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                                                                    Exhibit 4.2

                          OCULEX PHARMACEUTICALS, INC.


                            INVESTOR RIGHTS AGREEMENT







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                                TABLE OF CONTENTS

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SECTION 1.  GENERAL..............................................................1

SECTION 2.  REGISTRATION; RESTRICTIONS ON TRANSFER...............................3
         2.1      Restrictions on Transfer.......................................3
         2.2      Demand Registration............................................4
         2.3      Piggyback Registrations........................................5
         2.4      Form S-3 Registration..........................................6
         2.5      Expenses of Registration.......................................7
         2.6      Obligations of the Company.....................................8
         2.7      Termination of Registration Rights.............................9
         2.8      Delay of Registration; Furnishing Information..................9
         2.9      Indemnification................................................9
         2.10     Assignment of Registration Rights.............................12
         2.11     Amendment of Registration Rights..............................12
         2.12     Subordination.................................................12
         2.13     "Market Stand-Off"Agreement...................................12
         2.14     Rule 144 Reporting............................................13

SECTION 3.  COVENANTS OF THE COMPANY............................................13
         3.1      Basic Financial Information and Reporting.....................13
         3.2      Inspection Rights.............................................14
         3.3      Confidentiality of Records....................................14
         3.4      Reservation of Common Stock...................................14
         3.5      Real Property Holding Corporation.............................14
         3.6      Visitation Rights.............................................14
         3.7      Termination of Covenants......................................15

SECTION 4.  RIGHTS OF FIRST REFUSAL.............................................15
         4.1      Subsequent Offerings..........................................15
         4.2      Exercise of Rights............................................15
         4.3      Issuance of Equity Securities to Other Persons................15
         4.4      Termination of Rights of First Refusal........................16
         4.5      Transfer of Rights of First Refusal...........................16
         4.6      Excluded Securities...........................................16

SECTION 5.  MISCELLANEOUS.......................................................17
         5.1      Governing Law.................................................17
         5.2      Survival......................................................17
         5.3      Successors and Assigns........................................17
         5.4      Entire Agreement..............................................17
         5.5      Severability..................................................17
         5.6      Amendment and Waiver..........................................17


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                                TABLE OF CONTENTS
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         5.7      Delays or Omissions...........................................18
         5.8      Notices.......................................................18
         5.9      Attorneys'Fees................................................18
         5.10     Titles and Subtitles..........................................18
         5.11     Counterparts..................................................18

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                          OCULEX PHARMACEUTICALS, INC.

                            INVESTOR RIGHTS AGREEMENT


         THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ___th day of ____________________, 1997, by and among OCULEX
PHARMACEUTICALS, INC., a California corporation (the "Company") and certain
purchasers of the Company's Series C Preferred Stock ("Series C Stock") set
forth on Exhibit A hereto (as may be updated from time to time in accordance
with Section 5.6(c)). The purchasers of the Series C Stock listed on Exhibit A
hereto shall be referred to hereinafter as the "Investors" and each individually
as an "Investor."


                                    RECITALS

         WHEREAS, the Company proposes to sell and issue up to One Million Five
Hundred Thousand (1,500,000) shares of its Series C Stock pursuant to a Stock
Subscription Agreement (each and collectively, the "Purchase Agreement"); and

         WHEREAS, as a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights,
information rights and other rights as set forth below.

         NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:


SECTION 1.  GENERAL

         1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934,
              as amended.

                  "HOLDER" means any person owning of record Shares or
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 2.10 hereof.

                  "INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock at a per share price not less
than $5.25 per share and for total proceeds of not less than $5.0 million
(before deduction of underwriters' commissions and expenses) registered under
the Securities Act.

                  "REGISTER," "REGISTERED," AND "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.



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<PAGE>



                  "REGISTRABLE SECURITIES" means (i) Common Stock of the Company
issued or issuable upon conversion of the Shares; and (ii) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Section 2 of this Agreement
are not assigned.

                  "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.

                  "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, reasonable fees and disbursements
not to exceed Ten Thousand Dollars ($10,000) of a single special counsel for the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).

                     "SECURITIES ACT" shall mean the Securities Act of 1933, as
              amended.

                  "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.

                  "SHARES" shall mean the Company's Series C Stock issued
pursuant to the Purchase Agreement and held by the Investors listed on Exhibit A
hereto (as updated from time to time) and their permitted assigns.

