Document:

<PAGE>

                                                                   EXHIBIT 10.7

                         PRODUCT ACQUISITION AGREEMENT

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

                                   RECITALS

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

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

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

                                   ARTICLE I
                                  DEFINITIONS

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

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

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

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

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

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

                                      -1-

<PAGE>

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

          "Assets" has the meaning specified in Section 2.1.

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

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

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

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

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

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

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

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

          "Employee" has the meaning specified in Section 5.9.

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

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

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

                                      -2-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -3-
<PAGE>

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

          "Seller" means ALZA Corporation, a Delaware corporation.

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

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

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

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

                                  ARTICLE II
                          PURCHASE AND SALE OF ASSETS

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

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

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

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

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

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

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

                                      -4-
<PAGE>

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

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

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

     2.3  Product Trademark.

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

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

     2.4  Purchase Price and Payment.  Upon the terms and subject to the
conditions herein set forth, and in consideration of the sale, assignment,
transfer and delivery to Buyer and its Affiliates of the Assets, at the Closing,
Buyer or its Affiliates shall pay to Seller an aggregate of [*  *  *] the
                                                            -
"Purchase Price"); and Buyer shall, or shall cause its Affiliates to, assume, as
of the Closing, the Assumed Liabilities as and to the extent provided in Article
III.

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

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

                                      -5-
<PAGE>

                                   ARTICLE I
                           ASSUMPTION OF LIABILITIES

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

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

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

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

                                   ARTICLE I
                                    CLOSING

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

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

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

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

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

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

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

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

                                      -6-
<PAGE>

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

                                   ARTICLE I
                   REPRESENTATIONS AND WARRANTIES OF SELLER

          Seller represents and warrants to Buyer as follows:

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

 5.2  Authorization.

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

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

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

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

                                      -7-
<PAGE>

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

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

 5.5  Real Property.

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

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

 5.7  Intangible Personal Property.

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

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

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

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

                                      -8-
<PAGE>

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

    5.9  Employees; Employee Benefit Plans; Labor.

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

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

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

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

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

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

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

                                      -9-
<PAGE>

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

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

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

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

    5.11 Contracts and Commitments.

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

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

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

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

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

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

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

                                      -10-
<PAGE>

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

                                   ARTICLE I
                    REPRESENTATIONS AND WARRANTIES OF BUYER

          Buyer represents and warrants to Seller as follows:

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

    6.2  Authorization.

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

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

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

                                  ARTICLE II
                               CERTAIN COVENANTS

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

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

                                      -11-
<PAGE>

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

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

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

    7.5  Restrictive Covenants.

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

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

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

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

                                      -12-
<PAGE>

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

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

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

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

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

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

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

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

                                      -13-
<PAGE>

                                  ARTICLE III
                   INDEMNIFICATION, LIMITATION OF LIABILITY
                          AND DISCLAIMER OF WARRANTY

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

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

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

    8.4 General Indemnification Provisions.

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

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

                                      -14-
<PAGE>

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

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

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

                                      -15-
<PAGE>

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

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

    8.5 Limitation on Liability.

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

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

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

                                  ARTICLE II
                                  TAX MATTERS

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

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

                                      -16-
<PAGE>

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

                                   ARTICLE I
                     EMPLOYEES AND EMPLOYEE BENEFIT PLANS

   10.1 Business Employees.

          (a)  Within seven (7) days after the Closing, Buyer shall offer to
employ, for at least a [* * *] period following the Closing, the Employees;
provided that Buyer shall not be obligated to hire any Employee (i) [* * *]. For
                                                                         ---
any Employee, such employment shall be offered on terms which include no less
than (i) [* * *]

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

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

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

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

                                  ARTICLE II
                              GENERAL PROVISIONS

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

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

                                      -17-
<PAGE>

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

          (a)  If to Seller

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

          (b)  if to Buyer:

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

               with a copy to:

               Orrick, Herrington & Sutcliffe LLP
               Old Federal Reserve Bank Building
               400 Sansome Street
               San Francisco, California 94111
               Attention:  Richard V. Smith, Esq.
               Telecopy No.:  (415) 773-5759
               Telephone No.:  (415) 392-1122

   11.3 Interpretation; Conflict Between Agreements.

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

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

                                      -18-
<PAGE>

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

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

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

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

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

   11.7  Amendment, Other Remedies and Waiver.

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

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

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

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

                                      -19-
<PAGE>

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

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

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

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

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

                                      -20-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                      -21-
<PAGE>

  11.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

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

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

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

                                      -22-
<PAGE>

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

                              DURECT CORPORATION, INC.,
                               a Delaware corporation

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

                              ALZA CORPORATION,
                               a Delaware corporation

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

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

                                      -23-
<PAGE>

                                  ATTACHMENTS

EXHIBITS

Exhibit A           General Support Services Agreement

Exhibit B           Coating Services Agreement

Exhibit C           New Models Development Agreement

Exhibit D           Form of Trademark Assignment

Schedule 1          Product and Accessory Products

Schedule 2.1 (a)    Inventories

Schedule 2.1 (b)    Fixed Assets

Schedule 2.1 (c)    Contracts

Schedule 2.1 (d)    Lease

Schedule 2.1 (e)    Trademarks

Schedule 2.1 (f)    Marketing Materials

Schedule 5.9        Employees

Schedule 5.10       Environmental Matters

Schedule 7.6        Inventory Price List

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

                                      -24-
<PAGE>

                      GENERAL SUPPORT SERVICES AGREEMENT

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

                                R E C I T A L S

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

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

                               A G R E E M E N T

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

          1.   Services.  (a)  For the [ *  *  * ], or a shorter period as Buyer
               --------
may designate, commencing on the Effective Date, Seller shall conduct all
aspects of the ALZET osmotic pump business ("Business") on behalf of Buyer in
its usual, regular and ordinary manner, substantially in the same manner as
conducted prior to the Effective Date (the "Transition Period").

