate this Agreement under this Section 9.1(h) shall not be available to Target where the failure to obtain Target shareholder approval shall have been caused by the action or failure to act of Target and such action or failure to act constitutes a breach by Target of this Agreement).

(i) In the event that this Agreement is terminated pursuant to Section 9.1(c) (except for a failure of the condition set forth in Section 8.1(a)) or 9.1(f), and within ninety days following the date of such termination, Target commences negotiations with any third party, which negotiations result during the twelve month period following such termination in either a bona fide offer from any third party to engage in, or a decision by the Board of Directors of Target to initiate, (x) a merger, consolidation or other business combination pursuant to which the shareholders of Target immediately prior to the effective date of such transaction have beneficial ownership of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following such transaction,
(y) the sale to any third party of twenty-five (25%) percent or more of the total voting power of Target, or (z) the sale of all or substantially all of the assets of Target or the sale or exclusive license of the Target technology know as SABER(TM) ((x), (y) or (z) being an "Acquisition Proposal"), then

prior to accepting or initiating such Acquisition Proposal, Target shall provide to Acquiror, within twenty-four (24) hours of receiving or initiating such Acquisition Proposal, a written notice identifying the proposed terms of such Acquisition Proposal (the "Notice"). The Notice shall include the following information: (a) the identity of the party or parties making or involved with the Acquisition Proposal and (b) the specific terms of the Acquisition Proposal. Further, Target shall provide a true and complete copy of the Acquisition Proposal if in writing, or a written summary of the material terms thereof if the proposal is not in writing, as well as access to (and copies of, if requested) all documents containing nonpublic information of Target that are or have been supplied to the party making or involved with the Acquisition Proposal.

(ii) Acquiror shall have fifteen (15) business days (which time period may be extended by mutual written agreement) following its receipt of the Notice (the "Offer Period") in which to present a written offer to match the terms of any Acquisition Proposal, or to present a substantially similar or superior alternative offer (the "Offer"). If Acquiror presents an Offer, the parties shall execute a letter of intent with respect to such Offer and shall commence exclusive negotiations in good faith, for a period of up to twenty (20) business days (which time period may be extended by mutual written agreement) (the "Negotiation Period") after the Offer, to complete a definitive agreement on mutually agreeable terms.

(iii) If either (A) Acquiror does not make an Offer during the Offer Period or (B) the parties cannot reach a mutually acceptable agreement during the Negotiation Period, and following the Negotiation Period, Target enters into a definitive agreement with respect to an Acquisition Proposal (an "Alternative Transaction"), then Target shall pay to Acquiror $1,000,000 plus ten percent (10%) of the amount by which the Total Consideration received by Target and/or Target's shareholders in such Alternative Transaction exceeds $26,000,000. For example, if the Total Consideration received by Target's shareholders in an Alternative Transaction is $30,000,000, then Acquiror shall receive $1,400,000. Any such payment shall be made as soon as the amount to be paid can be ascertained with certainty, and in any event no later than the closing date of the Alternative Transaction, or the initial closing date if there shall be more than one. The "Total Consideration" shall be the value of any cash and securities (including options) received by Target and/or all of Target's security holders, including holders of any Preferred Stock, options, warrants, notes or other securities, and shall be determined based on the fair market value thereof.

(iv) In the event that this Agreement is terminated pursuant to Section 9.1(c) only by reason of the failure of the condition set forth in
Section 8.1(a) (other than from the failure of Acquiror to exercise proxies previously delivered to Acquiror), 9.1(g) or 9.1(h) (at a time when Acquiror has the right to terminate under 9.1(g)), then Target shall pay to Acquiror (by wire transfer of immediately available funds not later than the date of termination of this Agreement) an amount equal to one million five hundred thousand dollars ($1,500,000).

Acquiror of the payment set forth in Section 9.3(c) shall constitute conclusive evidence that this Agreement has been validly terminated and upon acceptance of payment of such amount Target shall be fully released and discharged from any liability or obligation resulting from or under this Agreement.

ARTICLE X

ESCROW AND INDEMNIFICATION

(a) From and after the Effective Time, but only to the extent of their respective portions of the Escrow Fund, the Former Target Shareholders will, severally and pro rata, in accordance with their Pro Rata Portion, and not jointly indemnify and hold Acquiror harmless against any loss, expense, reduction in value in Target, liability or other damage, including attorneys' fees and filing fees, to the extent of the amount of such loss, expense, reduction in value, liability or other damage (collectively "Damages") that Acquiror or its officers, directors, employees, agents or affiliates (including the Surviving Corporation) (collectively, "Indemnitees") has incurred by reason of the breach or, with respect to Section 3.30 only, the alleged breach, by Target of any representation, warranty, covenant or agreement of Target contained in this Agreement that occurs or becomes known to an Indemnitee during the Escrow Period (as defined in Section 10.3 below).

(b) Acquiror will indemnify and hold the directors, officers, employees and agents of Target (collectively, "Target Indemnitees") harmless against any Damages that such Target Indemnitiees have incurred by reason of the breach or alleged breach by Acquiror of the representations and warranties of Acquiror and Sub set forth in Section 4.7 of this Agreement.

in cash or immediately available funds to the Escrow Fund in an amount equal to $12.00 (as adjusted for stock splits, stock dividends, recapitalizations and the like) multiplied by the number of Escrow Shares to be distributed to such Former Target Stockholder (such payment referred to as "Escrow Cash"). Escrow Cash shall be held in the Escrow Fund on behalf of each Former Target Shareholder who has made such an election subject to the provisions of this Article X and the Escrow Agreement. Except in the case of fraud (not involving negligent misrepresentation) or intentional misrepresentation on the part of Target, the Escrow Shares and Escrow Cash shall constitute the sole and exclusive remedy of the Indemnitees with respect to any Damages incurred by any Indemnitee by reason of the breach or alleged breach by Target of any representation, warranty, covenant or agreement of Target contained in this Agreement.

(a) Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of Acquiror (an "Officer's Certificate"):

(i) Stating the aggregate amount of the Indemnitee's Damages or an estimate thereof, in each case to the extent known or determinable at such time; and

(ii) Specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid or properly accrued (in accordance with GAAP) or arose, and the specific nature of the misrepresentation, breach or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Sections 10.3 and 10.8 hereof and of the Escrow Agreement, deliver to Acquiror out of the Escrow Fund, as promptly as practicable, Escrow Shares and Escrow Cash, if any, having a value equal to such Damages, as adjusted pursuant to Section 10.4(b), all in accordance with the Escrow Agreement and Section 10.5 below. Amounts paid or distributed from the Escrow Fund shall be paid or

distributed pro rata among the Holders (as defined in the Escrow Agreement), subject to Section 10.4(b) hereof, based upon their respective percentage interests therein at the time.

