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                                                                   EXHIBIT 10.7

                            ATRIX LABORATORIES, INC.
                1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

         1. PURPOSES OF THE PLAN. The purposes of this stock incentive plan are
to attract and retain the best available Non-Employee Directors, to provide
them additional incentives, and to promote the success of the Company's
business.

         2. DEFINITIONS. As used herein, the following definitions shall apply:

                  (a) "Administrator" means the Board or any of the Committees
         appointed to administer the Plan.

                  (b) "Affiliate" and "Associate" shall have the respective
         meanings ascribed to such terms in Rule 12b-2 promulgated under the
         Exchange Act.

                  (c) "Applicable Laws" means the legal requirements relating
         to the administration of stock incentive plans, if any, under
         applicable provisions of federal securities laws, state corporate and
         securities laws, the Code, the rules of any applicable stock exchange
         or national market system, and the rules of any foreign jurisdiction
         applicable to Awards granted to residents therein.

                  (d) "Award" means the grant of an Option, Restricted Stock,
         Shares or other rights or benefits under the Plan.

                  (e) "Award Agreement" means the written agreement evidencing
         the grant of an Award executed by the Company and the Grantee,
         including any amendments thereto in the form attached hereto as
         Exhibit A.

                  (f) "Board" means the Board of Directors of the Company.

                  (g) "Business Day" means each Monday, Tuesday, Wednesday,
         Thursday and Friday that is not a day on which the stock exchanges
         and/or the Nasdaq National Market are closed.

                  (h) "Chairman" means the Non-Employee Director who serves as
         Chairman of the Board.

                  (i) "Change in Control" means a change in ownership or
         control of the Company effected through either of the following
         transactions:

                           (i) the direct or indirect acquisition by any person
                  or related group of persons (other than an acquisition from
                  or by the Company or by a Company-sponsored employee benefit
                  plan or by a person that directly or indirectly controls, is
                  controlled by, or is under common control with, the Company)
                  of beneficial ownership (within the meaning of Rule 13d-3 of
                  the Exchange Act) of

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                  securities possessing more than fifty percent (50%) of the
                  total combined voting power of the Company's outstanding
                  securities pursuant to a tender or exchange offer made
                  directly to the Company's stockholders, which a majority of
                  the Continuing Directors who are not Affiliates or Associates
                  of the offeror do not recommend such stockholders accept; or

                           (ii) a change in the composition of the Board over a
                  period of thirty-six (36) months or less such that a majority
                  of the Board members (rounded up to the next whole number)
                  ceases, by reason of one or more contested elections for
                  Board membership, to be comprised of individuals who are
                  Continuing Directors.

                  (j) "Code" means the Internal Revenue Code of 1986, as
         amended.

                  (k) "Committee" means any committee appointed by the Board to
         administer the Plan

                  (l) "Common Stock" means the common stock, $.001 par value,
         of the Company.

                  (m) "Company" means Atrix Laboratories, Inc., a Delaware
         corporation.

                  (n) "Consultant" means any person who is engaged by the
         Company or any Related Entity to render consulting or advisory
         services as an independent contractor and is compensated for such
         services.

                  (o) "Continuing Directors" means members of the Board who
         either (i) have been Board members continuously for a period of at
         least thirty-six (36) months or (ii) have been Board members for less
         than thirty-six (36) months and were elected or nominated for election
         as Board members by at least a majority of the Board members described
         in clause (i) who were still in office at the time such election or
         nomination was approved by the Board.

                  (p) "Continuous Service" means that the Grantee's service as
         a Director is not interrupted or terminated. The Continuous Service of
         a Grantee shall not be considered interrupted or terminated in the
         case of (i) any approved leave of absence or (ii) terminating service
         as a Director followed within thirty (30) days of such termination by
         commencing service to the Company or a Related Entity as an Employee
         or a Consultant until the time such service as an Employee or
         Consultant is terminated. An approved leave of absence shall include
         sick leave, military leave, or any other authorized personal leave.

                  (q) "Corporate Transaction" means any of the following
         transactions:

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                           (i) a merger or consolidation in which the Company
                  is not the surviving entity, except for a transaction the
                  principal purpose of which is to change the state in which
                  the Company is incorporated;

                           (ii) the sale, transfer or other disposition of all
                  or substantially all of the assets of the Company (including
                  the capital stock of the Company's subsidiary corporations)
                  in connection with the complete liquidation or dissolution of
                  the Company;

                           (iii) any reverse merger in which the Company is the
                  surviving entity but in which securities possessing more than
                  fifty percent (50%) of the total combined voting power of the
                  Company's outstanding securities are transferred to a person
                  or persons different from those who held such securities
                  immediately prior to such merger; or

                           (iv) any person or related group of persons (other
                  than the Company or by a Company-sponsored employee benefit
                  plan) who becomes the beneficial owner (within the meaning of
                  Rule 13d-3 of the Exchange Act) of securities possessing more
                  than fifty percent (50%) of the total combined voting power
                  of the Company's outstanding securities (whether or not in a
                  transaction also constituting a Change in Control), but
                  excluding any such transaction that the Administrator
                  determines shall not be a Corporate Transaction.

                  (r) "Director" means a member of the Board.

                  (s) "Disability" means that a Grantee is unable to serve as a
         Director by reason of any medically determinable physical or mental
         impairment. A Grantee will not be considered to have incurred a
         Disability unless he or she furnishes proof of such condition
         sufficient to satisfy the Administrator, in its sole discretion.

                  (t) "Employee" means any person, including an Officer or
         Director, who is an employee of the Company or any Related Entity. The
         payment of a director's fee by the Company shall not be sufficient to
         constitute "employment" by the Company.

                  (u) "Exchange Act" means the Securities Exchange Act of 1934,
         as amended.

                  (v) "Fair Market Value" means, as of any date, the value of
         Common Stock determined as follows:

                           (i) Where there exists a public market for the
                  Common Stock, the Fair Market Value shall be (A) the closing
                  price for a Share for the last market trading day prior to
                  the time of the determination (or, if no closing price was
                  reported on that date, on the last trading date on which a
                  closing price was reported) on the stock exchange determined
                  by the Administrator to be the primary market for the Common
                  Stock or the Nasdaq National Market, whichever is applicable
                  or (B) if the Common Stock is not traded on any such exchange
                  or national market system,

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                  the average of the closing bid and asked prices of a Share on
                  the Nasdaq Small Cap Market for the day prior to the time of
                  the determination (or, if no such prices were reported on
                  that date, on the last date on which such prices were
                  reported), in each case, as reported in The Wall Street
                  Journal or such other source as the Administrator deems
                  reliable; or

                           (ii) In the absence of an established market of the
                  type described in (i), above, for the Common Stock, the Fair
                  Market Value thereof shall be determined by the Administrator
                  in good faith.

                  (w) "Grantee" means a Non-Employee Director who receives an
         Award under the Plan.

