Document:

<PAGE>   1
                                                                  EXHIBIT 10.19

                        STOCK OPTION EXTENSION AGREEMENT
                    FOR STOCK OPTIONS GRANTED PURSUANT TO THE
                  LANGUAGEWARE.NET CEO SHARE OPTION PLAN (1999)

         AGREEMENT made as of October 17, 2000, by TODD OSETH, hereinafter
referred to as "Option Holder", and LanguageWare.net, hereinafter referred to as
the "Corporation".

         WHEREAS, pursuant to its CEO Share Option Plan (1999) (the "Plan") the
Corporation has previously granted options to Option Holder to purchase
1,812,000 ordinary shares of the Corporation, NIS $0.01, ("Options") all which
are fully vested and 1,000,000 of which are exercisable at $0.160 per share and
812,000 of which are exercisable at $0.344 per share;

         WHEREAS, Option Holder resigned from the Corporation effective as of
September 29, 2000 ("Termination Date"); and

         WHEREAS, the Plan provides that all of the Options will expire ninety
(90) days after the Termination Date unless exercised by Option Holder prior to
that time; and

         WHEREAS, the parties hereto desire to extend the period of exercise of
the Options until September 29, 2001 pursuant to the terms and conditions of
this Agreement.

         THEREFORE, in consideration of the promises contained herein and the
benefits to be derived herefrom, the parties agree as follows:

Terms of Plan/Options to Govern. All provisions of this contract and the rights
of the Option Holder hereunder are subject in all respects to the provisions of
the Plan which are hereby incorporated by this reference and made a part of this
agreement. Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Plan. Except as modified by this Agreement, the terms of the
Options previously granted and the terms of the Plan shall continue to govern
the Options and the rights of the Option Holder.

         2. Extension of Right to Exercise.

         a.       During the period beginning on the Termination Date and ending
                  on the six (6) month anniversary of the Termination Date, no
                  Options shall be exercisable by the Option Holder.

         b.       Beginning on March 29, 2001, the Options shall be exercisable
                  in the following amounts during the following periods:

<TABLE>
<CAPTION>
         Period of Exercise                          Options Exercisable
         ------------------                          -------------------
         <S>                                         <C>
         March 29, 2001 - April 29, 2001:            300,000 options
         April 30, 2001 - May 29, 2001:              300,000 options
         May 30, 2001 - June 29, 2001:               300,000 options
         June 30, 2001 - July 29, 2001:              300,00 options
         July 30, 2001 - August 29, 2001:            300,000 options
         August 30, 2001 - September 29, 2001:       312,000 options
</TABLE>

<PAGE>   2

         Any Options not exercised during the respective periods set forth shall
immediately expire and be forever forfeited. For example, if between March 29,
2001 and April 29, 2001 Option Holder exercises 200,000 Options, 100,000 Options
shall immediately expire on April 30, 2001.

         c.       Notwithstanding the foregoing, in the event the Corporation
                  shall not be the surviving corporation in any merger,
                  consolidation, or reorganization (except any such transaction
                  consummated solely for the purpose of changing the domicile of
                  the Corporation) or in the event of the acquisition by another
                  corporation of all or substantially all of the assets of the
                  Corporation and if such surviving, continuing, successor or
                  purchasing corporation does not agree to assume or replace the
                  Options, or in the event of the liquidation or dissolution of
                  the Corporation, the Options shall become immediately
                  exercisable to the extent of all of the aggregate number of
                  shares subject to this Option not having been previously
                  exercised or expired for a period commencing 30 days
                  immediately prior to and ending on the day immediately prior
                  to such merger, consolidation, reorganization or acquisition
                  of all or substantially all of the assets of the Corporation,
                  or the liquidation or dissolution of the Corporation, but in
                  no event later than September 29, 2001.

         d.       The Options may be exercised only by Option Holder during his
                  lifetime, and may not be transferred, assigned, pledged or
                  hypothecated in any way, except by a will of Option Holder or
                  by the laws of descent and distribution, and such Options
                  shall not be subject to execution, attachment or similar
                  process. Upon any attempt to transfer, assign, pledge,
                  hypothecate or otherwise dispose of the Options, or of any
                  right or privilege conferred hereby, contrary to the
                  provisions of the Plan and this Agreement, or upon the levy of
                  any attachment or similar process of the Options, right or
                  privilege, the Options shall immediately become null and void.

         e.       Option Holder shall give written notice by providing a "Notice
                  of Exercise" attached hereto as Exhibit A to the Corporation
                  of his intent to exercise any Options subject to the Plan and
                  this Agreement. The Notice of Exercise properly completed,
                  accompanied by the total exercise price in certified funds,
                  shall be sent to the Corporation's principal offices located
                  at 102 South Tejon Drive, Suite 320, Colorado Springs,
                  Colorado 80903, Attn. Tom Foster, CFO.

         f.       The exercise of any Options is contingent upon the receipt by
                  the Corporation of US dollars in certified funds in an amount
                  equal to the full exercise price of the shares being
                  purchased.

         g.       Option Holder shall have no rights as a shareholder with
                  respect to any shares of stock subject to an Option prior to
                  the date of issuance to him of a certificate or certificates
                  for such shares.

3.       Release of Claims. Option Holder does hereby for himself, his heirs,
         personal representatives and assigns, release and forever discharge the
         Corporation from any and all claims, demands, and causes of action of
         any nature whatsoever which exist as of the date hereof, whether known
         or unknown.

<PAGE>   3

4.       Notices. Any notice to the Corporation required to be made under the
         terms of the Agreement or under the terms of the Plan shall be
         addressed to the Corporation at 102 South Tejon Drive, Suite 320,
         Colorado Springs, Colorado 80903, Attn. Tom Foster, CFO, and any notice
         required to be made to Option Holder under the terms of the Agreement
         or under the terms of the Plan shall be addressed to him at:

              Todd Oseth
              110 Sierra Vista
              Colorado Springs, CO 80906

5.       Governing Law. This Agreement shall be construed in accordance with the
         laws of the State of Colorado.

<PAGE>   4

         IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.

                                   OPTION HOLDER:

                                   By: /s/ Todd Oseth
                                      ------------------------------------------
                                   Todd Oseth

                                   LANGUAGEWARE.NET (COMPANY) LTD.

                                   By: /s/ Fred A. Snow
                                      ------------------------------------------
                                      Fred A. Snow, Chief Executive Officer

<PAGE>   5

                                  EXHIBIT A TO
                          CEO SHARE OPTION PLAN (1999)
                               NOTICE OF EXERCISE

The undersigned, the holder of Options granted by LanguageWare.net (Company)
Ltd., hereby irrevocably elects to exercise the purchase rights represented by
such Options.

I would like to exercise:

<TABLE>
<CAPTION>
                                         PER SHARE              TOTAL AMOUNT
GRANT DATE         # OF SHARES         EXERCISE PRICE         (SHARES X PRICE)
<S>                <C>                 <C>                    <C>

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

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

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

----------         -----------         --------------         ----------------
</TABLE>

I herewith tender in payment for such Ordinary Shares the amount of $___________
in U.S. dollars by cashier's or certified check made payable to LanguageWare.net
(Company) Ltd., all in accordance with the terms of the option grant, and
request the shares be issued as one certificate for ___________________ shares
and registered in my name as shown below.

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

My social security number is: ____________-________-_______________

My name and address is (please print):

       (Full Name)
                  -------------------------------------------------------------

         (Address)
                  -------------------------------------------------------------

(City, State, Zip)
                  -------------------------------------------------------------

----------------------------------------           ----------------------------
        (Signature of Optionee)                               (Date)<PAGE>

                                                                  Exhibit 10.5

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

                       DEVELOPMENT AND LICENSE AGREEMENT

          THIS DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement") is entered
into on this 25th day of April, 2000 (the "Effective Date") by and between
Adolor Corporation, 371 Phoenixville Pike, Malvern, PA, 19355, a corporation
organized under the laws of the state of Delaware ("Adolor"), and Santen
Pharmaceutical Co., Ltd., 9-19 Shimoshinjo 3-chome, Higashiyodogawa-ku, Osaka,
533-8561, Japan, a corporation organized under the laws of Japan ("Santen").