               (b)  For the period commencing on the cessation of the Transition
Period through the term hereof, Seller shall provide to Buyer for use in
connection with the manufacture and sale of the Product the services described
in the Schedule of Services attached hereto as Exhibit A and incorporated herein
                                               ---------
by this reference.  Except as otherwise noted on Exhibit A, the Services shall
                                                 ---------
be of the type and at the level of use provided by Seller to the Business
immediately prior to the Effective Date.  Such services will be provided at
reasonable times and upon reasonable notice, as mutually agreed.

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

          2.   Term.  The term of this Agreement shall commence on the Effective
               ----
Date.  The parties acknowledge that the purpose of this Agreement is to provide
Services on an interim basis to permit Buyer to develop its ability to provide
the Services or to obtain alternate sources of supply of Services within a
reasonable period of time after the date hereof.  Buyer shall use its best
efforts to

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

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

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

          4.   Invoicing.  Seller shall invoice Buyer for the Services on one or
               ---------
more invoices at such intervals as Seller shall determine, provided that Seller
will not invoice Buyer more than once  per month.  All payments shall be due and
payable 30 days after the date of the invoice.

          5.   Disputes.  If Buyer disputes any charge set forth in an invoice,
               --------
Buyer shall notify Seller in writing within 30 days after receipt of such
invoice.  The parties shall promptly attempt to resolve any such dispute.  If
either party determines that the dispute cannot be resolved in a mutually
agreeable manner, the dispute shall be resolved exclusively as set forth in
Section 11.11 of the Acquisition Agreement.

          6.   Force Majeure.  Neither Seller nor Buyer shall have any liability
               -------------
to the other for any failure to fulfill any obligations hereunder during a
period in which they are prevented from doing so by act of God, fire, riot,
labor disturbance, accident, war, act of any government, partial or total
interruption or loss, or shortage of transportation facilities or supplies or by
other causes beyond the reasonable control of the parties, whether similar to
the causes specified or not.  The party claiming benefit of this provision shall
notify the other promptly of the cause and attempt in good faith to resume
performance as soon as reasonably possible, and there shall be no charge for
supplies not in fact delivered or services not performed.  Neither party shall
be obligated to settle a dispute or otherwise take any action which is not
commercially reasonable to terminate an event of force majeure.

          7.   Notice of Scheduled Shutdowns.  Seller will provide to Buyer
               -----------------------------
reasonable notice, consistent with Seller's past practices, of any scheduled
shutdowns which are reasonably likely to interrupt the Services.

          8.   Indemnities.  Subject to the terms of the Acquisition Agreement,
               -----------
(a) Seller shall indemnify, defend and hold harmless Buyer and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever caused by the willful misconduct or
gross negligence of Seller or its affiliates, officers, directors, stockholders,
employees, agents, representatives, successors and assigns arising from or
associated with provision of the Services set forth on Exhibit A, including
reasonable fees and expenses of counsel and (b) except as provided in clause
(a), Buyer shall indemnify, defend and hold harmless Seller and its affiliates,
officers, directors, stockholders, employees, agents,

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

                                                                               2
<PAGE>

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

          9.   Relationship of the Parties.  For purposes of this Agreement,
               ---------------------------
Buyer and Seller shall be deemed to be independent contractors, and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Buyer and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.  Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party.  Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.

          10.  Confidentiality.  The parties agree to keep confidential any and
               ---------------
all information and data received or generated pursuant to this Agreement except
for such disclosures which are required by law or other governmental authority
or which are reasonably necessary to be disclosed by Seller in order to provide
any Services.

          11.  Expenses, Taxes, Etc.  Except as otherwise provided in this
               --------------------
Agreement, each party will pay all fees and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby and
thereby.

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

                                                                               3
<PAGE>

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

          (a)   If to Seller

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

          (b)   if to Buyer:

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

          13.  Interpretation.  Capitalized terms used in this Agreement and not
               --------------
defined herein shall have the meanings assigned to them in the Acquisition
Agreement.  When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section or Exhibit to this Agreement unless
otherwise indicated.  The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation."  The word "herein" and similar references mean, except where a
specific Section reference is expressly indicated, the entire Agreement rather
than any specific Section.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  Except as otherwise expressly provided
herein, all monetary amounts referenced in this Agreement shall mean U.S.
dollars.

          14.  Severability.  If any term or other provision of this Agreement
               ------------
is invalid, illegal or incapable of being enforced by any rule of statute, law,
regulation, judgment, injunction, decree or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party.  In such
event, any such term or provision shall be deemed, without further action on the
part of the parties hereto, modified, amended and limited to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.

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

                                                                               4
<PAGE>

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

          16.  No Third-Party Beneficiaries.  This Agreement is for the sole
               ----------------------------
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.

          17.  Amendment, Other Remedies and Waiver.
               ------------------------------------

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

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

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

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

          19.  Governing Law; Consent to Jurisdiction.  This Agreement shall be
               --------------------------------------
governed by, and construed in accordance with, the laws of the State of
California (without giving effect to its choice of law principles).  Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of (a) the
Superior Court of the State of California, San Francisco County,

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

                                                                               5
<PAGE>

and (b) the United States District Court for the Northern District of
California, for the purposes of any Action arising out of this Agreement or any
transaction contemplated hereby or thereby. Each of the parties hereto agrees to
commence any Action relating hereto either in the United States District Court
for the Northern District of California, or if such Action may not be brought in
such court for jurisdictional reasons, in the Superior Court of the State of
California, San Francisco County. Each of the parties hereto further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party's respective address set forth in Section 12 shall be effective
                                                     --
service of process for any Action in California with respect to any matters to
which it has submitted to jurisdiction in this Section 19.  Each of the parties
hereto irrevocably and unconditionally waives any objection to the laying of
venue of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby in (i) the Superior Court of the State of
California, San Francisco County, or (ii) the United States District Court for
the Northern District of California, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Action brought in any such court has been brought in an inconvenient
forum.

