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                                                                    EXHIBIT 10.1

                                     RELAXIN

              DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT

        This DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT, effective as
of April 7, 2000 ("EFFECTIVE DATE") is made by and between F. H. Faulding & Co.
Limited, having its principal place of business at 115 Sherriff Street,
Underdale, SA 5032, AUSTRALIA ("FAULDING"), ACN 007 870 984, and Connetics
Corporation, a Delaware corporation, having its principal place of business at
3400 West Bayshore Road, Palo Alto, California, 94303, U.S.A. ("CONNETICS")
(each, respectively, a "PARTY" and collectively, the "PARTIES").

                                   BACKGROUND

A.      Connetics possesses certain technology and intellectual property rights
        pertaining to Relaxin as defined in this Agreement.

B.      Connetics and Faulding desire to collaborate to develop and
        commercialize Product in the Territory (all as defined in this
        Agreement).

C.      Connetics and Faulding have entered into a Letter of Understanding dated
        February 7, 2000, pursuant to which they agreed to negotiate a
        definitive license agreement on substantially the terms set forth in the
        Letter, and pursuant to which Faulding paid Connetics [*****] which
        amount is creditable as set forth in SECTION 4.1.1 of this Agreement.

THEREFORE, the Parties agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

The following terms shall be deemed to have the meanings stated below:

"ADDITIONAL INDICATION(S)" means all human therapeutic indications except
Scleroderma and Reproductive Indications; provided, however, that Reproductive
Indications shall be included in the definition of Additional Indications upon
the events set forth in SECTION 3.5.

"ADJUSTED PRICE TO FAULDING" means the revised price to Faulding that the
Parties agree to based on the provisions of SECTION 5.1.2 of this Agreement.

"ADVERSE EXPERIENCE" shall have the meaning set forth in EXHIBIT D of this
Agreement.

"AFFILIATE" means any individual, corporate or other entity that controls, is
controlled by or is under common control with a Party. For purposes of this
definition, "control" shall mean the possession directly or indirectly, of a
majority of the voting power of such entity (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise); provided that such entity shall be deemed an Affiliate only so long
as such control continues.

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"AGREEMENT" means this agreement together with all exhibits, schedules, and
appendices attached to this agreement, all as respectively amended, modified or
supplemented by the Parties in accordance with the terms of this agreement.

"BLA" means a Biologics License Application, or equivalent FDA application
relating to the manufacturing and marketing of biologically based pharmaceutical
products, filed with the FDA or any such comparable applications in the
Territory.

"CLINICAL DEVELOPMENT" means all activities subsequent to the Effective Date
relating to human clinical trials including pre-clinical and additional studies
commercially reasonably required to support Regulatory Filings for the purpose
of obtaining Regulatory Approval to market and sell Product in the Territory.

"COGS" means a Party's cost of producing the Product and/or Relaxin Material,
computed in accordance with GAAP applied on a consistent basis. Such costs shall
include the reasonable, out of pocket cost (whether incurred directly by such
Party or invoiced by any Third Party) of all raw materials, labor and overhead
for manufacturing, formulation, storage, filling, finishing, labeling,
packaging, quality assurance and quality control, shipping and distribution
costs, and technical support incurred directly and exclusively for, or
proportionately allocated to, the production of the Product, any value added
taxes or transportation charges, and any royalties (other than royalties payable
pursuant to Third Party Licenses) paid pursuant to licenses in connection with
the manufacturing process or materials used.

"COMMERCIALLY REASONABLE EFFORTS" means the effort by Faulding or Connetics to
deploy, in light of prevailing circumstances and taking into account Third Party
obligations and commitments, sufficient resources, capital equipment, material
and labor as might reasonably be expected to achieve in an appropriate
time-scale, the benefits which are anticipated to accrue to Faulding and
Connetics from the commercial exploitation of the Product, and if the
Commercially Reasonable Efforts are to be directed to a specific goal, then that
goal.

"CONFIDENTIAL INFORMATION" shall have the meaning set forth in SECTION 8.2.1 of
this Agreement.

"CONNETICS BREACH" shall have the meaning set forth in SECTION 9.2.1 of this
Agreement.

"CONNETICS' IMPROVEMENTS" means any inventions, discoveries, improvements or
enhancements relating to Relaxin, whether patented, patentable or not, conceived
or first reduced to practice by Connetics during the Term and any and all
intellectual property rights therein and thereto. Connetics shall promptly
notify Faulding of the details of such Connetics Improvements as soon as
possible

"CONTRACT MANUFACTURER" means any Third Party contracted by Connetics to provide
manufacturing services which are material to Relaxin Materials or Product, or
any component or ingredient therein. Without limiting the foregoing, the term
"Contract Manufacturer" shall include any Third Party whose acts or omissions in
connection with its assumption of any obligation under this Agreement or the
Supply Agreement would be imputed to, and would therefore be considered, the
acts or omissions of Connetics pursuant to any applicable law or by any
Regulatory Authority.

"DEVELOPMENT COMMITTEE" shall have the meaning set forth in SECTION 3.1.1 of
this Agreement.

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"DEVELOPMENT PLAN" means the plan as amended from time to time which sets forth,
in one or more sections, (a) Connetics' strategies, plans, activities, estimated
time schedules and responsibilities for commercializing Relaxin in the U.S.A.,
and (b) Faulding's strategies, plans, activities, estimated time schedules and
responsibilities with regard to Clinical Development and Regulatory Filings for
the Territory. Faulding shall develop a plan for the Territory as appropriate
after the Effective Date, which shall be subject to approval by Connetics prior
to its implementation, which approval shall not be unreasonably withheld.

"ENFORCING PARTY" shall have the meaning set forth in SECTION 2.5 of this
Agreement.

"FDA" means the U.S. Food and Drug Administration or successor agency.

"FAULDING BREACH" shall have the meaning set forth in SECTION 9.2.2 of this
Agreement.

"FAULDING IMPROVEMENTS" means any inventions, discoveries, improvements or
enhancements relating to Relaxin, whether patentable or not, conceived or first
reduced to practice by Faulding during the Term and any and all intellectual
property rights therein and thereto. Faulding shall notify Connetics of the
details of such Faulding Improvements as soon as possible.

"FIELD" means the treatment of Scleroderma and all Additional Indications.

"FORECAST" mean the forecast supplied by Faulding no later than [*****] before
the beginning of each Year, which forecast shall reflect Faulding's good faith
estimate of the total Net Sales of Product in the Territory for the upcoming
Year on a quarterly basis.

"GAAP" (or Generally Accepted Accounting Principles) means generally accepted
accounting and reporting assumptions, standards, and practices as applied in the
United States and as prescribed by authoritative bodies such as the Financial
Accounting Standards Board.

"INDEMNITEE" and "INDEMNITOR" shall have the meanings set forth in SECTION 6.6
of this Agreement.

"LAUNCH DATE" means the first date upon which the Product is first sold
commercially by Faulding in the Territory.

"LICENSED IP" means the Relaxin Patents, Relaxin Information and Third Party
Licenses.

"LOSSES" shall have the meaning set forth in SECTION 6.4 of this Agreement.

"MEDEVA" means Medeva Pharmaceuticals, Inc. and any successor corporation.

"MEDEVA AGREEMENT" means the Relaxin Development, Commercialization and License
Agreement effective as of January 11, 1999, by and between Medeva and Connetics.

