Document:

<PAGE>

                                                                    Exhibit 10.6

                             EMPLOYMENT AGREEMENT
                             --------------------

     This EMPLOYMENT AGREEMENT (this "Agreement"), is dated as of the 15/th/ day
of August, 1999, between JEFF HONEYCOMB, an individual with an address of 6
Antler Pine Road, Sandy Hook, CT 06482 (the "Employee"), and RIGHT NOW
TECHNOLOGIES, INC., a Montana corporation with an address of 111 South Grand,
Bozeman, MT 59715 (the "Company").

     WHEREAS, the Company wishes to employ the Employee as President and Chief
Operating Officer, and the Employee desires to accept such employment upon the
terms and conditions stated herein;

     NOW, THEREFORE, in consideration of the promises and of the covenants and
agreements set forth herein, the parties hereby agree as follows:

     1.   Employment and Duties.  The Company hereby agrees to employ the
          ---------------------
Employee, and the Employee accepts employment, upon the terms and conditions set
forth in the Agreement and the job description attached hereto as Exhibit A for
the position of President and Chief Operating Officer.  During the term of his
employment, the Employee shall diligently and faithfully serve the Company in
such capacity.  He shall devote his best effort and entire business time,
services and attention to the advancement of the Company's business and interest
and shall comply with the policies, programs and directions of the Company's
Board of Directors and the Chairman.

     2.   Compensation.  In consideration of the services rendered by the
          ------------
Employee, the Company agrees to compensate him as follows:

                                       1
<PAGE>

     (a) The Company shall pay to the Employee an annual base salary of $100,000
payable in equal installments on the 15/th/ and last day of every month.

     (b) The Employee shall, after sixty (60) days of employment, be entitled to
benefits comparable to the benefits afforded by the Company to other salaried
employees, including vacation and sick leave and coverage under any health,
accident, hospitalization, disability, retirement and life insurance plans,
programs or policies maintained by the Company.

     (c) The Employee shall be entitled to reimbursement, in accordance with
Company policy, for all reasonable, ordinary and necessary out-of-pocket
expenses which he incurs on behalf of the Company in the course of performing
his duties hereunder, subject to furnishing appropriate documentation of such
expenses in form and substance satisfactory to the Company.  The Employee shall
be reimbursed for up to $7,000 in moving expenses following the submission of
receipts for same.

     (d) The Employee shall be entitled to an Incentive Bonus (IB) of $25,000
per quarter, commencing with the quarter ended September 30, 1999. The IB will
be based on quarterly goals related to revenue and profit. The IB will be paid
quarterly on the 15/th/ of the month following the end of each quarter.

     (e) The Employee shall receive options to purchase 1,100,000 shares of the
Company's common stock at an option price of $.30 per share.  Following the
pending stock split, the Employee shall have 2,200,000 options at an option
price of $.30 each.

                                       2
<PAGE>

The options will vest in accordance with the terms of an option agreement, the
form of which is attached as Exhibit C to this Agreement.

     3.   Term.  Unless terminated at an earlier date in accordance with Section
          ----
6 of the Agreement, this Agreement shall commence on the date first above
written for the period of one (1) year and shall be renewed automatically
thereafter for two successive one (1) year periods, unless either party gives
written notice to the other of its intention to allow this Agreement to expire
at least thirty (30) days prior to the expiration date of the original term or
any other of the two renewal terms.

     4.   Employee's Covenants.
          --------------------

     (a) During the term of his employment and for a period of one (1) year
thereafter, the Employee shall not, directly or indirectly, on his own behalf or
on behalf of others:  (i) become involved as an employee, consultant, partner,
owner or in any other capacity, in any business which involves the marketing,
sale or distribution of web customer service software products and which
competes with the product lines in the marketing areas targeted by the Company;
(ii) solicit any person employed by the Company at the time of termination of
the Employee's employment or within the preceding or subsequent six-month
period, to leave the employ of the Company or to render services to any business
which competes with the business of the Company; or (iii) solicit business from
any customers of the Company or persons or entitles providing services or
supplying manufactured goods or equipment to the Company at the time of
Employee's termination or within the preceding or subsequent six (6) month
period.  The Employee agrees that the restrictions and agreements contained in
this Section 4(a) are reasonable and necessary to protect the legitimate
interests of the Company

                                       3
<PAGE>

and that any violation of this Section 4(a) will cause irreparable harm to the
Company that would not be quantifiable and for which no adequate remedy would
exist at law and accordingly injunctive relief shall be available for any
violation of this Section 4(a). If the duration or geographical extent of, or
business activities covered by this Section 4(a) are in excess of what is valid
and enforceable under applicable law, then such provision shall be construed to
cover only that duration, geographical extent or activities that are valid and
enforceable. The Employee acknowledges the uncertainty of the law in this
respect and expressly stipulates that this Agreement be given the construction
which renders its provisions valid and enforceable to the maximum extent (not
exceed its express terms) possible under applicable law.

     (b) The Employee acknowledges that some of the information which he will
acquire in the course of his employment with the Company concerning the Company
policies, business methods, products, systems advertiser lists, marketing
programs, ideas, plans concerning business or program development, and other
such matters is valuable proprietary information and may constitute trade
secrets of the Company.  Therefore, the Employee agrees that he shall take all
reasonable and necessary steps during the term of his employment and thereafter
to safeguard such information, and he shall not disclose the same to any person
or firm, except as necessary in the course of performing his duties on behalf of
the Company.  Further, upon termination of his employment hereunder, the
Employee agrees that he will deliver to the Company any and all records, files,
lists or other documents containing information within the scope of the
foregoing description.