                                   RECITALS

          WHEREAS, Adolor owns or has exclusive rights to certain patents and
other proprietary information and know-how relating to the treatment of
hyperalgesia; and

          WHEREAS, Santen desires to obtain certain licenses in certain
countries of the world from Adolor to develop and commercialize pharmaceutical
products for ophthalmic uses in humans in such countries under the aforesaid
patents and know-how;

          NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the Parties hereby agree to be legally bound
as follows:
<PAGE>

                                   AGREEMENT

                                   ARTICLE 1

                                  DEFINITIONS

          For the purposes of this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

     Section 1.01.  "Adolor Know-How" means any and all Adolor information and
know-how, including, but not limited to, processes, techniques, data, methods,
materials, compositions and trade secrets now or hereafter owned or Controlled
by Adolor relating to the Compound which (i) are not generally known and (ii)
are or can be used by Santen in the Field.

     Section 1.02.  "Adolor Patents" means all patents and patent applications,
set forth in Appendix A attached hereto, or subsequently filed by Adolor, owned
or Controlled by Adolor during the term of this Agreement, claiming or
disclosing inventions necessary or useful to Santen in the development, use or
manufacture of the Product in the Field, including any and all extensions,
renewals, continuations, continuations-in-part, divisions, patents-of-additions,
reissues, supplementary protection certificates or foreign counterparts of any
of the foregoing.

     Section 1.03.  "Affiliate" means any entity that directly or indirectly
owns, is owned by or is under common ownership, with a Party to this Agreement.
"Own" or "ownership" means direct or indirect possession of at least fifty
percent (50%) of the outstanding voting securities of

                                       2
<PAGE>

a corporation or a comparable equity interest in any other type of entity, or
means substantial control of a corporation.

     Section 1.04.  "Agents" means the officers, directors, employees,
consultants and agents of a Party.

     Section 1.05.  "Agreement" means this Development and License Agreement.

     Section 1.06.  "Business Day" means any day other than (i) a Saturday or a
Sunday; (ii) a day on which both United States federal and state banking
institutions in New York City are authorized or obligated by law or executive
order to close; or (iii) nationally recognized holidays in Japan.

     Section 1.07.  "Calendar Quarter" means the three month period ending on
March 31, June 30, September 30 and December 31.

     Section 1.08.  "Calendar Year" means the twelve month period commencing
January 1 and ending December 31.

     Section 1.09.  "Compound" means loperamide, which is 4-(4-chlorophenyl)-4-
hydroxy-N, N-dimethyl-alpha, alpha-diphenyl-1-piperidinebutanamide.

     Section 1.10.  "Confidential Information" means the confidential or
proprietary information disclosed by one Party to the other Party, as further
defined in Section 7.01.

     Section 1.11.  "Control" means having the right to grant a license or
sublicense under this Agreement for herein without violating the terms of any
other agreements.

                                       3
<PAGE>

     Section 1.12.  "Development Program" means the program for commercially
developing the Product Candidate as described in Section 3.01.

     Section 1.13.  "Distributor" means a distributor of the Products appointed
by either Santen, an Affiliate or a Sublicensee, who may hold the Government
Approval for the Products issued by Regulatory Authorities as may be required by
local law, and who has the right to distribute the Products but not the right to
develop or manufacture the Products.  "Distributor" specifically excludes
Santen, Affiliates and Sublicensees.

     Section 1.14.  "Effective Date" means the date upon which this Agreement is
effective and shall be the date of this Agreement first written above.

     Section 1.15.  "EU" means all the member countries of European Union as may
be extended from time to time.

     Section 1.16.  "FDA" means the United States Food and Drug Administration
or any successor agency thereof.

     Section 1.17.  "Field" means the topical application in humans in the eye
of Compound for the treatment of hyperalgesia in the eye.

     Section 1.18.  "First Commercial Sale" means, on a country by country
basis, the first sale of the Product after Governmental Approval has been
obtained.

     Section 1.19.  "cGMP" or "GMP" means the current Good Manufacturing
Practice regulations promulgated by the FDA.

                                       4
<PAGE>

     Section 1.20.  "Government Approval" means all approvals, licenses,
registrations or authorizations, including pricing approval where such approval
is required for Product sales, of any federal, state or local regulatory agency,
department, bureau or other government entity, foreign or domestic, necessary
for the manufacture, use, storage, import, transport and sale of the Product in
a regulatory jurisdiction.

     Section 1.21.  "IND" means (i) an Investigational New Drug application
filed pursuant to the requirements of the FDA, as more fully defined in 21 CFR
(S)312.3 as well as (ii) equivalent submissions with similar requirements to the
appropriate Regulatory Authority in other countries in the Territory.

     Section 1.22.  "Initiation" means the date of enrollment of the first
patient in a clinical study.

     Section 1.23.  "Major Markets" means the United States, Germany, France,
United Kingdom, Italy and Japan.

     Section 1.24.  "NDA" or "New Drug Application" means an application to the
FDA or corresponding foreign equivalent to commence sale of Product which is the
subject of the study as defined in 21 CFR (S)312.21(c).

     Section 1.25.  "Net Sales" means the gross selling price by Santen or its
Affiliates or Sublicensees of all sales of the Products to any Distributor or
other Person; less the following deductions, on a country-by-country basis: (a)
normal and customary trade, cash and quantity discounts, allowances and credits
in the calendar year in question; (b) credits or allowances

                                       5
<PAGE>

granted for damaged goods, returns or rejections of Products and retroactive
price reductions; (c) sales or similar taxes (including duties or other
governmental charges) levied, absorbed or otherwise imposed on the sale of the
Products, including, without limitation, value added taxes or other governmental
charges otherwise measured by the billing amount, when separately itemized
included in such billing; (d) freight, postage, shipping, customs duties, and
insurance charges when separately itemized in the invoice; and (e) charge back
payments, discounts, and rebates (whether mandated or otherwise) granted to
trade customers, or federal, state and local governments and their agencies,
including, without limitation, buying groups, and charge back payments,
discounts and rebates (whether mandated or otherwise) charged by national or
local governmental authorities in countries within the Territory. Sales between
or among Santen, its Affiliates or Sublicensees shall not be Net Sales. If
Santen wishes to bundle Product with other products, Santen shall have the right
to do so, provided that the parties shall negotiate in good faith the Net Sales
price for the bundled Product to be used for the purposes of Royalty
calculations hereunder, which Net Sales price shall reflect a commercially
reasonable discount based on the bundle price compared to the unbundled prices
of the bundled products. As used herein, a "bundle" is two or more products, in
which at least one product is not a Product, sold together as a unit at a single
price for the unit.

     Section 1.26.  "Party" means Santen or Adolor.  Parties shall mean Adolor
and Santen.

     Section 1.27.  "Person" means an individual, a corporation, a partnership,
an association, a trust or other entity or organization.

                                       6
<PAGE>

     Section 1.28.  "Phase I Clinical Trial" means studies for a Product
Candidate meeting the definition of Phase I clinical studies as defined in 21
CFR (S) 312.21(a), or any foreign equivalent thereof.

     Section 1.29.  "Phase II Clinical Trial" means studies for a Product
Candidate meeting the definition of Phase 2 clinical studies as defined in 21
CFR (S) 312.21(b), or any foreign equivalent thereof.

     Section 1.30.  "Phase III Clinical Trial" means studies for a Product
Candidate meeting the definition of Phase 3 clinical studies as defined in 21
CFR (S) 312.21(c), or any foreign equivalent thereof.

     Section 1.31.  "Product" means a pharmaceutical product containing the
Compound formulated for ophthalmic application for use in the Field.

     Section 1.32.  "Product Candidate" means a formulation containing the
Compound which Santen wishes to commercially develop to become a Product.