"NET SALES" means gross amounts invoiced by Faulding (and/or an Affiliate of
Faulding or a distributor appointed by Faulding, excluding wholesalers)
ex-factory on a commercial arms-length basis, for sales of Product in the
Territory by Faulding (and/or an Affiliate of Faulding or a

[*****] CONFIDENTIAL TREATMENT REQUESTED

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distributor appointed by Faulding, excluding wholesalers) to a Third Party, less
deductions for the following amounts directly chargeable to such Product:

        (1)     customary trade, quantity or cash discounts and rebates
                (including non-cash rebates), actually allowed and taken;

        (2)     credits actually granted upon, or allowances for estimated
                amounts for, returns, claims, rejections, rebates and
                chargebacks;

        (3)     an allowance for uncollectible amounts or bad debts;

        (4)     recalls; and

        (5)     charges for delivery and handling.

Sales of Product between a Party and its Affiliates and sales solely for
research or testing purposes shall be excluded from the computation of Net
Sales.

"NET SELLING PRICE" means Net Sales of Faulding and/or an Affiliate of Faulding
or a distributor appointed by Faulding, calculated on a per milligram basis (or
such other unit as the Parties may agree) in respect of Product sold in the
Territory to a Third Party

"NON-ENFORCING PARTY" shall have the meaning set forth in SECTION 2.5 of this
Agreement.

"PRICE TO FAULDING" means [*****] calculated on a [*****] basis (or such other
unit as the Parties may agree) plus [*****], unless otherwise adjusted pursuant
to the provisions of SECTION 5.1.2.

"PRODUCT" means a commercial pharmaceutical product containing Relaxin for use
in the Field.

"REGULATORY APPROVAL" means all approvals, including pricing approvals for
reimbursement purposes, from the appropriate Regulatory Authorities (a) in the
United States or (b) in the Territory, that are required to promote and market
the Product in the relevant country.

"REGULATORY AUTHORITY" means the FDA or any equivalent or additional
governmental or regulatory agencies in the Territory.

"REGULATORY FILINGS" means all activities relating to the filing for and
procurement of Regulatory Approval, including but not limited to price
reimbursement approval for the marketing and sale of Product from the relevant
Regulatory Authorities.

"RELAXIN" means a polypeptide hormone which both (1) has an amino acid sequence
corresponding to all or a part of the sequence of the polypeptide described in
EXHIBIT A-1, and peptide derivatives thereof and (2) is an agonist to any of the
biological activities of the substances identified in EXHIBIT A-2.

"RELAXIN INFORMATION" means trade secrets, know-how, information and proprietary
rights in any tangible or intangible form, other than Relaxin Patents but
including Connetics Improvements to

[*****] CONFIDENTIAL TREATMENT REQUESTED

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the extent licensed to Faulding pursuant to SECTION 2.1.3, relating to the
development and commercialization of Relaxin, Relaxin Materials and the Product,
including but not limited to any pre-clinical, clinical and regulatory
information that Faulding may need for the purposes of this Agreement that: (1)
is owned by Connetics and/or its Affiliates, or (2) is owned by a Third Party,
which Connetics and/or its Affiliates has a right to license or is not
prohibited from disclosing to Faulding and its Affiliates under this Agreement.

"RELAXIN MATERIALS" means bulk Relaxin or formulated Relaxin for use in Clinical
Development and/or procuring Regulatory Approval for the Product.

"RELAXIN PATENTS" means the patents and patent applications in the Territory
and/or in the U.S.A., including any reissues, renewals, extensions,
substitutions, divisionals, continuations and continuations-in-part of such
patents or patent applications, relating to Relaxin or the Product, owned or
controlled by Connetics and/or its Affiliates or included in the Third Party
Licenses which: (1) are in existence as of the Effective Date or which come into
existence during the Term of this Agreement; or (2) are licensed to Connetics
under the Third Party Licenses. The Relaxin Patents include, without limitation,
the patents and patent applications set forth on EXHIBIT B to this Agreement.

"REPRODUCTIVE INDICATIONS" means the diagnosis and treatment of human diseases
or disorders primarily related to the facilitation of human reproduction, such
as cervical ripening, the facilitation of delivery in humans, and fertilization.
For the avoidance of doubt, "Reproductive Indications" is intended to cover the
full spectrum of the term "Relaxin Reproductive Field," as that term is used in
the Amendment to License Agreement dated as of July 14, 1994, between Genentech,
Inc. and Connective Therapeutics, Inc.

"SCLERODERMA" means limited sclerosis, systemic sclerosis, diffuse systemic
sclerosis, progressive systemic sclerosis, and/or systemic sclerosis with
diffuse scleroderma.

"SPECIFICATIONS" means the specifications for the Relaxin Materials and the
Product as set forth in EXHIBIT A-3 to this Agreement, and such changes to such
specifications as the Parties may subsequently agree to in writing.

"SUPPLY AGREEMENT" means the agreement to be entered into at a future date
pursuant to SECTION 5.1.2.

"TERM" shall have the meaning set forth in SECTION 9.1 of this Agreement.

"TERRITORY" means Australia.

"THIRD PARTY LICENSES" means all licenses to Third Party intellectual property
rights including without limitation patents, patent applications, trade secrets,
and/or know-how covering, or related to, Relaxin, Relaxin Materials and Product,
under which Connetics and/or its Affiliates has a right to grant a sublicense to
Faulding and its Affiliates. A list of the Third Party Licenses as of the
Effective Date is attached to this Agreement as EXHIBIT C.

"THIRD PARTY(IES)" means any person or entity other than Faulding, Connetics, or
an Affiliate of Faulding or Connetics.

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"THIRD PARTY WORK" shall have the meaning set forth in SECTION 7.1.6 of this
Agreement.

"YEAR" means Faulding's fiscal year.

                                   ARTICLE II
                                     LICENSE

        2.1 LICENSE.

            2.1.1 LICENSED IP. Subject to the terms and conditions of this
Agreement, during the Term, Connetics grants to Faulding and its Affiliates an
exclusive license, solely within the Territory and in the Field, with the right
to sublicense as set forth in SECTION 2.1.4, to use the Licensed IP, and to
develop, use, market, distribute, sell, offer for sale and import the Product
for Scleroderma and Additional Indications.

            2.1.2 TRADEMARKS. Except as expressly permitted in this Agreement,
no right or license is granted to Faulding to use Connetics' name or any
trademarks or tradenames of Connetics in advertising, publicity or other
promotional activities without the express written approval of Connetics.

            2.1.3 CONNETICS IMPROVEMENTS. Subject to the terms and conditions of
this Agreement, Connetics grants to Faulding and its Affiliates an exclusive
license in the Field, with the right to sublicense as provided in this
Agreement, to any Connetics Improvements in the Territory for use in connection
with the sale of Product, for no additional royalty obligations beyond those
already set forth in this Agreement. Notwithstanding the foregoing sentence, to
the extent any Connetics Improvement does not relate exclusively to the Licensed
IP or Product, Connetics shall have the right to use or license such Connetics
Improvement for any purpose outside the Field throughout the Territory and for
any purpose outside the Territory. Connetics shall have no duty to notify
Faulding of the details of any Connetics Improvement to the extent and during
the period that such disclosure would adversely affect the patentability of the
matters disclosed.

            2.1.4 SUBLICENSES. Faulding shall have the right to grant
sublicenses under the license set forth in SECTIONS 2.1.1 and 2.1.3, and to
employ Affiliates and Third Parties in connection with the performance of its
rights and obligations under this Agreement, provided that (a) the execution of
a sublicense or a subcontract shall not in any way diminish, reduce or eliminate
any of Faulding's obligations under this Agreement, and Faulding shall remain
primarily liable for such obligations, (b) Faulding shall notify Connetics
within five (5) business days after entering into such a sublicense, and shall
provide a copy of the sublicense agreement (with non-relevant passages
appropriately redacted) to Connetics within five (5) business days after
execution, and (c) Faulding shall only grant a sublicense to any Affiliate or
Third Party which undertakes to perform those obligations of this Agreement
relevant to such sublicense in accordance with the terms of this Agreement,
including specifically the obligation under SECTION 7.2.1.