                  (x) "Non-Employee Director" means a Director who is not an
         Employee.

                  (y) "Non-Qualified Stock Option" means an Option not intended
         to qualify as an incentive stock option within the meaning of Section
         422 of the Code.

                  (z) "Officer" means a person who is an officer of the Company
         within the meaning of Section 16 of the Exchange Act and the rules and
         regulations promulgated thereunder.

                  (aa) "Option" means a stock option granted pursuant to the
         Plan.

                  (bb) "Performance Plan" means the Company's Amended and
         Restated Performance Stock Option Plan, as amended.

                  (cc) "Plan" means this 1999 Non-Employee Director Stock
         Incentive Plan.

                  (dd) "Related Entity" means any parent, subsidiary and any
         business, corporation, partnership, limited liability company or other
         entity in which the Company, a parent or a subsidiary holds a
         substantial ownership interest, directly or indirectly.

                  (ee) "Restricted Stock" means Shares issued under the Plan to
         the Grantee for such consideration, if any, and subject to such
         restrictions on transfer, rights of first refusal, repurchase
         provisions, forfeiture provisions, and other terms and conditions as
         established under the Plan or by the Administrator.

                  (ff) "Rule 16b-3" means Rule 16b-3 promulgated under the
         Exchange Act or any successor thereto.

                  (gg) "Share" means a share of the Common Stock.

3.       STOCK SUBJECT TO THE PLAN.

                  (a) Subject to the provisions of Section 10 below, the
         maximum aggregate number of Shares which may be issued pursuant to all
         Awards is 25,000 Shares. The

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         Shares to be issued pursuant to Awards may be authorized, but
         unissued, or reacquired Common Stock. Notwithstanding anything
         contained in this Section 3(a) to the contrary, all Options awarded
         under the Automatic Option Grant Program shall be made under the
         Performance Plan and shall not constitute Shares granted or Awarded
         under this Plan. With respect to such Options, in the event a conflict
         arises between the terms and provisions of this Plan and the
         Performance Plan, the terms and provisions of the Performance Plan
         shall control.

                  (b) Any Shares covered by an Award (or portion of an Award)
         which is forfeited or canceled, expires or is settled in cash, shall
         be deemed not to have been issued for purposes of determining the
         maximum aggregate number of Shares which may be issued under the Plan.
         If any unissued Shares are retained by the Company upon exercise of an
         Award in order to satisfy the exercise price for such Award or any
         withholding taxes due with respect to such Award, such retained Shares
         subject to such Award shall become available for future issuance under
         the Plan (unless the Plan has terminated). Shares that actually have
         been issued under the Plan pursuant to an Award shall not be returned
         to the Plan and shall not become available for future issuance under
         the Plan, except that if unvested Shares are forfeited, or repurchased
         by the Company at their original purchase price, such Shares shall
         become available for future grant under the Plan.

4.       ADMINISTRATION OF THE PLAN.

                  (a) Plan Administrator.

                           (i) Administration. The Plan shall be administered
                  by (A) the Board or (B) a Committee designated by the Board,
                  which Committee shall be constituted in such a manner as to
                  satisfy the Applicable Laws and to permit such grants and
                  related transactions under the Plan to be exempt from Section
                  16(b) of the Exchange Act in accordance with Rule 16b-3. Once
                  appointed, such Committee shall continue to serve in its
                  designated capacity until otherwise directed by the Board.

                           (ii) Administration Errors. In the event an Award is
                  granted in a manner inconsistent with the provisions of this
                  subsection (a), such Award shall be presumptively valid as of
                  its grant date to the extent permitted by the Applicable
                  Laws.

                  (b) Powers of the Administrator. Subject to Applicable Laws
         and the provisions of the Plan (including any other powers given to
         the Administrator hereunder), and except as otherwise provided by the
         Board, the Administrator shall have the authority, in its discretion:

                           (i) to approve forms of Award Agreement for use
                  under the Plan;

                           (ii) to determine the terms and conditions
                  consistent with the terms of the Plan of any Award granted
                  hereunder;

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                           (iii) to amend the terms of any outstanding Award
                  granted under the Plan, including a reduction in the exercise
                  price (or base amount on which appreciation is measured) of
                  any Award to reflect a reduction in the Fair Market Value of
                  the Common Stock since the grant date of the Award, provided
                  that any amendment that would adversely affect the Grantee's
                  rights under an outstanding Award shall not be made without
                  the Grantee's written consent;

                           (iv) to construe and interpret the terms of the Plan
                  and Awards granted pursuant to the Plan; and

                           (v) to take such other action, not inconsistent with
                  the terms of the Plan, as the Administrator deems
                  appropriate.

         (c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.

5.       AUTOMATIC OPTION GRANT PROGRAM.

         (a) Eligibility. Each Non-Employee Director shall be entitled to
receive Options to acquire Shares upon the terms and conditions of this
Automatic Option Grant Program.

         (b) Date of Grant and Number of Shares. Immediately following each
annual meeting of the Company's stockholders, commencing with the 1999 Annual
Stockholders Meeting, each Non-Employee Director who continues as a
Non-Employee Director following such annual meeting shall be granted
automatically a Non-Qualified Stock Option to purchase 4,000 (5,000 in the case
of the Chairman) Shares ("Option Grant"). Each such Option Grant shall be made
on the first Business Day after the date of the annual stockholders' meeting in
question.

         (c) Vesting. Each Option Grant shall vest and become exercisable as to
one-third (1/3) of the Shares subject to such Option twelve (12) months after
the grant date and an additional one-third (1/3) of the shares of Common Stock
subject to such Option shall vest on each yearly anniversary of the grant date
thereafter, such that the Option will be fully exercisable three (3) years
after its date of grant.

         (d) Corporate Transactions/Changes in Control.

                  (i) In the event of a Corporate Transaction, immediately
         prior to the specified effective date of such Corporate Transaction,
         each Option Grant which is at the time outstanding automatically shall
         become fully vested and exercisable as to all of the Shares subject to
         such Option. Effective upon the consummation of the Corporate
         Transaction, all outstanding Options under the Plan shall terminate.
         However, all such Options shall not terminate if the Options are
         assumed by the successor corporation or parent thereof in connection
         with the Corporate Transaction.

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                  (ii) In the event of a Change in Control (other than a Change
         in Control which also is a Corporate Transaction), immediately prior
         to the specified effective date of such Change in Control, each Option
         Grant which is at the time outstanding automatically shall become
         fully vested and exercisable as to all of the Shares subject to such
         Option.

         (e) Exercise of Option Following Termination of Service. In the event
of termination of a Grantee's Continuous Service for any reason other than
Disability or death, such Grantee may, but only within three (3) months after
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Award Agreement), exercise his or
her Option to the extent that the Grantee was entitled to exercise it at the
date of such termination or to such other extent as may be determined by the
Administrator. If the Grantee should die within three (3) months after the date
of such termination, the Grantee's estate or the person who acquired the right
to exercise the Option by bequest or inheritance may exercise the Option to the
extent that the Grantee was entitled to exercise it at the date of such
termination within twelve (12) months of the Grantee's date of death, but in no
event later than the expiration date of the term of such Option as set forth in
the Award Agreement.