     Section 1.33.  "Region" means one of two geographical areas within the
Territory, comprising the following: (i) the United States and European Union
(the "Western Region") and (ii) the rest of the countries of the world except
North and South Korea (the "International Region").

     Section 1.34.  "Registration Application" means any filing(s) made with the
Regulatory Authority in any country in the Territory for Government Approval of
the manufacture, marketing and/or sale of a Product in such country.

                                       7
<PAGE>

     Section 1.35.  "Regulatory Authority" means the authority(ies) in each
country in the Territory with responsibility for granting Government Approval
for the manufacturing, marketing and/or sale of the Product in such country, and
any successor(s) thereto.

     Section 1.36.  "Royalties" means all royalties payable pursuant to Article
2 herein.

     Section 1.37.  "Santen Know-How" means any and all Santen information and
know-how, including, but not limited to, processes, techniques, data, methods,
materials, compositions and trade secrets now or hereafter owned or Controlled
by Santen relating to the Compound, Products and/or Product Candidates which (i)
are not generally known and (ii) are or can be used by Santen in the Field.

     Section 1.38.  "Santen Patents" means all patents and patent applications
now owned or Controlled by Santen, or hereafter acquired or Controlled by Santen
claiming or disclosing inventions which cover the development, use or
manufacture of the Product in the Field.

     Section 1.39.  "Sublicensee" means a third party to which Santen has
granted a sublicense to develop or manufacture and/or sell Products.  Santen, in
its sole discretion, may or may not grant Sublicensees the right to sell
Products directly to third parties.

     Section 1.40.  "Territory" means all countries and territories in the world
(except North and South Korea) and consists of the Western Region and the
International Region.

     Section 1.41.  "US" means the United States of America

                                       8
<PAGE>

                                   ARTICLE 2

                                 LICENSE TERMS

     Section 2.01.  License to Santen.
                    -----------------

          (a) Adolor hereby grants Santen an exclusive royalty-bearing license,
with the right to grant sublicenses, subject to Section 2.02, under Adolor
Patents, to develop, make, have made, use, import, offer for sale and sell
Products in the Field in the Territory.

          (b) Adolor hereby grants Santen an exclusive, royalty-bearing license,
with the right to grant sublicenses, subject to Section 2.02, under Adolor Know-
How to develop, make, have made, use, import, offer for sale and sell Products
in the Field in the Territory.

          Section 2.02.  Sublicensees.  Santen shall include in all of its
                         ------------
agreements with its Affiliates and Sublicensees terms and conditions consistent
with the relevant terms and conditions contained in this Agreement.  Santen
shall use commercially reasonable efforts to enforce the terms and conditions of
those agreements, up to and including termination for cause, subject to a
reasonable cure period.  Santen hereby agrees to guarantee the performance of
any of its Affiliates under such agreements.

          Section 2.03.  Santen Patents and Santen Know-How.  Santen Patents and
                         ----------------------------------
Santen Know-How shall be the exclusive property of Santen, and unless otherwise
agreed in writing between the Parties, Adolor shall not have the right to
develop, make, use, sell, offer to sell or import any products under any Santen
Patents or utilizing any Santen Know-How.

                                       9
<PAGE>

     Section 2.04.  Royalties.
                    ---------

          In partial consideration of the licenses granted in Article 2.01,
Santen shall pay Adolor the following Royalties on annual Net Sales of the
Products:

          (a) In consideration for the license under Adolor Patents granted to
Santen under Section 2.01(a), for each country in which Santen (and/or Santen's
Sublicensees, Affiliates or Distributors) sells Products and in which there is
also a published or issued Adolor Patent, Santen shall pay Adolor on country-by-
country basis a running Royalty of ** percent (**%) of Net Sales in the Western
Region and ** percent (**%) of Net Sales in the International Region.
Santen's obligation shall expire on a country-by-country basis upon the date of
expiration of the last-to-expire Adolor Patent in such country.

         (b) In consideration for the license under Adolor Know-How granted to
Santen under Section 2.01(b), Santen shall pay Adolor a running Royalty of **
percent (**%) of Net Sales in the Western Region and ** percent (**%) of Net
Sales in the International Region on a country-by-country basis until the **
(**) anniversary of the First Commercial Sale in that country. Such Royalties
shall be payable prior to and after the expiration of an Adolor Patent in the
country in question, subject to subsection (c).

          (c) Subject to Section 8.04(b), in the event that there is Substantial
Competition for a Product in a Calendar Year in a country in the Territory in
which there are no issued or published Adolor Patents, then the Royalties due
under Section 2.04(b) for Net Sales in that country for that Product in that
Calendar Year shall be reduced by ** percent (**%).  "Substantial
Competition" shall mean that one or more third parties other than Santen, its

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

                                       10
<PAGE>

Affiliates, Sublicensees or Distributors is selling a "Competitive Product" in
that country, and that the aggregate sales, by equivalent units, of Competitive
Products in a Calendar Year total more than ** percent (**%) of the total
sales, by equivalent units (as determined by IMS or its equivalent in the
relevant country), in the Field in such country.  "Competitive Product" shall
mean a product that contains the same active ingredients, including Compound,
and which is being promoted or sold for the same indication in the Field as is
being sold by Santen, its Affiliates, Sublicensees or Distributors in the same
country in the Territory.

          (d) Notwithstanding the foregoing, the aggregate running Royalty under
Sections 2.04(a) and (b) for a country in the Western Territory shall not exceed
** percent (**%) and ** percent (**%) for a country in the International
Territory.

          (e) Only one Royalty shall be due with respect to the same unit of
Product.

          (f) For each successive twelve (12) month period commencing on the
First Commercial Sale of a Product in a particular country, in no event shall
samples and donations of that Product in that country exceed: (i) **% of all
units distributed in the first twelve months; (ii) **% of all units distributed
in the second twelve months; (iii) **% of all units distributed in the third
twelve months; (iv) **% of all units distributed in the fourth twelve months;
and (v) **% of all units distributed thereafter.  In no event shall samples and
donations be subject to Royalties under this Agreement.

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

                                       11
<PAGE>

     Section 2.05.  Sales Bonus.
                    -----------

          Santen shall pay Adolor One Million Dollars ($1,000,000) when
aggregate gross sales (obtained by aggregating the gross selling price of the
Products) in Major Markets achieve Seventy Five Million Dollars ($75,000,000)
and an additional payment to Adolor of One Million Five Hundred Thousand Dollars
($1,500,000) when aggregate gross sales (obtained by aggregating the gross
selling price of the Products) in Major Markets achieve One Hundred and Fifty
Million Dollars ($150,000,000). Sales Bonuses shall be one time payments and
shall not exceed ** Dollars ($**).

     Section 2.06.  Royalty Statements.
                    ------------------

          Within fifty (50) days following the close of each Calendar Quarter
following the First Commercial Sale of a Product, Santen shall furnish to Adolor
a written report for such Calendar Quarter just ended, indicating the Net Sales
during such Calendar Quarter and the Royalties payable under this Agreement.
Such report shall include the Net Sales of Santen's Affiliates and Sublicensees.
Adolor acknowledges and agrees that for certain countries it may not be possible
for Santen to obtain sales reports for the previously ended Calendar Quarter
within fifty (50) days following the close of such Calendar Quarter, and that
Santen shall provide such sales reports with the next sales report for the
following Calendar Quarter.  Simultaneously with the submission of each written
report, Santen shall pay to Adolor, for the account of Santen or the applicable
Affiliate or Sublicensee, as the case may be, a sum equal to the aggregate
Royalty due for such Calendar Quarter based on the information in the report and
calculated in accordance with this Agreement (reconciled for any previous
overpayments or underpayments).

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

                                       12
<PAGE>

Together with all Royalty payments due, Santen shall deliver to Adolor a
statement setting forth for each Product, on a country-by-country basis, the
gross sales during the preceding Calendar Quarter, the itemized deduction to
obtain the Net Sales, the applicable percentage Royalty rates, and a computation
of such Royalties due (the "Royalty Statement").