                  "FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

                     "SEC" OR "COMMISSION" means the Securities and Exchange
              Commission.


SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER

         2.1      RESTRICTIONS ON TRANSFER.

       (a) Each Holder agrees not to make any disposition of all or any portion
of the Shares or Registrable Securities unless and until:



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       (i) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or

       (ii) (A) The transferee has agreed in writing to be bound by the terms of
this Agreement, (B) such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.

       (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by a Holder which is (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a corporation to its
shareholders in accordance with their interest in the corporation, (C) a limited
liability company to its members or former members in accordance with their
interest in the limited liability company, or (D) to the Holder's family
member(s) or any trust for the benefit of an individual Holder or the Holder's
family member(s), provided the transferee will be subject to the terms of this
Agreement to the same extent as if he were an original Holder hereunder.

       (b) Each certificate representing Shares or Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
         OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
         UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
         OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
         SUCH REGISTRATION IS NOT REQUIRED.

       (c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.

       (d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.


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     2.2    DEMAND REGISTRATION.

            (a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an aggregate offering price to
the public in excess of $5,000,000 (a "Qualified Public Offering"), then the
Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 2.2, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.

            (b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
or any request pursuant to Section 2.4 and the Company shall include such
information in the written notice referred to in Section 2.2(a) or Section
2.4(a) as applicable. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2 or Section 2.4, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.

            (c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:

                (i)   prior to its Initial Offering; or

                (ii)  after the Company has effected one (1) registration
pursuant to this Section 2.2, and such registration has been declared or
ordered effective; or

                (iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering; provided
that the Company makes reasonable good faith efforts to cause such registration
statement to become effective;

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       (iv) if within thirty (30) days of receipt of a written request from
Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the
Holders of the Company's intention to make its Initial Offering within ninety
(90) days; or

       (v) if the Company shall furnish to Holders requesting a registration
statement pursuant to this Section 2.2, a certificate signed by the Chairman of
the Board stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period.

         2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, subject to Section 2.3(c) and the other terms
and conditions set forth herein.

                  (a) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder to be included in a registration pursuant to this Section 2.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting.



                                       5
<PAGE>


                  (b) The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 2.3 prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance with Section
2.5 hereof.

                  (c) The piggyback registration rights under this Section
2.3 shall terminate after any of the Holders have included any of their
Registrable Securities in two public offerings of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to employee benefit plans or with respect to corporate reorganizations
or other transactions under Rule 145 of the Securities Act).

         2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:

              (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and

              (b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:

              (i) if Form S-3 (or any successor or similar form) is not
       available for such offering by the Holders, or

              (ii) if the Holders, together with the holders of any other
       securities of the Company entitled to inclusion in such registration,
       propose to sell Registrable Securities and such other securities (if any)
       at an aggregate price to the public of less than $1,000,000, or

              (iii) if the Company shall furnish to the Holders a certificate
       signed by the Chairman of the Board of Directors of the Company stating
       that in the good faith judgment of the Board of Directors of the Company,
       it would be seriously detrimental to the Company and its shareholders for
       such Form S-3 Registration to be effected at such time, in which event
       the Company shall have the right to defer the filing of the Form S-3
       registration statement for a period of not more than ninety (90) days
       after receipt of the request of the Holder or Holders under this Section
       2.4: provided, that such right to delay a request shall be exercised by
       the Company not more than once in any twelve (12) month period, or



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              (iv) if the Company has already effected one (1) registration on
       Form S-3 for the Holders pursuant to this Section 2.4, or

              (v) in any particular jurisdiction in which the Company would be
       required to qualify to do business or to execute a general consent to
       service of process in effecting such registration, qualification or
       compliance.

              (c) Subject to the foregoing, the Company shall file a Form
       S-3 registration statement covering the Registrable Securities and other
       securities so requested to be registered as soon as practicable after
       receipt of the request or requests of the Holders.