          20.  Counterparts.  This Agreement may be executed in one or more
               ------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

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

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

          23.  Survival.  The provisions of Sections 5, 8, 9, 10, 11, 12, 14,
               --------
19, 21 and this Section 23 shall survive the termination for any reason of this
Agreement.  Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement.

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

                                                                               6
<PAGE>

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

DURECT CORPORATION,                  ALZA CORPORATION
a Delaware corporation               a Delaware corporation

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

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

                                                                               7
<PAGE>

                                   EXHIBIT A

                             Schedule of Services

Services to be Provided:

[* * *]
     -

Payment for Services:

DIRECT EXPENSES
---------------

      [* * *]

INDIRECT EXPENSES**
-----------------

[* * *]
     -

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

                                      -1-
<PAGE>

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

                                      -2-
<PAGE>

                          COATING SERVICES AGREEMENT

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

                                R E C I T A L S

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

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

                               A G R E E M E N T

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

          1.   Services.  Seller shall provide to Buyer for use in connection
               --------
with the manufacture and sale of the Product the services described in the
Schedule of Services attached hereto as Exhibit A and incorporated herein by
                                        ---------
this reference (individually and collectively, the "Services").  Except as
otherwise noted on Exhibit A, the Services shall be of the type and at the level
                   ---------
of use provided by Seller to the Business immediately prior to the Effective
Date.  Such services will provided at reasonable times and upon reasonable
notice, as mutually agreed.

          2.   Term.  The term of this Agreement shall commence on the Effective
               ----
Date. The parties acknowledge that the purpose of this Agreement is to provide
Services on an interim basis to permit Buyer to develop its ability to provide
the Services or to obtain alternate sources of supply of Services within a
reasonable period of time after the date hereof. Buyer shall use its best
efforts to develop its ability to provide to itself the Services and/or obtain
alternate sources of supply for the Services as soon as practicable after the
Effective Date. Buyer may terminate this Agreement with respect to any item of
Service upon [* * *] prior written notice to Seller. Unless this Agreement is
renewed by mutual agreement of the parties, this Agreement shall terminate not
later than the date which is three (3) years following the Closing Date (as
defined in the Acquisition Agreement); provided that, no such termination shall
affect the obligations of Buyer to make payments due hereunder.

          3.   Compensation.  On the Effective Date, Buyer shall pay Seller
               ------------
[* * *]. In addition, [* * *]. Seller's [* * *.]
                                             -

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

                                      -3-
<PAGE>

          4.   Invoicing.  Seller shall invoice Buyer for the Services on one or
               ---------
more invoices at such intervals as Seller shall determine, provided that Seller
will not invoice Buyer more than once  per month.  All payments shall be due and
payable 30 days after the date of the invoice.

          5.   Disputes.  If Buyer disputes any charge set forth in an invoice,
               --------
Buyer shall notify Seller in writing within 30 days after receipt of such
invoice.  The parties shall promptly attempt to resolve any such dispute.  If
either party determines that the dispute cannot be resolved in a mutually
agreeable manner, the dispute shall be resolved exclusively as set forth in
Section 11.11 of the Acquisition Agreement.

          6.   Specific Performance.  Each of the parties hereto acknowledges
               --------------------
and agrees that the extent of damages to Buyer in the event of a breach by
Seller of this Agreement would be impossible to ascertain and there is and will
be available to Buyer no adequate remedy at law to compensate it in the event of
such a breach.  Consequently, the Seller agrees that, in the event that it fails
to perform any Services hereunder, Buyer shall be entitled, in addition to any
other relief to which it may be entitled including without limitation money
damages, to enforce any or all of such covenants to perform any Services by
injunctive or other equitable relief ordered by any court of competent
jurisdiction.

          7.   Indemnities.  Subject to the terms of the Acquisition Agreement,
               -----------
(a) Seller shall indemnify, defend and hold harmless Buyer and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever caused by the willful misconduct or
gross negligence of Seller or its affiliates, officers, directors, stockholders,
employees, agents, representatives, successors and assigns arising from or
associated with provision of the Services set forth on Exhibit A, including
                                                       ---------
reasonable fees and expenses of counsel and (b) except as provided in clause
(a), Buyer shall indemnify, defend and hold harmless Seller and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever arising from or associated with
provision of the Services set forth on Exhibit A, including reasonable fees and
                                       ---------
expenses of counsel.

          8.   Force Majeure.  Neither Seller nor Buyer shall have any liability
               -------------
to the other for any failure to fulfill any obligations hereunder during a
period in which they are prevented from doing so by act of God, fire, riot,
labor disturbance, accident, war, act of any government, partial or total
interruption or loss, or shortage of transportation facilities or supplies or by
other causes beyond the reasonable control of the parties, whether similar to
the causes specified or not.  The party claiming benefit of this provision shall
notify the other promptly of the cause and attempt in good faith to resume
performance as soon as reasonably possible, and there shall be no charge for
supplies not in fact delivered or services not performed.  Neither party shall
be obligated to settle a dispute or otherwise take any action which is not
commercially reasonable to terminate an event of force majeure.