        2.2 LICENSE TO FAULDING IMPROVEMENTS. Subject to the terms and
conditions of this Agreement, Faulding grants to Connetics and its Affiliates an
exclusive, non-transferable, royalty-free license in the Field, without the
right to sublicense (except as provided in this Agreement), to

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any Faulding Improvements in all territories of the world excluding the
Territory for use in connection with the development, manufacture and sale of
Product. Notwithstanding the foregoing sentence, to the extent any Faulding
Improvement does not relate exclusively to the Licensed IP or Product, Faulding
shall have the right to use or license such Faulding Improvement for any purpose
in any territory in the world. Faulding shall have no duty to notify Connetics
of the details of any Faulding Improvement to the extent that such disclosure
would adversely affect the patentability of the matters disclosed.

        2.3 THIRD PARTY TECHNOLOGY.

            2.3.1 The Parties acknowledge that the licenses granted to Faulding
in this Agreement include sublicenses under Third Party Licenses. Connetics
shall be solely responsible for all payments under the Third Party Licenses
entered into prior to the Effective Date and all amendments, restatements or
renewals thereof. Connetics shall promptly disclose to Faulding any knowledge
that Connetics acquires during the Term of this Agreement relating to any
patents or patent applications by Third Parties other than the Relaxin Patents.

            2.3.2 Connetics shall abide by the terms and conditions of all Third
Party Licenses to maintain the Third Party Licenses to which Faulding has taken
a sublicense for Faulding as Connetics' sublicensee. Connetics agrees not to
terminate or assign, nor by act or omission permit the termination or assignment
of, any of the Third Party Licenses to which Faulding has taken a sublicense,
nor to amend or by act or omission permit the amendment of any such Third Party
Licenses to the extent such an amendment would adversely affect Faulding's
rights under this Agreement, without Faulding's prior written consent, which
consent may be granted or withheld in Faulding's sole discretion. Within [*****]
entering into any amendment of a Third Party License, Connetics shall notify
Faulding and provide Faulding with a copy of the amendment.

        2.4 RESERVATION OF RIGHTS. No right, title, or interest is granted,
whether expressly or by implication, to any technology or intellectual property
rights owned by either Party, except for the rights and licenses expressly
granted under this Agreement, and each Party hereby reserves all rights not
expressly granted under this Agreement, nor shall anything in this Agreement be
deemed to restrict either Party from exploiting any of its rights not expressly
granted to the other Party under this Agreement.

        2.5 ENFORCEMENT OF LICENSED IP.

            2.5.1. A Party shall promptly notify the other Party if it becomes
aware of any infringement or misappropriation of the Licensed IP. As between the
Parties, Connetics shall have the primary right and discretion regarding
enforcement of the Licensed IP against Third Parties who may be infringing or
misappropriating such intellectual property rights. Connetics shall use
Commercially Reasonable Efforts, at its sole expense, to protect the exclusive
license granted to Faulding pursuant to this Agreement, taking into account the
costs and benefits of such action, including, without limitation, the costs to
be incurred in any such action and the amount and likelihood of the damages that
may be awarded in any such action.

            2.5.2. If Connetics (a) decides not to enforce the Licensed IP, or
having commenced an action fails to pursue it, or (b) does not bring such action
within sixty (60) days after receipt of Faulding's request to enforce the
Licensed IP, then Faulding may do so at its own

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expense, and Connetics shall sign all documents and do all things necessary to
facilitate Faulding's exercising its rights under this subsection.

            2.5.3. In either case, the Party enforcing the Licensed IP at the
relevant time (the "ENFORCING PARTY") shall be entitled to recover all of its
actual costs, expenses and fees incurred in such action from the damages
awarded, and any remaining amount (subject to any amounts payable to any Third
Party licensee as a result of the damages awarded) shall be payable [*****] to
the Enforcing Party and [*****] to the Party not enforcing the Licensed IP (the
"NON-ENFORCING PARTY"). The Enforcing Party shall, in its sole discretion, have
the right to file and control such action as it deems warranted; provided,
however, that the Enforcing Party shall provide to the Non-enforcing Party and
its attorneys the following: (i) reasonable notice of, and permission to attend,
all meetings and proceedings related to such actions; (ii) copies of all
documents (including without limitation correspondence, notices, filings,
responses, requests, orders and rulings) related to such action in sufficient
detail and with sufficient time to enable the Non-enforcing Party to review and
provide comments on such documents; and (iii) timely information and updates
regarding the status of such action.

            2.5.4. The Non-enforcing Party agrees to cooperate with the
Enforcing Party to the extent reasonably requested by and at the expense of the
Enforcing Party, including, without limitation, being named as a party in such
proceeding. The Non-enforcing Party may choose to be represented by counsel of
its choice and at its own expense at all meetings, and to participate in all
discussions, but counsel for the Non-enforcing Party shall not be entitled to
appear in any legal or judicial proceedings.

        2.6 OTHER COUNTRIES. Connetics retains the right to grant licenses for
the sale, marketing and distribution of the Product in all countries outside the
Territory; provided, however, that Connetics agrees that for each such license
entered into after the Effective Date, it will impose on each such licensee, to
the extent permitted by applicable law, a covenant prohibiting the licensee
from: (a) seeking approval, directly or indirectly, from the relevant Regulatory
Authorities, to qualify facilities for manufacturing or finishing the Product
inside the Territory or to label or re-label the Product in a manner that would
permit it to be marketed or sold inside the Territory, (b) selling or exporting
the Product to any Third Party for use or resale inside the Territory, (c) or
selling the Product to any Third Party that Connetics has reason to believe
intends to resell or export the Product inside the Territory.

                                   ARTICLE III
                  CLINICAL DEVELOPMENT AND REGULATORY APPROVAL

        3.1 CLINICAL DEVELOPMENT.

            3.1.1 DEVELOPMENT COMMITTEE. The obligations and relationship
between the Parties pursuant to this Agreement shall be governed by a
development committee (the "DEVELOPMENT COMMITTEE"). Initially, and until such
time (if any) as Medeva objects, this provision shall be satisfied by the
inclusion of a Faulding representative on the Development Committee established
pursuant to the Medeva Agreement. If at any time Medeva asks that Faulding cease
to be represented on that Committee, then Connetics and Faulding shall, within
thirty (30) days after receipt of notice from Medeva, establish a separate
development committee

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which will have the obligation to monitor progress and manage information
exchange between Connetics and Faulding. At the first meeting of the Development
Committee, the Parties shall establish a regular meeting time and structure.

            3.1.2 DEVELOPMENT PLAN. Faulding shall conduct Clinical Development
in accordance with this SECTION 3.1, and the Development Plan, in the Territory.
The Development Plan may be amended from time to time during the Term to reflect
the actual needs of Clinical Development and/or Regulatory Approval. Connetics
shall endeavor to obtain the consent of its other Relaxin licensees to share
their development plans with Faulding.