         (f) Disability of Grantee. In the event of termination of a Grantee's
Continuous Service as a result of his or her Disability, such Grantee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Award Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that the Grantee is
not entitled to exercise the Option at the date of termination, or if Grantee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.

         (g) Death of Grantee. In the event of the death of a Grantee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement), by the Grantee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Grantee was entitled to exercise the Option at
the date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Grantee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time
specified herein, the Option shall terminate.

         (h) Term of Option. The term of each Option awarded under this
Automatic Option Grant Program shall be ten (10) years from the date of grant
thereof.

         (i) Transferability of Option. Each Option awarded under this
Automatic Option Grant Program shall be transferable to the extent provided in
the Performance Plan.

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         (j) Exercise Price. The exercise price for each Option awarded under
this Automatic Option Grant Program shall be one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.

         (k) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise of an Option under this
Automatic Option Grant Program shall be the following:

                  (i) cash;

                  (ii) check;

                  (iii) surrender of Shares or delivery of a properly executed
         form of attestation of ownership of Shares as the Administrator may
         require (including withholding of Shares otherwise deliverable upon
         exercise of the Option) which have a Fair Market Value on the date of
         surrender or attestation equal to the aggregate exercise price of the
         Shares as to which said Option shall be exercised (but only to the
         extent that such exercise of the Option would not result in an
         accounting compensation charge with respect to the Shares used to pay
         the exercise price unless otherwise determined by the Administrator);
         or

                  (iv) any combination of the foregoing methods of payment.

         (l) Other Method of Payment. In lieu of paying the consideration in
the manner set forth in Section 5(k) above, the Grantee may also receive Shares
to be issued upon exercise of an Option through the delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price.

6.       STOCK FEE PROGRAM.

         (a) Eligibility. Commencing with the 1999 Stockholders Meeting, each
Non-Employee Director will receive an annual retainer fee ("Retainer Fee"). The
Retainer Fee will become due and payable in four equal quarterly installments
on a date determined by the Company. Each Non-Employee Director shall be
eligible to elect to apply all or any portion of the Retainer Fee otherwise
payable to such individual in cash to the acquisition of shares of Restricted
Stock or the receipt of Options upon the terms and conditions of this Section 6
and Sections 7 and 8.

         (b) Election Procedure.

                  (i) Filing. A Non-Employee Director must make an election to
         receive shares of Restricted Stock or Options prior to the first
         calendar day of the quarterly period for which the election is to be
         effective. The first quarter for which any such election may be filed
         shall be the first quarter commencing on the

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         first full month after the 1999 Annual Stockholders Meeting. Each
         election, once filed, shall be revocable prior to the start of the
         next quarter for which the election is to be effective. Thereafter,
         the election is irrevocable. The election for any upcoming quarter may
         be filed at any time prior to the start of that quarter, but in no
         event later than the last day of the immediately preceding quarter. A
         Non-Employee Director may file a standing election to be in effect for
         two (2) or more consecutive quarters or to remain in effect
         indefinitely until revoked by written instrument filed with the
         Administrator prior to the start of the first quarter for which such
         standing election is no longer to remain in effect.

                  (ii) Election Form. To receive Options or shares of
         Restricted Stock in lieu of cash payment of the Retainer Fee or
         meeting fees, a Non-Employee Director must execute an election notice
         in substantially the form attached hereto as Exhibit B. On the
         election notice, a Non-Employee Director must indicate the percentage
         or dollar amount of his or her Retainer Fee and/or his or her meeting
         fees to be applied to the acquisition of shares of Restricted Stock or
         Options.

7.       ISSUANCE OF RESTRICTED STOCK.

         (a) Issue Date for Annual Retainer Fee in Restricted Stock. On the
first Business Day following the date any portion of the Retainer Fee is
otherwise due to be paid, in a quarter for which a Non-Employee Director has
elected to receive all or a portion of his or her Retainer Fee in Restricted
Stock, the portion of the Retainer Fee subject to such election shall
automatically be applied to the acquisition of shares of Restricted Stock
determined by dividing the elected dollar amount by the Fair Market Value per
share on such date. The number of issuable shares of Restricted Stock shall be
rounded down to the next whole share. The shares of Restricted Stock shall be
held by the Secretary or Assistant Secretary of the Company as partly-paid
shares until the Non-Employee Director vests in those shares. The Non-Employee
Director shall have full stockholder rights, including voting, dividend and
liquidation rights, with respect to all issued shares held in escrow on his or
her behalf, but such shares shall not be assignable or transferable while they
remain unvested.

         (b) Vesting of Restricted Stock. The Restricted Stock acquired under
this Section 7 shall vest and become exercisable as to one-third (1/3) of the
shares of Restricted Stock upon completion of one (1) full calendar month of
Board service and an additional one-third (1/3) of such shares shall vest upon
completion of each full calendar month of Board Service thereafter, such that
the Restricted Stock will be fully exercisable at the end of the applicable
quarterly period. Upon vesting, the stock certificate for those shares shall be
released from escrow. Immediate vesting in all the issued shares of Restricted
Stock shall occur in the event (i) the Non-Employee Director should die or
become Disabled while such individual remains in Continuous Service or (ii)
there should occur a Corporate Transaction or Change in Control while such
individual remains in Continuous Service. Should such individual cease
Continuous Service prior to vesting in one or more monthly installments of the
issued shares of Restricted Stock, then those unvested shares of

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Restricted Stock shall be cancelled by the Company, and the Non-Employee
Director shall not be entitled to any cash payment or other consideration from
the Company with respect to the cancelled shares of Restricted Stock and shall
have no further stockholder rights with respect to such shares.

         (c) Issue Date for Meeting Shares. On the first Business Day following
any meeting, in a quarter for which a Non-Employee Director has elected to
receive all or a portion of his or her Retainer Fee in Restricted Stock, the
portion of the meeting fee subject to such election shall automatically be
applied to the acquisition of shares of Restricted Stock by dividing the
elected dollar amount by the Fair Market Value per share on such date. The
number of issuable shares of Restricted Stock shall be rounded down to the next
whole share, and such shares shall be issued as soon as practicable to the
Non-Employee Director.

8.       OPTION ISSUANCE.

         (a) Issue Date for Annual Retainer Fee Options. On the first Business
Day following the date any portion of the Retainer Fee is otherwise due to be
paid (the "Grant Date"), in a quarter for which a Non-Employee Director has
elected to receive all or a portion of his or her Retainer Fee in Options (the
"Option Fee Amount"), the portion of the Retainer Fee subject to such election
shall automatically be applied to a grant of an Option to purchase Shares. The
number of Shares subject to such Option shall equal the quotient of (x) the
Option Fee Amount, divided by (y) the value of an option to purchase one (1)
Share as determined on the Grant Date using the Black-Scholes option pricing
model. The number of Shares subject to such option shall be rounded down to the
next whole Share.