     Section 2.07.  Audits.
                    ------

          (a) Upon the written request of Adolor and not more than once in each
Calendar Year, Santen shall permit an independent certified public accounting
firm of nationally recognized standing selected by Adolor and reasonably
acceptable to Santen, at Adolor's expense, to have access during normal business
hours to such records of Santen as may be reasonably necessary to verify the
accuracy of the Royalty Statements for any year ending not more than thirty-six
(36) months prior to the date of the request.  The accounting firm shall
disclose to Adolor only whether the Royalty Statements are correct or incorrect
and the specific details concerning any discrepancies (such as any amounts due).
No other information shall be provided to Adolor.

          (b) If based on the report from the accounting firm, Adolor concludes
that additional Royalties were owed during such period, Santen shall pay the
additional Royalties within thirty (30) days of the date Adolor delivers to
Santen such accounting firm's written report and Adolor's conclusions.  The fees
charged by such accounting firm shall be paid by Adolor, however, if such
additional Royalties due for the period are five percent (5%) or more than the
amount of Royalties previously reported and paid by Santen for the period, then
Santen shall pay the fees charged by such accounting firm.  Santen shall
promptly reimburse Adolor for any

                                       13
<PAGE>

underpayment along with any interest due thereon under Section 2.09. In the
event such audit reveals an overpayment of the amount actually due, Adolor shall
credit such overpayment against future Royalties Santen otherwise would pay
Adolor.

          (c) Santen shall require each Affiliate and Sublicensee to make
reports to Santen, to keep and maintain records of sales made under this
Agreement and to grant access to such records to Adolor's independent accountant
to the same extent required of Santen under this Agreement.

          (d) Adolor shall treat all financial information subject to review
under this Section in accordance with the confidentiality provisions of this
Agreement, and shall cause its accounting firm to enter into an acceptable
confidentiality agreement obligating it to retain all such financial information
in confidence pursuant to such confidentiality agreement.

     Section 2.08.  Payment Exchange Rate.
                    ---------------------

          All payments to be made by Santen to Adolor under this Agreement shall
be made in United States dollars and may be paid by bank wire transfer in
immediately available funds to such bank account in the United States designated
in writing by Adolor from time to time.  In case of sales outside the United
States, the rate of exchange to be used in computing the currency equivalent in
United States dollars due Adolor shall be made at the rate of exchange as quoted
in the Wall Street Journal (Eastern Edition), prevailing on the last Business
Day of the Calendar Quarter.

                                       14
<PAGE>

     Section 2.09.  Interest.
                    --------

          Any payment due hereunder to Adolor shall bear interest from and after
the date when such payment is due up to and including the date when such payment
is paid by Santen at a rate, compounded daily, equal to twice the prime rate per
annum, using the prime rate as quoted in the Wall Street Journal (or, if the
Wall Street Journal ceases to publish such information, Reuters Information
Service, or, if neither publishes such information, another similar service or
source reasonably acceptable to Santen and Adolor) on the date such payment is
due, or if such date is not a Business Day, the first Business Day following
such date.

     Section 2.10.  Taxes.
                    -----

          If laws, rules or regulations require withholding of income or other
taxes imposed upon payments set forth in Articles 2 and/or 4, Santen shall make
such withholding payments as required and subtract such withholding payments
from the payments set forth in Articles 2 and 4.  Santen shall submit
appropriate proof of payment of the withholding taxes to Adolor within a
reasonable period of time.

                                   ARTICLE 3

                              DEVELOPMENT PROGRAM

     Section 3.01.  Development Program.
                    -------------------

          Santen shall be responsible for the planning and conducting of all
pre-clinical and clinical development trials necessary to obtain Government
Approval of Product Candidates, including without limitation, all formulation,
pharmacological, toxicological, clinical and

                                       15
<PAGE>

regulatory work. The Development Program shall be conducted at Santen's sole
expense and in Santen's sole discretion. Adolor shall cooperate with Santen in
its endeavors to obtain Government Approval as reasonably requested by Santen.
Santen shall be responsible for making all necessary regulatory filings for the
Product, and shall be the sole owner of all regulatory submissions and
Government Approvals obtained from relevant governmental authorities.

     Section 3.02.  Cooperation of Adolor.
                    ---------------------

          If requested by Santen, and at no additional expense to Santen, Adolor
will provide Santen with such advice and assistance as Santen may reasonably
request in connection with the Development Program.  Adolor shall provide up to
** (**) hours of advice and assistance at no charge to Santen.
All advice and assistance over the ** (**) hour threshold will
be provided by Adolor at the rate of $** per hour.  Amounts owed hereunder
shall be invoiced no more than once per month, and payment shall be due not
later than thirty (30) days after Santen's receipt of the invoice therefor.

     Section 3.03.  Assignment of IND.
                    -----------------

          Adolor agrees to transfer to Santen, and hereby does transfer to
Santen, all rights, title and interest in and to that certain IND having IND
number 55834 filed with the FDA on April 29, 1998, which IND is currently owned
and held by Adolor.  Adolor shall take such actions and execute such documents
as may be reasonably necessary to effectuate the foregoing assignment.

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

                                       16
<PAGE>

                                   ARTICLE 4

                              FEES AND MILESTONES

     Section 4.01.  Research Fees.
                    -------------

          (a) Santen shall pay to Adolor a research reimbursement of Five
Hundred Thousand Dollars ($500,000) upon execution of this Agreement.

          (b) If Santen participates in the initial public offering of Adolor's
common stock under the provisions of Section 6.01, Santen shall pay to Adolor an
additional research reimbursement of ** Dollars ($**) within ten (10) days
after the receipt of the registered common stock by Santen under Section 6.01.

     Section 4.02.  Milestone Payments.
                    ------------------

          Santen shall make the following one-time payments to Adolor within ten
(10) Business Days of achievement of the following milestones:

          (a) Upon the first to occur of (i) the Initiation of the first Phase I
Clinical Trial for a Product Candidate, or (ii) eighteen (18) months from the
Effective Date, $**; and

          (b) Upon the first occur of (i) Initiation of the first Phase II
Clinical Trial for a Product Candidate, or (ii) twenty-four (24) months from the
Effective Date, $**; and

          (c) Upon the first to occur of (i) the Initiation of the first Phase
III Clinical Trial for a Prototype Product, or (ii) thirty-six (36) months from
the Effective Date, $**; and

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

                                       17
<PAGE>

          (d) Upon the first to occur of (i) the first filing of NDA for Product
Candidate in the US or a country or countries in the EU, or (ii) six (6) years
from the Effective Date, $**; and

          (e) Upon the first to occur of (i) the first filing of an NDA in Japan
for the Product Candidate, or (ii) ten (10) years from the Effective Date,
$**; and

          (f) Upon the first to occur of (i) NDA approval in the US or a country
or countries in the EU for the Product Candidate, or (ii) seven (7) years from
the Effective Date,  $**; and

          (g) Upon the first to occur of (i) NDA approval in Japan for the
Product Candidate, or (ii) eleven (11) years from the Effective Date, $**;
and

          (h) Upon the first to occur of (i) NDA approval in both a country or
countries in the EU and the US for the Product Candidate, or (ii) eight (8)
years from the Effective Date, $**.

     Section 4.03.  Payments.
                    --------

          All payments to Adolor under this Agreement shall be by wire transfer
to Adolor's bank account in immediately available funds.

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

                                       18
<PAGE>

                                   ARTICLE 5

                         CO-PROMOTION AND CO-MARKETING

          Adolor shall have the right to market and sell Product in the United
States to hospitals, which right shall be exclusive for emergency room
physicians, and co-exclusive with Santen for other than emergency room
physicians.  Therefore, the Parties shall negotiate in good faith a written
agreement under commercially-reasonable terms, such negotiation to commence on
the earlier of (1) Adolor's request to negotiate such agreement or (2) no later
than ninety days after Santen has paid the Initiation of Phase III milestone,
subject to Section 4.02.