            3.1.3 REGULATORY FILINGS. Connetics shall be responsible for all
Regulatory Filings for the Product in the United States. Faulding shall be
entitled to an update (including any written minutes) of any meeting with the
FDA related to Regulatory Filings for the Product in the United States. Faulding
shall be responsible for all Regulatory Filings for the Product in the
Territory; provided that Connetics may elect to participate in meetings with the
applicable Regulatory Authorities in the Territory for the purpose of obtaining
relevant Regulatory Approval(s), if the Regulatory Authority does not object to
Connetics' attendance and if including Connetics is otherwise practicable. In
any event, Connetics shall be entitled to an update (including any written
minutes) of any meeting with the applicable Regulatory Authorities in the
Territory that Connetics is not able or permitted to attend related to
Regulatory Filings for the Product in the Territory. Each Party shall keep the
other fully informed of all communications with the regulatory authorities.

        3.2 DEVELOPMENT COSTS.

            3.2.1 GENERAL. Faulding will pay [*****] of the expenses that are
unique to the Clinical Development and Regulatory Approval for the Product
solely in the Territory.

            3.2.2 QUARTERLY REPORTS. Within [*****] after the end of each
calendar quarter, commencing with the quarter ending June 30, 2000, and ending
with the first full calendar quarter after the first Regulatory Approval is
obtained in the Territory, Connetics and Faulding shall exchange quarterly
written progress reports which shall:

                (a) summarize the Clinical Development and Regulatory Approval
        activities and progress during the preceding calendar quarter; and

                (b) summarize the development activities and update the
        timetables of such activities expected to be conducted in the following
        calendar quarter.

        3.3 ACCESS TO INFORMATION. Faulding will consult with Connetics on the
Clinical Development that will be necessary to accumulate data required for
submitting a BLA for the Product in the Territory. It is the intention of this
provision that the Parties cooperate with one another to support Clinical
Development and Regulatory Filings to optimize commercial success in the U.S.
and in the Territory. Connetics will make available to Faulding, promptly upon
request, and Faulding under the license granted under this Agreement shall be
entitled to use in the Field in the Territory, all Relaxin Information (a)
developed by or for Connetics with respect to the submission of the BLA by
Connetics, or (b) elsewhere by or for Connetics' other licensees in respect of
regulatory filings in other countries, to the extent that Connetics is permitted
to make such information available to Faulding. Faulding will make available to
Connetics, and Connetics shall be

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<PAGE>   10

entitled to use and to make available to its licensees, all Relaxin Information
developed by or for Faulding with respect to the submission of the BLA by
Faulding in the Territory; provided that no money is required to be spent or
expenses incurred by Faulding outside of the Territory.

        3.4 RECORDS. Connetics shall maintain, and shall cause its Affiliates,
Contract Manufacturers, and other agents to maintain, all records necessary to
comply with applicable laws, rules and regulations relating to the manufacture
and storage of Relaxin, Relaxin Materials and the Product (in bulk or finished
form). All such records shall be maintained for such period as may be required
by law, rule or regulation; provided, however, that all records relating to the
manufacture, stability and quality control of each batch or partial batch of the
Product shall be retained at least until the first anniversary of the end of the
approved shelf life for all Product from such batch or partial batch; and
provided further that neither Party shall destroy such records without first
notifying the other Party and giving the other Party an opportunity to take
control of such records if the Party being notified believes that applicable law
or its own written corporate policy requires such records to be maintained.

        3.5 REPRODUCTIVE INDICATIONS.

            3.5.1 Connetics shall use Commercially Reasonable Efforts to secure
exclusive, rights in the Territory to Reproductive Indications from Genentech,
Inc. If Connetics is successful in securing rights to Reproductive Indications,
Faulding shall have the option to secure the right to commercialize Relaxin in
the Territory for Reproductive Indications on the following terms:

            (a)     Faulding shall pay to Connetics [*****] of amounts paid to
                    Third Parties by Connetics to secure the exclusive rights to
                    Reproductive Indications;

            (b)     the royalty to be paid by Faulding to Connetics pursuant to
                    SECTION 5.2 will be increased as to Reproductive Indications
                    in the Territory by [*****]; and

            (c)     Reproductive Indications shall be considered Additional
                    Indications upon the execution of a written amendment to
                    this Agreement incorporating the payment and royalty terms
                    with respect to Reproductive Indications.

            3.5.2 If Faulding does not elect to license Reproductive Indications
within [*****] after Connetics secures the exclusive rights from Genentech,
Connetics shall have the right to commercialize Product for Reproductive
Indications within the Territory on an exclusive basis without the right to
sublicense.

            3.5.3 If Connetics is unable to secure exclusive rights to
Reproductive Indications, Connetics shall not assign its co-exclusive rights in
the Territory to any Third Party without Faulding's consent. Furthermore,
Connetics shall use Commercially Reasonable Efforts to [*****].

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<PAGE>   11

                                   ARTICLE IV
                                    PAYMENTS

        4.1 PAYMENTS TO CONNETICS. The Parties agree that in consideration for
the rights granted by Connetics in this Agreement, Faulding will make the
following payments to Connetics in accordance with this ARTICLE IV.

            4.1.1 LICENSE FEES. Faulding agrees to pay Connetics an aggregate
amount of US$500,000, payable as follows: (a) [*****] of the amount previously
paid in connection with the Letter of Understanding between the Parties shall be
credited against the payment of the development fee upon execution of the
Agreement (with the understanding that Connetics is entitled to keep the balance
of [*****] without further encumbrance), and (b) [*****] shall be due on
[*****].

            4.1.2 MILESTONE PAYMENTS. At the time Faulding submits a BLA in the
Territory for each Additional Indication other than Scleroderma, Faulding shall
pay Connetics [*****] cash.

        4.2 PAYMENT TERMS. Faulding shall notify Connetics in writing within
[*****] after a milestone under SECTION 4.1.2 is achieved. The payments pursuant
to SECTION 4.1.2 shall be made within [*****] after the milestone is achieved.

                                    ARTICLE V
                        MANUFACTURE AND COMMERCIALIZATION

        5.1 MANUFACTURE.

            5.1.1 CLINICAL SUPPLIES. Connetics shall, and shall cause its
Contract Manufacturer(s) to, commencing from the Effective Date until Faulding
receives Regulatory Approval to market the Product in the Territory, use
Commercially Reasonable Efforts to manufacture for and supply to Faulding, and
Faulding shall (subject to the terms of this Agreement) purchase, all Faulding's
required quantities of Relaxin Materials for use in Clinical Development;
including quantities required for any special access schemes or compassionate
use programs in the Territory, provided that Faulding shall not transfer the
Relaxin Materials or Product to any Third Party at any time except to the extent
transfer is required for Clinical Development, Regulatory Filings or Regulatory
Approval or compassionate use programs or special access schemes related to the
Product in the Field and Territory. The price for Product and/or Relaxin
Materials pursuant to this Section shall equal [*****].

            5.1.2 PRODUCT FOR COMMERCIAL SALE. Commencing upon Faulding's
initial purchase order and continuing until the termination or expiration of
this Agreement, Connetics shall, and shall cause its Contract Manufacturer(s),
to use Commercially Reasonable Efforts to manufacture for and supply to Faulding
all of Faulding's requirements for Product (based on Faulding's Annual Sales
Forecast) on the terms set forth in a Supply Agreement to be entered into as
soon as practicable after [*****]. The Supply Agreement shall include, in
addition to the terms set forth in this ARTICLE V, such additional
representations, warranties, terms and conditions as are customary in the
industry for

[*****] CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   12

similar types of products, and such additional terms and conditions as the
Parties may agree upon. If the Price to Faulding to purchase commercial supply
of Product exceeds forty percent (40%) of the Net Selling Price, then the
Parties shall recalculate the Price to Faulding and agree on a new price (the
"ADJUSTED PRICE TO FAULDING"). The Adjusted Price to Faulding shall equal the
original Price to Faulding minus the lesser of (1) fifty percent of the
difference between the original Price to Faulding and [*****] of the [*****],
and (2) [*****] of the [*****].