(b) In respect of any payment due from the Escrow Fund under the indemnity contained herein for any Damages (i) such amount shall be determined net of any insurance proceeds or other recoveries actually received by Acquiror on account of the claim or event giving rise to such Damages, and such amount shall be reduced by the present value of the amount of any reduction in federal and state income taxes of Acquiror in one or more of its taxable years resulting from the payment or incurring of such Damages, and (ii) the total amount of Escrow Shares or Escrow Cash to be delivered to Acquiror out of the Escrow Fund shall be equal in value to the amount of Damages less the pro rata portion of such Damages that all of the holders of Target Common Stock having exercised and perfected their dissenters rights pursuant to Section 2.3 hereof would have been responsible for paying if they had not exercised and perfected their dissenters' rights (for example, if 5% of the holders of Target Common Stock perfect dissenters' rights and the amount of Damages is $100,000, then the Holders will only be liable for 95% of such Damages and only Escrow Shares having a value of $95,000 will be distributed to Acquiror). In determining the present value of any reduction in taxes the rate equal to the rate then established pursuant to
Section 6621 of the Code shall be used and the period shall be from the date of payment or incurring of such Damages by Acquiror to the last day for filing Acquiror's federal or state income tax returns for the taxable period in which the reduction in tax may be claimed.

(c) Notwithstanding anything in this Article X to the contrary, Acquiror shall not be entitled to indemnification under this Agreement until the aggregate amount of Damages shall exceed $75,000 in the aggregate, in which case Acquiror shall be entitled to indemnification for such Damages.

(a) In case the Stockholders' Agents shall so object in writing to any claim or claims by Acquiror made in any Officer's Certificate, or to contest the amount of Damages for

reasons set forth in Section 10.4(b), Acquiror shall have thirty (30) days to respond in a written statement to the objection of the Stockholders' Agents. If after such thirty (30) day period there remains a dispute as to any claims, the Stockholders' Agents and Acquiror shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims. If the Stockholders' Agents and Acquiror should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and shall distribute the Escrow Shares or Escrow Cash from the Escrow Fund in accordance with the terms of the memorandum.

(b) If no such agreement can be reached after good faith negotiation, either Acquiror or the Stockholders' Agents may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Within fifteen (15) days after such written notice is sent, Acquiror (on the one hand) and the Stockholders' Agents (on the other hand) shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The decision of the arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 10.3, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance with such decision.

(c) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo County, California under the commercial rules then in effect of the American Arbitration Association. The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative fee of the American Arbitration Association, and the expenses, including, without limitation, the reasonable attorneys' fees and costs, incurred by the prevailing party to the arbitration.

(a) Lawrence W. Greer and Charles K. Porter shall be constituted and appointed as agents (the "Shareholders' Agents") for and on behalf of the Former Target Shareholders to give and receive notices and communications, to authorize delivery to Acquiror of the Escrow Shares, Escrow Cash or other property from the Escrow Fund in satisfaction of claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholders' Agents for the accomplishment of the foregoing. All actions of the Shareholders' Agents shall be taken jointly, not individually. Such agency may be changed by the holders of a majority in interest of the Escrow Shares or Escrow Cash from time to time upon not less than ten (10) days' prior written notice to Acquiror. No bond shall be required of the Shareholders' Agents, and the Shareholders' Agents shall receive no compensation for services. Notices or communications to or from the Shareholders' Agents shall constitute notice to or from each of the Former Target Shareholders.

(b) The Shareholders' Agents shall not be liable for any act done or omitted hereunder as Shareholders' Agents while acting in good faith, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Former Target Shareholders shall severally and pro rata, in accordance with their Pro Rata Portion, but not jointly, indemnify the Shareholders' Agents and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Shareholders' Agents and arising out of or in connection with the acceptance or administration of their duties hereunder under this Agreement or the Escrow Agreement. The Shareholders' Agents shall not be required to take any action permitted or required to be taken by them pursuant to Article X hereof unless they have received satisfactory indemnity (in the form of a bond or other guarantee) from the Former Target Shareholders against the liabilities and expenses that they reasonably anticipate they will incur in connection with the proposed action.

(d) The Former Target Shareholders shall collectively contribute, on a pro rata basis, according to their respective Pro Rata Portion of the Escrow Shares or Escrow Cash, the aggregate amount of any costs, expenses, and disbursements, including, but not limited to, accountant's and attorney's fees and expenses and the cost of investigating and contesting any claims against the Escrow Fund by Acquiror (collectively, "Reimbursable Expenses"), incurred by the Shareholders' Agents in good faith in the performance of their duties. Prior to any release of Escrow Shares or Escrow Cash to the Former Target Shareholders, the Escrow Agent shall notify the Shareholders' Agents in writing of such pending release (the "Release Notice"). Within ten (10) business days following receipt of the Release Notice, the Shareholders' Agents shall certify to the Escrow Agent whether any Reimbursable Expenses remain unpaid as of the

date of such certification. In the event any Reimbursable Expenses remain unpaid by one or more Former Target Shareholders, the Escrow Agent shall, on behalf of and for the account of the Former Target Shareholders who have not paid their Pro Rata Portion of the Reimbursable Expenses, sell, as agent for such Former Target Shareholders (for which purpose the Escrow Agent is hereby empowered to act), a sufficient number of Escrow Shares held for such Former Target Shareholders to satisfy their portion of the unpaid Reimbursable Expenses. Upon receipt of the proceeds from such sales of Escrow Shares, the Escrow Agent shall promptly (i) deliver that portion of such proceeds equal in amount to the Reimbursable Expenses owed by the applicable Former Target Shareholders to the Shareholders' Agents and (ii) deliver the remainder of such proceeds, if any, to the Former Target Shareholders for whom such Escrow Shares were sold remaining after paying their portion of the unpaid Reimbursable Expenses.

ARTICLE XI

MISCELLANEOUS

(a) if to Acquiror or Sub:

Durect Corporation
10240 Bubb Road
Cupertino, CA 95104
Attention: Jean Liu, Vice President and General Counsel Fax No: (408) 865-1406 Telephone No: (408) 777-1827

with a copy to:

Venture Law Group
A Professional Corporation 2775 Sand Hill Road
Menlo Park, California 94025 Attention: Mark Weeks Fax No: (650) 233-8386 Telephone No: (650) 854-4488

(b) if to Target, to:

Southern BioSystems, Inc. 756 Tom Martin Drive
Birmingham, AL 35211
Attention: Wallace B. Smith Fax No: (205) 917-2296 Telephone No: (205) 917-2290

with a copy to:

Bradley Arant Rose & White LLP 2001 Park Place, Suite 1400 Birmingham, AL 35203
Attention: John K. Molen, Esq.

Fax No: (205) 521-8800

Telephone No: (205) 521-8238

[Signature Page Follows]

IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and Plan of Merger to be signed by their respective officers thereunto duly authorized as of the date first written above.