                                   ARTICLE 6

                             PURCHASE OF IPO SHARES

          In the event that Adolor issues common stock that is registered
pursuant to an underwritten initial public offering pursuant to an S-1
Registration Statement under the Securities Act of 1933 ("IPO Shares"), Santen
shall subscribe for the purchase of, and shall purchase, from the underwriters
as part of the initial public offering that number of IPO Shares which in the
aggregate have a total value equal to $800,000.  Adolor shall assist Santen in
contacting the underwriters, and Adolor shall use commercially reasonable
efforts to direct the underwriters to issue the IPO shares to Santen, to the
extent Adolor has the ability to do so.

                                       19
<PAGE>

                                   ARTICLE 7

                                CONFIDENTIALITY

          During the performance of this Agreement, it will be necessary for
either Party to disclose to the other information which the disclosing Party
considers to be confidential.  This information may include any data,
information, know-how (including without limitation Adolor Know-How and Santen
Know-How) and materials, including information which is discovered by or brought
to the attention of respectively, Santen or Adolor by, respectively Adolor or
Santen, during or as a result of, directly or indirectly, the performance of the
Agreement (hereinafter "Confidential Information").  Santen acknowledges that
prior to the Effective Date, Adolor has provided Confidential Information to
Santen, including but not limited to Pharmaceutical Development Report - **
**, **%, clinical protocols for Phase I and Phase II clinical studies, stability
protocols and stability reports, Formulation Development Report - **%, **%, and
**%, Phase I and Phase II Clinical Trial Reports and sections of Adolor's IND.
Such previously provided Confidential Information shall be governed by this
Article 7.

          (a) For purposes of this Agreement, each Party hereto is a "Submitter"
as to Confidential Information disclosed or provided by it under this Agreement
and each is a "Recipient" as to Confidential Information disclosed or provided
to it under this Agreement.

          (b) Recipient will employ the same degree of care to keep all
Confidential Information confidential as it employs with respect to its own
information of like importance.  Without the prior written consent of the
Submitter, Recipient will not disclose any Confidential

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

                                       20
<PAGE>

Information to any third party, including its employees, except to those who
need to know such Confidential Information to achieve the purpose of this
Agreement, each such third party being referred to herein as an "Authorized
Party". Recipient and any Authorized Party will use the Confidential Information
only for the purposes of this Agreement.

          (c) Each Authorized Party to whom any Confidential Information is
revealed shall previously have been informed of the confidential nature of the
Confidential Information and have agreed to be bound by terms and conditions
substantially equivalent to those in this Agreement applicable to Recipient.
Recipient shall use its best efforts so that the Confidential Information is not
used or disclosed by such Authorized Party except as permitted by this Agreement
and Recipient shall be responsible for any breach of this Article 7.

          (d) All Confidential Information shall remain the property of
Submitter.  Upon the written request of Submitter (i) all tangible Confidential
Information (including all copies thereof and all unused samples), except for
Confidential Information consisting of analyses, studies and other documents
prepared by or for the benefit of Recipient, shall be promptly returned to
Submitter, and (ii) all portions of such analyses, studies and other documents
prepared by or for the benefit of Recipient (including all copies thereof) which
are within the definition of Confidential Information shall be destroyed;
provided that Recipient may retain one copy of Confidential Information in a
secure location for purposes of identifying its obligations under this
Agreement.

          (e) The obligations of Recipient as to confidentiality and non-use set
forth in this Agreement shall continue for the term of this Agreement, provided
however, if the

                                       21
<PAGE>

Agreement is terminated early, the confidentiality term shall survive
termination; but shall not apply to any portion of the Confidential Information
which:

          (i) is or becomes public or generally available otherwise than through
the act or default of Recipient or any Authorized Party;

          (ii) is obtained by Recipient from a third party who is lawfully in
possession of such Confidential Information and is not subject to an obligation
of confidentiality or non-use owed to Submitter;

          (iii)  is previously known to Recipient prior to disclosure to
Recipient by Submitter under this Agreement and not obtained directly or
indirectly from Submitter;

          (iv) is independently developed, discovered or arrived at by
Recipient without use of the Confidential Information;

          (v) is disclosed by Recipient pursuant to a requirement of  law,
provided that Recipient has complied with the provisions set forth in sub-
section 9.01(g);

          (vi) is the subject of a written permission to disclose provided
by the Submitter;

          (vii)  is disclosed to governmental or other regulatory agencies in
order to gain approval to conduct clinical trials or to market Product, but such
disclosure may be only to the extent reasonably necessary to obtain
authorizations and shall be made in accordance to the Recipient's normal
business practices as consistently applied to other products and, also, to

                                       22
<PAGE>

the extent possible the Recipient will request that such governmental or other
regulatory agencies treat such information as confidential;

          (viii)  is necessary to be disclosed to Agents, consultants,
Affiliates and/or other third parties for the research and development and/or
marketing of the Product (or for such parties to determine their interest in
performing such activities) in accordance with this Agreement on the condition
that such third parties agree to be bound by the confidentiality obligations
contained in this Agreement; or

          (ix) is incorporated in a patent application directed to the
manufacture, formulation, composition or use of Compound.

          (f) The Parties agree that the terms of this Agreement will be
considered Confidential Information of both Parties.  Notwithstanding the
foregoing, either Party shall have the further right to disclose the material
financial terms of the Agreement to any potential acquirer, merger partner or
significant investor, provided, however, that in connection with any such
disclosure, the Party disclosing such information shall use reasonable efforts
to secure confidential treatment of such information.  However, Adolor shall be
permitted to disclose the existence and contents of this Agreement as part of a
filing to the United States Securities and Exchange Commission, but shall
endeavor to obtain Confidential treatment for the financial and business terms.
In addition, the press release set forth in Exhibit C shall be released
immediately upon execution of this Agreement by the Parties.  Notwithstanding
the foregoing, either Party shall have the right to disclose the material
financial terms of the Agreement to any potential acquirer, merger partner or
significant investor, provided, however, that in connection with any

                                       23
<PAGE>

such disclosure, the Party disclosing such information shall use reasonable
efforts to secure confidential treatment of such information.

          (g) Upon receipt by Recipient of an order or legal request for
Confidential Information, Recipient will give Submitter prompt notice of such
fact so that Submitter may obtain a protective order or other appropriate remedy
concerning any such disclosure and/or waive compliance with the non-disclosure
provisions of this Agreement.  Recipient will fully cooperate with Submitter in
connection with Submitter's efforts to obtain any such order or other remedy.
If any such order or other remedy does not fully preclude disclosure or
Submitter waives such compliance, Recipient will make such disclosure only to
the extent that such disclosure is legally required.

          (h) To the extent Confidential Information of Santen is licensed back
to Adolor upon termination of this Agreement pursuant to Section 11.02(a)(i),
Adolor shall have the right to disclose such Confidential Information to
sublicensees of Adolor, subject to Adolor imposing confidentiality obligations
on its sublicensees consistent with the terms and conditions of this Article 7.

                                   ARTICLE 8

                             INTELLECTUAL PROPERTY

     Section 8.01.  Ownership of Inventions and Patents.
                    -----------------------------------

          All inventions and resulting patent applications and patents, shall be
owned by the Party whose Agents made the invention.  In the event that an
invention was made by Agents of

                                       24
<PAGE>

both Parties, then the invention, and resulting patent applications and patents
shall be owned jointly.