                                       4
<PAGE>

     (c)  During the term of this Agreement, the Employee will promptly reveal
to the management of the Company all matters pertaining to staff, members,
services, clients and prospective customers or suppliers coming to his attention
regarding the operation or administration of the Company or the conduct of its
affairs.

     5.   Cause for Termination of Employment.  The following constitute the
          -----------------------------------
sole grounds on which the Employee's employment hereunder may be terminated by
the Company for cause prior to the expiration of the initial term set forth in
Section 3 or any extension thereof:

     (a) Habitual intemperance or addiction to a narcotic, the use of which
constitutes criminal conduct under federal and state laws;

     (b) Disclosure of any confidential information concerning the Company, its
computer programs, or any of the Company's customers or suppliers to any person,
firm, group, corporation or any other entity, learned during the course of the
Employee's employment;

     (c) Failure to disclose information regarding persons engaged in fraud or
dishonesty or any unethical practice which the Employee has reason to know will
result in damage to the reputation of the Company;

     (d) Consistent refusal or failure to perform duties assigned to the
Employee by the Board of Directors or the CEO consistent with the nature of the
Employee's position;

     (e) The Employee's refusal or, after appropriate request, failure to
perform or comply with any term or condition of his employment required to be
performed or complied with by him;

                                       5
<PAGE>

     (f)  The conviction of the Employee of any criminal offense involving moral
turpitude, fraud, embezzlement, or forgery; or

     (g)  Conduct reflecting on the integrity and reputation of the Company.

     6.   Termination of Employment.
          -------------------------

     (a)  The Employee's employment hereunder shall continue until either party
gives notice to the other party of its intention to terminate.  Such notice
shall be given at least thirty (30) days prior to the effective date of
termination.  Either party may terminate this Agreement for any reason
whatsoever upon giving thirty (30) days notice prior to the effective date of
termination.

     (b)  Notwithstanding the foregoing, the Company may terminate the
Employee's employment immediately, without giving notice, if the termination is
for cause as provided in Section 5 of this Agreement.

     7.   Effect of Termination.
          ---------------------

     (a) Upon termination of the Employee's employment for any reason
whatsoever, all rights and obligations of the parties under this Agreement shall
cease, except that (i) the Employee shall be obligated to return to the Company
all documents, notes, tapes or other records of contacts and other information
concerning Company projects, (ii) the Employee shall continue to be bound by the
covenants set forth in Section 4 hereof, and (iii) the Company shall be bound to
pay the Employee accrued compensation to the date of termination, as provided in
Section 7(b) hereof.

     (b) In the event of the Employee's termination by the Company without
cause, the Employee shall be paid, as severance, twelve (12) months' salary his
options shall

                                       6
<PAGE>

continue to vest as set forth in the option agreement attached as Exhibit C to
this Agreement.

     8.   Remedies.  The Employee acknowledges that any breach by the Employee
          --------
of the covenants set forth in Section 4 of this Agreement will result in
irreparable harm to the Company, and the Employee agrees that the Company shall
be entitled to seek equitable relief for any such breach, in addition to any
other remedies to which it may be entitled, without the necessity of proving
irreparable harm or the inadequacy of money damages.

     9.   Miscellaneous.
          -------------

     (a)  This Agreement may not be assigned by either party hereto.

     (b)  In the event that any provision of this Agreement is found by a
court of competent jurisdiction to be invalid or unenforceable, such provision
shall be, and shall be deemed to be, modified so as to become valid and
enforceable, and the remaining provisions of this Agreement shall not be
affected.

     (c)  Failure to insist upon strict compliance with any of the terms,
promises or conditions of this Agreement shall not be deemed a waiver of such
term, promise or condition, or any other term, promise or condition hereof, nor
shall any waiver or relinquishment of any right or power hereunder at any one or
more times be deemed a waiver or relinquishment of that right or power at any
other time, or of any other right or power hereunder, unless so specifically
stated in writing.

     (d)  This Agreement cannot be amended, changed, modified, or discharged
except by an agreement in writing signed by both the Company and the Employee.

                                       7
<PAGE>

     (e)  Each of the parties agrees to execute all further instruments and
documents and to take all further action as the other party may reasonably
request in order to effectuate the terms and purposes of this Agreement.

     (f)  This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Montana.

     (g)  Any and all notices, designations, consents, offers, acceptances, or
other communications required to be provided hereunder shall be in writing and
delivered, either personally or by courier, or sent by certified mail, to the
parties at the addresses first set forth above or such other address as either
party may request by notice hereafter, and shall be deemed given upon such
delivery.

     (h)  This Agreement, together with the exhibits attached hereto and hereby
incorporated into this Agreement by reference, constitute the entire agreement
of the parties with respect to such subject matter, whether written or oral.
Without limiting the generality of the foregoing, the parties represent that no
oral communication made prior to the execution of this Agreement shall in any
way add to, delete from, change or modify the terms of this Agreement or their
interpretation.

     (i)  The captions at the beginning of the several articles and sections of
this Agreement are not part of the terms and conditions of this Agreement but
are only guides or labels to assist in locating and reading such articles and
sections.  They shall be given no effect in construing this Agreement.

     (j)  Except as otherwise herein expressly provided, this Agreement shall
inure to the benefit of and be binding upon the Company, its successors and
assigns, and the Employee, his heirs, executors, administrators and legal
representatives.