                Example 1. Solely for purposes of this Agreement, and by way of
                illustration, if the [*****] is [*****] and the Price to
                Faulding is [*****], then the Adjusted Price to Faulding shall
                equal [*****]. The calculated reduction in the Price to Faulding
                is determined by the formula [*****]

                Example 2. Solely for purposes of this Agreement, and by way of
                illustration, if the [*****] is [*****] and the Price to
                Faulding is [*****], then the Adjusted Price to Faulding shall
                equal [*****]. The reduction in the Price to Faulding is limited
                to [*****], or [*****], which is less than the product of the
                calculation [*****]

Subject to SECTION 5.1.5 below, during the Term, Faulding shall purchase all its
requirements for Product from Connetics. Upon Faulding's request, during the
[*****] preceding the expiration of the Term, the Parties agree to negotiate in
good faith for an extension of supply by Connetics and purchase of the Product
by Faulding.

            5.1.3 CONTRACT MANUFACTURING. Connetics may contract with one or
more Contract Manufacturers to perform any or all of its obligations under this
Agreement and the Supply Agreement.

            5.1.4 INABILITY TO SUPPLY. If Connetics fails for any reason,
including without limitation a force majeure event described in SECTION 11.7, to
deliver Relaxin Materials and/or Product to Faulding, and such inability to
supply continues for more than [*****] without a plan (acceptable to Faulding)
by which Connetics proposes to cure the inability to supply within [*****] after
the inability first impacted Faulding, then Connetics hereby agrees to allocate
to Faulding a percentage of available Product equivalent to the percentage of
sales of Product in the Territory compared to sales of Product throughout the
world in the preceding [*****]. Alternatively, Faulding shall have the right
under such circumstances to contract with another supplier.

            5.1.5 ALTERNATE SUPPLY. Connetics agrees to use Commercially
Reasonable Efforts to cause at least two sources of supply of Relaxin to become
and remain pre-qualified as

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   13

soon as practicable after the first Regulatory Approval and during the remainder
of the Term of this Agreement.

            5.1.6 RISK OF LOSS. All shipments shall be [*****], as defined by
the [*****], and Faulding shall bear the risk of loss and cost of transportation
of the Relaxin Materials and/or Product upon delivery by Connetics to [*****].
The Parties agree that the Supply Agreement shall include additional detail on
the risk of loss.

        5.2 ROYALTY.

            5.2.1 ROYALTY OBLIGATION. Faulding shall pay Connetics a royalty
equal to a percentage of Faulding's Net Sales in the Territory for each Year, as
follows:

<TABLE>
<CAPTION>
        ---------------------------------------------------------------------------------
        IF NET SALES IN THE YEAR ARE:                            THEN THE ROYALTY DUE IS:
        ---------------------------------------------------------------------------------
<S>                                                              <C>
        (a)     less than [*****]                                [*****]

        (b)     more than [*****] and less than [*****]          [*****] plus [*****]

        (c)     more than [*****] and less than [*****]          [*****] plus [*****]

        (d)     more than [*****] and less than [*****]          [*****] plus [*****]

        (e)     more than [*****] and less than [*****]          [*****] plus [*****]

        (f)     more than [*****]                                [*****] plus [*****]
</TABLE>

            5.2.2 QUARTERLY PROGRESS ROYALTY PAYMENTS. Faulding shall provide
Connetics with a forecast of projected total annual Net Sales of Relaxin in the
Territory on quarterly basis for each Year, no later than [*****] before the
beginning of the Year. [*****]

            5.2.3 QUARTERLY ADJUSTMENTS TO FORECAST. No later than [*****] after
each fiscal quarter, if Net Sales are above or below the Forecast for that
quarter by [*****], the Parties shall revise the Forecast and adjust the [*****]
accordingly for the remainder of the Year.

[*****] CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   14

            5.2.4 ANNUAL ADJUSTMENTS TO ROYALTY PAYMENTS BASED ON ACTUAL NET
SALES. At the end of each Year, if Net Sales are above the Forecast, Faulding
shall pay Connetics an amount equal to the difference between the Royalty
calculated and paid according to the Forecast for that Year, as it may have been
adjusted from time to time through the Year, and the Royalty owing on the actual
Net Sales for that Year. At the end of each Year, if Net Sales are below the
Forecast, Connetics shall refund to Faulding an amount equal to the difference
between the Royalty calculated and paid according to the Forecast for that Year,
as it may have been adjusted from time to time through the Year, and the Royalty
owing on the actual Net Sales for that Year. At the end of each Year the actual
royalty payable for the year will be calculated in accordance with SECTION 5.2.1
above. Faulding will make a final royalty payment (or if necessary request a
credit) so that the total royalty paid for the Year equals the amount payable in
accordance with SECTION 5.2.1.

            5.2.5 INITIAL PERIOD OF SALES. During the period of time between the
Launch Date in the Territory and the beginning of the next Year, Faulding shall
pay Connetics Royalties in accordance with SECTIONS 5.2.1. TO 5.2.4 above,
except that, for the determination of the average percentage royalty rate for
quarterly royalty payments, Faulding's forecast shall be annualized (scaled up
to an annual equivalent amount), and to determine the actual royalty rate
payable for the total period, Faulding's actual sales shall be annualized.

            5.2.6 ANNUAL SALES FORECAST. Faulding shall provide Connetics with a
projected total annual Net Sales of Relaxin in the Territory for each Year, no
later than ninety (90) days before the beginning of the Year.

        5.3 PAYMENT TERMS.

            5.3.1 ROYALTY PAYMENTS. Faulding shall remit royalty payments to
Connetics quarterly, within [*****] after the end of each calendar quarter with
respect to Faulding's Net Sales in the Territory during that quarter.

            5.3.2 TIMING, FORM OF PAYMENT. All payments payable by Faulding to
Connetics pursuant to this ARTICLE V shall be made in accordance with SECTION
11.2. Upon shipment of Relaxin Materials and/or Product pursuant to SECTION
5.1.1, Connetics shall invoice Faulding, and Faulding shall pay the invoice
within thirty (30) days after receipt of the invoice.

            5.3.3 NONCONFORMING CLINICAL SUPPLIES.

                (a) Within [*****] after the delivery of Relaxin Materials and
        the accompanying Certificate of Analysis to Faulding, Faulding shall
        submit to Connetics in writing any claim that Relaxin Materials do not
        conform with the Specifications, accompanied by a report of Faulding's
        analysis (which analysis shall be conducted in good faith) and a sample
        of the Relaxin Materials at issue, explaining in reasonable detail the
        basis on which the allegedly nonconforming Relaxin Materials does not
        meet the Specifications. Faulding shall not be obligated to pay for such
        nonconforming shipment of Relaxin Materials. Only those tests listed in
        the Specifications may be used to demonstrate nonconformance of Relaxin
        Materials.