DURECT CORPORATION                            MAGNOLIA ACQUISITION CORPORATION


By: /s/ James E. Brown                        By: /s/ James E. Brown
    ------------------                            ------------------

Name: James E. Brown                          Name: James E. Brown
      ------------------------------------          --------------------------------------

Title: President & Chief Executive Officer    Title: President & Chief Executive Officer
       -----------------------------------           -------------------------------------


                                              SOUTHERN BIOSYSTEMS, INC.


                                              By: /s/ Wallace Smith
                                                  ----------------------------------------

                                              Name: Wallace Smith
                                                    --------------------------------------

                                              Title: President & Chief Executive Officer
                                                     -------------------------------------


                                              SHAREHOLDERS' AGENT (solely for the purposes
                                              of Article X)


                                              By: /s/ Lawrence W. Greer
                                                  ----------------------------------------

                                              Name: Lawrence W. Greer
                                                    --------------------------------------

                                              Title: _____________________________________


                                              SHAREHOLDERS' AGENT (solely for the purposes
                                              of Article X)


                                              By: /s/ Charles K. Porter
                                                  ----------------------------------------

                                              Name: Charles K. Porter
                                                    --------------------------------------

                                              Title: _____________________________________

EXHIBIT A

This Agreement (the "Agreement") is entered into as of April 18, 2001 by and between DURECT Corporation, a Delaware corporation (the "Company" or "DURECT") and _____________ ("Employee"), an employee of Southern BioSystems, Inc., an Alabama corporation ("SBS") and shall be effective as of the Effective Time of the Merger Agreement described below in Recital C ("Effective Time").

RECITALS

A. SBS is engaged in the business of developing and manufacturing and selling products and technology relating to the controlled release of an agent or agents in human and animals (the "Business").

B. Employee is a shareholder and an employee of SBS and has confidential and proprietary information relating to the business and operation of SBS.

C. DURECT has entered into that certain Agreement and Plan of Merger dated as of April 18, 2001, among DURECT, Magnolia Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of DURECT, and SBS (the "Merger Agreement"), whereby Magnolia Acquisition Corporation will be merged with and into SBS following which SBS will be a wholly owned subsidiary of DURECT (the transactions contemplated by the Merger Agreement are referred to hereinafter as the "Merger").

D. As a condition to its willingness to enter into the Merger Agreement, DURECT has required that Employee agree, and Employee has agreed, to the terms of this Employment Agreement, and specifically the noncompetition and nonsolicitation covenants and the confidentiality agreements provided in this Agreement.

E. Employee's agreement to become employed by DURECT as of the Effective Time, and Employee's covenants not to compete with DURECT, as reflected in this Agreement, are an essential part of the transactions described in the Merger Agreement.

F. Unless the context may otherwise require, references to DURECT hereinafter shall include all subsidiaries of DURECT and shall include SBS which is the surviving corporation in the Merger and upon completion of the transactions contemplated by the Merger Agreement a wholly owned subsidiary of DURECT.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and to induce DURECT Corporation to consummate the transactions contemplated by the Merger Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and DURECT agree as follows:

(d) Definitions.

(i) For purposes of this Agreement, "Cause" for Employee's termination will exist at any time after the happening of one or more of the following events:

(A) Employee's continued failure to substantially perform Employee's duties, including Employee's refusal to comply in any material respect with the legal directives of the Employee's Supervisor so long as such directives are not inconsistent with the Employee's position and duties, and such refusal to comply is not remedied within ten (10) working days after written notice from the Employee's Supervisor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or

(B) Employee's criminal, dishonest or fraudulent conduct, or deliberate attempt to do an injury to DURECT or SBS, or conduct that materially discredits DURECT or SBS or is materially detrimental to the reputation of DURECT or SBS, including conviction of a felony; or

(C) Employee's breach of any element of the Confidentiality Agreement (as defined in Section 2 above), including without limitation, Employee's theft or other misappropriation of proprietary information of DURECT or SBS.

(ii) For purposes of this Agreement, "Good Reason" for Employee to terminate his employment shall exist if Employee voluntarily resigns within thirty (30) days of any of the following circumstances:

(A) a material reduction in Employee's job position or responsibilities to a position or to responsibilities substantially lower than the position and responsibilities assigned to Employee upon commencement of the employment relationship pursuant to this Agreement;

(B) a failure by the Company to comply with any provision of Section 4 of this Agreement which has not been cured within fifteen (15) business days after notice of such noncompliance has been given by Employee to the Company or if such failure is not capable of being cured in such time, a cure shall not have been diligently initiated by Company within such fifteen (15) business day period (provided that a delay in the Company's Board of Directors' consideration of the grant of the stock option described in Section 4(c) to the next regularly scheduled meeting of the Company's Board of Directors at which stock option grants may be considered shall not constitute Good Reason); and

(C) unless agreed to by Employee and the Company, during the twelve (12) months commencing with the effective date of this Agreement, a relocation of Employee's place of employment to a location outside of the Birmingham, Alabama metropolitan area.

(iii) "Disability" as used herein means Employee's inability to perform the essential functions of his position with or without reasonable accommodation in accordance with the requirements of the Americans with Disabilities Act of 1990, as amended from time to time.

(i) "Affiliate" as used herein, means, with respect to any person or entity, any person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such other person or entity.

(ii) "Business Area" means any city, county, state, country, territory, region or other political or geographical division, worldwide, in which DURECT or SBS as of the relevant time has engaged in the Business.

(iii) "Restricted Period" means the period commencing on the Effective Time as defined in the Merger Agreement and terminating on the _______ anniversary of the Effective Time; provided, however, that notwithstanding the foregoing, in the event of Employee's termination of employment under circumstances in which Employee is eligible for the separation benefits described in Section 5(c) above, the Restricted Period shall terminate twelve
(12) months from the termination of Employee's employment relationship with DURECT.

(i) Employee and DURECT agree that due to the nature of Employee's employment with SBS, Employee has confidential and proprietary information relating to the business and operations of SBS. Employee acknowledges that such information is of importance to the business of SBS and will continue to be so after the Merger and that disclosure of such confidential information to others or the unauthorized use of such information by others would cause substantial loss and harm to SBS and, following the Merger, DURECT. Employee and DURECT also agree that Employee will acquire and will assist in developing confidential and proprietary information relating to the business of DURECT following the Merger.

(iii) Notwithstanding the foregoing provisions of Section 6(b)(ii) and the restrictions set forth therein, Employee may own securities in any publicly held corporation that is covered by the restrictions set forth in
Section 6(b)(ii), but only to the extent that Employee does not own, of record or beneficially, more than 1% of the outstanding beneficial ownership of such corporation.

[signature page follows]

The parties have executed this Agreement the date first written above.

DURECT Corporation

By: ____________________________
Name:
Title:
Address: 10240 Bubb Road
Cupertino, CA 95014
Telephone:

[EMPLOYEE]

Address:

Telephone:

SOUTHERN BIOSYSTEMS, INC.

CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT

CONFIDENTIAL

known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.

CONFIDENTIAL

CONFIDENTIAL

CONFIDENTIAL

charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement.