         In applying the Black-Scholes option pricing model the following
variables shall apply:

                  (i) the risk free rate of return shall be the long-term
         Treasury bill rate in effect on the Grant Date;

                  (ii) the assumed dividend rate shall be that in effect on the
         Grant Date:

                  (iii) the volatility shall be determined on the basis of the
         Common Stock's volatility over the four calendar years preceding the
         Grant Date; and

                  (iv) any other variables as may be established by the
         Committee.

         (b) The price per share of the Common Stock subject to such Option
shall not be less than 100% of the Fair Market Value per share on the Grant
Date.

         (c) Vesting of Annual Retainer Options. Each Option Grant under this
Section 8 shall vest and become exercisable as to one-third (1/3) of the Shares
subject to such Option upon completion of one (1) full calendar month of full
Board service and an

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additional one-third (1/3) of the Shares subject to such Option shall vest upon
completion of each full calendar month of Board Service thereafter, such that
the Option will be fully exercisable at the end of the applicable quarterly
period. Immediate vesting in all of the Shares subject to Option shall occur in
the event (i) the Non-Employee Director should die or become Disabled while
such individual remains in Continuous Service or (ii) there should occur a
Corporate Transaction or Change in Control while such individual remains in
Continuous Service. Should such individual cease Continuous Service prior to
vesting in one (1) or more monthly installments of the Shares subject to such
Option, those unvested Shares shall be cancelled by the Company, and the
Non-Employee Director shall not be entitled to any cash payment or other
consideration from the Company with respect to the cancelled Shares.

         (d) Issue Date for Meeting Shares. On the first Business Day following
any meeting, in a quarter for which a Non-Employee Director has elected to
receive all or a portion of his or her Retainer Fee in Options, the portion of
the meeting fee subject to such election shall automatically be applied to the
grant of an Option to purchase Shares in accordance with Section 8(a) above.
The Option shall be fully vested on the Grant Date.

         (e) Additional Provisions. The provisions contained in Sections 5(e),
(f), (g), (h), (i) and (k) shall govern Options granted under this Section 8.

9.       CONDITIONS UPON ISSUANCE OF SHARES.

         (a) Satisfaction of Applicable Laws. Shares shall not be issued
pursuant to the exercise of an Award unless the exercise of such Award and the
issuance and delivery of such Shares pursuant thereto shall comply with all
Applicable Laws, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.

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

         (b) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.

10.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, the exercise price of each

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such outstanding Award, as well as any other terms that the Administrator
determines require adjustment shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, merger, consolidation, acquisition of the property or equity
securities of the Company, any separation of the Company (including a spin-off
or other distribution of equity securities or property of the Company),
reorganization (whether or not such reorganization comes within the definition
of Code Section 368), partial or complete liquidation, or any other similar
event resulting in an increase or decrease in the number of issued Shares.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the number or price of Shares subject to an Award.

11.      EFFECTIVE  DATE AND TERM OF PLAN.  The Plan shall become effective
upon its adoption by the Board. It shall continue in effect for a term of ten
(10) years unless sooner terminated. Awards may be granted under the Plan upon
its becoming effective.

12.      AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.

         (a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.

         (b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.

         (c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards
already granted, and such Awards shall remain in full force and effect as if
the Plan had not been amended, suspended or terminated, unless mutually agreed
otherwise between the Grantee and the Administrator, which agreement must be in
writing and signed by the Grantee and the Company.

13.      RESERVATION OF SHARES.

         (a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

         (b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.

                                      12

<PAGE>   13

                                   EXHIBIT A

                            ATRIX LABORATORIES, INC.

                1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION AWARD

         Grantee's Name and Address:
                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

You have been granted an option to purchase shares of Common Stock of the
Company, subject to the terms and conditions of this Notice of Stock Option
Award (the "Notice"), the Plan or the Performance Plan (where applicable), and
the Stock Option Award Agreement (the "Option Agreement") attached hereto, as
follows:

Award Number
                                                 ------------------------------

Date of Award                                    _______________, 1999

Vesting Commencement Date                        _______________, 1999

Exercise Price per Share                         $_____

Total Number of Shares subject
to the Option                                    __________

Total Exercise Price                             $_________

Type of Option:                                  Non-Qualified Stock Option

Expiration Date:                                 _______________, 200__

Vesting Schedule:

Subject to the Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan, or the Performance Plan (where applicable) and the
Option Agreement, the Option may be exercised, in whole or in part, in
accordance with the following schedule:

One-third (1/3) of the Shares subject to the Option shall vest [twelve months]
[one month] after the Vesting Commencement Date, and an additional one-third
(1/3) of the Shares subject to the Option shall vest on each [yearly
anniversary] [monthly anniversary] of the Vesting Commencement Date thereafter.

                                      A-1

<PAGE>   14

Termination Period:

The Option may be exercised within three (3) months from termination of the
Grantee's Continuous Service or such longer period as may be applicable upon
death or Disability of the Grantee as provided in the Option Agreement.

IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and
agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, the Performance Plan (where applicable), and the Option
Agreement.

                                     Atrix Laboratories, Inc.,
                                     a Delaware corporation

                                     By:
                                         --------------------------------------

                                     Title:
                                             ----------------------------------

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). THE
GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE OPTION
AGREEMENT, OR THE COMPANY'S 1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN OR
AMENDED AND RESTATED PERFORMANCE STOCK OPTION PLAN, AS AMENDED, SHALL CONFER
UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE.

The Grantee acknowledges receipt of a copy of the Plan, the Performance Plan
(where applicable) and the Option Agreement, and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions hereof and thereof. The Grantee has
reviewed this Notice, the Plan, the Performance Plan (where applicable) and the
Option Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Notice, and fully understands all provisions
of this Notice, the Plan, the Performance Plan (where applicable) and the
Option Agreement. The Grantee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions arising under this Notice, the Plan, the Performance Plan (where
applicable) or the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.

Dated:                                         Signed:
       -------------------------------                  -----------------------
                                                                 Grantee

                                      A-2

<PAGE>   15

AWARD NUMBER: ______________

                            ATRIX LABORATORIES, INC.

                1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

         1. GRANT OF OPTION. Atrix Laboratories, Inc., a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (Initial Grant) (the "Notice"), an option (the
"Option") to purchase the Total Number of Shares of Common Stock subject to the
Option (the "Shares") set forth in the Notice, at the Exercise Price per Share
set forth in the Notice (the "Exercise Price") subject to the terms and
provisions of the Notice, this Stock Option Award Agreement (the "Option
Agreement") and the Company's 1999 Non-Employee Director Stock Incentive Plan
(the "Plan") or, where applicable, the Amended and Restated Performance Stock
Option Plan, as amended (the "Performance Plan") both as adopted by the
Company, which are incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan or the Performance Plan, as applicable,
shall have the same defined meanings in this Option Agreement.