                                       8
<PAGE>

                                    RIGHT NOW TECHNOLOGIES, INC.

/s/ Jeff Honeycomb                  /s/ Greg Gianforte
__________________________________  ----------------------------------
JEFF HONEYCOMB                      BY: Greg R. Gianforte
                                    ITS: CEO

                                       9<PAGE>

                                                                     EXHIBIT 4.2

                               DURECT CORPORATION

             SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

                                 March 28, 2000

                                      -1-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                            <C>
A.       Amendment of Prior Rights Agreement/Waiver of Right of First Offer....................................2
1.       Registration Rights...................................................................................2
         1.1      Definitions..................................................................................2
         1.2      Request for Registration.....................................................................3
         1.3      Company Registration.........................................................................4
         1.4      Form S-3 Registration........................................................................5
         1.5      Obligations of the Company...................................................................6
         1.6      Furnish Information..........................................................................7
         1.7      Expenses of Registration.....................................................................7
         1.8      Underwriting Requirements....................................................................8
         1.9      Delay of Registration........................................................................9
         1.10     Indemnification..............................................................................9
         1.11     Reports Under Securities Exchange Act of 1934...............................................11
         1.12     Assignment of Registration Rights...........................................................12
         1.13     Limitations on Subsequent Registration Rights...............................................12
         1.14     Market Stand-Off Agreement..................................................................13
         1.15     Termination of Registration Rights..........................................................13
2.       Covenants of the Company.............................................................................13
         2.1      Delivery of Financial Statements............................................................13
         2.2      Right of First Offer........................................................................14
         2.3      Termination of Covenants....................................................................16
3.       Miscellaneous........................................................................................16
         3.1      Successors and Assigns......................................................................16
         3.2      Amendments and Waivers......................................................................16
         3.3      Notices.....................................................................................17
         3.4      Severability................................................................................17
         3.5      Governing Law...............................................................................17
         3.6      Additional Parties..........................................................................17
         3.7      Counterparts................................................................................17
         3.8      Titles and Subtitles........................................................................17
         3.9      Aggregation of Stock........................................................................17
</TABLE>

                                      -i-
<PAGE>

                               DURECT CORPORATION

             SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
             -------------------------------------------------------

         This Second Amended and Restated Investors' Rights Agreement (the
"Agreement") is made as of the 28th day of March, 2000, by and among Durect
 ---------
Corporation, a Delaware corporation (the "Company"), the holders of the
                                          -------
Company's Series A-1 and Series A-2 Preferred Stock set forth on Exhibit A
                                                                 ---------
attached hereto (the "Series A Holders"), the holders of Series B Preferred
                      ----------------
Stock listed on Exhibit A attached hereto (the "Series B Holders"), the holders
                ---------                       ----------------
of Series B-1 Preferred Stock listed on Exhibit A attached hereto (the "Series
                                        ---------                       ------
B-1 Holders"), the holders of Series C Preferred Stock listed on Exhibit A
-----------                                                      ---------
attached hereto (the "Series C Holders" and together with the Series A Holders,
                      ----------------
the Series B Holders and the Series B-1 Holders, the "Investors" or "Holders"),
                                                      ---------      -------
and Thomas A. Schreck, James E. Brown and Felix Theeuwes, each of whom is herein
referred to as a "Founder".
                  -------

                                    RECITALS
                                    --------

         A. The Company, the Founders, the Series A Holders, the Series B
Holders and the Series B-1 Holders have previously entered into an Amended and
Restated Investor's Rights Agreement dated as of July 19, 1999, amended on
October 1, 1999 (the "1999 Rights Agreement"), pursuant to which the Company
                      ---------------------
granted the Founders and the Series A, Series B and Series B-1 Holders certain
rights.

         B. The Company and the Series C Holders have entered into a Series C
Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date
                                         ------------------
herewith pursuant to which the Company desires to sell to the Series C Holders
and the Series C Holders desire to purchase from the Company shares of the
Company's Series C Preferred Stock. A condition to the Series C Holders'
obligations under the Purchase Agreement is that the Company, the Founders and
the Investors enter into this Agreement in order to provide the Investors with
(i) certain rights to register shares of the Company's Common Stock issuable
upon conversion of the Preferred Stock held by the Investors, (ii) certain
rights to receive or inspect information pertaining to the Company, and (iii) a
right of first offer with respect to certain issuances by the Company of its
securities. The Company desires to induce the Series C Holders to purchase
shares of Series C Preferred Stock pursuant to the Purchase Agreement by
agreeing to the terms and conditions set forth herein.

         C. The Company, the Founders, the Series A Holders, the Series B
Holders and the Series B-1 Holders each desire to amend and restate the 1999
Rights Agreement to add the Series C Holders as parties to this Agreement and
make certain other changes.

                                    AGREEMENT
                                    ---------

         The parties hereby agree as follows:
<PAGE>

         A. Amendment of 1999 Rights Agreement/Waiver of Right of First Offer.
            -----------------------------------------------------------------
The Series A Holders, the Series B Holders and the Series B-1 Holders hereby
waive the Right of First Offer, including the notice requirements, set forth in
the 1999 Rights Agreement with respect to the issuance of Series C Preferred
Stock. Effective and contingent upon execution of this Agreement by the Company
and the holders of a majority of the Registrable Securities (as defined in
Section 1.1(b) of the 1999 Rights Agreement), not including Founders' Stock (as
defined in Section 1.1(b) of the 1999 Rights Agreement) and upon the closing of
the transactions contemplated by the Purchase Agreement, the 1999 Rights
Agreement is hereby amended and restated in its entirety to read as set forth in
this Agreement, and the Company, the Founders and the Investors hereby agree to
be bound by the provisions hereof as the sole agreement of the Company, the
Founders and the Investors with respect to registration rights of the Company's
securities and certain other rights as set forth herein.