[Signature Page Follows]

COMPANY:                           EMPLOYEE:

SOUTHERN BIOSYSTEMS, INC.          ___________________, an Individual:


___________________________        _______________________________________
Signature                          Signature

By:________________________        _______________________________________
                                   Printed Name
Title:_____________________

Date:______________________        Date:__________________________________

Address: 756 Tom Martin Drive      Address:_______________________________
         Birmingham, AL  35211

                                                                    CONFIDENTIAL

                                              Identifying Number
Title                 Date                    or Brief Description
-----                 ------                  --------------------

___ No inventions or improvements

___ Additional Sheets Attached

Signature of Employee/Consultant: ________________

Print Name of Employee/Consultant:________________

Date: ___________________________

TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Durect Corporation, its subsidiaries, affiliates, successors or assigns (together the

I further certify that I have complied with all the terms of the Company's Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company.

List of companies that individuals shall be restricted from participating in:

Alkermes
ALZA Corporation
Atrix Pharmaceuticals
Elan
MacroMed
Advanced Polymer Systems
Guilford Pharmaceuticals
Focal, Inc.
Biosyntech
Matrix
Sequus Pharmaceuticals
Linvatec
Southern Research Institute
Drug Abuse Sciences
Angiotech
Purdue Pharma LP
Mundipharma International Limited
Genzyme
Genetech, Inc.
Thorn Biosciences
Alcon
Hoechst Roussel
Bristol Myers Squibb
Astra Zeneca
Alpharma
Solvay

EXHIBIT B

SHAREHOLDERS AGREEMENT

THIS SHAREHOLDERS AGREEMENT (this "Agreement") is entered into as of April __, 2001 between Durect Corporation, a Delaware corporation ("Acquiror"), and the undersigned shareholder ("Shareholder") of Southern BioSystems, Inc., an Alabama corporation ("Target").

RECITALS

A. Acquiror, Target and Magnolia Acquisition Corporation, an Alabama corporation and a wholly owned subsidiary of Acquiror ("Merger Sub"), will enter or have entered into an Agreement and Plan of Merger (the "Merger Agreement"), which provides for the merger (the "Merger") of Merger Sub with and into Target and the conversion of each outstanding share of Target's capital stock into shares of Acquiror Common Stock.

B. In the Merger, outstanding shares of Target capital stock, including any such shares owned by Shareholder, will be converted into the right to receive shares of Acquiror common stock (the "Shares") subject to the terms of, and as set forth in, the Merger Agreement.

C. At the time of issuance to the Shareholder, the Shares to be received by Shareholder in the Merger will not have been registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption from registration contemplated by Regulation D promulgated under the Securities Act.

D. Pursuant to the terms of the Merger Agreement, after the Effective Time (as defined in the Merger Agreement), Acquiror will prepare and file with respect to the Shares a registration statement on Form S-3 (the "Registration Statement") under the Securities Act to permit Shareholder to sell the Shares registered for sale under the Registration Statement.

E. In order to induce Acquiror to enter into the Merger Agreement and to file such Registration Statement and to maintain the effectiveness of the Registration Statement for the period of time set forth in the Merger Agreement, Shareholder is willing to agree to be bound by certain procedural requirements with respect to sales of the Shares pursuant to the Registration Statement and to execute and deliver this Agreement.

NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:

(i) Shareholder, either alone or together with Shareholder's purchaser representative (the "Purchaser Representative"), has had the opportunity to ask questions of, and obtain any additional information reasonably available to Acquiror, Target and Merger Sub with respect to their respective plans, results of operations, financial conditions, businesses,

(ii) Shareholder acknowledges he or she has previously received (A) a copy of this Agreement and the Agreement and Plan of Merger, (B) a copy of Acquiror's prospectus dated September 27, 2000, (C) a copy of Acquiror's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, and (D) a copy of Acquiror's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, EXCHANGED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE OTHER CONDITIONS SPECIFIED IN THE SHAREHOLDERS AGREEMENT DATED AS OF APRIL __, 2001 BETWEEN THE HOLDER OF THIS CERTIFICATE AND DURECT CORPORATION, A COPY OF WHICH AGREEMENT WILL BE FURNISHED BY DURECT CORPORATION TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE."

Acquiror, in its discretion, may cause stop transfer orders to be placed with its transfer agent with respect to the certificates for the shares of Acquiror Common Stock which are required to bear such legend. Acquiror shall promptly remove, at its expense, such legend and stop transfer orders at such time as the Shares may be sold freely pursuant to Rule 144(k) of the Securities Act.

(a) This Agreement constitutes the entire agreement between the parties pertaining to the specific subject matter hereof. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

(b) For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

(c) This Agreement shall be enforceable by, and shall inure to the benefit of and be binding upon, the parties hereto and their respective successors and assigns. As used

herein, the term "successors and assigns" shall mean, where the context so permits, heirs, executors, administrators, trustees and successor trustees, and personal and other representatives.

(d) This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of Delaware (without regard to the principles of conflict of laws thereof).

(e) The invalidity or unenforceability of any provision of this Agreement shall not affect or limit the validity or enforceability of any other provision hereof and if any particular provision of this Agreement shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made.

(f) Capitalized terms used herein and not otherwise defined that have the meanings ascribed thereto in the Merger Agreement.

[Signature Page Follows]

Executed as of the date shown on the first page of this Agreement.

DURECT CORPORATION

By: ____________________________________
Name:_______________________________
Title:______________________________

SHAREHOLDER

By:_____________________________________

Name of Shareholder:____________________

Name of Signatory (if different from
name of Shareholder):___________________

Title of Signatory
(if applicable):________________________

Southern BioSystems, Inc.
Common Stock

SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT

EXHIBIT A
TO
SHAREHOLDER AGREEMENT

SHAREHOLDER QUESTIONNAIRE
STATEMENT OF SHAREHOLDER STATUS

By signing this Questionnaire you also confirm your understanding that Acquiror will be relying on the accuracy and completeness of your responses to establish Acquiror's legal right to issue shares of Durect common stock to you without registration under the federal securities laws and applicable state securities laws. YOUR ANSWERS WILL AT ALL TIMES BE KEPT STRICTLY CONFIDENTIAL. However, you agree by signing this Questionnaire that Acquiror may present this Questionnaire to such parties as it deems appropriate if called upon to establish the legality of your participation.

If there is any change in the information you provide in this Questionnaire, please contact Stephen Thau or Ughetta Manzone of Venture Law Group, counsel to Acquiror, at (650) 854-4488 immediately.

Please answer all questions which are applicable to you.

A. THIS SECTION A IS TO BE COMPLETED BY SHAREHOLDERS WHO ARE INDIVIDUALS.

1. I am a resident of the State of _________________________.

2. Accredited Investor Status:

For purposes of this Question 2, an individual Shareholder is an "Accredited Investor" if any or all of the following descriptions apply to the individual:

(1) The undersigned has a net worth (assets minus liabilities), individually or jointly with spouse, and inclusive of the value of home, furnishings and automobiles, of at least $1,000,000.