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

                                      -4-
<PAGE>

          9.   Notice of Scheduled Shutdowns.  Seller will provide to Buyer
               -----------------------------
reasonable notice, consistent with Seller's past practices, of any scheduled
shutdowns which are reasonably likely to interrupt the Services.

          10.  Relationship of the Parties.  For purposes of this Agreement,
               ---------------------------
Buyer and Seller shall be deemed to be independent contractors, and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Buyer and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.  Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party.  Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.

          11.  Confidentiality.  The parties agree to keep confidential any and
               ---------------
all information and data received or generated pursuant to this Agreement except
for such disclosures which are required by law or other governmental authority
or which are reasonably necessary to be disclosed by Seller in order to provide
any Services.

          12.  Expenses, Taxes, Etc.  Except as otherwise provided in this
               --------------------
Agreement, each party will pay all fees and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby and
thereby.

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

           (a)  If to Seller

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

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

                                      -5-
<PAGE>

           (b)  if to Buyer:

                DURECT Corporation
                10240 Bubb Road
                Cupertino, California  95014-4166
                Attention: Jean Liu, Esq.
                Telecopy No.: (408) 777-3577
                Telephone No.: (408) 777-1417

          14.  Interpretation.  Capitalized terms used in this Agreement and not
               --------------
defined herein shall have the meanings assigned to them in the Acquisition
Agreement.  When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section or Exhibit to this Agreement unless
otherwise indicated.  The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation."  The word "herein" and similar references mean, except where a
specific Section reference is expressly indicated, the entire Agreement rather
than any specific Section.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  Except as otherwise expressly provided
herein, all monetary amounts referenced in this Agreement shall mean U.S.
dollars.

          15.  Severability.  If any term or other provision of this Agreement
               ------------
is invalid, illegal or incapable of being enforced by any rule of statute, law,
regulation, judgment, injunction, decree or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party.  In such
event, any such term or provision shall be deemed, without further action on the
part of the parties hereto, modified, amended and limited to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.

          16.  Assignment.  This Agreement may not be assigned by operation of
               ----------
law or otherwise, except that Buyer (including its Affiliates) may assign its
rights and benefits hereunder (provided that Buyer or its Affiliates, as
applicable, shall remain responsible for its obligations hereunder) (a) to any
Affiliate of Buyer, (b) to any Person acquiring all or substantially all of the
assets and properties of the Business, as such Business is then conducted by
Buyer and its Affiliates or (c) to any Person acquiring a distinct line or
division of such Business, with respect to the rights and benefits of Buyer
hereunder that pertain thereto.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of Buyer and Seller.

          17.  No Third-Party Beneficiaries.  This Agreement is for the sole
               ----------------------------
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.

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

                                      -6-
<PAGE>

          18.  Amendment, Other Remedies and Waiver.
               ------------------------------------

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

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

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

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

          20.  Governing Law; Consent to Jurisdiction.  This Agreement shall be
               --------------------------------------
governed by, and construed in accordance with, the laws of the State of
California (without giving effect to its choice of law principles).  Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of (a) the
Superior Court of the State of California, San Francisco County, and (b) the
United States District Court for the Northern District of California, for the
purposes of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby.  Each of the parties hereto agrees to commence
any Action relating hereto either in the United States District Court for the
Northern District of California, or if such Action may not be brought in such
court for jurisdictional reasons, in the Superior Court of the State of
California, San Francisco County.  Each of the parties hereto further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth in Section 12 shall be effective
service of process for any Action in California with respect to any matters to
which it has submitted to jurisdiction in this Section 19.  Each of the parties
hereto irrevocably and unconditionally waives any objection to the laying of
venue of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby in (i) the Superior Court of the State of
California, San Francisco County, or (ii) the United States District Court for
the Northern District of California, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Action brought in any such court has been brought in an inconvenient
forum.

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

                                      -7-

<PAGE>

          21.  Counterparts.  This Agreement may be executed in one or more
               ------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

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

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

          24.  Survival.  The provisions of Sections 5, 6, 7, 10, 11, 12, 13,
               --------
15, 20, 22 and this Section 24 shall survive the termination for any reason of
this Agreement.  Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement.

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

                                      -8-
<PAGE>

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

DURECT CORPORATION,                  ALZA CORPORATION
a Delaware corporation               a Delaware corporation

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

                                   EXHIBIT A

                             Schedule of Services

Services to be Provided:

[* * *]
     -

Responsibilities of ALZA in Provision of Services:

[* * *]
     -

Responsibilities of DURECT in Provision of Services:

[* * *]
     -

Payment for Services: [* * *]
                           -

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

                                      -9-
<PAGE>

                       NEW MODELS DEVELOPMENT AGREEMENT

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

                                R E C I T A L S
                                ---------------

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

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

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

     1.   Definitions.  For the purposes of this Agreement, the following terms
          -----------
will have the respective meanings set forth below:

          1.1  "Development Costs" means the costs of the Program incurred by
ALZA pursuant to this Agreement and determined in accordance with Exhibit A
hereto.
          1.2  "New Models" means either of and each of (1) [* * *] and (2)
[* * *].
     -
          1.3  "Program" means all activities undertaken by either or both
parties in accordance with the terms hereof for the development of the New
Models.

