Exhibit 10.46

Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ***. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

SUCROSE ACETATE ISOBUTYRATE PHARMACEUTICAL GRADE

SUPPLY AGREEMENT

between

EASTMAN CHEMICAL COMPANY

and

DURECT CORPORATION

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List of Attachments

Schedule 1A – SAIB Food Grade Sales Specifications

Schedule 1B – SAIB Pharmaceutical Grade Sales Specifications

Schedule 2 – Confidential Disclosure Agreement (Eastman Form for Audits)

Schedule 3A – SAIB Food Grade Pricing

Schedule 3B – SAIB Pharmaceutical Grade Pricing

Schedule 4 – Confidential Disclosure Agreement (Durect and Eastman)

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SUCROSE ACETATE ISOBUTYRATE PHARMACEUTICAL GRADE SUPPLY AGREEMENT

This Supply Agreement is made as of the 30th day of December, 2005 (Effective
Date), by and between:

Seller

Eastman Chemical Company, a Delaware corporation with a place of business at 200
South Wilcox Drive, Kingsport, TN 37662-5280 (“Eastman”); and

Buyer

Durect Corporation, a company organized and existing under the laws of Delaware
with a place of business at 10260 Bubb Road - Bldg. A, Cupertino, CA 95014
(“Durect”)

Background

0.1 Durect desires to use a compound which is known as sucrose acetate
isobutyrate (“SAIB”) as a pharmaceutical excipient for drug formulations.

0.2 Eastman currently produces sucrose acetate isobutyrate food grade which is
manufactured under food current Good Manufacturing Practices. Ultimately Durect
desires a supply of sucrose acetate isobutyrate pharmaceutical grade which would
be manufactured under [* * *].

0.3 Subject to the terms and conditions hereof, the parties agree that Eastman
will manufacture and supply SAIB-FG and subsequently SAIB-PG to Durect for use
and sale. The Eastman manufacturing site designated for manufacture of these
materials is [* * *].

Article 1

Definitions

1.1 “Specifications” shall be exclusively defined in Schedules 1A and 1B which
include the sales specifications for SAIB, or which are subsequently amended
pursuant to Article 4.3(a) hereof or by written agreement of the parties.

1.2 “Affiliate” or “Affiliates” shall be understood to mean any corporation or
other legal entity controlling, controlled by or under common control of an
organization, through

 

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the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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stock ownership or other equity interest, direct or indirect. For the purposes
of this definition, control means ownership or the power to direct the voting
activities of more than fifty percent (50%) of the voting stock of, or similar
ownership in or to, an organization.

1.3 [* * *]

1.4 “DMF” shall mean a Type IV drug master file filed with the FDA which
includes the information relating to the manufacture of SAIB-PG.

1.5 “Product(s)” shall either collectively or individually mean SAIB-FG or
SAIB-PG.

1.6 SAIB-FG shall mean sucrose acetate isobutyrate food grade as set forth in
Schedule 1A.

1.7 SAIB-PG shall mean sucrose acetate isobutyrate pharmaceutical grade as set
forth in Schedule 1B.

Article 2

Process change and cost recovery

2.1 Product Qualification. Eastman will validate the process to produce SAIB [*
* *] and file a DMF with the U.S. Food and Drug Administration (“FDA”) (as
further defined below) on or about [* * *] after the Effective Date of this
Agreement provided that payments as outlined in Section 2.4, Cost Recovery have
been completed as outlined in Section 2.4. This timeline shall be extended if [*
* *]. In the case of [* * *]. Prior to [* * *]. Commencing from the time of [* *
*]. Furthermore, third parties which have a contractual relationship with Durect
for use of Product (“Durect Licensees”) shall also be allowed to [* * *]
provided that in Durect’s contract with such Durect Licensee, such Durect
Licensee provides to Durect acknowledgements, representations, warranties and
indemnities no less stringent than provided by Durect to Eastman under Article 7
herein and such Durect Licensee shall be subject to terms relating to the
disclosure and use of confidential information no less stringent than applicable
to Durect in Article 9 herein.

2.2 Drug Master File. Eastman will allow Durect and Durect Licensees the right
to reference the DMF [* * *].

 

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Subject to an acceptable agreement between parties in regard to specific
countries, timing and cost [* * *]. [* * *]

Upon request, Eastman will [* * *]. Eastman shall retain the right to [* * *]

2.3 [* * *]

2.4 Cost recovery. Eastman will invest capital estimated at [* * *] (“Estimated
Capital Amount”) and will provide technical resources estimated at [* * *]
(“Estimated Technical Resource Amount”) for process validation and DMF
submission.