(2) The undersigned had an individual income in excess of $200,000, or joint income with spouse in excess of $300,000, in each of the two preceding years and reasonably expects to reach the same income level in the current year.

[ ] (a) The undersigned Shareholder meets the definition of an "Accredited Investor."

[ ] (b) The undersigned Shareholder does not meet the definition of an "Accredited Investor."

If you checked the box next to (b) above, please turn to Section C and complete the Purchaser Representative Agreement.

The undersigned hereby represents and warrants to Acquiror that (i) the information contained herein is complete and accurate and may be relied upon by Acquiror, (ii) the undersigned, together with his or her investment advisors, has such knowledge and experience in financial matters that he, she or they are capable of evaluating the merits and risks of the investment, and (iii) the undersigned will notify Acquiror or its counsel immediately of any material change in such information occurring prior to the acceptance or rejection of his or her shares of Acquiror common stock to be received in the Merger.

The undersigned has or have executed this Shareholder Questionnaire this ___ day of __________, 2000.

______________________________      ____________________________________
Print Name of Shareholder           Signature of Shareholder


______________________________      ____________________________________
Print name of Spouse                (if SBS Shares are held in joint
(if SBS Shares are held in joint    name or are community property)
name or are community property)     Signature of Spouse

B. THIS SECTION B IS TO BE COMPLETED BY ANY SHAREHOLDER THAT IS A CORPORATION, PARTNERSHIP OR TRUST (INCLUDING GRANTOR TRUST).

1. Type of Entity: [ ] General Partnership
[ ] Limited Partnership
[ ] Limited Liability Partnership (LLP)
[ ] Corporation
[ ] Limited Liability Company (LLC)
[ ] Trust

2. State in Which Organized or Incorporated: _________________

3. Accredited Investor Status: (Please check appropriate box).

[ ] (a) The undersigned Shareholder meets the definition below of an "Accredited Investor."

[ ] (b) The undersigned Shareholder does not meet the definition below of an "Accredited Investor."

If you checked the box next to (b) above, please turn to Section C and complete the Purchaser Representative Agreement.

For purposes of this Question 3, an entity is an "Accredited Investor" if any or all of the following descriptions apply to the entity:

(1) Each partner (including general and limited partners), Shareholder, grantor of a revocable trust or other equity owner of the Entity (a) has a net worth, individually or jointly with his or her spouse, and inclusive of home, home furnishings and automobiles, of at least $1,000,000, or (b) had an individual income in excess of $200,000, or joint income with that person's spouse in excess of $300,000, in each of the two preceding years and reasonably expects to reach the same income level in the current year; or

(2) The undersigned is (a) a broker dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended;
(b) a bank, as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its individual or fiduciary capacity; (c) an insurance company, as defined in
Section 2(13) of the Act; (d) an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") or a "business development company," as defined in Section 2(a)(48) of the 1940 Act; (e) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; (f) a plan established and maintained by a state, its

political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; or (g) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of ERISA, that is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000, or if a self directed plan, with investment decisions made solely by persons that are accredited investors; or

(3) The undersigned is a corporation, an organization described in
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the securities offered, in each case with total assets in excess of $5,000,000; or

(4) The undersigned is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Act.

4. The undersigned hereby agrees to provide Acquiror upon request with a true and correct list of the names of all partners, shareholders, grantors of an irrevocable trust or other equity owners of the undersigned.

The undersigned investor has executed this Shareholder Questionnaire this ____ day of ________________________ 2001.

_______________________________         ______________________________
Print name of partnership               Print name of authorized
corporation, trust or                   representative
other entity


By: ___________________________         ______________________________
     Signature of authorized            Capacity of authorized
     representative                     representative

C. THIS SECTION C MUST BE COMPLETED BY ALL SHAREHOLDERS WHO ARE NOT "ACCREDITED INVESTORS."

If you checked Item (b) of Question 2 in Section A or Item (b) of Question 3 in
Section B, you must appoint a purchaser representative who is financially sophisticated to represent you in connection with your evaluation of the risks and merits of an investment in Acquiror Shares pursuant to the Merger. SBS has retained ________________ to act as the purchaser representative for the shareholders of SBS.

If you have questions regarding your receipt of shares of Acquiror common stock in the Merger or would like additional information regarding [name of purchaser representative] or the Purchaser Representative Agreement, please feel free to call _______________ of [name of purchaser representative] at ( ) ____-______.

EXHIBIT TO INVESTOR QUESTIONNAIRE

PURCHASER REPRESENTATIVE AGREEMENT

This Purchaser Representative Agreement (the "Agreement") is dated __________, 2001, between ___________________ (the "Representative") and the investor named on the signature page to this Agreement (the "Investor").

RECITALS

WHEREAS, in connection with the proposed merger of Southern BioSystems, Inc. ("SBS") and a newly formed, wholly owned subsidiary of Durect Corporation (the "Issuer"), the Issuer is offering (the "Offering") shares of Durect common stock ("Durect Common Shares") to each of the Shareholders of SBS, including the Investor, as described in a Proxy Statement dated April __, 2001 (which also serves as the private placement memorandum for Durect Corporation in connection with the Offering); and

WHEREAS, in order to facilitate the Offering, Representative has agreed to act as "purchaser representative" (as such term is defined in Rule 501(h) of the Rules and Regulations promulgated under the Securities Act of 1933, as amended) for the Investor in connection with the Offering.

AGREEMENT

NOW, THEREFORE, in consideration of the promises set forth below and for other good and valuable consideration, the parties hereto hereby acknowledge and agree as follows:

1. The Investor acknowledges and confirms that Representative has been retained by SBS on the Investor's behalf to act as the Investor's purchaser representative and professional advisor in connection with evaluating the merits and risks of the Offering. Investor further acknowledges that Representative and its officers, directors and registered representatives own common stock and rights to purchase common stock of SBS, and will benefit from the Merger

2. Representative hereby confirms that Representative and its affiliates have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment in the Durect Common Shares.

3. Representative represents that neither it nor any of its affiliates has, is expected to have, or, at any time during the previous two years has had, any material relationship with the Issuer or any of its affiliates and that neither it nor any of its affiliates or employees is (i) an affiliate, director, officer or other employee of the Issuer, or (ii) the beneficial owner of ten percent (10%) or more of any class of the equity securities of the Issuer or ten percent (10%) or more of the equity interest of the Issuer.

4. Representative represents that it is not affiliated with and has not been and will not be compensated by the Issuer or any affiliate or selling agent of the Issuer, directly or indirectly, in connection with the services to be rendered to Investor under this Agreement.

5. This Agreement embodies the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes any and all other agreements or arrangements, whether written or oral, which the parties hereto may have had with respect to the subject matter hereof. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by each of the parties hereto.

6. This Agreement may be executed in any number of counterparts which together shall constitute one and the same instrument.