     2.   Product Development Program.
          ---------------------------

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

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

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

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

          2.3  DURECT will pay to ALZA, on a monthly basis, [* * *]. ALZA will
invoice DURECT on or before the fifteenth day of each month for the preceding
month's Development Costs. All payments will be made within 30 days after the
date of the invoice. Notwithstanding the foregoing, [* * *]
                                                         -

     3.   Ownership.
          ---------

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

     4.   Term and Termination.
          --------------------

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

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

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

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

     5.   Miscellaneous.
          -------------

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

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

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

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

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

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

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

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

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

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

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

ALZA CORPORATION                             DURECT CORPORATION

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

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

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

                                   EXHIBIT A

                               DEVELOPMENT COSTS

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

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

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

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

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

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

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

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

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

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

<PAGE>

                                  EXHIBIT A-1

                                  Examples of
                               Research Expenses
                               -----------------

Direct Expenses
---------------

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

Indirect Expenses
-----------------

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

                                  Examples of
                      General and Administrative Expense
                      ----------------------------------

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

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

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

                                  SCHEDULE 1
                                  ----------

                                  THE PRODUCT
                                  -----------

A General Description

[*  *  *.]
        --

           ------------------------------------------------------------------
                        Item                              Part #
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]
           ------------------------------------------------------------------

             [ * * * ]                                 [ * * * ]

Ancillary products:
------------------

 .  [ * * * ]

 .  [ * * * ]

Non-Profiled Document

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

                                      -7-
<PAGE>

                                SCHEDULE 2.1(a)
                                ---------------

                                   INVENTORY
                                   ---------

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

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

                                      -8-
<PAGE>

                                SCHEDULE 2.1(b)
                                ---------------
                                 FIXED ASSETS
                                 ------------

                      Asset No.            Description
                      --------             -----------
                 [[ * * * ]                                    [ * * * ]
                 -
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      -9-
<PAGE>

                                SCHEDULE 2.1(c)
                                ---------------

                                   CONTRACTS
                                   ---------

1.  Distributorship Agreement between ALZA and [[ * * * ].]
                                               -         --

2.  Distributorship Agreement between ALZA and [[ * * * ].]
                                                         --

3.  Distributorship Agreement between ALZA and[[ * * * ].]
                                                        --

4.  Distributorship Agreement between ALZA and[[ * * * ].]
                                                        --

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

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

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

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

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

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

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

                                     -10-
<PAGE>

                                SCHEDULE 2.1(d)
                                ---------------

                                     LEASE
                                     -----

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

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

                                     -11-
<PAGE>

                                SCHEDULE 2.1(e)
                                ---------------

                                  TRADEMARKS

1.   ALZET

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Trademark Name:                   Country Name      Registration No:     Reg. Date:           Classes:
------------------------------------------------------------------------------------------------------------
<S>                          <C>                    <C>                  <C>                  <C>
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
ALZET                                [***]              [***]              [***]               [***]
------------------------------------------------------------------------------------------------------------
</TABLE>

2.   SPECIAL DELIVERY

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
 Country    Trademark Name:                  Owner Name       Registration No:      Reg. Date:         Classes:
-------------------------------------------------------------------------------------------------------------------
<S>         <C>                           <C>                 <C>                  <C>                 <C>
  [***]        SPECIAL DELIVERY                 [***]              [***]              [***]              [***]
-------------------------------------------------------------------------------------------------------------------
</TABLE>

3.   ALZAID

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
 Country    Trademark Name:                    Owner        Registration No:     Reg. Date:            Classes:
-------------------------------------------------------------------------------------------------------------------
<S>         <C>                                <C>          <C>                  <C>                   <C>
  [***]         ALZAID                          [***]              [***]              [***]              [***]
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                     -12-
<PAGE>

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

                                     -13-
<PAGE>

                                SCHEDULE 2.1(f)
                                ---------------

                               MARKETING ASSETS
                               ----------------

[[ * * * ]

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

                                     -14-
<PAGE>

                                 SCHEDULE 5.9
                                 ------------

                                   EMPLOYEES
                                   ---------

Name                                  Title
----                                  -----

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

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

                                     -15-
<PAGE>

                                 SCHEDULE 5.10
                                 -------------

                             ENVIRONMENTAL MATTERS
                             ---------------------

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

[ *  *   * ]

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

                                     -16-
<PAGE>

                                 SCHEDULE 7.6
                                 ------------

                   PER UNIT PRICE OF PRODUCTS IN INVENTORIES
                   -----------------------------------------

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

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

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

                                     -17-
<PAGE>

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

                                     -18-<PAGE>
                                                                    EXHIBIT 10.8
================================================================================

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                               DURECT CORPORATION

================================================================================
<PAGE>

                           TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              Page
                                                                              ----
<S>                                                                           <C>
1    ACCOUNTING AND OTHER TERMS..............................................  4
     --------------------------

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

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

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

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

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

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

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

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

                                       2
<PAGE>

<TABLE>
<S>                                                                           <C>
     9.4  Bank Expenses...................................................... 13
     9.5  Bank's Liability for Collateral.................................... 13
     9.6  Remedies Cumulative................................................ 13
     9.7  Demand Waiver...................................................... 13

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

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

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

13   DEFINITIONS............................................................. 15
     -----------
     13.1  Definitions....................................................... 15
</TABLE>

                                       3
<PAGE>

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

                                    RECITALS

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

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

                                   AGREEMENT

      The parties agree as follows:

1     ACCOUNTING AND OTHER TERMS
      --------------------------

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

2     LOAN AND TERMS OF PAYMENT
      -------------------------

2.1   Credit Extensions.

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

2.1.1 Equipment Advances.

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

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

                                       4
<PAGE>

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

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

2.1.2 Term Loan.

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

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

2.2   Interest Rate, Payments.

2.2.1 Equipment Facility.

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

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

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

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

                                       5
<PAGE>

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

      (f) Permitted Prepayment of Loans.  Borrower shall have the option to
prepay all, but not less than all, of the Equipment Advances advanced by Bank
under this Agreement, provided Borrower (i) provides written notice to Bank of
                      --------
its election to prepay the Equipment Advances at least ten (10) days prior to
such prepayment, and (ii) pays, on the date of the prepayment, discounted by 7%
per annum (A) all unpaid principal and interest accrued to the date of the
prepayment; (B) the Final Payment; and (C) all other sums, if any, that shall
have become due and payable hereunder with respect to this Agreement.