 

  •   Durect shall pay the Estimated Capital Amount. This payment will be due
within [* * *] of complete execution of this Agreement. Eastman will not
initiate the capital purchase process unless and until the above referenced
payment has been received. [* * *] Durect will have the right to conduct an
audit through a third party auditor that is acceptable to Eastman which has
executed an acceptable confidentiality agreement with Eastman solely to verify
the Actual Capital Amount. The cost of such audit shall be at Durect’s expense,
unless the audit identifies an overcharge of more than [* * *], in which event,
the cost of such audit shall be borne by Eastman.

 

  •   Payment of the Estimated Technical Resource Amount, less [* * *]. Eastman
will invoice Durect for this amount which would be due within [* * *] of the
invoice date. Failure of Durect to pay any correct invoice within the
appropriate time period shall entitle Eastman to [* * *].

[* * *] In the event that Durect exercises its rights under this paragraph,
Eastman would provide Durect with [* * *].

 

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Article 3

Term and Exclusivity

3.1 Term. The term of this Agreement shall commence on the date written on the
first page, and unless terminated in accordance with the terms of this
Agreement, shall expire upon [* * *] (“Initial Term”). Durect shall notify
Eastman when
[* * *]. [* * *]

3.2 Renewals. The Agreement may be renewed for successive [* * *] terms. At
least [* * *] prior to the end of the Initial Term or [* * *] prior to the end
of a Renewal Term, Durect may, by notice hereunder, elect to request that the
Term be renewed for a [* * *] (“Renewal Term”). Provided that [* * *] , this
Agreement shall be extended for a Renewal Term.
[* * *]

3.3 [* * *]

Article 4

Quality Control and Testing

4.1 Acceptance and Return.

a) [* * *]

b) [* * *]

c) [* * *]

 

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d) [* * *]

4.2 [* * *]

4.3 Inspections

(a) Inspections and Audits by Durect. Eastman shall allow Durect up to [* * *]
audit per [* * *] which shall be shall be limited to [* * *] . The length of the
[* * *] audit shall not exceed [* * *] . The limit of [* * *] audit [* * *] may
be increased if an audit is needed for cause, as agreed by both parties and such
agreement shall not be unreasonably withheld. Durect, and not customers of
Durect, would complete these audits. Durect shall give an advance notice of at
least [* * *] prior to performing a [* * *] audit. Durect will conduct the audit
in a fashion that would not be disruptive to manufacturing processes.
Furthermore, the right of Durect to conduct any such inspections of Product(s)
shall be conditioned upon Durect’s agreement to abide by all health, safety and
security requirements and other reasonable requests and limitations applicable
to visitors to Eastman’s facilities. [* * *]

Auditors from Durect shall execute a confidentiality agreement, which form is
attached as Schedule 2. [* * *]

 

Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ***. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

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Following such audits, Durect will submit a report to Eastman with any findings.
If any items are identified as requiring follow-up action, then Eastman shall
respond to Durect in writing within [* * *] of the receipt of the report. [* *
*]

Furthermore, before [* * *]; at the time of [* * *]; and just prior to the [* *
*], Durect will perform an audit to review the [* * *] in place for SAIB PG. The
parties shall form a joint team to address and agree upon [* * *]. This team
shall be formed and hold its first meeting within [* * *] after the Effective
Date of this Agreement. [* * *]

(b) [* * *]

(c) [* * *]

4.4 [* * *].

Article 5

Forecasts and Ordering

5.1 Forecasting. Durect will provide a rolling [* * *] forecast at the beginning
of each [* * *]. If [* * *], the [* * *] of such forecast shall represent a firm
commitment to purchase the

 

Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ***. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

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amounts forecasted within the period forecasted, and [* * *], Durect agrees to
[* * *]. Any applicable [* * *]. If [* * *] of such forecast shall represent a
firm commitment to purchase the amounts forecasted.

5.2 Purchase Orders and Confirmation. Durect shall give Eastman a firm order of
its requirements for Product(s) at least [* * *] prior to the required delivery
date. Each firm order shall specify the quantity of Product(s) ordered and the
required delivery date. Eastman will confirm its ability to meet the quantity
and delivery date within [* * *]. This Agreement sets forth the terms and
conditions applicable to purchase orders issued during the term of this
Agreement. This Agreement supersedes in its entirety all of the pre-printed
purchase order terms and conditions appearing on Durect’s purchase order forms.