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

[REPRESENTATIVE]:

By: ____________________________________

Title: _________________________________

INVESTOR:

Print Name: ____________________________

Signature: _____________________________

Address: _______________________________

Telephone: _____________________________

Fax No.: _______________________________

EXHIBIT C

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this "Agreement") is entered into as of April ___, 2001, by and among Durect Corporation, a Delaware corporation ("Durect"), Southern BioSystems, Inc., an Alabama corporation ("SBS"), U.S. Bank Trust, National Association, as Escrow Agent ("Escrow Agent") and Lawrence W. Greer and Charles K. Porter as Shareholders' Agents ("Shareholders' Agents") with respect to the shares of Durect capital stock to be issued to the Shareholders (collectively, the "Holders") of SBS in the Merger (as defined below).

RECITALS

A. Durect, SBS and Magnolia Acquisition Corporation, an Alabama corporation and a wholly owned subsidiary of Durect ("Sub"), have entered into a Agreement and Plan of Merger dated as of April __, 2001 (the "Merger Agreement") pursuant to which Sub will merge with and into SBS (the "Merger"), with SBS surviving the Merger as the surviving corporation. Capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the meanings given them in the Merger Agreement.

B. Section 2.2 of the Merger Agreement provides that at the Effective Time, or such later time as determined in accordance with Section 2.3(b) of the Merger Agreement with respect to Dissenting Shares for which dissenters' rights shall have been withdrawn or lost, Durect will deposit in escrow (such deposit constituting the "Escrow Fund") certificates representing ten percent (10%) of the shares of Durect Common Stock issuable to the Holders as Closing Consideration Shares in the Merger, on a pro rata basis, in accordance with each Holder's percentage ownership of Durect Common Stock, options and warrants. Such shares (the "Escrow Shares") shall be held as security for the Holders' indemnification obligations under Article X of the Merger Agreement, and shall represent Durect's sole and exclusive remedy with respect to such indemnification obligations.

C. The parties to this Agreement desire to establish the terms and conditions pursuant to which the Escrow Shares will be deposited, held in, and disbursed from the Escrow Fund.

NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:

Shares")) in exchange for a payment in cash to the Escrow Fund in the amount equal to $12.00 (as adjusted for stock splits, stock dividends, recapitalizations and the like) multiplied by the number of Escrow Shares less any Excluded Securities held on behalf of such Holder (the "Escrow Cash").

(i) obligations issued by or guaranteed by the United States of America or any agency or instrumentality thereof;

(ii) certificates of deposit of or interest bearing accounts with national banks or corporations endowed with trust powers, including the Escrow Agent, having capital and surplus in excess of $100,000,000 with maturities not to exceed three (3) months or the release of the Escrow Fund;

(iii) commercial paper that at the time of investment is rated A- 1 by Standard and Poor's Corporation or P-1 by Moody's Investor Service;

(iv) repurchase agreements with any bank or corporation described in clause (ii), above, fully secured by obligations described in clause (i), above, or

(v) any money market fund registered under the Investment Company Act of 1940, as amended, for which the Escrow Agent or an affiliate thereof is the advisor.

In the absence of written instructions, Escrow Cash will be invested in a money market fund of U.S. Bank.

will cooperate with the Escrow Agent in promptly issuing stock certificates to effect such transfers.

(a) The Escrow Agent will incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and duly authorized, nor for any other action or inaction, except its own willful misconduct, bad faith or gross negligence. The Escrow Agent will not be responsible for the validity or sufficiency of the Escrow Provisions. In all questions arising under the Escrow Provisions, the Escrow Agent may rely on the advice of counsel, and for anything done, omitted or suffered in good faith by the Escrow Agent based on such advice, the Escrow Agent will not be liable to anyone. The Escrow Agent will not be required to take any action under the Escrow Provisions involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to it.

(b) In the event conflicting demands are made or notices are served upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent will have the absolute right, at the Escrow Agent's election, to do either or both of the following: resign so a successor can be appointed pursuant to Section 5 or file a suit in interpleader and obtain an order from a court of competent jurisdiction requiring the parties to interplead and litigate in such court their several claims and rights among themselves. In the event such interpleader suit is brought, the Escrow Agent will thereby be fully released and discharged from all further obligations imposed upon it under the Escrow Provisions, and Durect will pay the Escrow Agent (subject to reimbursement from the Holders pursuant to Section 4) all costs, expenses and reasonable attorney's fees expended or incurred by the Escrow Agent pursuant to the exercise of the Escrow Agent's rights under this Section 3 (such costs, fees and expenses will be treated as extraordinary fees and expenses for the purposes of Section 4).

In the event the balance in the Escrow Fund is not sufficient to pay the extraordinary fees and expenses of the Escrow Agent, as described in the prior paragraph, or in the event the Escrow Agent incurs any liability to any person, firm or corporation by reason of its acceptance or administration of this Escrow Agreement, the other parties hereto (other than the Shareholders' Agents), jointly and severally, agree to indemnify the Escrow Agent for its extraordinary fees and expenses or costs and expenses, including, without limitation, counsel fees and expenses, as the case may be. Notwithstanding the foregoing, no indemnity need be paid in the event of the Escrow Agent's gross negligence, bad faith or willful misconduct.

Durect:             Durect Corporation
                    10240 Bubb Road
                    Cupertino, CA 95014
                    Attention: Jean Liu, Vice President and General Counsel
                    Telephone No.: (408) 777-1827
                    Fax No.: (408) 777-1827

With a copy to:     Venture Law Group
                    A Professional Corporation
                    2800 Sand Hill Road
                    Menlo Park, California 94025
                    Attention: Mark Weeks
                    Telephone No.: (650) 854-4488
                    Fax No.: (650) 233-8386

SBS:                Southern BioSystems, Inc.
                    756 Tom Martin Drive
                    Birmingham, AL 35203
                    Attention: Wallace B. Smith
                    Telephone No.: (205) 917-2290
                    Fax No.: (205) 914-2296

With a copy to:     Bradley Arant Rose & White LLP
                    2001 Park Place, Ste. 1400
                    Birmingham, AL 35203
                    Attention: John K. Molen, Esq.
                    Telephone No.: (205) 521-8238
                    Fax No.: (205) 521-8800

Escrow Agent:       U.S. Bank Trust, National Association
                    One California Street, 4th Floor
                    San Francisco, California 94111

                                 -6-

                         Attention:  Ann Gadsby
                         Telephone No.:  (415) 273-4532
                         Fax No.:  (415) 273-4593

Shareholders' Agents:    Lawrence W. Greer
                         P.O. Drawer 247
                         Birmingham, AL 35201
                         Telephone No.: (205) 510-0247
                         Fax No.: (205) 510-0270

                         Charles K. Porter
                         Porter, White & Company, Inc.
                         15 N. Richard Arrington, Jr. Blvd.
                         Birmingham, AL 35203
                         Telephone No.: (205) 458-9123
                         Fax No.: (205) 252-8803

Such notice will be treated as having been received upon actual receipt.

of this Agreement control and supersede any course of performance or usage of the trade inconsistent with any of the terms of this Agreement.