                (b) Connetics shall conduct its own analysis of the sample in
        good faith within [*****] after the receipt by Connetics of the report
        and sample from Faulding,

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   15

        and provide the results to Faulding. If, after analysis, Connetics
        agrees with the claim of nonconformity, Connetics shall replace the
        nonconforming Relaxin Materials with conforming Relaxin Materials at
        Faulding's request, in which case Faulding shall be obligated to pay
        only for such replacement Relaxin Materials. Faulding shall not be
        obligated to pay for the nonconforming Relaxin Materials, and Connetics
        shall credit Faulding for any amounts already paid for the nonconforming
        Relaxin Materials, and/or cancel its invoice to Faulding for such
        nonconforming Relaxin Materials if Faulding has not yet paid. If, after
        its own analysis, Connetics disagrees with the claim of nonconformity or
        determines that Faulding is responsible for the nonconformity, the
        Parties shall in good faith discuss and agree upon a settlement of the
        issue, and Faulding shall not be obligated to pay for such alleged
        nonconforming Relaxin Materials until such settlement is reached.

                (c) After Connetics has agreed that the Relaxin Materials
        shipment is nonconforming, and if the nonconformity is not the fault of
        Faulding, then Faulding shall return or destroy it at Connetics' request
        and cost in the most cost effective and environmentally safe and
        appropriate manner available, consistent with federal, state and local
        laws and regulations.

                (d) If conforming Relaxin Materials supplied under this
        Agreement become nonconforming or unsuitable at no fault of Connetics,
        Faulding will remain obligated to pay Connetics for such Relaxin
        Materials. At Connetics' request, Faulding shall return such unsuitable
        Relaxin Materials to Connetics. Otherwise, Faulding shall destroy it in
        the most environmentally safe and appropriate manner available,
        consistent with federal, state and local laws and regulations.

            5.3.4 PAYMENTS FOR COMMERCIAL SUPPLY. All payments by Faulding for
commercial supplies shall be made in accordance with the Supply Agreement.

        5.4 PRODUCT MARKINGS. Faulding shall market and sell Product in the
Territory as Faulding's products under trademarks selected and owned or
controlled by Faulding; and each Product marketed and sold by Faulding under
this Agreement shall be marked (a) with a notice that such Product is sold under
a license from Connetics Corporation; and (b) with all patent and other
intellectual property notices relating to the Licensed IP as may be required by
applicable law; provided, however, in addition, to the extent Faulding
determines to use any trademarks owned by Connetics Faulding shall display the
marks in accordance with Connetics' style guide for such marks, and in a style
or size of print distinguishing the mark from any accompanying wording or text.
Where feasible, Faulding shall display the appropriate trademark symbol to the
right of and slightly above or below the last letter of the word, or to the
right of the logo. Faulding will not, without Connetics' prior written consent,
publish or distribute any promotional material (or other material) with respect
to the Product that (a) does not present Connetics as the originator of the
Product or (b) use trademarks and tradenames in a format that Connetics has not
approved in writing.

        5.5 COMMERCIALIZATION. After obtaining Regulatory Approval for the
Product in the Territory, Faulding shall use Commercially Reasonable Efforts to
develop and commercialize the Product in the Territory. Connetics and Faulding
shall jointly agree on the copy platform for promotional materials and, subject
to the restrictions on trademark usage set forth in SECTIONS 2.1.2 and 5.4,
Faulding may create and develop promotional materials related to the Product
using, and based on, materials created by or for Connetics; provided, however,
Faulding will not, publish or

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   16
distribute any such promotional material (or other material) with respect to the
Product that Connetics has disapproved (provided that any disapproval by
Connetics results from a reasonable exercise of Connetics' discretion). Except
as otherwise mutually agreed, Faulding shall bear all costs and expenses related
to commercializing the Product in the Territory. In addition, and subject to
availability (including the need to allocate such resources among multiple
licensees), Connetics agrees to sell to Faulding (at Faulding's option) samples,
tradepacks, placebos and other sales and marketing materials relating to the
Product that Connetics develops at a price equal to Connetics' cost of materials
for same. Faulding may, at its option, participate in any training sessions that
Connetics holds for its own sales force regarding the Product, provided that
Faulding shall bear its expenses associated with training the Faulding sales
force.

        5.6 AUDIT.

            5.6.1 BOOKS AND RECORDS. Each Party agrees to maintain and cause its
Affiliates and, to the extent possible, cause its Contract Manufacturers, to
maintain complete and accurate books and records of account so as to enable the
other Party to verify amounts due and payable under this Agreement. In
particular, each Party shall preserve and maintain all such records and accounts
required for audit for a period of four (4) years after the calendar quarter for
which the record applies.

            5.6.2 AUDIT OF FAULDING'S RECORDS. Upon two (2) weeks notice to
Faulding, Connetics shall have the right to have an independent certified public
accountant, selected by Connetics and reasonably acceptable to Faulding, audit
Faulding's records during normal business hours to verify all records pertaining
to the calculation of Faulding's Net Sales in the Territory; provided, however,
that such audit shall not take place more frequently than once a year and shall
not cover records for more than the preceding four (4) years. Except in the
event that the audit reveals fraud, Connetics shall have no right under this
Section to audit records for periods which have already been audited under this
provision.

            5.6.3 AUDIT OF CONNETICS' RECORDS. Upon two (2) weeks notice to
Connetics, Faulding shall have the right to have an independent certified public
accountant, selected by Faulding and reasonably acceptable to Connetics, audit
Connetics' records during normal business hours to verify all records pertaining
to the calculation of Connetics' COGS; provided, however, that such audit shall
not take place more frequently than once a year and shall not cover records for
more than the preceding four (4) years. Except in the event that the audit
reveals fraud, Faulding shall have no right under this Section to audit records
for periods that have already been audited under this provision.

            5.6.4 AUDIT RESULTS; PAYMENTS. Each Party shall promptly pay or
refund to the other Party the amount of any overpayment or underpayment
determined in such audit. Any such audit shall be at the expense of the Party
requesting the audit unless such audit indicates greater than [*****] error in
payment in favor of the audited Party based on the records and/or calculations
of the audited Party, in which case such audit shall be at the expense of the
audited Party and such payment or refund shall bear interest from the date the
payment was originally due at [*****] plus the then current prime rate
established by the U.S. Federal Reserve Bank. Any dispute between the Parties
with respect to the results of any dispute shall be resolved in accordance with
SECTION 11.4 of this Agreement. All information resulting from such audits
conducted pursuant to this SECTION 5.6 shall be kept confidential pursuant to
SECTION 8.2. The

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   17

results of any such audit shall be disclosed to the auditing Party, provided
that the certified public accountants shall not disclose to the auditing Party
the business details of the audited Party's records, but shall report only as to
whether the amounts charged or royalties paid were correct, or if not, the
amount by which the certified public accountant's calculation varies from the
audited Party's calculation.

                                   ARTICLE VI
                           WARRANTIES AND INDEMNITIES

        6.1 REPRESENTATIONS AND WARRANTIES OF CONNETICS. Connetics represents
and warrants to Faulding as follows:

            6.1.1 ORGANIZATION; STANDING. Connetics is duly organized, validly
existing and in good standing and has the corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated by this
Agreement.

            6.1.2 NO CONFLICTS. The execution, delivery and performance of this
Agreement have been validly authorized by Connetics; neither the execution and
delivery of, or the performance of its obligations under this Agreement (a)
conflicts with, or contravenes or constitutes any default under, any agreement,
instrument or understanding, oral or written, to which it is a party, including
without limitation its certificate of incorporation or bylaws, or (b) violates
applicable laws, rules or regulations, or any judgment, injunction, order or
decree of any governmental authority having jurisdiction over it.

            6.1.3 RIGHTS TO LICENSED IP. As of the Effective Date, Connetics
owns, controls, or otherwise has the right to use, all Relaxin Information and
Relaxin Patents required or necessary to develop, manufacture and sell Product
(in bulk or finished form); and Connetics further represents that it has the
right to grant to Faulding the rights and licenses under the Licensed IP in this
Agreement.