5.3 Shipment. As confirmed in Section 5.2, Eastman shall deliver to Durect
Product(s) in the quantities and by the delivery date set forth in the purchase
orders referred to in Section 5.2. All Product(s) sold to Durect hereunder shall
be shipped, at Durect’s election, to either: (i) [* * *]; or (ii) [* * *]. All
SAIB shipped to Durect hereunder shall be shipped as [* * *].

5.4 Purchase Quantities. In addition to purchases of Product(s), during the
Initial Term, Durect agrees to [* * *]

Durect further agrees to purchase [* * *] of its requirements, which are
estimated not to exceed [* * *], from Eastman during the term of the Agreement.
Durect’s failure to purchase [* * *] of their requirements shall represent a
material breach of this Agreement. [* * *] quantities beyond [* * *] would
require additional discussion and agreement in order to [* * *]. Furthermore,
such additional discussion and agreement must occur at least [* * *] prior to
Durect’s need for such additional quantities.

 

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Article 6

Prices and Payment Terms

6.1 Price. In consideration for the supply of Product(s) undertaken by Eastman
hereunder, Eastman shall receive payment from Durect pursuant to the terms and
conditions set out in Schedules 3A and 3B hereto.

6.2 Payment Terms. Durect shall settle each invoice received from Eastman within
[* * *] from date of such invoice. Payments hereunder shall be in U. S. Dollars
(USD), shall be paid to Eastman’s account specified in writing to Durect from
time to time hereunder, and shall be subject to such additional payment terms
and conditions as may be set forth in Schedule 3 hereto.

6.3 No Setoff. All payments to Eastman by Durect hereunder shall be made free
and clear of, and without deduction for, any withholding, discount, offset or
other deduction of any kind, except as expressly authorized in advance by
Eastman in writing.

Article 7

Liabilities

7.1 Warranty and Disclaimer. Each party represents and warrants to the other
party that: (a) it has the power and authority to enter into this Agreement and
perform its obligations hereunder; and (b) it has all governmental licenses,
permits and authorizations necessary to fulfill its obligations under this
Agreement. Eastman represents and warrants that the Product(s) are manufactured
to the Specifications attached hereto. [* * *]. In addition, Eastman represents
and warrants that: (i) [* * *]; (ii) [* * *]; and (iii) [* * *]. OTHER THAN AS
SET FORTH HEREIN, NEITHER PARTY MAKES ANY OTHER WARRANTIES, EXPRESS OR IMPLIED,
SPECIFICALLY EXCLUDED ARE THE WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
THE IMPLIED WARRANTY OF MERCHANTABILITY. Durect acknowledges that [* * *].
Durect represents to Eastman that (1) [* * *], 2) [* * *], 3) [* * *].
Furthermore, Durect assumes [* * *]. Durect represents to Eastman that (1) [* *
*], 2) [* * *]. Furthermore, Durect assumes [* * *].

7.2 Indemnity. Durect agrees to indemnify and hold harmless Eastman, its
employees, officers, directors, and agents from and against all liabilities,
claims, demands, causes of action, including governmental action, costs and
expenses (including reasonable attorneys’ fees and

 

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expenses) brought by any third party, including, but not limited to Durect
Licensees, arising out of or in connection with [ * * *]

7.3 [ * * *] Indemnity. Durect agrees to indemnify Eastman against all damages,
costs and expenses resulting from [ * * *].

Article 8

Termination

8.1 Termination.

(a) Bankruptcy. In the event either party shall be unable to pay its bills as
they become due in the ordinary course, or if a trustee or receiver of any of
its property shall be appointed for either party, or if either party shall make
any assignment for the benefit of creditors, or if a petition in bankruptcy
shall be filed by or against either party, or if either party shall liquidate
its business for any reason, then the other party shall have the right to
terminate this Agreement [ * * *] upon notice.

(b) Breach. If one of the parties materially breaches this Agreement and such
breach either is not curable or is not cured within [ * * *] after notice of the
breach by the non-breaching party (or, if the breach is not capable of cure
within [ * * *], the breaching party has not commenced a cure within [ * * *]
after such notice and has not cured such breach as soon thereafter as possible,
but in no case longer than [ * * *], then the non-breaching party may terminate
this Agreement effective [ * * *] upon notice hereunder, such termination
subject in addition to the provisions of Section 8.2 hereof. Notwithstanding the
foregoing, in the event that Durect desires to terminate this Agreement due to a
material breach not cured by Eastman, Durect may [ * * *]

(c) [ * * *]

8.2 Consequences of Termination. The termination or expiration of this Agreement
shall not relieve either party of any obligations and liability for any monies
due to the other or accrued before and up to the time of such termination or
expiration which have not been credited or otherwise repaid, nor shall it
relieve either party of the post-termination obligations imposed by this
Agreement.