[Signature Page Follows.]

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written and will be effective as to all the Holders when executed by Durect, the Escrow Agent and the Shareholders' Agents.

DURECT CORPORATION

By: ______________________________________
James E. Brown

Its: President and Chief Executive Officer

SOUTHERN BIOSYSTEMS, INC.

By: ______________________________________

Its: ______________________________________

ESCROW AGENT:

U.S. BANK TRUST, NATIONAL ASSOCIATION

By: ______________________________________

Its:______________________________________

SHAREHOLDERS' AGENTS:

ESCROW AND INDEMNIFICATION

(a) From and after the Effective Time, but only to the extent of their respective portions of the Escrow Fund, the Former Target Shareholders will, severally and pro rata, in accordance with their Pro Rata Portion, and not jointly indemnify and hold Acquiror harmless against any loss, expense, reduction in value in Target, liability or other damage, including attorneys' fees and filing fees, to the extent of the amount of such loss, expense, reduction in value, liability or other damage (collectively "Damages") that Acquiror or its officers, directors, employees, agents or affiliates (including the Surviving Corporation) (collectively, "Indemnitees") has incurred by reason of the breach or, with respect to Section 3.30 only, the alleged breach, by Target of any representation, warranty, covenant or agreement of Target contained in this Agreement that occurs or becomes known to an Indemnitee during the Escrow Period (as defined in Section 10.3 below).

(b) Acquiror will indemnify and hold the directors, officers, employees and agents of Target (collectively, "Target Indemnitees") harmless against any Damages that such Target Indemnitiees have incurred by reason of the breach or alleged breach by Acquiror of the representations and warranties of Acquiror and Sub set forth in Section 4.7 of this Agreement.

(a) Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of Acquiror (an "Officer's Certificate"):

(i) Stating the aggregate amount of the Indemnitee's Damages or an estimate thereof, in each case to the extent known or determinable at such time; and

(ii) Specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid or properly accrued (in accordance with GAAP) or arose, and the specific nature of the misrepresentation, breach or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Sections 10.3 and 10.8 hereof and of the Escrow Agreement, deliver to Acquiror out of the Escrow Fund, as promptly as practicable, Escrow Shares and Escrow Cash, if any, having a value equal to such Damages, as adjusted pursuant to Section 10.4(b), all in accordance with the Escrow Agreement and Section 10.5 below. Amounts paid or distributed from the Escrow Fund shall be paid or distributed pro rata among the Holders (as defined in the Escrow Agreement), subject to Section 10.4(b) hereof, based upon their respective percentage interests therein at the time.

(b) In respect of any payment due from the Escrow Fund under the indemnity contained herein for any Damages (i) such amount shall be determined net of any insurance proceeds or other recoveries actually received by Acquiror on account of the claim or event giving rise to such Damages, and such amount shall be reduced by the present value of the amount of any reduction in federal and state income taxes of Acquiror in one or more of its taxable years resulting from the payment or incurring of such Damages, and (ii) the total amount of Escrow Shares or Escrow Cash to be delivered to Acquiror out of the Escrow Fund shall be equal in value to the amount of Damages less the pro rata portion of such Damages that all of the holders of Target Common Stock having exercised and perfected their dissenters rights pursuant to Section 2.3 hereof would have been responsible for paying if they had not exercised and perfected their dissenters' rights (for example, if 5% of the holders of Target Common Stock

perfect dissenters' rights and the amount of Damages is $100,000, then the Holders will only be liable for 95% of such Damages and only Escrow Shares having a value of $95,000 will be distributed to Acquiror). In determining the present value of any reduction in taxes the rate equal to the rate then established pursuant to Section 6621 of the Code shall be used and the period shall be from the date of payment or incurring of such Damages by Acquiror to the last day for filing Acquiror's federal or state income tax returns for the taxable period in which the reduction in tax may be claimed.

(c) Notwithstanding anything in this Article X to the contrary, Acquiror shall not be entitled to indemnification under this Agreement until the aggregate amount of Damages shall exceed $75,000 in the aggregate, in which case Acquiror shall be entitled to indemnification for such Damages.

(a) In case the Stockholders' Agents shall so object in writing to any claim or claims by Acquiror made in any Officer's Certificate, or to contest the amount of Damages for reasons set forth in Section 10.4(b), Acquiror shall have thirty (30) days to respond in a written statement to the objection of the Stockholders' Agents. If after such thirty (30) day period there remains a dispute as to any claims, the Stockholders' Agents and Acquiror shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims. If the Stockholders' Agents and Acquiror should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and shall distribute the Escrow Shares or Escrow Cash from the Escrow Fund in accordance with the terms of the memorandum.

(b) If no such agreement can be reached after good faith negotiation, either Acquiror or the Stockholders' Agents may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both

parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Within fifteen (15) days after such written notice is sent, Acquiror (on the one hand) and the Stockholders' Agents (on the other hand) shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The decision of the arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 10.3, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance with such decision.

(c) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo County, California under the commercial rules then in effect of the American Arbitration Association. The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative fee of the American Arbitration Association, and the expenses, including, without limitation, the reasonable attorneys' fees and costs, incurred by the prevailing party to the arbitration.

(a) Lawrence W. Greer and Charles K. Porter shall be constituted and appointed as agents (the "Shareholders' Agents") for and on behalf of the Former Target Shareholders to give and receive notices and communications, to authorize delivery to Acquiror of the Escrow Shares, Escrow Cash or other property from the Escrow Fund in satisfaction of claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholders' Agents for the accomplishment of the foregoing. All actions of the Shareholders' Agents shall be taken jointly, not individually. Such agency may be changed by the holders of a majority in interest of the Escrow Shares or Escrow Cash from time to time upon not less than ten (10) days' prior written notice to Acquiror. No bond shall be required of the Shareholders' Agents, and the Shareholders' Agents shall receive no compensation for services. Notices or communications to or from the Shareholders' Agents shall constitute notice to or from each of the Former Target Shareholders.

(b) The Shareholders' Agents shall not be liable for any act done or omitted hereunder as Shareholders' Agents while acting in good faith, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Former Target Shareholders shall severally and pro rata, in accordance with their Pro Rata Portion, but not jointly, indemnify the Shareholders' Agents and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Shareholders' Agents and arising out of or in connection with the acceptance or administration of their duties hereunder under this Agreement or the Escrow Agreement. The Shareholders' Agents shall not be required to take any action permitted or required to be taken by them pursuant to Article X hereof unless they have received satisfactory indemnity (in the form of a bond or other guarantee) from the Former Target Shareholders against the liabilities and expenses that they reasonably anticipate they will incur in connection with the proposed action.