         2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.2 or any
registration under Section 2.3 or Section 2.4 herein shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered. The Company shall
not, however, be required to pay for expenses of any registration proceeding
begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders (or the Holder or Holders
who submitted a written request pursuant to Section 2.4) unless (a) the
withdrawal is based upon material adverse information concerning the Company
of which the Initiating Holders (or the Holder or Holders who submitted a
written request pursuant to Section 2.4) were not aware at the time of such
request or (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to one requested registration pursuant to Section 2.2 or
Section 2.4, as applicable, in which event such right shall be forfeited by
all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the
number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
Section 2.2 or Section 2.4 to a demand registration.

         2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

                  (a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days or, if earlier, until the Holder or Holders have completed the distribution
related thereto.

                  (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

                  (c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other


                                       7
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documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.

                  (d) Use all reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

                  (e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

                  (f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

                  (g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.

         2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect three (3) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the
Exchange Act, and (ii) all Registrable Securities held by and issuable to
such Holder may be sold under Rule 144 during any ninety (90) day period.

       2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.


                                       8
<PAGE>


                  (a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.

                  (b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.

                  (c) The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.

         2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:

                  (a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, directors and
legal counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder 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") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company 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 in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer, director, legal
counsel, underwriter or controlling person for 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 2.9(a) 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 Company, which consent shall
not be unreasonably withheld, nor shall the Company 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 Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.


                                       9
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                  (b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder 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, 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
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.9(b) 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 Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.9
exceed the net proceeds from the offering received by such Holder.

                  (c) Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.

                  (d) If the indemnification provided for in this Section
2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying


                                       10
<PAGE>


such indemnified party thereunder, shall to the extent permitted by applicable
law contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability 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
Violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the 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; provided, that in no event
shall any contribution by a Holder hereunder exceed the proceeds from the
offering received by such Holder.

                  (e) The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.

         2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (i) is a subsidiary, parent, general partner, limited partner or
retired partner of a Holder or (ii) is a Holder's family member or trust for
the benefit of an individual Holder, or a Holder's family member or (iii)
acquires at least one hundred thousand (100,000) shares of Registrable
Securities (adjusted for stock splits and combinations); provided however,
(A) the transferor shall, within ten (10) days after such transfer, furnish
to the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights
are being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.

         2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section
2 may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section 2.11 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this Section
2, Holders of Registrable Securities hereby agree to be bound by the
provisions hereunder.

         2.12 SUBORDINATION. Notwithstanding anything herein to the contrary,
the registration rights granted pursuant to Section 2 of the Agreement shall
be subordinate to the registration rights previously granted to existing
shareholders.

         2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities)
of the Company, each Holder shall not sell or otherwise transfer or dispose
of


                                       11
<PAGE>


any Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:

              (i) such agreement shall apply only to the Company's Initial
Offering; and

              (ii) all officers and directors of the Company enter into
similar agreements and the Company uses its best efforts to cause all other
holders of at least 1% of the Company's securities to enter into similar
agreements.

         The obligations described in this Section 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.

         2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:

              (a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities
to the general public;

              (b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;

              (c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.

SECTION 3.  COVENANTS OF THE COMPANY.

         3.1 BASIC FINANCIAL INFORMATION AND REPORTING.

              (a) The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will
set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.

                                       12
<PAGE>


                  (b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within one hundred twenty (120) days
thereafter, the Company will furnish each Investor, owning not less than two
hundred thousand (200,000) shares of Registrable Securities (as adjusted for
stock splits and combinations) (a "Major Investor"), a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company,
for such year, all prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.

                  (c) The Company will furnish each Major Investor, as soon
as practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for the current fiscal year
to date, prepared in accordance with generally accepted accounting principles,
with the exception that no notes need be attached to such statements and
year-end audit adjustments may not have been made.

         3.2 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; provided, however, that the Company
shall not be obligated under this Section 3.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.

         3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.

         3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Preferred Stock, all Common Stock issuable from time to
time upon such conversion.

         3.5 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it
will operate in a manner such that it will not become a "United States real
property holding corporation" as that term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA"). The Company agrees to make determinations as to its status as a
USRPHC, and


                                       13
<PAGE>


will file statements concerning those determinations with the Internal
Revenue Service, in the manner and at the times required under Reg. Section
1.897-2(h), or any supplementary or successor provision thereto. Within 30
days of a request from an Investor or any of its partners, the Company will
inform the requesting party, in the manner set forth in Reg. Section 1.897-
2(h)(1)(iv) or any supplementary or successor provision thereto, whether that
party'S interest in the Company constitutes a United States real property
interest (within the meaning of Internal Revenue Code Section 897(c)(1) and
the regulations thereunder) and whether the Company has provided to the
Internal Revenue Service all required notices as to its USRPHC status.