         2. EXERCISE OF OPTION.

                  (a) Right to Exercise. The Option shall be exercisable during
         its term in accordance with the Vesting Schedule set out in the Notice
         and with the applicable provisions of the Plan or the Performance
         Plan, as applicable, and this Option Agreement. The Option shall be
         subject to the provisions of Section 5(d) or Section 8(d) of the Plan
         or Article XIV of the Performance Plan, as applicable, relating to the
         exercisability or termination of the Option in the event of a
         Corporate Transaction or Change in Control. No partial exercise of the
         Option may be for less than the lesser of five percent (5%) of the
         total number of Shares subject to the Option or the remaining number
         of Shares subject to the Option. In no event shall the Company issue
         fractional Shares.

         3. Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall
be signed by the Grantee and shall be delivered in person or by certified mail
to the Secretary of the Company accompanied by payment of the Exercise Price.
The Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.

         No Shares will be issued pursuant to the exercise of the Option unless
such issuance and such exercise shall comply with all Applicable Laws. Assuming
such compliance, for income tax purposes, the Shares shall be considered
transferred to the Grantee on the date on which the Option is exercised with
respect to such Shares.

                                      A-3

<PAGE>   16

                  (a) Taxes. No Shares will be delivered to the Grantee or
         other person pursuant to the exercise of the Option until the Grantee
         or other person has made arrangements acceptable to the Administrator
         for the satisfaction of foreign, federal, state and local income and
         employment tax withholding obligations.

         4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law:

                  (a) cash;

                  (b) check; or

                  (c) surrender of Shares or delivery of a properly executed
         form of attestation of ownership of Shares as the Administrator may
         require (including withholding of Shares otherwise deliverable upon
         exercise of the Option) which have a Fair Market Value on the date of
         surrender or attestation equal to the aggregate Exercise Price of the
         Shares as to which the Option is being exercised (but only to the
         extent that such exercise of the Option would not result in an
         accounting compensation charge with respect to the Shares used to pay
         the exercise price).

         In lieu of paying the consideration in the manner set forth in this
Section 4, the Grantee may also receive Shares to be issued upon exercise of an
option through the delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the Exercise Price.

         5. RESTRICTIONS ON EXERCISE. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would
constitute a violation of any Applicable Laws.

         6. TERMINATION OF CONTINUOUS SERVICE. In the event the Grantee's
Continuous Service terminates, the Grantee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise the
Option during the Termination Period set out in the Notice. Except as provided
in Sections 7 and 8, below, to the extent that the Grantee was not entitled to
exercise the Option on the Termination Date, or if the Grantee does not
exercise the Option within the Termination Period, the Option shall terminate.

         7. DISABILITY OF GRANTEE. In the event the Grantee's Continuous
Service terminates as a result of his or her Disability, the Grantee may, but
only within twelve (12) months from the Termination Date (and in no event later
than the Expiration Date), exercise the Option to the extent he or she was
otherwise entitled to exercise it on the Termination Date. To the extent that
the Grantee is not entitled to exercise the Option on the Termination Date, or
if the Grantee does not exercise the Option to the extent so entitled within
the time specified herein, the Option shall terminate.

                                      A-4

<PAGE>   17

         8. DEATH OF GRANTEE. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Termination Period, the Grantee's estate, or a
person who acquired the right to exercise the Option by bequest or inheritance,
may exercise the Option, but only to the extent the Grantee could exercise the
Option at the date of termination, within twelve (12) months from the date of
such termination (but in no event later than the Expiration Date). To the
extent that the Grantee is not entitled to exercise the Option on the date of
death, or if the Option is not exercised to the extent so entitled within the
time specified herein, the Option shall terminate.

         9. TRANSFERABILITY OF OPTION. The Option may be transferred by the
Grantee in a manner and to the extent acceptable to the Administrator and,
where applicable, in the manner set forth in the Performance Plan, as evidenced
by a writing signed by the Company and the Grantee. The terms of the Option
shall be binding upon the executors, administrators, heirs and successors of
the Grantee.

         10. TERM OF OPTION. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

         11. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option Agreement of some of the federal tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES.

                  (a) Exercise of Non-Qualified Stock Option. On exercise of a
         Non-Qualified Stock Option, the Grantee will be treated as having
         received compensation income (taxable at ordinary income tax rates)
         equal to the excess, if any, of the Fair Market Value of the Shares on
         the date of exercise over the Exercise Price.

                  (b) Disposition of Shares. In the case of a Non-Qualified
         Stock Option, if Shares are held for more than one year, any gain
         realized on disposition of the Shares will be treated as long-term
         capital gain for federal income tax purposes and subject to tax at a
         maximum rate of 20%.

         12. ENTIRE AGREEMENT: GOVERNING LAW. The Notice, the Plan, the
Performance Plan, (where applicable) and this Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and the Grantee with respect to the subject matter hereof, and may not
be modified adversely to the Grantee's interest except by means of a writing
signed by the Company and the Grantee. These agreements are to be construed in
accordance with and governed by the internal laws of the State of Colorado
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Colorado to the rights and duties of the parties. Should any provision
of the Notice or this Option Agreement be determined by a court of law to be
illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.

                                      A-5

<PAGE>   18

         13. HEADINGS. The captions used in the Notice and this Option
Agreement are inserted for convenience and shall not be deemed a part of the
Option for construction or interpretation.

         14. INTERPRETATION. Any dispute regarding the interpretation of the
Notice, the Plan, the Performance Plan (where applicable) and this Option
Agreement shall be submitted by the Grantee or by the Company forthwith to the
Administrator, which shall review such dispute at its next regular meeting. The
resolution of such dispute by the Administrator shall be final and binding on
all persons.

                                      A-6

<PAGE>   19

                                   EXHIBIT A
                            ATRIX LABORATORIES, INC.

                1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

                                EXERCISE NOTICE

Atrix Laboratories, Inc.
2579 Midpoint Drive
Fort Collins, CO 80525
Attention: Secretary

         EXERCISE OF OPTION. Effective as of today,_______ ,__ the undersigned
(the "Grantee") hereby elects to exercise the Grantee's option to purchase _____
shares of the Common Stock (the "Shares") of Atrix Laboratories, Inc. (the
"Company") under and pursuant to the Company's 1999 Non-Employee
Director Stock Incentive Plan (the "Plan") or, where applicable, the Amended and
Restated Performance Stock Option Plan, as amended (the "Performance Plan") and
the Non-Qualified Stock Option Award Agreement (the "Option Agreement") and
Notice of Stock Option Award (Initial Grant) (the "Notice") dated _____________,
______.