     Section 8.02.  Prosecution and Maintenance of Patents.
                    --------------------------------------

          (a) Subject to any Adolor third party agreements, Adolor shall
prepare, file prosecute and maintain in the Territory and at its own costs, upon
consultation with Santen, the Adolor Patents and any jointly owned patents.
Adolor shall notify Santen of the status of all patent filings (including,
without limitation, the grant of any Adolor Patents) and, upon the request of
Santen, shall provide advance copies of any papers relating to the filing,
prosecution, or maintenance of such Adolor Patents.  For Adolor Patents and
patent applications, and for jointly owned patents and patent applications,
Santen shall reimburse Adolor for one-half of any and all costs for the filing,
prosecution, or maintenance of such patents and patent applications incurred by
Adolor.  Adolor shall submit an invoice for reimbursement of such patent costs
to Santen and Santen shall pay such invoice within thirty (30) days of
submission by Adolor.  Santen shall have the right to audit the patent costs
subject to reimbursement once per year.  Such audit rights shall expire twenty-
four (24) months after an invoice is submitted by Adolor for payment.

          (b) Subject to Section 8.04 (b), all amounts for patent applications
paid by Santen under Section 8.02(a) for each country of the Territory shall be
creditable on a country-by-country basis against future Royalties payable to
Adolor by Santen for each such country; provided, however, that no more than **%
of the Royalties payable for any period in such country shall be paid by
crediting amounts paid by Santen under Section 8.02(a), and further

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

                                       25
<PAGE>

provided that Santen may carry forward all amounts paid under Section 8.02(a)
for crediting against future Royalties in such country under this Section
8.02(b) until such amounts are exhausted.

     Section 8.03.  Enforcement.
                    -----------

          Each of the Parties shall, upon receipt of knowledge or information
concerning any possible infringement of the Adolor Patents or Santen Patents,
notify the other Party of such infringement.  Santen shall have the sole right
to obtain a discontinuance of, bring an infringement action on its own behalf
against, or enter into any settlement, judgment or other arrangement with
respect to, such infringement in the Field, and to retain any recovery obtained
in connection therewith.  Adolor shall provide all reasonable assistance to
Santen in prosecuting any such infringement by litigation or otherwise,
including, without limitation, providing evidence, executing such documents, and
performing such acts in a timely manner as requested by Santen that may be
necessary to allow Santen to enforce the Adolor Patents and, if required by law,
to maintain such action in its name.  If a claim is brought challenging the
validity or enforceability of an Adolor Patent owned or Controlled by Adolor,
Adolor, or its designee as set forth in an Adolor third party agreement, shall
be permitted to join in such action at its own expense and any awards shall be
shared between Adolor and Santen in proportion to the out-of-pocket expenses
paid to Persons who are not Parties.

                                       26
<PAGE>

     Section 8.04.  Infringement by the Product.
                    ---------------------------

          (a) In the event the development, making, use, offer to sell, sale, or
import of a Product in the Field by Santen or its Affiliates or Sublicensees
infringes, will infringe, or is alleged to infringe a patent of any Person, the
Party becoming aware of such infringement shall promptly notify the other Party.
The Parties shall thereafter attempt to agree upon a course of action which may
include modifying the Products or its use and manufacture so as to be non-
infringing or obtaining a license or assignment from such Person.  Santen shall
use its best efforts to avoid such infringement by product modification.  If
Santen determines, in its reasonable sole discretion, that such modification of
the Product is not commercially reasonable, then Santen may settle the actual or
potential claim of infringement and offset any amount paid or to be paid to the
Person in settlement or for an assignment or license of such Person's
intellectual property right against any future Royalties to be paid to Adolor
hereunder; provided, however, that the cause of the infringement or alleged
infringement is due solely to the use of the Compound contained in the Product,
and that any offset shall be on a Product by Product and country by country
basis, and subject to Section 8.04(b).

          (b) All offsets and credits on a country by country and Product by
Product basis in the aggregate under Sections 2.04(c), 8.02(b), 8.04(a) and 8.05
shall in no event be greater than ** percent (**%) of the Royalty on a
country by country and Product by Product basis otherwise due that Calendar
Quarter.  Santen shall have the right to carry forward offsets and credits
against future Royalties, subject to the provisions of this Section 8.04(b),
until the offsets have been exhausted.

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

                                       27
<PAGE>

     Section 8.05.  Infringement Suit by any Person.
                    -------------------------------

          In the event any Person sues Santen or its Affiliates or Sublicensees
alleging that the development, making, use, offer to sell, sale, or import of a
Product by Santen or its Affiliates or Sublicensees infringes or will infringe
such Person's patent, then Santen shall defend such suit and, during the period
in which such suit is pending, shall offset expense (including, without
limitation, professional fees and disbursements) of such suit against any
Royalties due or previously paid to Adolor on sales of the allegedly infringing
Products.  If, as a result of a judgment in the litigation or settlement with
such Person, Santen is required to pay royalties or other monies to such Person,
then Santen may offset such payments against any future Royalties due or to be
paid Adolor hereunder; provided, however, that the cause of the infringement or
alleged infringement is due solely to the use of the Compound contained in the
Product, that any offset shall be on a Product by Product basis for the Product
containing the Compound and country by country basis, subject to Section
8.04(b).

     Section 8.06.  Abandonment.
                    -----------

          (a) Adolor shall promptly notify Santen of, but in no event later than
ninety (90) days prior to, the intentional lapse, revocation, surrender,
invalidation or abandonment of any Adolor Patents or jointly-owned patents or
patent applications licensed to Santen under this Agreement for which Adolor is
responsible for the filing, prosecution, and maintenance.  Upon receipt of such
notice, subject to any Adolor third party agreements, Santen shall have the
right, at its cost and expense, to assume responsibility for filing,
prosecuting, and maintaining such patents and patent applications.  Such Adolor
Patents shall be assigned solely to Santen.

                                       28
<PAGE>

          (b) Santen shall promptly notify Adolor of, but in no event later than
ninety (90) days prior to, the intentional lapse, revocation, surrender,
invalidation or abandonment of any Santen Patents for which Santen is
responsible for filing, prosecution and maintenance.  Upon receipt of such
notice, Adolor shall have the right at its cost and expense to assume
responsibility for such filing, prosecution and maintenance.  Such Santen
Patents shall be assigned solely to Adolor.

     Section 8.07.  Patent Term Restoration.
                    -----------------------

          Each of the Parties shall cooperate with the other Party in obtaining
patent term restoration, supplemental protection certificates, or their
equivalents in the Territory where applicable to the Adolor Patents.  In the
event elections with respect to obtaining such patent term restoration,
supplemental protection certificates, or their equivalents are to be made,
subject to any Adolor third party agreements Santen shall have the right to make
the election, and Adolor agrees to abide by such election.

     Section 8.08.  Ownership Rights.
                    ----------------

          All rights, title and interest to and in all Confidential Information,
inventions, discoveries, ideas, know-how and other information or technology
concerning, relating to, created, developed or arising from this Agreement,
made, conceived, or reduced to practice, shall be owned as follows

          (a) Adolor Patents shall be owned solely by Adolor;

          (b) Santen Patents shall be owned solely by Santen; and

                                       29
<PAGE>

          (c) Jointly owned inventions under Section 8.01, and the resulting
patent applications and patents shall be owned jointly.  For any jointly owned
inventions, including without limitation jointly owned patents: (i) Santen shall
have the exclusive right to exploit the jointly held patents in the Field
involving the Compound; (ii) Adolor shall have the exclusive right to exploit
the jointly held patents outside the Field for other uses of the Compound; and
(iii) both Parties shall have the nonexclusive right to exploit the jointly held
patents outside the Field for all uses not involving the Compound.  Neither
Party shall have the obligation to account to the other for royalties or other
payments with respect to the Parties' exploitation of jointly owned patents.

     Section 8.09.  Disclosure.
                    ----------

          (a) Adolor shall disclose to Santen at least at the end of each
Calendar Year any new Adolor Know-How or Adolor Patents and any changes in their
status, and

          (b) Santen shall disclose to Adolor at least at the end of each
Calendar Year any new Santen Patents and any changes in their status.

     Section 8.10.  Marking.
                    -------

          Santen shall mark Product packaging to indicate the relevant Adolor
Patent numbers and that the Product is licensed from Adolor, unless such marking
would be inconsistent with applicable legal, regulatory and/or practical
considerations.  Additional patent markings, and acknowledgements that the
Products are manufactured under license from Adolor,

                                       30
<PAGE>

on marketing and advertising materials, if any, shall be as agreed by the
Parties in a separate written agreement.