2.2.2 Term Loan.

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

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

2.2.3 Request to Debit Accounts.

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

2.3   Fees.

      Borrower will pay:

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

3     CONDITIONS OF LOANS
      -------------------

3.1   Conditions Precedent to Initial Credit Extension.

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

3.2   Conditions Precedent to all Credit Extensions.

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

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

                                       6
<PAGE>

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

4     CREATION OF SECURITY INTEREST
      -----------------------------

4.1   Grant of Security Interest.

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

5     REPRESENTATIONS AND WARRANTIES
      ------------------------------

      Borrower represents and warrants as follows:

5.1   Due Organization and Authorization.

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

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

5.2   Collateral.

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

5.3   Litigation.

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

5.4   No Material Adverse Change in Financial Statements.

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

                                       7
<PAGE>

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

5.5   Solvency.

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

5.6   Regulatory Compliance.

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

5.7   Subsidiaries.

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

5.8   Full Disclosure.

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

6     AFFIRMATIVE COVENANTS
      ---------------------

      Borrower will do all of the following:

6.1   Government Compliance.

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

                                       8
<PAGE>

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

6.2   Financial Statements, Reports, Certificates.

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

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

6.3   Inventory; Returns.

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

6.4   Taxes.

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

6.5   Insurance.

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

6.6   Primary Accounts.

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

6.7   Loss; Destruction; or Damage.

                                       9
<PAGE>

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

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

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

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

6.8   Further Assurances.

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

7     NEGATIVE COVENANTS
      ------------------

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

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

                                       10
<PAGE>

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

8     EVENTS OF DEFAULT
      -----------------

      Any one of the following is an Event of Default:

8.1   Payment Default.

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

8.2   Covenant Default.

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

8.3   Material Adverse Change.

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

8.4   Attachment.

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

8.5   Insolvency.

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

                                       11
<PAGE>

8.6   Other Agreements.

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

8.7   Judgments.

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

8.8   Misrepresentations.

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

9     BANK'S RIGHTS AND REMEDIES
      --------------------------

9.1   Rights and Remedies.

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

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

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

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

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

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

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

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

9.2   Power of Attorney.

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

                                       12
<PAGE>

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

9.3   Accounts Collection.

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

9.4   Bank Expenses.

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

9.5   Bank's Liability for Collateral.

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

9.6   Remedies Cumulative.

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

9.7   Demand Waiver.

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

10    NOTICES
      -------

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

                                       13
<PAGE>

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

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

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

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

12    GENERAL PROVISIONS
      ------------------

12.1  Successors and Assigns.

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

12.2  Indemnification.

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

12.3  Time of Essence.

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

12.4  Severability of Provision.

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

12.5  Amendments in Writing, Integration.

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

                                       14
<PAGE>

12.6  Counterparts.

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

12.7  Survival.

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

12.8  Confidentiality.

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

12.9  Effect of Amendment and Restatement.

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

12.10 Attorneys' Fees, Costs and Expenses.

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

13    DEFINITIONS
      -----------

13.1  Definitions.

      In this Agreement:

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

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

                                       15
<PAGE>

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

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

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

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

      "Closing Date" is December 31, 1999.

      "Code" is the California Uniform Commercial Code.

      "Collateral" is the property described on Exhibit A.
                                                ---------

      "Commitment Termination Date" is the Closing Date.

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

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

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

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

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

      "Equipment Advance" is defined in Section 2.1.1.

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

                                       16
<PAGE>

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

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

      "Financed Equipment" is defined in the Loan Supplement.

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

      "GAAP" is generally accepted accounting principles.

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

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

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

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

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

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

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

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

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

      "Loan Supplement" is attached as Exhibit C

                                       17
<PAGE>

       "Material Adverse Change" is defined in Section 8.3.

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

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

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

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

       "Permitted Indebtedness" is:

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

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

      (c) Subordinated Debt;

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

      (e) Indebtedness secured by Permitted Liens.

      "Permitted Investments" are:

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

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

      "Permitted Liens" are:

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

      (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
                                                   --
any of Bank's security interests;

      (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
                                          --
property and improvements and the proceeds of the equipment;

                                       18
<PAGE>

      (d) Licenses or sublicenses granted in the ordinary course of Borrower's
business and any interest or title of a licensor or under any license or
sublicense, if the licenses and sublicenses permit granting Bank a security
            --
interest;

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

      (f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
                                                            ---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

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

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

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

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

      "Schedule" is any attached schedule of exceptions.

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

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

      "Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
                              -----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
                      ---

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

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

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

      "Treasury Note Maturity" is 42 months.

                                       19
<PAGE>

BORROWER:

Durect Corporation

By: /s/ Thomas A. Schreck
    ---------------------

Title: Chief Financial Officer
       -----------------------

BANK:

SILICON VALLEY BANK

By: /s/ Kathryn Lungaro
    -------------------

Title: Senior Vice President
       ---------------------
<PAGE>

                                 EXHIBIT A
                                 ---------

     The Collateral consists of all of Borrower's right, title and interest in
and to the following:

     All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

     All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

     All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, leases, franchise agreements, blueprints, drawings,
purchase orders, customer lists, route lists, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, design
rights, income tax refunds, payments of insurance and rights to payment of any
kind;

     All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;

     All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing; and

     All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.

     Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyrights, copyright applications, copyright registration and like
protection in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and continuations-in-
part of the same, trademarks, servicemarks and applications therefor, whether
registered or not, and the goodwill of the business of Borrower connected with
and symbolized by such trademarks, any trade secret rights, including any rights
to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; or any
claims for damage by way of any past, present and future infringement of any of
the foregoing (collectively, the "Intellectual Property"), except that the
Collateral shall include the proceeds of all the Intellectual Property that are
accounts, (i.e. accounts receivable) of Borrower, or general intangibles
consisting of rights to payment, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property, then the
Collateral shall automatically, and effective as of the Closing Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank's
security interest in such accounts and general intangibles of Borrower that are
proceeds of the Intellectual Property.
<PAGE>

                                   EXHIBIT B
                                   ---------

                  LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

             DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION      DATE: __________________________

FAX#:  (408) 496-2426                    TIME: __________________________

________________________________________________________________________________

FROM:  Durect Corporation
       ------------------------------------------------------------------------
                           CLIENT NAME (BORROWER)

REQUESTED BY:
              -----------------------------------------------------------------
                         AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:
                     ----------------------------------------------------------

PHONE NUMBER:
             ------------------------------------------------------------------

FROM ACCOUNT # _________________________   TO ACCOUNT #  ______________________

REQUESTED TRANSACTION TYPE          REQUESTED DOLLAR AMOUNT
--------------------------          -----------------------

PRINCIPAL INCREASE (ADVANCE)        $ _________________________________________
PRINCIPAL PAYMENT (ONLY)            $ _________________________________________
INTEREST PAYMENT (ONLY)             $ _________________________________________
PRINCIPAL AND INTEREST (PAYMENT)    $ _________________________________________

OTHER INSTRUCTIONS:
                   ------------------------------------------------------------

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

All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                                 BANK USE ONLY

TELEPHONE REQUEST:
-----------------

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

----------------------------------         ------------------------------------
          Authorized Requester                             Phone #

----------------------------------         ------------------------------------
          Received By (Bank)                               Phone #

                      ----------------------------------
                          Authorized Signature (Bank)

________________________________________________________________________________

<PAGE>

                                   EXHIBIT C
                                   ---------

                       FORM OF LOAN AGREEMENT SUPPLEMENT

                       LOAN AGREEMENT SUPPLEMENT No. [ ]

LOAN AGREEMENT SUPPLEMENT No. [ ], dated ______________, 199____ ("Supplement"),
to the Loan and Security Agreement dated as of ______________, 199____ (the
"Loan Agreement) by and between the undersigned ("Borrower"), and Silicon Valley
Bank ("Bank").

Capitalized terms used herein but not otherwise defined herein are used with the
respective meanings given to such terms in the Loan Agreement.

To secure the prompt payment by Borrower of all amounts from time to time
outstanding under the Loan Agreement, and the performance by Borrower of all the
terms contained in the Loan Agreement, Borrower grants Bank, a first priority
security interest in each item of equipment and other property described in
Annex A hereto, which equipment and other property shall be deemed to be
additional Financed Equipment and Collateral.  The Loan Agreement is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.

Annex A (Equipment Schedule) and Annex B (Loan Terms Schedule) are attached
hereto.

The proceeds of the Loan should be transferred to Borrower's account with Bank
set forth below:

          Bank Name:    Silicon Valley Bank
          Account No.:

Borrower hereby certifies that (a) the foregoing information is true and correct
and authorizes Bank to endorse in its respective books and records, the Basic
Rate applicable to the Funding Date of the Loan contemplated in this Loan
Agreement Supplement and the principal amount set forth in the Loan Terms
Schedule; (b) the representations and warranties made by Borrower in the Loan
Agreement are true and correct on the date hereof and will be true and correct
on such Funding Date.  No Event of Default has occurred and is continuing under
the Loan Agreement.  This Supplement may be executed by Borrower and Bank in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

This Supplement is delivered as of this day and year first above written.

SILICON VALLEY BANK                   DURECT Corporation
                                      -------------------------------------

By: /s/ Kathryn Lungaro               By: /s/ Felix Theeuwes
   ----------------------------          --------------------------------------
   Name: Kathryn Lungaro                 Name: Felix Theewes
        --------------------------       ------------------------------------
   Title: Senior Vice President          Title: Chief Scientific Officer &
         -------------------------       ------------------------------------
                                         Chairman
                                         ------------------------------------

Annex A - Description of Financed Equipment
Annex B - Loan Terms Schedule
<PAGE>

                              Annex A to Exhibit C
                              --------------------

The Financed Equipment being financed with the Equipment Advance which this Loan
Agreement Supplement is being executed is listed below.  Upon the funding of
such Equipment Advance, this schedule automatically shall be deemed to be a part
of the Collateral.

Description of Equipment:     Make     Model       Serial #       Invoice #

                                       2
<PAGE>

                              Annex B to Exhibit C
                              --------------------

                         LOAN TERMS SCHEDULE #________

Loan Funding Date:  ______________, 199__

Original Loan Amount:  $______________

Basic Rate:  ____________%

Loan Factor: ______________%

Scheduled Payment Dates and Amounts, subject to prepayment as described in
Section 2.2.1(d)*:

     ______ payment of $_______ due monthly from ______ through ________

     ______ payment of $_______ due monthly from ______ through ________

     One (1) payment of $_______ due ______________

Maturity Date:  ______________

Final Payment:  An additional amount equal to the Final Payment Percentage
                multiplied by the Loan Amount then in effect, shall be paid on
                the Maturity Date with respect to such Loan.

Payment No.         Payment Date

1
2
3
4
 ...
35
[36]
 ...

*/   The amount of each Scheduled Payment will change as the Loan Amount
     changes.