            6.1.4 NO LAWSUITS, ETC. To the best of Connetics' knowledge, as of
the Effective Date and during the immediately preceding [*****], there have not
been any claims, lawsuits, arbitrations, legal or administrative or regulatory
proceedings, charges, complaints or investigations by any government authority
or other Third Party threatened, commenced or pending against Connetics or its
licensors relating to, and Connetics has not received any notice of infringement
with respect to, the Relaxin Information, Relaxin Patents, Relaxin or the
Relaxin Materials, including Connetics' right to manufacture, use or sell
Product.

            6.1.5 THIRD PARTY RIGHTS. The exercise by Faulding of the rights and
licenses granted to Faulding by Connetics under this Agreement will not infringe
any rights owned by any Third Party or violate any agreement between Connetics
and any Third Party (including without limitation the licensors under the Third
Party Licenses). Except as set forth in the Third Party Licenses, as of the
Effective Date, Connetics is not aware of any Third Parties that own or control
any patents or Relaxin Information required for the production, manufacture or
commercialization of Product.

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   18

            6.1.6 NO ENCUMBRANCES. As of the Effective Date, Connetics controls
or otherwise is entitled to use throughout the Territory all rights in, to and
under the Relaxin Patents and Relaxin Information, free and clear of any lien,
claim, charge, encumbrance or right of any Third Party (other than as set forth
in the Third Party Licenses).

            6.1.7 NO OTHER AGREEMENTS. No other agreement or understanding,
verbal or written, exists to which Connetics is legally bound regarding the
intellectual property rights granted to Connetics pursuant to the Third Party
Licenses. The Third Party Licenses represent the complete and entire
understanding of Connetics and, to the knowledge of Connetics, its respective
Third Party License licensors as of the Effective Date with respect to the
intellectual property rights granted to Connetics pursuant to the Third Party
Licenses.

            6.1.8 INFORMATION. All information relating to Relaxin or the
Product delivered to Faulding by Connetics, its officers, directors,
representatives or agents, was when delivered and is as of the date of this
Agreement in all material respects accurate and correct and Connetics is not
aware of any information which would be required to be disclosed to make any
such information not misleading.

            6.1.9 ADVERSE EXPERIENCES. [*****] Connetics and Faulding shall
comply with all the terms of EXHIBIT D with respect to reporting adverse events
related to the Product. After Connetics obtains FDA approval, Adverse Experience
reporting shall be governed by the provisions of ARTICLE X of this Agreement.

        6.2 REPRESENTATION AND WARRANTIES OF FAULDING. Faulding represents and
warrants to Connetics as follows:

            6.2.1 ORGANIZATION; STANDING. Faulding is duly organized, validly
existing and in good standing and has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement and the other agreements contemplated by this Agreement.

            6.2.2 NO CONFLICTS. The execution, delivery and performance of the
Agreement have been validly authorized by Faulding; neither the execution and
delivery of, or the performance of its obligations under this Agreement (a)
conflicts with, or contravenes or constitutes any default under, any agreement,
instrument or understanding, oral or written, to which it is a party, including
without limitation its articles of incorporation or bylaws, or (b) violates
applicable laws, rules or regulations, or any judgment, injunction, order or
decree of any governmental authority having jurisdiction over it.

        6.3 DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT OR BY APPLICABLE LAW, NEITHER PARTY MAKES ANY WARRANTY WITH
RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS, OR OTHER SUBJECT MATTER OF
THIS AGREEMENT AND HEREBY DISCLAIMS ALL WARRANTIES, CONDITIONS OR
REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
IMPLIED WARRANTIES OF PERFORMANCE, MERCHANTABILITY, SATISFACTORY QUALITY,

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   19

FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS.

        6.4 INDEMNIFICATION BY CONNETICS. Connetics shall indemnify Faulding,
its Affiliates and their respective directors, officers, employees and agents,
and defend and save each of them harmless, from and against any and all suits,
losses, actions, demands, investigations, claims, damages, liabilities, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) (collectively, "LOSSES") brought by Third Parties arising from or
occurring as a result of (a) any breach (or alleged breach) by Connetics of its
representations, warranties, or obligations under this Agreement; (b) any
Adverse Experiences that Connetics should have known about based on its clinical
trials, but which Adverse Experiences were not reported to the FDA or to
Faulding; (c) the manufacture or the storage of the Product prior to [*****],
all except to the extent caused by the negligence or willful misconduct of
Faulding or its officers, agents, employees, Affiliates, sublicensees or
customers; (d) the negligence or willful misconduct of Connetics or its
officers, agents, employees or Affiliates; (e) the use or consumption of the
Product outside of the Territory; or (f) a claim that the Product infringes any
patents, except patents issued after the date of this Agreement.

        6.5 INDEMNIFICATION BY FAULDING. Faulding shall indemnify Connetics, its
Affiliates and their respective directors, officers, employees and agents, and
defend and save each of them harmless, from and against any and all Losses
brought by Third Parties arising from or occurring as a result of (a) any breach
(or alleged breach) by Faulding of its representations, warranties, or
obligations under this Agreement; (b) the storage of the Product after [*****],
all except to the extent caused by the negligence or willful misconduct of
Connetics or its officers, agents, employees, Affiliates, sublicensees or
customers; (c) the negligence or willful misconduct of Faulding or its officers,
agents, employees or Affiliates; (d) the use or consumption of the Product
within the Territory; or (e) false or intentionally misleading statements made
by Faulding or its officers, agents or employees in connection with the
marketing and/or sale of the Product in the Territory.

        6.6 INDEMNIFICATION PROCEDURE.

            6.6.1 NOTICE. Each indemnified party (the "INDEMNITEE") agrees to
give the indemnifying party (the "INDEMNITOR") prompt written notice of any
Losses or discovery of fact upon which such indemnified party intends to base a
request for indemnification under SECTION 6.4 or 6.5. Notwithstanding the
foregoing, the failure to give timely notice to the Indemnitor shall not release
the Indemnitor from any liability to the Indemnitee to the extent the Indemnitor
is not prejudiced thereby.

            6.6.2 COPIES. The Indemnitee shall furnish promptly to the
Indemnitor copies of all papers and official documents in the Indemnitee's
possession or control which relate to any Losses; provided, however, that if the
Indemnitee defends or participates in the defense of any Losses, then the
Indemnitor shall also provide such papers and documents to the Indemnitee. The
Indemnitee shall cooperate with the Indemnitor in providing witnesses and
records necessary in the defense against any Losses.

[*****] CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   20

            6.6.3 PARTICIPATION. The Indemnitor shall have the right, by prompt
notice to the Indemnitee, to participate in the defense of any third party claim
forming the basis of such Losses with counsel reasonably satisfactory to the
Indemnitee, and at the sole cost of the Indemnitor so long as (a) the Indemnitor
promptly notifies the Indemnitee in writing (but in no event more than 60 days
after its receipt of notice of the claim) that it will indemnify the Indemnitee
from and against any Losses the Indemnitee may suffer arising out of the claim,
and (b) the Indemnitor diligently participates the defense of the claim.