         3.6 VISITATION RIGHTS. The Company shall allow one representative
designated the Investors to attend all meetings of the Company's board of
directors in a nonvoting capacity.

         3.7 TERMINATION OF COVENANTS. All covenants of the Company contained
in Section 3 of this Agreement shall expire and terminate as to each Investor
on the effective date of the registration statement pertaining to the Initial
Offering.

SECTION 4.  RIGHTS OF FIRST REFUSAL.

         4.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. Each Investor's pro rata share is equal to
the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of
the Shares) which such Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (B) the total number of shares of
the Company's outstanding Common Stock (including all shares of Common Stock
issued or issuable upon conversion of the Shares or upon the exercise of any
outstanding warrants or options) immediately prior to the issuance of the
Equity Securities. The term "Equity Securities" shall mean (i) any Common
Stock, Preferred Stock or other security of the Company, (ii) any security
convertible, with or without consideration, into any Common Stock, Preferred
Stock or other security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to
or purchase any Common Stock, Preferred Stock or other security or (iv) any
such warrant or right.

         4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree
to purchase its pro rata share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written
notice to the Company and stating therein the quantity of Equity Securities
to be purchased. Notwithstanding the foregoing, the Company shall not be
required to offer or sell such Equity Securities to any Investor who would
cause the Company to be in violation of applicable federal securities laws by
virtue of such offer or sale.


                                       14
<PAGE>


         4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of
the Major Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Major
Investors who do so elect and shall offer such Major Investors the right to
acquire such unsubscribed shares (which shall be apportioned among such Major
Investors on a pro rata basis to the extent such Major Investors
oversubscribe for such shares). The Major Investors shall have five (5) days
after receipt of such notice to notify the Company of its election to
purchase all or a portion thereof of the unsubscribed shares. If the
Investors fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Major Investor's rights were not exercised, at a price
and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Major
Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within ninety (90) days of the notice provided pursuant to
Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in
the manner provided above.

         4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Section 4 shall not apply to, and shall terminate
upon the effective date of the registration statement pertaining to the
Company's Initial Offering.

         4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
of each Major Investor under this Section 4 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration
rights pursuant to Section 2.10.

         4.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Section 4 shall have no application to any of the following Equity
Securities:

                  (a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors;

                  (b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;

                  (c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;

                  (d) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;

                  (e) shares of Common Stock issued upon conversion of the
Shares;


                                       15
<PAGE>


              (f) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution;

              (g) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act; and

              (h) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and
other entities, including (A) joint ventures, manufacturing, marketing or
distribution arrangements or (B) technology transfer or development
arrangements; provided that such strategic transactions and the issuance of
shares therein, has been approved by the Company's Board of Directors.

SECTION 5.  MISCELLANEOUS.

         5.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

         5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.

         5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.

         5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof and no party shall
be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein
and therein.

         5.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

         5.6 AMENDMENT AND WAIVER.


                                       16
<PAGE>


                  (a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least a majority of the Registrable Securities.

                  (b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of at least a
majority of the Registrable Securities.

                  (c) Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.

         5.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the
Agreement or any waiver on such Holder's part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under
this Agreement, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.

         5.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the address as set forth on the
signature pages hereof or Exhibit A hereto or at such other address as such
party may designate by ten (10) days advance written notice to the other
parties hereto.

         5.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.

         5.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

         5.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

                                       17
<PAGE>


                      [THIS SPACE INTENTIONALLY LEFT BLANK]




                                       18
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.


COMPANY:                                             INVESTORS:

OCULEX PHARMACEUTICALS, INC.


By:
   -----------------------------------------------------------------------------
         Jerry B. Gin
         President





                                       19
<PAGE>


                                    EXHIBIT A

                              SCHEDULE OF INVESTORS

<TABLE>
<CAPTION>
                                                           Aggregate
Name                            Shares                   Purchase Price
----                            ------                   --------------
<S>                             <C>                      <C>
DBS Capital Investments         190,476                     1,000,000










Total:                          190,476                    $1,000,000
                                                          ============
======================================================================
</TABLE>


                                       20