         1. Registration Rights.  The Company, the Founders and the Investors
            -------------------
covenant and agree as follows:

                  1.1.  Definitions.  For purposes of this Section 1:
                        -----------

                        (a)      The terms "register," "registered," and
                                            --------    ----------
"registration" refer to a registration effected by preparing and filing a
 ------------
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
                          --------------
effectiveness of such registration statement or document;

                        (b)      The term "Registrable Securities" means (i) the
                                           ----------------------
shares of common stock, par value $0.0001 ("Common Stock") issuable or issued
upon conversion of the Series A-1, Series A-2, Series B, Series B-1 and Series C
Preferred Stock, provided, however, that for the purposes of Sections 1.2, 1.4,
                 --------  -------
1.7(a), 1.7(c), 1.13 and 2 the Series B-1 Preferred Stock shall not be deemed
Registrable Securities and the Series B-1 Holders shall not be deemed Holders
(ii) the shares of Common Stock issued to the Founders (the "Founders' Stock"),
                                                             ---------------
provided, however, that for the purposes of Sections 1.2, 1.4 and 1.13 the
--------  -------
Founders' Stock shall not be deemed Registrable Securities and the Founders
shall not be deemed Holders, and (iii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares listed in
(i) and (ii); provided, however, that the foregoing definition shall exclude in
              --------  -------
all cases any Registrable Securities sold by a person in a transaction in which
his or her rights under this Agreement are not assigned. Notwithstanding the
foregoing, Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;

                        (c)      The number of shares of "Registrable Securities
                                                          ----------------------
then outstanding" shall be determined by the number of shares of Common Stock
----------------
outstanding which are, and the

                                      -2-
<PAGE>

number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities;

                        (d)      The term "Holder" means any person owning or
                                           ------
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;

                        (e)      The term "Form S-3" means such form under the
                                           --------
Securities Act as in effect on the date hereof or any successor form under the
Securities Act;

                        (f)      The term "SEC" means the Securities and
                                           ---
Exchange Commission; and

                        (g)      The term "Qualified IPO" means a firm
                                           -------------
commitment underwritten public offering by the Company of shares of its Common
Stock pursuant to a registration statement under the Securities Act having a
price per share of at least $7.00 and which results in gross proceeds to the
Company of at least $25,000,000.

                  1.2.   Request for Registration.
                         ------------------------

                           (a)      If the Company shall receive at any time
after the earlier of (i) March 31, 2003 or (ii) six (6) months after the
effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holders of at least forty percent (40%) of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of at least forty
percent (40%) of the Registrable Securities then outstanding (or a lesser
percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $10,000,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.

                           (b)      If the Holders initiating the registration
request hereunder ("Initiating Holders") intend to distribute the Registrable
                    ------------------
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
and the Company shall include such information in the written notice referred to
in subsection 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his or her Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders

                                      -3-
<PAGE>

proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities which each Holder requests to be registered; provided,
                                                                    --------
however, that the number of shares of Registrable Securities to be included in
-------
such underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.

                           (c)      Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting a registration statement pursuant to
this Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided, however, that the Company may not utilize
                           --------  -------
this right more than once in any twelve-month period.

                           (d)      In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 1.2:

                                    (i)     After the Company has effected three
(3) registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;

                                    (ii)    During the period starting with the
date sixty (60) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.3 hereof; provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or

                                    (iii)   If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

                  1.3.    Company Registration. If (but without any obligation
                          --------------------
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock under the Securities Act in connection with the public offering
of such securities (other than a registration relating solely to the sale of
securities to participants in a Company stock plan or a transaction covered by
Rule 145 under the Securities Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be

                                      -4-
<PAGE>

included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within fifteen (15) days after notice given by the Company in accordance with
Section 3.3, the Company shall, subject to the provisions of Section 1.8, cause
to be registered under the Securities Act all of the Registrable Securities that
each such Holder has requested to be registered.

                  1.4.   Form S-3 Registration. If the Company shall receive
                         ---------------------
from any Holder or Holders of not less than fifteen percent (15%) of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 (or a successor form) and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company shall:

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

                           (b)      as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after written notice given by the
Company in accordance with Section 3.3; provided, however, that the Company
                                        --------  -------
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 1.4: (i) if Form S-3 (or a successor form)
is not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an anticipated aggregate offering price to the public
(net of any underwriters' discounts or commissions) of less than $2,000,000;
(iii) if the Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.4; provided, however,
                                                             --------  -------
that the Company shall not utilize this right more than once in any twelve month
period; (iv) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance; or (vi) during the period ending one hundred eighty
(180) days after the effective date of the first registration statement subject
to Section 1.3.

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

                                      -5-
<PAGE>

pursuant to this Section 1.4 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2.

                  1.5.  Obligations of the Company. Whenever required under
                        --------------------------
this Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:

                        (a)      Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days. The Company shall not be required to file, cause to become
effective or maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.

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

                        (c)      Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

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

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

                        (f)      Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, such obligation to continue for one hundred twenty (120) days.

                                      -6-
<PAGE>

                        (g)      Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.

                        (h)      Provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.

                        (i)      Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.

                  1.6.  Furnish Information. It shall be a condition
                        -------------------
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(ii), whichever is applicable.