         REPRESENTATIONS OF THE GRANTEE. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, the Performance
Plan (where applicable) and the Option Agreement and agrees to abide by and be
bound by their terms and conditions.

         RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan or the Performance Plan (where
applicable).

         DELIVERY OF PAYMENT. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares.

         TAX CONSULTATION. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition
of the Shares. The Grantee represents that the Grantee has consulted with any
tax consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company
for any tax advice

         TAXES. The Grantee agrees to satisfy all applicable federal, state and
local income and employment tax withholding obligations and herewith delivers
to the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations.

                                      A-7

<PAGE>   20

         SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.

         HEADINGS. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction
or interpretation.

         INTERPRETATION. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by the Grantee or by the Company forthwith
to the Administrator, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on all persons.

         GOVERNING LAW; SEVERABILITY. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of Colorado
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Colorado to the rights and duties of the parties. Should any provision
of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.

         NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

         FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

         ENTIRE AGREEMENT. The Notice, the Plan, the Performance Plan (where
applicable) and the Option Agreement are incorporated herein by reference, and
together with this Exercise Notice constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Grantee
with respect to the subject matter hereof, and may not be modified adversely to
the Grantee's interest except by means of a writing signed by the Company and
the Grantee.

                                      A-8

<PAGE>   21

Submitted by:                          Accepted by:

GRANTEE:                               ATRIX LABORATORIES, INC.

                                       By:
                                            -----------------------------------
                                       Title:
----------------------------------             --------------------------------
             (Signature)

Address:                               Address:

                                       2579 Midpoint Drive
----------------------------------
                                       Fort Collins, CO 80525
----------------------------------

                                      A-9

<PAGE>   22
                                   EXHIBIT B

                                ELECTION NOTICE

                            ATRIX LABORATORIES, INC.
                1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
                       STOCK IN LIEU OF CASH FEE ELECTION

Commencing with the 1999 Annual Stockholders Meeting, I understand that
pursuant to the provisions of the Atrix Laboratories, Inc. (the "Company") 1999
Non-Employee Director Stock Incentive Plan (the "Plan") or where applicable,
the Amended and Restated Performance Stock Option Plan, as amended (the
"Performance Plan"), I may elect to apply all or a portion of the annual
retainer fee and meeting fees otherwise payable in cash to me for service on
the Board of Directors to the acquisition of Restricted Stock or Options.
Pursuant to this form, I hereby elect to apply my annual retainer fee and
meeting fees to receive shares of Restricted Stock or Options pursuant to the
terms set forth in the Plan or the Performance Plan, as applicable:

                                    Cash             __________%

                                    Options          __________%

                                    Restricted Stock __________%

                                    Total                   100%
                                                     ==========

This election applies to:

            [ ]    Annual Retainer Fee

            [ ]    Meeting Fees

Unless otherwise selected below, this election will remain in effect for all
future quarterly periods unless revoked.

If you do not want a standing election for each quarterly period of service on
the Board of Directors check one of the following two alternatives (and
complete if needed):

            [ ]   This election will be effective only for the next quarterly
period.

            [ ]   This election will be effective for the next quarterly period
                  and _____ quarterly periods thereafter.

I understand that my election with respect to the next quarterly period is
revocable until the last day of the immediately preceding quarter (i.e., April
30 for the quarterly period commencing on May 1, 1999 and ending July 31,
1999). Thereafter, my election for the quarterly period is irrevocable. Any
election for later quarterly periods may be revoked prior to the last day of
the immediately preceding quarter for which a standing election is no longer to
remain in effect.

Date: __________, 1999                           ------------------------------
                                                 Director's Name [Please Print]

                                                 ------------------------------
                                                 Director's Signature

                                      B-1<PAGE>   1
                                                                   EXHIBIT 10.12

                           PERSONAL SERVICES AGREEMENT

                  This Personal Services Agreement (the "Agreement") is entered
into this 10th day of August, 1999 by and between Atrix Laboratories, Inc., a
Delaware corporation (the "Company") with its principal place of business at
2579 Midpoint Drive, Fort Collins, Colorado 80525, and David R. Bethune
("Executive") with his address at 6646 East Crested Saguaro Lane, Scottsdale,
Arizona 85262 to be effective as of August 3, 1999 (the "Effective Date").

                                    PREMISES

                  WHEREAS, the Company desires to employ Executive pursuant to
the terms and conditions and for the consideration set forth in this Agreement
and Executive desires to enter the employ of the Company pursuant to such terms
and conditions and for such consideration;

                  WHEREAS, the provisions of this Agreement are a condition of
Executive being employed by Company, of Executive's having access to
confidential business and technological information, and of Executive's being
eligible to receive certain benefits of the Company. This Agreement is entered
into, and is reasonably necessary, to protect confidential information and
customer relationships to which Executive may have access, and to protect the
goodwill and other business interests of the Company; and

                  WHEREAS, the provisions of this Agreement are also a condition
to Executive's agreement to provide personal services to Company.

                  NOW THEREFORE, in consideration of the mutual promises and
covenants agreed to herein, the receipt and sufficiency of which are hereby
acknowledged, Company and Executive agree as follows:

                                    AGREEMENT

         1. Position, Term, Duties, Responsibilities

                  a. Position. Executive shall be employed by the Company as its
interim Chief Executive Officer at the Company's current place of business in
Fort Collins, Colorado.

                  b. Duties. Executive shall faithfully and diligently render
such services and perform such related duties and responsibilities as are
customarily performed by a person holding such title and as otherwise may, from
time to time, be reasonably assigned to Executive by the Company's Board of
Directors. Executive shall comply with the provisions of this Agreement and
shall at all times be subject to such Company policies and procedures including,
but not limited to, a Company code of conduct, as the Company may from time to
time establish as pertaining to Executive.

                  c. Term. This Agreement shall be for a term beginning on the
Effective Date and terminating the earlier of (i) December 31, 1999 (the
"Expiration Date"), or (ii) the date on which Executive's employment is
terminated pursuant to Section 3 of this Agreement (the "Term"); provided that
the term shall be automatically extended on a month to month basis

<PAGE>   2

indefinitely thereafter until either party shall have given notice to the
contrary (the "Term Termination Notice"), in which event the Term shall expire
on the date specified in such Term Termination Notice.

                  d. Other Activities. Executive agrees to devote substantially
all of its business time and energies to the business and affairs of the Company
as is reasonably required to fulfill his duties and responsibilities. Nothing
contained in this Section 1(d) shall be deemed to prevent or limit Executive's
right to make wholly passive investments in securities of any entity which he
does not control, directly or indirectly. Further, nothing herein shall be
deemed to preclude Executive from continuing to serve on the board of directors
of any business, corporation or any charitable organization in which he now
serves or from serving or seeking to serve on the board of directors of other
businesses, corporations or charitable organizations; provided, however such
additional services shall have been disclosed to the Company in writing or
subject to the prior approval of the Company's Board of Directors and such
activities do not materially interfere with the performance of Executive's
duties hereunder.

                  e. Proprietary Information. Executive agrees to comply with
the terms and conditions of the standard Company Employee Proprietary
Information and Inventions Agreement, which is annexed to this Agreement and
referred to as ("Exhibit A") to this Agreement.