8.3 Survival. Notwithstanding anything herein to the contrary, the provisions of
Sections 4.1; 4.2; 4.4; 7; 8.1(b); 8.2; 9; and 10.2 hereof shall survive any
expiration or termination of this Agreement. [ * * *]

 

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Article 9

Intellectual Property

9.1 Confidential Information. Eastman and Durect agree that during the Initial
Term all Confidential Information (as defined herein) disclosed to the receiving
party or its Affiliates (herein collectively the Receiving Party) by the other
party or its Affiliates (herein collectively the Disclosing Party) shall be
deemed to be confidential and shall be treated as such by the Receiving Party
and shall not be disclosed, in whole or in part, by the Receiving Party to
anyone else (except to those of the Receiving Party’s employees who are bound to
the Receiving Party by like obligations of confidentiality or as required by law
or as required for regulatory purposes) and shall be used only for the purposes
of this Agreement. In safeguarding such information, the Receiving Party will
exercise the same diligent and thorough care throughout said period as it would
with its own confidential information.

(a) Definition of Confidential Information. “Confidential Information” means:

(1) all information disclosed pursuant to the Confidential Disclosure Agreement
dated [ * * *] and subsequent renewals, between the parties (the [ * * *] CDA”),
attached hereto as Schedule 4, which information is “Information” as defined in
the [ * * *] CDA; and

(2) all [ * * *] information disclosed to a Receiving Party by a Disclosing
Party on or after [ * * *], that is disclosed to the Receiving Party in a
Document (as defined herein) labeled as confidential at the time of disclosure
or, that if disclosed to the Receiving Party in a form other than a document,
that is identified by the Disclosing Party as having been disclosed and
confidential in writing within [ * * *] of disclosure. Confidential Information
does not include any information which:

(i) [ * * *], or

(ii) [ * * *], or

(iii) [ * * *] or

 

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(iv) [ * * *].

(b) Document. The term “Document” includes the original or any copy of any book,
record, report, memorandum, paper, communication, tabulation, chart or other
document. It also includes all letters, words or numbers, or their equivalent,
set down by handwriting, typewriting, printing, photostatting, photographing,
magnetic or optical impulse, mechanical or electronic recording or other form of
data compilation. It also includes still photographs, x-ray films, videotapes
and motion pictures.

(c) Exclusions. Notwithstanding anything herein to the contrary, a party may
disclose the Confidential Information of the other party without the prior
written consent of the other party as follows:

[ * * *]

 

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as required [ * * *] by law, rule, regulation, legal process or judicial order,
provided that such party has used reasonable efforts to obtain or to assist the
other in obtaining the highest level of confidentiality obligation with respect
to such other party’s Confidential Information, if any, that any agency or other
recipient is willing to assume to protect Confidential Information and that such
party has provided the other party with reasonably prompt notice of the
disclosure.

9.2 Public Announcements. The parties hereby agree to use reasonable efforts to
keep the existence and content of this Agreement strictly confidential, until
such time as Eastman and Durect shall have otherwise agreed in writing;
provided, however, that, the existence and content of the Agreement may be
disclosed by a party without the prior consent of the other party: [ * * *] as
required by applicable law or regulation; [ * * *] in connection with the
enforcement of this Agreement; [ * * *]; as shall be necessary for governmental
notification purposes or as otherwise required by applicable law.

Article 10

General Provisions

10.1 Force Majeure. Eastman shall not be deemed to be in breach hereof on
account of any delay in delivery or other performance caused in whole or in part
by, or otherwise materially related to, the occurrence of any contingency beyond
Eastman’s control, including but not limited to: war or hostility; failure or
delay on land, water or air transportation; act of any government or agency,
subdivision or branch thereof; judicial action; strikes or other labor disputes;
accident, fire, explosion, flood, storm or other acts of God; shortage of labor,
fuel, power, inventory or machinery; delay or failure to perform by any
supplier; mechanical breakdown or equipment failure; or, in general, any other
contingency whatsoever (whether similar or dissimilar to those set forth herein)
where Eastman has exercised reasonable care in the prevention thereof.