                  1.7.  Expenses of Registration.
                        ------------------------

                        (a)      Demand Registration. All expenses other than
                                 -------------------
underwriting discounts and commissions and stock transfer taxes incurred in
connection with registrations, filings or qualifications pursuant to Section
1.2, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements (not to exceed $30,000) of
one counsel for the selling Holders selected by the Holders of a majority of the
Registrable Securities to be registered with the approval of the Company, which
approval shall not be unreasonably withheld, shall be borne by the Company;
provided, however, that the Company shall not be required to
--------  -------

                                      -7-
<PAGE>

pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.

                        (b)      Company Registration. All expenses other than
                                 --------------------
underwriting discounts and commissions and stock transfer taxes incurred in
connection with registrations, filings or qualifications of Registrable
Securities pursuant to Section 1.3 (which right may be assigned as provided in
Section 1.12), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements (not to exceed
$30,000) of one counsel for the selling Holder or Holders selected by the
Holders of a majority of the Registrable Securities to be registered with the
approval of the Company, which approval shall not be unreasonably withheld,
shall be borne by the Company.

                        (c)      Registration on Form S-3. All expenses other
                                 ------------------------
than underwriting discounts and commissions and stock transfer taxes incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements (not to exceed
$25,000) of one counsel for the selling Holder or Holders selected by the
Holders of a majority of the Registrable Securities to be registered with the
approval of the Company, which approval shall not be unreasonably withheld, and
counsel for the Company, shall be borne by the Company.

                  1.8.  Underwriting Requirements. In connection with any
                        -------------------------
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities that the underwriters
determine in their sole discretion is compatible with the success of the
offering, excluding securities sold by the Company, then the Company shall be
required to include in the offering only that number of securities to be sold by
selling stockholders, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities to be sold by selling stockholders and so included to
be apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but in no event shall (i) any shares being sold by a
stockholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering unless all securities held by a
Founder and all securities proposed to be sold in the offering that are not
Registrable Securities are first excluded, or (ii) the amount of securities of
the selling Holders included in the offering be reduced below

                                      -8-
<PAGE>

ten percent (10%) of the total amount of securities included in such offering,
(including shares to be sold by the Company) unless such offering is the initial
public offering of the Company's securities, in which case, selling stockholders
may be excluded if the underwriters make the determination described above and
no other stockholder's securities are included. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
                                                                        -------
stockholder," and any pro-rata reduction with respect to such "selling
-----------
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.

                  1.9.  Delay of Registration. No Holder shall have any right
                        ---------------------
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.

                  1.10. Indemnification. In the event any Registrable Securities
                        ---------------
are included in a registration statement under this Section 1:

                        (a)      To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder, each officer and director of such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint or
 ------------
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
 ---------
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter,
officer, director or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
                                                              --------  -------
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation

                                      -9-
<PAGE>

which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any such
Holder, underwriter or controlling person.

                        (b)      To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
                                     --------  -------
agreement contained in this subsection 1.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that in no event shall any indemnity
                              --------
under this subsection 1.10(b) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder.

                        (c)      Promptly after receipt by an indemnified party
under this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
                             --------  -------
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.

                        (d)      If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of

                                      -10-
<PAGE>

indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations; provided, that in no event shall any contribution by a
                          --------
Holder under this Subsection 1.10(d) exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

                        (e)      Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

                        (f)      The obligations of the Company and Holders
under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.

                 1.11.  Reports Under Securities Exchange Act of 1934. With a
                        ---------------------------------------------
view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:

                        (a)      make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act;

                        (b)      take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;

                        (c)      file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and

                        (d)      furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied

                                      -11-
<PAGE>

with the reporting requirements of SEC Rule 144 (at any time after ninety (90)
days after the effective date of the first registration statement filed by the
Company), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.

                 1.12. Assignment of Registration Rights. The rights to cause
                       ---------------------------------
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 500,000 shares of such securities (or all of such Holder's
shares, if less), provided the Company is, within a reasonable time after such
                  --------
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
                                            --------  -------
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act; and provided, further, that a transfer of
                                         --------  -------
such rights to a wholly owned subsidiary or constituent partner (including
limited partners) or member shall be without restrictions as to minimum
shareholdings. Notwithstanding the foregoing, the rights to cause the Company to
register securities may be assigned to an Investor already owning Registrable
Securities at the time of such proposed assignment and to any acquirer of
Registrable Securities for whom such Registrable Securities were first acquired
by Zesiger Capital Group LLC, acting as attorney-in-fact for such acquirer, or
by Morgan Guaranty Trust Company of New York, as Trustee for two investment
funds and as Agent and Investment Manager for an institutional investor, acting
as trustee, agent or investment manager for such acquirer. Further
notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned by IntraEAR, Inc., a Delaware corporation, to its
stockholders in connection with a dissolution or winding up of IntraEAR, Inc.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under Section 1
and the holdings of Investors for whom there is a single attorney-in-fact for
the purposes of exercising any rights, receiving notices or taking any action
under Section 1 shall be aggregated together.

                 1.13.  Limitations on Subsequent Registration Rights. From
                        ---------------------------------------------
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such

                                      -12-
<PAGE>

securities in any registration filed under Section 1.2 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.

                 1.14.  "Market Stand-Off" Agreement. Each Holder hereby agrees
                         ---------------------------
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
--------  -------

                        (a)      such agreement shall only be applicable to the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and

                        (b)      all officers and directors of the Company and
all five percent security holders enter into similar agreements.