         2. Compensation, Bonuses and Benefits

                  a. Base Salary. During Executive's employment with the
Company, the Company shall pay Executive a base monthly salary, (the "Base
Salary") of Twenty-One Thousand Two Hundred and Fifty Dollars ($21,250.00) per
month. The Base Salary shall be payable in accordance with the Company's normal
payroll schedule, less all applicable tax withholdings for state and federal
income taxes, FICA and other deductions as required by law and/or authorized by
the Executive.

                  b. Incentive Compensation Program. During Employee's
employment with the Company, Employee shall be entitled to participate in such
incentive compensation programs as are from time to time established and
approved by Company's Board of Directors in accordance with the Company's
practice for similarly situated employees.

                  c. Benefits. In consideration for the stock grant provided for
in Section 2(d), Executive waives any right to and agrees that Executive shall
not be entitled to participate in any employee benefit plans which the Company
provides or may establish from time to time for the benefit of employees.

                  d. Stock Grant. During Executive's employment with the
Company, Executive shall have the right to purchase and the Company shall sell
to Executive up to 50,000 shares of the Company's $.001 par value common stock
("Common Stock") at a price per share equal to (i) the closing price of the
Common Stock for the last market trading date prior to the time of the
determination (or, if no closing price was reported on that date, on the last
trading date on which a closing price was reported) on the stock exchange
determined by the Company to be the primary market for the Common Stock or the
Nasdaq National Market, whichever is applicable,

                                       2
<PAGE>   3

or (ii) if the Common Stock is not traded on any such exchange or national
market system, the average of the closing bid and ask prices of a share of
Common Stock on the Nasdaq SmallCap Market for the day prior to the time of the
determination (or if no such prices were reported on that date, on the last date
on which such prices were reported) in each case as reported in The Wall Street
Journal or such other source as the Company deems reliable. In consideration for
entering into this Agreement and the Executive's agreement to waive Executive's
right to participate in the Company's employee benefit plans, which employee
benefits the Executive would otherwise be entitled to receive, the Company shall
issue to Executive one share of Common Stock for each share of Common Stock
Executive purchases pursuant to the terms of this Section 2(d).

                  e. Costs and Expenses. Executive shall be entitled to
reimbursement for all ordinary reasonable out-of-pocket business expenses which
are reasonably incurred by him in the furtherance of the Company's business, in
accordance with the policies adopted from time to time by the Company or the
Company's Board of Directors including, but not limited to, the following:

                           (i) Reasonable temporary living expenses in Fort
Collins, Colorado up to a maximum amount of $24,000 through the earlier of (A)
the Expiration Date or (B) up to a total of twelve (12) months from the
Effective Date;

                           (ii) Reasonable expenses for roundtrips between
Arizona and Colorado up to a maximum of six (6) roundtrips per month.

                  Executive will comply with the Company's travel policies as
established from time to time by the Company or the Company's Board of
Directors.

          3. Termination

                  a. For Cause by the Company. Executive's employment may be
terminated for "Cause." For purposes of this Agreement, "Cause" shall mean: (i)
the Executive's willful and continued failure substantially to perform his
duties hereunder (other than as a result of total or partial incapacity due to
physical or mental illness), (ii) the conviction of, or plea of guilty or nolo
contendere by the Executive to a charge of any felony under the laws of the
United States or any state thereof or crime involving moral turpitude, (iii)
breach of any covenants contained in this Agreement and/or (iv) the Executive's
acting in an intentional manner which is reasonably likely to be materially
detrimental or damaging to the Company's reputation, business, operations or
relations with employees, suppliers and customers.

                  If Executive is terminated for Cause prior to the Expiration
Date, he shall be entitled to receive his then current Base Salary pursuant to
Section 2(a) through the date of termination. Thereafter, Executive shall not be
entitled to receive, and Company shall not be obligated to provide Executive
with any additional salary, payments or benefits of any kind.

                  b. Termination by Death of Executive. Executive's employment
with the Company shall terminate upon the death of the Executive. In the event
Executive's employment is terminated by death, Executive's designated
beneficiary shall be entitled to receive: (i) his then

                                       3
<PAGE>   4

current Base Salary through the termination date; and (ii) the proceeds of any
life insurance policy offered by the Company.

                  c. Termination by Disability of Executive. To the extent
allowable under existing law, Executive's employment with Company shall
terminate upon Executive's incapacity by reason of accident, sickness or other
circumstance which renders Executive mentally or physically incapable of
performing the duties and services required hereunder (collectively
"Disability"). In the event Executive's employment is terminated by Disability,
Executive shall be entitled to receive his current Base Salary pursuant to
Section 2(a) through the date of termination due to Disability. Thereafter,
Executive shall not be entitled to receive, and the Company shall not be
obligated to provide Executive with any additional salary, payments or benefits
of any kind.

                  d. Termination of Executive by Company Without Cause. Company
may terminate Executive's employment without cause at any time for any reason
prior to the Expiration Date without notice. In the event the Company terminates
Executive's employment under this Section 3(d), the Company shall pay to
Executive his then current Base Salary through the date of termination.
Thereafter Executive shall not be entitled to receive, and the Company shall not
be obligated to provide Executive with any additional salary, payments or
benefits of any kind.

                  e. Voluntary Termination by Executive. If Executive
voluntarily terminates his employment prior to the Expiration Date, Executive
shall receive his then current Base Salary through the date of termination.
Thereafter, Executive shall not be entitled to receive, and the Company shall
have no obligation to provide Executive with any additional salary, payments or
benefits of any kind.

                  f. Termination by Expiration Date. In the event Executive's
employment is terminated by the occurrence of the Expiration Date, the Company
shall have no obligation to pay Executive or provide Executive with benefits of
any kind beyond the Expiration Date. In the event that Executive remains
employed by Company beyond the Expiration Date, Executive shall be considered an
at-will employee.

                  g. Notice of Termination. With the exception of termination by
the Expiration Date, any purported termination of employment shall be
communicated through written notice indicating the specific provision in this
Agreement relied upon.

          4. Restrictive Covenants

                  a. Nonsolicitation of Employees. During the term of this
Agreement, and for a period of one (1) year thereafter, Executive will not
directly or indirectly solicit or induce, or aid any other entity or person in
soliciting or inducing, or knowingly permit any entity directly or indirectly
controlled by him to solicit or induce, any person who is, or during the last
six months of Executive's employment by the Company was, an officer, director,
executive, consultant or employee of the Company or any of its affiliates or any
of its existing or future subsidiaries to leave the employment or association
with the Company, its affiliate or subsidiary, to become

                                       4
<PAGE>   5

employed or retained by any other entity or to participate in the establishment
of any other business.

                  b. Injunction. Executive agrees that in addition to the
remedies the Company may seek and obtain pursuant to this Agreement, the period
during which the non-solicitation covenant contained in this Section 4 applies
shall be extended by any and all periods during which Executive shall be found
by a court possessing personal jurisdiction over him to have been in violation
of the covenants contained in this Section 4.