 

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10.2 Effects of Force Majeure. In the event of any contingency as described
hereunder, [ * * *]

10.3 Notices. All notices, requests, reports, demands and other communications
made or given under the terms of this Agreement or in connection herewith shall
be in writing and shall be either personally delivered, transmitted by postage
prepaid registered mail, or by telecopy (confirmed in writing by postage prepaid
registered mail), and shall be addressed to the appropriate party at the
addresses set forth below. Any notice, request, demand or other communication
given or made pursuant to this Section shall be deemed effective: (i) in the
case of personal delivery, on the date of delivery and (ii) in the case of mail
delivery, on the date which is [ * * *] after the mailing thereof.

If to Eastman:

Eastman Chemical Company

Attn: [ * * *]

P. O. Box 431

200 South Wilcox Drive

Kingsport, Tennessee 37662

With a copy to:

Eastman Chemical Company

Attn: Chief Legal Officer

P.O. Box 511, B-75

Kingsport, TN 37660

If to Durect:

Durect Corporation

Attn: General Counsel

10260 Bubb Road - Bldg. A

Cupertino, CA 95014-4166

 

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10.4 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the state of [ * * *], without regard
to its provisions concerning conflicts or choice of law.

10.5 Non-Waiver of Rights. The failure by either party at any time to enforce
any of the provisions of this Agreement shall not be construed as a waiver of
such provisions or any other provisions hereof. The exercise by either party of
any of its rights herein or at law or in equity shall not preclude or prejudice
such party from exercising any other rights provided herein or at law or in
equity.

10.6 Entire Agreement - Modifications. This Agreement supersedes all prior
agreements, oral or written, between the parties hereto and contains the entire
and only agreement between the parties regarding the subject matter hereof
(except as otherwise expressly provided herein), and any representation, terms
or conditions relating thereto or in connection therewith, oral or in writing,
not incorporated herein will not be binding upon either party. For avoidance of
doubt, the [ * * *] CDA shall govern confidentiality obligations prior to the
Effective Date of this Agreement, and this Agreement shall govern
confidentiality obligations thereafter. No modification, termination, notice of
termination or discharge of this Agreement or any of the provisions hereof nor
any representation, promise or condition relating to this Agreement will be
binding unless made in writing with express reference to this Agreement, signed
by both parties. Notwithstanding anything herein to the contrary, the parties
may amend any of the Schedules hereto at any time during the Term by executing a
version thereof dated after the then-current version, and signed by both
parties. All of the Schedules, and any amendments thereto made pursuant to this
Section, are a part of this Agreement and are hereby incorporated herein.

10.7 Agreement Precedence. In the event of any conflict between this Agreement
and any purchase order form or other agreements which may be entered into by the
parties and/or their Affiliates governing the same matters set forth herein,
this Agreement will take precedence, unless such subsequent agreement
specifically refers to this Agreement and indicates that such subsequent
agreement will take precedence over this Agreement.

 

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10.8 Assignment. [ * * *]

10.9 Partial Invalidity. Should any one provision to this Agreement be invalid
or void in whole or in part, the parties shall substitute the invalid provision
by a valid provision which achieves as much as possible the purport, sense and
economic purpose of the invalid provision. The remaining provisions of this
Agreement shall not be affected by the nullity/invalidity of individual
provisions and shall remain in full force and effect unless such invalid
provision(s) are of such essential importance to this Agreement that the parties
could not be reasonably expected to have concluded the Agreement without the
invalid provision(s).

10.10 Contractor Status. Eastman is an independent contractor and nothing herein
contained and no course of dealing between the parties will create or be deemed
to create an agency, partnership, joint venture or any other relationship,
fiduciary or otherwise between the parties hereto. Except as otherwise expressly
indicated herein, neither party is granted any right or authority to assume or
to create an obligation or responsibility, express or implied, on behalf of or
in the name of the other in any manner whatsoever.

10.11 Insurance. [ * * *]

 

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

 

Eastman Chemical Company

(Eastman)

By:  

/S/    

  [ * * *] Title:   [ * * *]

 

Durect Corporation

(Durect)

By:  

/S/    JAMES E. BROWN

  James E. Brown Title:   President & CEO

 

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Schedule 1A

SAIB Food Grade Sales Specifications

[ * * *]

 

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Schedule 1B

SAIB Pharmaceutical Grade Sales Specifications

[ * * *]

 

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the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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Schedule 2

Confidential Disclosure Agreement (Eastman Form)

[ * * *]

 

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the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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Schedule 3A

SAIB Food Grade Pricing

[ * * *]

 

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Schedule 3B

SAIB Pharmaceutical Grade Pricing

[ * * * ]

 

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the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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Schedule 4

Confidential Disclosure Agreement

[ * * * ]

 

*** Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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