                 In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.

                 Notwithstanding the foregoing, the obligations described in
this Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.

                 1.15.  Termination of Registration Rights. No Holder shall
                        ----------------------------------
be entitled to exercise any right provided for in this Section 1 after such
time, with respect to any Holder, as all Registrable Securities of such Holder
may be sold either within a 3-month period pursuant to Rule 144 or pursuant to
Rule 144(k).

         2.      Covenants of the Company.
                 ------------------------

                 2.1.   Delivery of Financial Statements. The Company shall
                        --------------------------------
deliver to each Holder of at least 250,000 shares of Registrable Securities
(other than a Holder reasonably deemed by the Company to be a competitor of the
Company):

                                      -13-
<PAGE>

                           (a)      as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and
statement of stockholder's equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by an independent public accounting firm of
  ----
nationally recognized standing selected by the Company;

                           (b)      as soon as practicable, but in any event
within thirty (30) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, a
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter;

                           (c)      within thirty (30) days of the end of each
month, an unaudited income statement and a statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail;

                           (d)      as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget and business
plan for the next fiscal year, prepared on a monthly basis, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and

                           (e)      with respect to the financial statements
called for in subsections (b) and (c) of this Section 2.1, an instrument
executed by the Chief Financial Officer or President of the Company and
certifying that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the exception
of footnotes that may be required by GAAP) and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment, provided that the foregoing shall not
restrict the right of the Company to change its accounting principles consistent
with GAAP, if the Board of Directors determines that it is in the best interest
of the Company to do so.

                  2.2.     Right of First Offer. Subject to the terms and
                           --------------------
conditions specified in this Section 2.2, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.2, a "Major Investor" shall mean any person who holds at least
                        --------------
500,000 shares of the Series A-1, Series A-2, Series B or Series C Preferred
Stock (or the Common Stock issued upon conversion thereof) and any
attorney-in-fact, trustee, agent or investment manager exercising power of
attorney with respect to at least 500,000 shares of the Series A-1, Series A-2,
Series B or Series C Preferred Stock (or the Common Stock issued upon conversion
thereof). For purposes of this Section 2.2, Major Investor includes any general
partners and affiliates of a Major Investor. A Major Investor who chooses to
exercise the right of first offer may designate as purchasers under such right
itself or its partners or affiliates in such proportions as it deems
appropriate, unless such Major Investor is attorney-in-fact for a holder or
holders of the Series A-1, Series A-2, Series B or Series C Preferred Stock (or
the Common

                                      -14-
<PAGE>

Stock issued upon conversion thereof), in which case, such right of first offer
must be allocated pro rata among such holders on the basis of the Series A-1,
Series A-2, Series B or Series C Preferred Stock (or the Common Stock issued
upon conversion thereof) held by such holder.

                  Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
                ------
Shares to each Major Investor in accordance with the following provisions:

                           (a)      The Company shall deliver a notice
("Notice") to the Major Investors stating (i) its bona fide intention to offer
  ------
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.

                           (b)      Within 15 calendar days after delivery of
the Notice, the Major Investor may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).

                           (c)      The Company may, during the 45-day period
following the expiration of the period provided in subsection 2.2(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.

                           (d)      The right of first offer in this paragraph
2.2 shall not be applicable (i) to the issuance or sale of Common Stock (or
options therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services (including options granted prior to the
first issuance of Series C Preferred Stock), (ii) to the issuance of securities
in a public offering or after consummation of a Qualified IPO, (iii) to the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise, (iv) to the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings, or similar transactions, (v) to the issuance or sale of
the Series C Preferred Stock as provided in the Purchase Agreement, (vi) to the
issuance of securities in connection with partnering transactions approved by
the Board of Directors of the Company, (vii) to the issuance of securities
pursuant to a stock split, stock dividend or like transaction, (viii) to the
issuance of securities pursuant to currently outstanding options, warrants,
notes or other rights to acquire securities of the Company or (ix) to the
issuance of Common Stock upon conversion of Preferred Stock.

                                      -15-
<PAGE>

                  2.3.     Termination of Covenants.
                           ------------------------

                           (a)      The covenants set forth in Section 2.2 shall
terminate as to each Holder and be of no further force or effect (i) immediately
prior to the consummation of a Qualified IPO, or (ii) when the Company (or a
secured party receiver or other person or entity legally entitled to act on
behalf of the Company) shall sell, convey, or otherwise dispose of all or
substantially all of its assets or business or if the Company shall merge into
or consolidate with any other corporation or effect any other transaction or
series of related transactions and the result thereof is that more than fifty
percent (50%) of the combined voting power of the Company is held by persons or
entities that were not stockholders immediately prior to such merger,
consolidation or other transaction.

                           (b)      The covenants set forth in Section 2.1 shall
terminate as to each Holder and be of no further force or effect (i) so long as
the Company is subject to the periodic reporting requirements of Sections 13 or
15(d) of the Exchange Act or (ii) when the Company (or a secured party receiver
or other person or entity legally entitled to act on behalf of the Company)
shall sell, convey, or otherwise dispose of all or substantially all of its
assets or business or if the Company shall merge into or consolidate with any
other corporation or effect any other transaction or series of related
transactions and the result thereof is that more than fifty percent (50%) of the
combined voting power of the Company is held by persons or entities that were
not stockholders immediately prior to such merger, consolidation or other
transaction.