          5. Termination Obligations of Executive

                  a. Return of the Company's Property. Executive hereby
acknowledges and agrees that all personal property, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents, or materials, or copies thereof, and equipment
furnished to or prepared by Executive in the course of or incident to
Executive's employment, belong to the Company and shall be promptly returned to
the Company upon termination of Executive's employment.

                  b. Representations, Obligations and Warranties Survive
Termination of Employment. The representations, obligations and warranties
contained in Sections 1(e), 4, 5, 6, 7, 10, 11, 12, 13 14 and 15 of this
Agreement as well as the terms and conditions of Exhibit A of this Agreement
shall survive Executive's termination of employment with the Company.

                  c. Cooperation in Pending Work. Executive agrees to fully
cooperate with the Company in all matters relating to the winding up of pending
work on behalf of the Company and the orderly transfer of work to other
employees of the Company following any termination of Executive's employment.
Executive shall also cooperate in the resolution of any dispute, including
litigation of any action, involving the Company that relates in any way to
Executive's activities while employed by the Company.

          6. Alternative Dispute Resolution

                  The Company and Executive mutually agree that any controversy
or claim arising out of or relating to this Agreement or the breach thereof, or
any other dispute between the parties relating in any way to Executive's
employment with the Company or the termination of that relationship, including
disputes arising under the common law and/or any federal or state statutes, laws
or regulations, shall be submitted to mediation before a mutually agreeable
mediator, which cost is to be borne equally by the parties. In the event
mediation is unsuccessful in resolving the claim or controversy, such claim or
controversy shall be resolved exclusively by arbitration. The claims covered by
this Agreement ("Arbitrable Claims") include, but are not limited to, claims for
wages or other compensation due; claims for breach of any contract (including
this Agreement) or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to, race, sex, religion, national
origin, age, marital status, medical condition, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state, or other law, statute,

                                       5
<PAGE>   6

regulation, or ordinance, except claims excluded in the following paragraph. The
parties hereby waive any rights they may have to trial by jury in regard to
Arbitrable Claims.

                  Claims Executive or the Company may have regarding Workers'
Compensation or unemployment compensation benefits and the noncompetition
provisions of this Agreement are not covered by the arbitration and mediation
provisions of this Agreement. Claims Executive or the Company may have for
violation of the proprietary information provisions of this Agreement as well as
the terms and provisions of Exhibit A of this Agreement are not covered by the
arbitration and mediation provisions of this Section 6 of this Agreement.

                  Arbitration under this Agreement shall be the exclusive remedy
for all Arbitrable Claims. The Company and Executive agree that arbitration
shall be held in or near either Denver or Fort Collins, Colorado and shall be in
accordance with the then-current Employment Dispute Resolution Rules of the
American Arbitration Association, before an arbitrator licensed to practice law
in Colorado. The arbitrator shall have authority to award or grant both legal,
equitable, and declaratory relief. Such arbitration shall be final and binding
on the parties. The Federal Arbitration Act shall govern the interpretation and
enforcement of this Section 6 pertaining to Alternative Dispute Resolution.

                  This Agreement to mediate and arbitrate survives termination
of Executive's employment.

          7. Notices

                  All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, overnight delivery or mailed, postage prepaid, by
certified or registered mail, return receipt requested, and addressed to the
Company:

                  Atrix Laboratories, Inc.
                  2579 Midpoint Drive
                  Fort Collins, Colorado  80525
                  Attn:  Chief Financial Officer
                  Telephone:    (800) 442-8749
                  Facsimile:    (970) 482-9735

and to Executive at:

                  David R. Bethune
                  6646 East Crested Saguaro Lane
                  Scottsdale, Arizona 85262
                  Telephone:    (602) 595-6593

                  Executive and the Company shall be obligated to notify the
other party of any change in address. Notice of change of address shall be
effective only when made in accordance with this Section.

                                       6
<PAGE>   7

          8. Entire Agreement

                  The terms of this Agreement, together with Exhibit A to this
Agreement are intended by the parties to be the final and exclusive expression
of their agreement with respect to the employment of Executive by the Company
and may not be contradicted by evidence of any prior or contemporaneous
statements or agreements. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement.

          9. Amendments, Waivers

                  This Agreement may not be modified, amended, or terminated
except by an instrument in writing, signed by Executive and by a duly authorized
representative of the Company other than Executive. No failure to exercise and
no delay in exercising any right, remedy, or power under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.

          10. Assignment; Successors and Assigns

                  Executive agrees that Executive will not assign, sell,
transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Executive's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest. Subject to the foregoing,
this Agreement shall be binding upon Executive and Company and shall inure to
the benefit of the parties and their respective heirs, legal representatives,
successors, and permitted assigns, and shall not benefit any person or entity
other than those enumerated above.

         11.  Use of Employee's Likeness.

                  Executive authorizes the Company to use, reuse and to
reasonably grant others the right to use and reuse without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice and biographical information and any reproduction or simulation thereof in
any media now known or hereafter developed, for valid business purposes of the
Company.

         12. Exclusion of Property of Others.

                  Executive will not bring to the Company or use in the
performance of his duties any documents or materials of a former employer that
are not generally available to the public or that have not been legally
transferred to the Company.

                                       7
<PAGE>   8

          13. Executive's Authorization to Deduct Amounts Owed.

                  Upon Executive's separation from employment, Company is
authorized to deduct from Executive's final wages or other monies due Executive
any debts or amounts owed to Company by Executive.

          14. Severability; Enforcement

                  If any provision of this Agreement, or the application thereof
to any person, place, or circumstance, shall be held by a court or arbitrator of
competent jurisdiction to be invalid, unenforceable, or void, the remainder of
this Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.

          15. Governing Law

                  The validity, interpretation, enforceability, and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the United States and the Federal Arbitration Act to the extent applicable,
and otherwise by the laws of the State of Colorado.

          16. Executive Acknowledgment

                  The parties acknowledge (a) that they have consulted with or
have had the opportunity to consult with independent counsel of their own choice
concerning this Agreement, and (b) that they have read and understand the
Agreement, are fully aware of its legal effect, and have entered into it freely
based on their own judgment and not on any representations or promises other
than those contained in this Agreement.

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

Company                                         Executive

/s/ WILLIAM C. O'NEIL                           /s/ DAVID R. BETHUNE
--------------------------------------          --------------------------------
William C. O'Neil                               David R. Bethune
Chairman of the Board of Directors

                                       8
<PAGE>   9

                                    EXHIBIT A

                                    (OMITTED)

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