(d) The Former Target Shareholders shall collectively contribute, on a pro rata basis, according to their respective Pro Rata Portion of the Escrow Shares or Escrow Cash, the aggregate amount of any costs, expenses, and disbursements, including, but not limited to, accountant's and attorney's fees and expenses and the cost of investigating and contesting any claims against the Escrow Fund by Acquiror (collectively, "Reimbursable Expenses"), incurred by the Shareholders' Agents in good faith in the performance of their duties. Prior to any release of Escrow Shares or Escrow Cash to the Former Target Shareholders, the Escrow Agent shall notify the Shareholders' Agents in writing of such pending release (the "Release Notice"). Within ten (10) business days following receipt of the Release Notice, the Shareholders' Agents shall certify to the Escrow Agent whether any Reimbursable Expenses remain unpaid as of the date of such certification. In the event any Reimbursable Expenses remain unpaid by one or more Former Target Shareholders, the Escrow Agent shall, on behalf of and for the account of the Former Target Shareholders who have not paid their Pro Rata Portion of the Reimbursable Expenses, sell, as agent for such Former Target Shareholders (for which purpose the Escrow Agent is hereby empowered to act), a sufficient number of Escrow Shares held for such Former Target Shareholders to satisfy their portion of the unpaid Reimbursable Expenses. Upon receipt of the proceeds from such sales of Escrow Shares, the Escrow Agent shall promptly (i) deliver that portion of such proceeds equal in amount to the Reimbursable Expenses owed by the applicable Former Target Shareholders to the Shareholders' Agents and (ii) deliver the remainder of such proceeds, if any, to the Former Target Shareholders for whom such Escrow Shares were sold remaining after paying their portion of the unpaid Reimbursable Expenses.

In the event that the Shareholders' Agents have consented to any such settlement, the Stockholders' Agents shall have no power or authority to object to the amount of any claim by Acquiror against the Escrow Fund for indemnity with respect to such settlement in the amount agreed to.

EXHIBIT D

SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET

1. Except as disclosed in the Target Disclosure Schedule, Target is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama, has all requisite corporate power to own, lease and operate its property and to carry on its business as now conducted.

2. Except as set forth in the Target Disclosure Schedule, the authorized capital stock of Target consists of 1,000,000 shares of Target Common Stock, par value $0.01 per share. There are (a) [375,559] shares of Target Common Stock issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and none of which are subject to repurchase rights, (b) options (the "Target Options") to purchase [47,167] shares of Target Common Stock issued pursuant to Target's 1995 Nonqualified Stock Option Plan of Southern Research Technologies, Inc. and [128,225] shares of Target Common Stock issued pursuant to Target's 1993 Stock Option Plan of Southern BioSystems, Inc. (each a "Target Option Plan") and (c) warrants to purchase [24,174] shares of Target Common Stock issuable pursuant to warrant agreements ("Target Warrants"). All outstanding shares of Target Common Stock, and outstanding Target Options and Target Warrants (collectively "Target Securities") were issued in compliance with applicable federal and state securities laws. To our knowledge, except as set forth above and in the Target Disclosure Schedule, (i) there are no equity securities of any class or series of Target, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding, and (ii) there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which Target is a party or by which it is bound obligating Target to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Target or obligating Target to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement.

3. Target has all requisite corporate power and authority to enter into the Agreement, the Articles of Merger, and the Escrow Agreement and to consummate the transactions contemplated thereby. The Agreement, the Articles of Merger, and the Transaction Documents are collectively referred to herein as the "Opinion Documents." The execution and delivery of the Opinion Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of Target, including the approval of the Merger and the related transactions by Target's shareholders under the provisions of the Alabama Business Corporation Act and Target's Articles of Incorporation and Bylaws. The Opinion Documents have been duly and validly executed and delivered by Target and, assuming due execution and delivery by the other parties thereto, constitute the valid and binding obligations of Target, enforceable against Target in accordance with their respective terms.

4. The execution and delivery by Target of the Opinion Documents and the consummation of the transactions contemplated thereby will not, (i) result in any violation or breach of any provision of the Articles of Incorporation or Bylaws of Target, (ii) to our knowledge, result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any

obligation or loss of any benefit) under any of the terms, conditions or provisions of any Material Contract or any other written contract or agreement listed in the Target Disclosure Schedules as being an obligation of Target, or
(iii) to our knowledge, conflict or violate any governmental permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Target or any of its properties or assets.

5. Except as disclosed in the Target Disclosure Schedule, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required on the part of Target in connection with the execution and delivery of the Opinion Documents or the consummation of the transactions contemplated thereby, except for (i) the filing of the Articles of Merger with the Alabama Secretary of State, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, could be expected to have a Material Adverse Effect on Target.

6. To our knowledge, except as disclosed in the Target Disclosure Schedule, there is no action, proceeding or investigation pending or threatened in writing against Target before any court or administrative agency that questions the validity of the Agreement or that, either in any case or in the aggregate, might result in any materially adverse change in the business or financial condition of Target or any of its properties or assets, or in any material impairment of the right or ability of Target to carry on its business as now conducted, or in any material liability on the part of Target.

EXHIBIT E

SUBJECT MATTER OF OPINION OF COUNSEL TO ACQUIROR

1. Acquiror is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Acquiror and has the corporate power and the authority to own or lease all of its properties and assets and to carry on its business as now conducted.

2. Each of the Agreement, the Articles of Merger and the other Transaction Documents to which Acquiror is a party has been duly and validly authorized by all necessary corporate action on the part of Acquiror and has been duly and validly executed and delivered by Acquiror. The Merger Agreement, the Articles of Merger and the Escrow Agreement constitute (assuming due execution and delivery by the other parties thereto) valid and binding obligations of Acquiror, and each is enforceable against Acquiror in accordance with its terms.

3. Neither the execution, delivery or performance of the Agreement or any of the other Transaction Documents to which it is a party nor the consummation of the transactions contemplated by any thereof will (a) violate any provision of the Certificate of Incorporation or By-laws of Acquiror, (b) to our knowledge and assuming that the Consents referred to in the Agreement are duly obtained, (i) violate, conflict with, result in any breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by or result in the creation of any lien, security interest, charge or other encumbrance upon any of the properties or assets of Acquiror under any contract required to be filed by Acquiror with the Securities and Exchange Commission to which Acquiror is a party, or by which it or any of its respective properties or assets may be bound or affected, except for any such violations, either individually or in the aggregate as would not have a Material Adverse Effect with respect to Acquiror, or (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Acquiror or any of its material properties or assets, except for any such violations, either individually or in the aggregate as would not have a Material Adverse Effect with respect to Acquiror.

4. The Acquiror Common Stock, when issued pursuant to and in accordance with the Agreement, shall be duly authorized, validly issued, fully paid and nonassessable. The Acquiror Common Stock shall not be subject to preemptive rights or liens, encumbrances or any other claims arising out of Acquiror's or Sub's actions or inactions.

5. To our knowledge, other than the Transaction Documents, neither Sub nor its properties or assets is bound by or subject to any contract, lien, security interest, charge or other encumbrance.

6. To our knowledge, neither Sub nor its properties or assets is