     Section 8.11.  Trademarks.
                    ----------

          Subject to Adolor's rights in its own pre-existing trademarks, Santen
shall have the right to market the Products under trademarks of its own
choosing, and Santen shall own all rights, title and interest in and to such
trademarks throughout the world.

     Section 8.12.  Licensed Patents.
                    ----------------

          Santen shall have the right, at any time, to exclude a particular
patent owned or Controlled by Adolor from the Adolor Patents covered by this
Agreement.  Upon Adolor's receipt of written notice from Santen, the patent in
question shall not be considered an Adolor Patent under this Agreement.

                                   ARTICLE 9

                         REPRESENTATIONS AND WARRANTIES

     Section 9.01.  Mutual Representations and Warranties.
                    -------------------------------------

          Each Party hereby represents and warrants that:

          (a) Legal Power.  Such Party is duly organized and validly existing
              -----------
under the laws of the jurisdiction of its organization and has full legal power
and authority to enter into this Agreement.

                                       31
<PAGE>

          (b) Due Authorization.  Such Party is duly authorized to execute and
              -----------------
deliver this Agreement and to perform its obligations hereunder.

          (c) Binding Agreement.  This Agreement is a legal and valid obligation
              -----------------
binding upon it and is enforceable in accordance with its terms.  The execution,
delivery and performance of this Agreement by such Party does not conflict with
any agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority over
it.

     Section 9.02.  Adolor Representations and Warranties.
                    -------------------------------------

          Adolor hereby represents and warrants to Santen that as of the date of
this Agreement, to the best of Adolor's knowledge, Adolor Patents and Adolor
Know-How are subsisting and are valid and enforceable, in whole or in part.

     Section 9.03.  Limitations.
                    -----------

          EXCEPT AS PROVIDED IN THIS ARTICLE 9, NEITHER PARTY MAKES ANY
REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE PATENTS, KNOW-HOW, COMPOUNDS, AND
PRODUCTS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS AND KNOW-HOW, PATENTED OR
UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.

                                       32
<PAGE>

     Section 9.04.  Santen Representations and Warranties. Santen hereby
                    -------------------------------------
represents and warrants to Adolor that, as of the date of this Agreement, the
following statements are and shall be true and correct in all material respects:

             (a)    Products will be manufactured according to cGMP guidelines,
or similar local regulatory requirements, as the case may be.

             (b)    Santen will use commercially reasonable efforts to develop
Products, and sell the Products in each country in the Territory.

                                  ARTICLE 10

                   PRODUCTS LIABILITY; INDEMNITY; INSURANCE

     Section 10.01. Liability; Indemnity.
                    --------------------

             (a)    Santen hereby agrees that it shall be responsible for,
indemnify, hold harmless and defend Adolor, its Affiliates, and, if applicable,
their respective directors, officers, Agents and employees and their heirs,
successors and assigns (the "Adolor Indemnitees") against any and all claims,
injuries (including death), damages, expenses, costs (jointly "Losses") Adolor
becomes legally obligated to pay because of any claims against it resulting from
the Product, and resulting from the actions of Affiliates, Sublicensees and/or
Distributors related to the Product, except to the extent that such Losses are
due to the willful misconduct or negligence of Adolor.

             (b)    The Parties agree to promptly notify the other of any claim
for which they are seeking indemnification and authorize the indemnifying Party
to assume the defense of the

                                       33
<PAGE>

claim including, without limitation, the right to select defense counsel and the
right to settle any claim or suit at its direction. The Parties also agree to
fully cooperate in defense of any claim.

     Section 10.02. Limitation of Liability.
                    -----------------------

          IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY OF THE OTHER PARTY'S
OWN INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER
BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY
OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF SUCH A LOSS.

                                  ARTICLE 11

                             TERM AND TERMINATION

     Section 11.01. Term.
                    ----

          The term of this Agreement shall commence upon the Effective Date and
shall remain in effect on a country-by-country basis, unless sooner terminated
as provided hereunder, until the later of:

          (a)  the date of expiration of the last-to-expire patent of the Adolor
Patents covering the Product, or

                                       34
<PAGE>

          (b)  fifteen (15) years from the date of the First Commercial Sale of
the Product in the country in which First Commercial Sale of the Product last
begins.

     Section 11.02. Termination.
                    -----------

          (a)  Termination by Santen. Santen shall have the right to terminate
               ---------------------
this Agreement upon sixty (60) days written notice:

               (i)  for any reason, provided that: (1) Santen is obligated to
pay to Adolor any outstanding payments for milestones achieved, any outstanding
Royalty payments and any other payments due Adolor as of the date of the
termination; (2) Santen, at no cost, shall assign and transfer to Adolor all
right, title and interest in and to any existing pre-clinical and clinical data
(and convey physical possession thereof), as well as in and to any regulatory
submissions pertaining to the Compound, Product Candidate or Product, and Adolor
shall thereafter have the right to file regulatory submissions in its own name
and on its own behalf; (3) Santen shall grant Adolor a worldwide, royalty-
bearing license (with the right to grant sublicenses) to develop, make, use,
sell, offer to sell or import Products under any Santen Patents published as of
the date of termination, with the royalty rate to be negotiated in good faith
between the parties; and (4) Adolor shall have the exclusive right to exploit
the jointly held patents for Products in the Field for the Compound without
accounting to Santen.

               (ii) if Adolor is in material breach of this Agreement, unless
Adolor cures such breach prior to expiration of the sixty (60) day period
(unless such breach is not curable within sixty (60) days and Adolor is using
diligent efforts to cure such breach); provided,

                                       35
<PAGE>

however, that in the event of such breach for which Santen elects not to
terminate this Agreement, Santen may elect to continue this Agreement while
pursuing its legal remedies, including the receipt of damages related to such
breach. Any damages finally awarded may, at Santen's option, be deducted from
any Royalties owed to Adolor pursuant to Article 5 hereof.

          (b)  Termination by Adolor. Adolor may terminate this Agreement, in
               ---------------------
addition to pursuing any remedies available under law or in equity, upon sixty
(60) days' written notice to Santen if Santen is in material breach of this
Agreement and fails to cure such breach during the sixty (60) day period
following receipt of notice thereof (unless such breach is not curable within
sixty (60) days and Santen is using diligent efforts to cure such breach). Upon
termination pursuant to this Section 11.02, all licenses granted to Santen under
the Adolor Patents and Adolor Know-How shall terminate.

          (c)  Termination for Insolvency. Subject to applicable bankruptcy
               --------------------------
laws, either Party may, in addition to any other available remedies, terminate
this Agreement at any time by delivery of written notice to the other Party
stating such decision to terminate, if the other Party (i) files a voluntary
bankruptcy proceeding (ii) has filed against it an involuntary bankruptcy
proceeding and either is deemed by the court or applicable tribunal to be
bankrupt or insolvent or the proceeding is not dismissed within ninety (90)
days; (iii) a receiver or similar official is appointed for any of the other
Party's property; (iv) the other Party becomes insolvent; or (v) the other Party
makes an assignment for the benefit of creditors.

          Section 11.03. Effect of Expiration or Termination. Upon expiration
                         -----------------------------------
of the term of this Agreement, Santen shall have the perpetual, non-exclusive,
royalty-free right to continue

                                       36
<PAGE>

to develop, make, have made, use, import, offer for sale and sell Products in
the Field in the Territory. If Santen terminates this Agreement early pursuant
to Section 11.02(a)(ii) or 11.02(c), Santen's licenses and rights to develop,
make, have made, use, import, offer for sale and sell Products in the Field
shall remain in force, subject to the payment of Royalties for the period
commencing upon the termination of this Agreement an ending on the date this
Agreement otherwise would have expired if this Agreement had not been terminated
early. At the end of such period, Santen shall have the perpetual, non-
exclusive, royalty-free right to continue to develop, make, have made, use,
import, offer for sale and sell Products in the Field in the Territory.