                              SILICON VALLEY BANK

                      PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER:        Durect Corporation

LOAN OFFICER:    Lois Fisher

                                       3
<PAGE>

DATE:        December 16, 1999

             Documentation Fee     1,500.00
             Legal Fee               500.00

             TOTAL FEE DUE        $2,000.00
             -------------        =========

Please indicate the method of payment:

  {  } A check for the total amount is attached.

  {  } Debit DDA # __________________ for the total amount.

  {  } Loan proceeds

Borrower:

By:

(Authorized Signer)

_________________________________________________
Silicon Valley Bank                  (Date)
Account Officer's Signature

                                       2
<PAGE>

                           NEGATIVE PLEDGE AGREEMENT

  This Negative Pledge Agreement is made as of December 16, 1999 by and between
Durect Corporation ("Borrower") and Silicon Valley Bank ("Bank").

In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:

     1.   Borrower shall not sell, transfer, assign, mortgage, pledge, lease,
          grant a security interest in, or encumber any of Borrower's
          intellectual property, including, without limitation, the following:

          a.   Any and all copyright rights, copyright applications, copyright
               registrations and like protections in each work or authorship and
               derivative work thereof, whether published or unpublished and
               whether or not the same also constitutes a trade secret, now or
               hereafter existing, created, acquired or held;

          b.   All mask works or similar rights available for the protection of
               semiconductor chips, now owned or hereafter acquired;

          c.   Any and all trade secrets, and any and all intellectual property
               rights in computer software and computer software products now or
               hereafter existing, created, acquired or held;

          d.   Any and all design rights which may be available to Borrower now
               or hereafter existing, created, acquired or held;

          e.   All patents, patent applications and like protections including,
               without limitation, improvements, divisions, continuations,
               renewals, reissues, extensions and continuations-in-part of the
               same, including without limitation the patents and patent
               applications;

          f.   Any trademark and servicemark rights, whether registered or not,
               applications to register and registrations of the same and like
               protections, and the entire goodwill of the business of Borrower
               connected with and symbolized by such trademarks, including
               without limitation;

          g.   Any and all claims for damages by way of past, present and future
               infringements of any of the rights included above, with the
               right, but not the obligation, to sue for and collect such
               damages for said use or infringement of the intellectual property
               rights identified above;

          h.   All licenses or other rights to use any of the Copyrights,
               Patents, Trademarks or Mask Works, and all license fees and
               royalties arising from such use to the extent permitted by such
               license or rights; and

          i.   All amendments, extensions, renewals and extensions of any of the
               Copyrights, Trademarks, Patents, or Mask Works; and

          j.   All proceeds and products of the foregoing, including without
               limitation all payments under insurance or any indemnity or
               warranty payable in respect of any of the foregoing;

     2.   It shall be an event of default under the Loan Documents between
          Borrower and Bank if there is a breach of any term of this Negative
          Pledge Agreement.

     3.   Capitalized terms used but not otherwise defined herein shall have the
          same meaning as in the Loan Documents.
<PAGE>

BORROWER:

Durect Corporation

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

BANK:

SILICON VALLEY BANK

By: /s/ Kathryn Lungaro
   ------------------------------
Name:  Kathryn Lungaro
     ----------------------------
Title: Senior Vice President
      ---------------------------

                                       2
<PAGE>

                         CORPORATE BORROWING RESOLUTION

Borrower:  Durect Corporation            Bank:  Silicon Valley Bank
           10240 Bubb Road                      3003 Tasman Drive
           Cupertino, CA 95014                  Santa Clara, CA 95054-1191

I, the Secretary or Assistant Secretary of Durect Corporation ("Borrower"),
CERTIFY that Borrower is a corporation existing under the laws of the State of
Delaware.

I certify that at a meeting of Borrower's Directors (or by other authorized
corporate action) duly held the following resolutions were adopted.

It is resolved that any one of the following officers of Borrower, whose name,
title and signature is below:

      NAMES              POSITIONS                          ACTUAL SIGNATURES
      -----              ---------                          -----------------
Thomas A. Schreck  Chief Financial Officer               /s/ Thomas A. Schreck
------------------ ----------------------------------- -------------------------
James E. Brown     President & Chief Executive Officer   /s/ James E. Brown
------------------ ----------------------------------- -------------------------
Felix Theeuwes     Chairman & Chief Scientific Officer   /s/ Felix Theeuwes
------------------ ----------------------------------- -------------------------
------------------ ----------------------------------- -------------------------
may act for Borrower and:

     Borrow Money.  Borrow money from Silicon Valley Bank ("Bank").

     Execute Loan Documents.  Execute any loan documents Bank requires.

     Grant Security.  Grant Bank a security interest in any of Borrower's
     assets.

     Negotiate Items.  Negotiate or discount all drafts, trade acceptances,
     promissory notes, or other indebtedness in which Borrower has an interest
     and receive cash or otherwise use the proceeds.

     Letters of Credit.  Apply for letters of credit from Bank.

     Foreign Exchange Contracts.  Execute spot or forward foreign exchange
     contracts.

     Issue Warrants.  Issue warrants for Borrower's stock.

     Further Acts.  Designate other individuals to request advances, pay fees
     and costs and execute other documents or agreements (including documents or
     agreement that waive Borrowers right to a jury trial) they think necessary
     to effectuate these Resolutions.

Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and
Bank may rely on them until Bank receives written notice of their revocation.

I certify that the persons listed above are Borrower's officers with the titles
and signatures shown following their names and that these resolutions have not
been modified are currently effective.

                                      -1-
<PAGE>

CERTIFIED TO AND ATTESTED BY:

X /s/ Mark B. Weeks
  -----------------------------------------------
 *Secretary or Assistant Secretary

X _______________________________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.

                                      -2-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}]]