         3.       Miscellaneous.
                  -------------

                  3.1.     Successors and Assigns. Except as otherwise provided
                           ----------------------
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties (including transferees of any of the Series A-1, Series A-2,
Series B, Series B-1 or Series C Preferred Stock or any Common Stock issued upon
conversion thereof). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
For the purpose of meeting the thresholds for exercising any rights hereunder
(i) partners or former partners of an Investor to whom an Investor has
transferred shares shall be permitted to aggregate their holdings with such
Investor and with all other partners or former partners and (ii) Investors
represented by Zesiger Capital Group as attorney-in-fact and for whom Zesiger
Capital Group has investment authority with respect to their Registrable
Securities may aggregate their holdings with those of all other such Investors.

                  3.2.     Amendments and Waivers. Any term of this Agreement
                           ----------------------
may be amended or waived only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding, not
including the Founders' Stock; provided that if such amendment has the effect of
affecting the Founders' Stock (i) in a manner different than securities issued
to the Investors and (ii) in a manner adverse to the interests of the holders of
the Founders' Stock, then such amendment shall require the consent of the holder
or holders of a majority of the Founders' Stock. Any amendment or waiver
effected in accordance with this

                                      -16-
<PAGE>

paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.

                  3.3.     Notices. Unless otherwise provided, any notice
                           -------
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or
sent by telegram or fax, or four (4) business days after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address or fax number as set forth
on the signature page on Exhibit A hereto or as subsequently modified by written
                         ---------
notice.

                  3.4.     Severability. If one or more provisions of this
                           ------------
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement, (b)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (c) the balance of the Agreement shall be enforceable in accordance
with its terms.

                  3.5.     Governing Law. This Agreement and all acts and
                           -------------
transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.

                  3.6.     Additional Parties. From and after the date of this
                           ------------------
Agreement, the Company shall not without prior written consent of a majority of
the Holders of Registrable Securities, enter into any agreements with any holder
or prospective holder of any securities of the Company providing for the grant
to such holder of rights superior to those granted herein. Any such additional
party to this Agreement shall execute a counter-part of this Agreement, and upon
execution by such additional party and by the company, shall be considered a
Holder for purposes of this Agreement.

                  3.7.     Counterparts. This Agreement may be executed in two
                           ------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                  3.8.     Titles and Subtitles. The titles and subtitles used
                           --------------------
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

                  3.9.     Aggregation of Stock. All shares of the Preferred
                           --------------------
Stock held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

                            [Signature Page Follows]

                                      -17-
<PAGE>

         The parties have executed this Second Amended and Restated Investors'
Rights Agreement as of the date first above written.

COMPANY:

DURECT CORPORATION

By:   /s/ James E. Brown
      ------------------
      James E. Brown, President

FOUNDERS:

/s/ Thomas A. Schreck
---------------------
Thomas A. Schreck

/s/ James E. Brown
------------------
James E. Brown

/s/ Felix Theeuwes
------------------
Felix Theeuwes
<PAGE>

INVESTORS:

Biotech Growth S.A
------------------

By: /s/ Anders Hove
   __________________________

Title:_______________________

Medgrowht S.A.
--------------

By: /s/ Anders Hove
   __________________________

Title:_______________________

Brookside Capital Partners Fund, L.P.
-------------------------------------

By: /s/ Domenic Ferrante
    --------------------

Title: Managing Director
       -----------------

Sofinov
-------

By: /s/ Denis Dionne
    ------------------

Title: President
       ---------

By: /s/ Jean-Christophe Renond
    ---------------------------

Title: Vice President
       --------------

Zaffaroni Family Partnership, L.P.
----------------------------------

By: /s/ Alejandro Zaffaroni
    -----------------------

Title: General & Limited Partner
       -------------------------

      SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>

CHL Medical Partners, L.P
-------------------------

By: /s/ Ronald W. Lennox
    --------------------

Title: Vice President
       --------------

Asphalt Green, Inc. (Cudd & Co.)
--------------------------------
Salvador O. Gutierrez
---------------------
Peter Looram
------------
Mary C. Anderson
----------------
Domenic J. Mizio
----------------
Susan Uris Haipern (Hare & Co.)
-------------------------------

By: Zesiger Capital Group LLC,
    As Attorney-in-Fact

By:    /s/ Albert L. Zesiger
       ---------------------

Title: Principal
       ---------

                                      -2-
<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES A HOLDERS
                               ----------------

                                Investor Name
       -----------------------------------------------------------------

       Alza Corporation
       Atwell & Company - Wells Family LLC
       Auer & Co.
       Batrus & Company - The Jennifer Altman Foundation
       Booth & Company - Elizabeth Heller Mandell Trusts
       Roy & Katherine Bukstein, Trustees for Roy & Katherine
       Bukstein Trust
       Mr. Andrew J. Butler
       Mr. James R. Butler
       City of Milford Pension and Retirement Fund
       City of Stamford Firemen's Pension Fund
       Mr. Jim Concidine
       Cudd & Company - Helen Hunt
       Daly & Company - Dean Witter Foundation
       Dengel & Company - Trustees of Amherst College
       Goldfarb & Simens Profit Sharing Plan FBO David Goldfarb
       Mr. David Halpert
       Hambrecht & Quist Employee Venture Fund, L.P.
       Hambrecht & Quist LLC
       Hare & Company - Norwalk Employees Pension Plan
       HBL Charitable Unitrust
       Houvis & Co. FBO NFIB Employee Pension Trust
       Mr. Jonathan W. Kawaja
       Mr. William B. Lazar
       Mellon Bank NA custodian for PERSI-Zesiger Capital Public
       Employee Retirement System of Idaho
       Justine Mary Miner
       Luke Ian Miner
       Mary Miner, TTEE FBO the Survivors TR Est Under the R& M
       Nicola Mary Miner
       Ms. Jeanne L. Morency
       Morgan (Bahamas) Trust Co. of the Bahamas Ltd. As Trustee
       Ms. Nicola Z. Mullen
       Murray Capital, LLC
       Mr. John Osterweis
       Premier Medical Partner Fund, L.P.
       Promed Partners, L.P.
       Psychology Associates
       Mr. Dennis Purcell
       Mr. John Rumsey
       Westcoast & Company - State of Oregon PERS/ZCG
       Mr. Kurt Wheeler
       Harold & Grace Willens, JTWROS
       Winsal & Company - Roanoke College