     Section 11.04. Survival Upon Termination or Expiration.
                    ---------------------------------------

          Articles 7 and 10 and Sections 8.01, 8.08, 9.03, 9.04(a), 11.03 and
12.11 shall survive any termination or expiration of this Agreement.

                                  ARTICLE 12

                                 MISCELLANEOUS

     Section 12.01. Agency.
                    ------

          Neither Party is, nor will be deemed to be, an employee, agent or
legal representative of the other Party for any purpose. Neither Party will be
entitled to enter into any contracts in the name of, or on behalf of the other
Party, nor will a Party be entitled to pledge the credit of the other Party in
any way or hold itself out as having authority to do so.

                                       37
<PAGE>

     Section 12.02. Assignment.
                    ----------

          Except as otherwise provided herein, neither this Agreement nor any
interest hereunder will be assignable in part or in whole by either Party
without the prior written consent of the other; provided, however, that either
Party may assign this Agreement to any of its Affiliates or to any successor by
merger or sale of substantially all of its business assets to which this
Agreement relates. This Agreement will be binding upon the successors and
permitted assigns of the Parties and the name of a Party herein will be deemed
to include the names of such Party's successors and permitted assigns to the
extent necessary to carry out the intent of this Agreement. Any assignment which
is not in accordance with this Section 12.02 will be void.

     Section 12.03. Publicity.
                    ---------

          Subject to Article 7, any public disclosure of this Agreement or the
nature of the Development Program, including but not limited to press releases,
will be reviewed and consented to by each Party prior to such disclosure,
provided, however, that either Party may make such disclosures as may be
required by law. Any consent required hereunder shall not be untimely or
unreasonably withheld by either Party.

     Section 12.04. Amendment.
                    ---------

          No amendment or modification hereof shall be valid or binding upon the
Parties unless made in writing and signed by both Parties.

     Section 12.05. Notices.
                    -------

          Any notice or other communication required or permitted to be given to
either Party hereto shall be in writing unless otherwise specified and shall be
deemed to have been

                                       38
<PAGE>

properly given and to be effective on the date of delivery if delivered in
person or three (3) days after mailing by registered or certified mail, postage
paid, to the other Party at the following address:

          In the case of Santen:

               Santen Pharmaceutical Co., Ltd.
               9-19 Shimoshinjo 3-chome
               Higashiyodogawa-ku
               Osaka, 533-8561, Japan
               Phone: 011-81-6-6321-7045
               Fax:   011-81-6-6321-8400
               Attention: General Manager, Business Development Dept.

          In the case of Adolor:

               Adolor Corporation
               371 Phoenixville Pike
               Malvern, PA  19355
               Phone: (610) 889-5779
               Fax:   (610) 889-2203
               Attention: Vice President - Business Development

          Either Party may change its address for communications by a notice to
the other Party in accordance with this Section.

     Section 12.06. Force Majeure.
                    -------------

          Neither Party shall be held liable or responsible to the other Party
nor be deemed to have defaulted under or breached the Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such failure
or delay is caused by or results from causes beyond the reasonable control of
the affected Party including, but not limited to fire, floods, embargoes, war,
acts of war (whether war be declared or not) insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or acts,
omissions or

                                       39
<PAGE>

delays in acting by any governmental authority or the other Party. The affected
Party shall notify the other Party of such force majeure circumstances as soon
as reasonably practical.

     Section 12.07. Severability.
                    ------------

          If any term, condition or provision of this Agreement is held to be
unenforceable for any reason, it shall, if possible, be interpreted rather than
voided, in order to achieve the intent of the Parties to this Agreement to the
extent possible. In any event, all other terms, conditions and provisions of
this Agreement shall be deemed valid and enforceable to the full extent.

     Section 12.08. Cumulative Rights.
                    -----------------

          The rights, powers and remedies hereunder shall be in addition to, and
not limitation of, all rights, powers and remedies provided a law or in equity.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.

     Section 12.09. Waiver.
                    ------

          No waiver by either Party hereto on any breach or default of any of
the covenants or agreements herein set forth shall be deemed a waiver as to any
subsequent or similar breach or default.

     Section 12.10. Governing Law.
                    -------------

          This agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Pennsylvania without reference to the choice of
law principles thereof.

                                       40
<PAGE>

     Section 12.11. Arbitration.
                    -----------

          The Parties will attempt in good faith to resolve any disputes arising
out of or relating to this Agreement promptly by negotiation between executives
of the Parties. In the event that such negotiations do not result in a mutually
acceptable resolution, the Parties agree to consider other dispute resolution
mechanisms including mediation and arbitration. In the event that the Parties
fail to agree on a mutually acceptable dispute resolution mechanism, any such
dispute shall be finally settled by arbitration. The place of arbitration shall
be in Philadelphia, Pennsylvania if arbitration is instituted by Santen, and
Osaka, Japan if instituted by Adolor. Any arbitration conducted in the U.S.
shall be conducted under the Commercial Arbitration Rules of the American
Arbitration Association. Any arbitration conducted in Japan shall be conducted
under Arbitration Rules of the Japan Commercial Arbitration Association. Each
such arbitration shall be conducted by one (1) arbitrator and the decisions
shall be final and binding on the Parties and their legal successors. The
arbitrator may, at his discretion, provide for discovery by the Parties not to
exceed four (4) months from the date of filing of the notice of arbitration and
the arbitrator shall render his decision within thirty (30) days of the
completion of the hearing and may, at his discretion award costs and expenses
but shall not award punitive damages. The damages may include a reduction in
Royalties if the breach by Adolor was willful and an increase in Royalties if
the breach by Santen was willful. The time period for cure recited in Section 11
shall be suspended upon institution of arbitration until completion of such
arbitration.

     Section 12.12. Adverse Drug Reactions.
                    ----------------------

          Santen and Adolor shall promptly inform each other of any adverse drug
reactions regarding the Compound which is reportable to the FDA or any other
Regulatory Authority in

                                       41
<PAGE>

sufficient time and in sufficient detail to comply with the reporting
regulations of the FDA or other Regulatory Authority.

     Section 12.13. Counterparts.
                    ------------

          This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute one agreement.

     Section 12.14. Entire Agreement.
                    ----------------

          This Agreement embodies the entire understanding of the Parties with
respect to the subject matter hereof and shall supersede all previous
communications, representations or understandings, either oral or written,
between the Parties relating to the subject matter hereof.

     Section 12.15. Fees, Expenses, Transfer Taxes, Etc.
                    -----------------------------------

          Santen shall pay all sales, transfer, or other taxes (except income
taxes of Adolor payable in the United States or withholding taxes) which may be
payable in connection with this Agreement. Except as specifically provided
herein, all legal and other costs and expenses (including, without limitation,
all compensation of financial advisers, consultants, actuaries, and independent
accountants) incurred in connection with the preparation and execution of this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.

                                       42
<PAGE>

     Section 12.16. Construction.
                    ------------

          The heading references herein are for convenience purposes only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The singular and plural numbers can be
substituted for each other when the context requires such substitution.

     Section 12.17. Parties In Interest.
                    -------------------

          This Agreement shall inure to the benefit of and be binding upon the
Parties hereto and their respective successors and permitted assigns. Nothing in
this Agreement, express or implied, is intended to confer upon any Person other
than Santen or Adolor or their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement.

          IN WITNESS WHEREOF, both Santen and Adolor have executed this
Agreement by their respective officers hereunto duly authorized.

Santen Pharmaceutical Company, Ltd.         Adolor Corporation

By:    /s/ T. Morita                        By:   /s/ John J. Farrar
    ____________________________                 ____________________________
    Name:  Takakazu Morita                       Name:  John J. Farrar, Ph.D.
    Title: President and CEO                     Title: President and CEO

Date: April 25, 2000                        Date:
     __________________________                  ___________________________

                                       43

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