                                      -2-
<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES A HOLDERS
                               ----------------
                                  (continued)
                                  -----------

            Investor Name
----------------------------------------------

Wolfson Investment Partners, L.P.
Zaffaroni Revocable Trust UTD 1/24/86
Ms. A. Carey Zesiger
Mr. Albert L. Zesiger
Ms. Alexa L. Zesiger
Ms. Barrie Ramsay Zesiger
Mr. David Zesiger
<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES B HOLDERS
                               ----------------

                                 Investor Name
       -------------------------------------------------------------------

       Ms. Teresa Alessi
       Dean Witter Reynolds Inc. C/F Kenneth Barovsky IRA
       Standard Dated 3/7/97
       Bost & Company - Mellon Securities Trust Co.
       Brookside Capital Partners Fund, L.P.
       CFS Group, Inc.
       Bank One Trust Co. Trustee Ronald L. Chez IRA A/C
       2620804400
       CHL Medical Partners, L.P.
       Michael Cohen
       Teresa M. Corbin
       Kathleen A. DaSilva
       Eagle Lake Ventures, Inc.
       Steve Elms
       Eugene Farber
       Daniel F. Feldman
       Gregory Daniel Frank
       FWH Associates
       Shelly Guyer
       Hambrecht & Quist California
       Hambrecht & Q(upsilon)ist Employee Venture Fund, L.P. II
       Hambrecht & Quist LLC
       Jeffrey G. Heuer
       Jonathan Heuer
       Zach Hulsey
       Vivek Jain
       Dean Witter Reynolds Inc. C/F Randolph M. Johnson IRA
       Rollover dtd. 11/10/98
       Carl Kawaja
       Kawaja Foods Ltd.
       Leonard Kingsley
       Steven J. Krausse
       Mr. Reggie O. Lapastora
       The Magruder Living Trust
       First Trust, Trustee for the benefit of Jerry Edwin Marks
       Seth Miller
       Morgan (Co-Mingled) Guaranty Trust Company
       Morgan (Multi-Market) Guaranty Trust Company
       Dallas Nelson
       Dorothy Nelson
       Gregory Nelson
       Timothy S. Nelson
       PaineWebber Incorporated, not in its individual capacity but
       solely as Custodian of the IRA of Timothy S. Nelson

                                      -3-

<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES B HOLDERS
                               ----------------
                                  (continued)

                                 Investor Name
       -------------------------------------------------------------------
       John S. Osterweis, Trustee for the Osterweis Revocable Trust
       UAD 9/13/93
       Stephen H. Otto
       Premier Medical Partner Fund L.P.
       Dennis Purcell
       Retirement Accounts, Inc. for the benefit of Nigel P. Ray
       John D. and Pamela F. Richard
       Mark J. Richard
       The Richard Family Trust U/A dtd. 4/14/93
       John Rumsey
       America Sanchez
       Albert R. Schreck
       Joel W. Schreck
       Sofinov
       Stephen B. Thau
       Jan Frans Maria Theeuwes
       VLG Investments 1999
       CNA Trust Company, TTEE VLG 401(k) Retirement Plan FBO
       Mark B. Weeks
       Zaffaroni Family Partnership L.P.
       Zaffaroni Revocable Trust UTD 1/24/86

                                      -4-
<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES B HOLDERS
                               ----------------
                                  (continued)

                                   EXHIBIT A
                                   ---------

                              SERIES B-1 HOLDERS
                              ------------------

                             Investor Name
       ----------------------------------------------------------
       Daniel K. Arenberg
       Irving K. Arenberg
       Michael H. Arenberg
       Roy M. Barbee
       Vaughn D. Bryson
       Joe C. Cook
       Ryan Doster
       Sara Doster
       Dr. Sterling Doster M.D.
       Harris Trust Company of California, as Escrow Agent
       Ronald D. Henriksen
       Miles Hobbs & Lenora Hobbs, JT TEN
       Gary Hoyt
       Dr. Allan M. Miller M.D.
       Elizabeth D. Miller
       Emily Miller  & Allan Miller, JT TEN
       Eric Miller
       Arthur Pringle III
       James Topolgus

                                      -5-
<PAGE>

                                   EXHIBIT A
                                   ---------

                               SERIES C HOLDERS
                               ----------------

                                 Investor Name
       -------------------------------------------------------------------

       Biotech Growth S.A.
       Medgrowht S.A.
       Brookside Capital Partners Fund, L.P.
       Sofinov
       CHL Medical Partners, L.P.
       Zaffaroni Family Partnership, L.P.
       Domenic J. Mizio
       Hare & Co.
       Cudd & Co.
       Salvador O. Gutierrez
       Peter Looram
       Mary Anderson

                                      -6-

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