            6.6.4 CONTROL OF DEFENSE. If the Indemnitor participates in the
defense of the claim as provided above, the Indemnitee may at its option
relinquish total control to the Indemnitor or participate in such joint defense
with its own counsel who shall be retained, at the Indemnitee's sole cost and
expense; provided, however, that neither the Indemnitee nor the Indemnitor shall
consent to the entry of any judgment or enter into any settlement with respect
to the claim without the prior written consent of the other party, which consent
shall not be reasonably withheld or delayed. If the Indemnitee withholds consent
in respect of a judgment or settlement involving only the payment of money and
which would not involve any stipulation or admission of liability or result in
the Indemnitee becoming subject to injunctive relief or other relief, the
Indemnitor shall have the right, upon notice to the Indemnitee within five (5)
days or receipt of the Indemnitee's written denial of consent, to pay to the
Indemnitee the full amount of such proposed judgment or settlement, including
all interest, costs or other charges relating thereto, and shall pay all
attorneys' fees incurred to such date for which the Indemnitor is obligated
under this Agreement, if any at which time the Indemnitor's rights and
obligations and duty to indemnify with respect to the claim shall cease.

            6.6.5 SETTLEMENT. If the Indemnitor does not so participate in the
defense of such claim, the Indemnitee may conduct such defense with counsel of
its choice and at the sole cost of the Indemnitor and may settle such case (for
monetary damages only) as it shall determine in the exercise of its reasonable
discretion. Except as provided in this SECTION 6.6.5, the Indemnitor shall not
be liable for any settlement or other disposition of a Loss by the Indemnitee
which is reached without the written consent of the Indemnitor.

            6.6.6 COSTS AND EXPENSES. Except as provided in this SECTION 6.6,
the costs and expenses, including fees and disbursements of counsel, incurred by
any Indemnitee in connection with any claim shall be reimbursed on a calendar
quarter basis by the Indemnitor, without prejudice to the Indemnitor's right to
contest the Indemnitee's right to indemnification and subject to refund in the
event the Indemnitor is ultimately held not to be obliged to indemnify the
Indemnitee.

        6.7 LIMITATION OF LIABILITY. EXCEPT FOR ANY LOSS, LIABILITY, DAMAGE OR
OBLIGATION ARISING OUT OF OR RELATING TO THE INABILITY TO SUPPLY THE PRODUCT,
DISCLOSURE OF CONFIDENTIAL INFORMATION PURSUANT TO ARTICLE VIII, OR AS PROVIDED
IN SECTION 6.4 OR 6.5, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE
OTHER PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST OPPORTUNITY OR PROFITS, OR FOR
ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES ARISING OUT
OF A BREACH OF THIS AGREEMENT, UNDER ANY CAUSE OF ACTION OR THEORY OF LIABILITY
(INCLUDING NEGLIGENCE), AND WHETHER OR NOT SUCH PARTY TO THIS AGREEMENT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   21

                                   ARTICLE VII
                                    COVENANTS

        7.1 CONNETICS' COVENANTS TO FAULDING. Connetics covenants to Faulding as
follows:

            7.1.1 MANUFACTURE. At the time of delivery of Relaxin Materials to
Faulding, the Relaxin Materials (a) will have been manufactured, filled,
packaged, stored and shipped in accordance with all applicable U. S. laws,
rules, regulations or requirements, (b) will have been manufactured, filled,
packaged and stored in accordance with the Specifications, and (c) will be free
from defects in material, manufacturing and workmanship for the shelf life of
such Relaxin Materials as set forth in the Specifications.

            7.1.2 COMPLIANCE WITH LAWS. Connetics has conducted or has caused
Connetics' Contract Manufacturers to conduct, and will in the future conduct
Clinical Development and other relevant research and development activities
required to support clinical testing, Regulatory Approvals and commercialization
of the Product in the Field (and any Additional Indications) in accordance with
applicable laws, rules and regulations, including without limitation, known or
published standards of the FDA.

            7.1.3 PERMITS; LICENSES. Connetics will maintain in effect all
governmental permits, licenses, orders, applications and Regulatory Approvals,
if applicable, necessary to manufacture, supply and sell Relaxin Materials
and/or Product and otherwise as necessary to perform its obligations in
accordance with the terms of this Agreement and the Supply Agreement. Connetics
will manufacture and supply such Relaxin Materials and/or Product in accordance
with such governmental permits, licenses, orders, applications, and Regulatory
Approvals.

            7.1.4 FUTURE PATENTS. Connetics will promptly disclose to Faulding
any knowledge it acquires during the Term of this Agreement relating to any
patents or patent applications owned by Third Parties other than the Relaxin
Patents, required for the production, manufacture or commercialization of
Product in the Field.

            7.1.5 INSURANCE. Connetics shall obtain, effect and maintain with a
reputable insurer, product liability insurance with a minimum value of [*****]
for any one loss and in the aggregate, to cover its activities and obligations
(including without limitation indemnified obligations) contemplated under this
Agreement. Connetics shall provide Faulding with evidence of such insurance upon
request.

            7.1.6 NON-COMPETE. Connetics covenants that, except as expressly
permitted under this Agreement, during the Term, it will not, nor will it permit
or cause its Affiliates or any Third Party to, enter into any agreement or
arrangement to manufacture, develop, use, offer for sale, lease, market, sell,
import, commercialize or otherwise exploit either directly or indirectly in the
Territory any product which contains human or animal relaxin (whether
recombinant or natural) or any product for the treatment of Scleroderma except
in accordance with the terms of this Agreement (collectively, "THIRD PARTY
WORK"). Without limiting the foregoing, except for sublicenses and subcontracts
entered into in accordance with the terms of this Agreement, Connetics will not
grant to any Affiliate or Third Party any rights under the Licensed IP which
would permit such Affiliates or Third Party to engage in or otherwise exploit
Third Party Work in the Territory. If Connetics breaches the provisions of this
SECTION 7.1.6, then without limiting any

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   22

other remedies available to Faulding, Connetics shall at its sole expense
contribute the Third Party Work to Faulding for use and exploitation under the
terms of this Agreement and secure for Faulding the exclusive right in the Field
to use and exploit the Third Party Work in the Territory.

            7.1.7 MAINTENANCE OF PATENTS. Connetics shall prosecute and maintain
the Relaxin Patents, and shall not take any steps to abandon, or allow to lapse,
nor fail to take any steps which are required to avoid the abandonment or
lapsing of any Relaxin Patent (nor cause or permit any other person to do so)
unless, in each case, Faulding and Connetics specifically agree otherwise in
writing. The Parties shall cooperate with each other to the extent necessary to
obtain any available extensions of the term of the Patents in the Territory.

        7.2 FAULDING'S COVENANTS TO CONNETICS. Faulding covenants to Connetics
as follows:

            7.2.1 COMMERCIALIZATION. Faulding shall use Commercially Reasonable
Efforts to develop and commercialize the Product in the Territory.

            7.2.2 PERMITS; LICENSES. Faulding will use Commercially Reasonably
Efforts to maintain in effect in the Territory all governmental permits,
licenses, orders, applications and Regulatory Approvals, if applicable,
necessary to supply and sell Relaxin Materials and/or Product in the Territory
and otherwise as necessary to perform its obligations in accordance with the
terms of this Agreement and the Supply Agreement (all to the extent not
otherwise required to be held by Connetics under applicable law or by the terms
of this Agreement), and Faulding will supply such Relaxin Materials and/or
Product in accordance with such governmental permits, licenses, orders,
applications, and Regulatory Approvals.

            7.2.3 FUTURE PATENTS. Faulding will promptly disclose to Connetics
any knowledge it acquires during the Term of this Agreement relating to any
patents or patent applications other than the Relaxin Patents, required for the
production, manufacture or commercialization of Product in the Field.

            7.2.4 NON-ENCROACHMENT. Faulding shall not do any of the following
acts: (a) seek approval, directly or indirectly, from the relevant Regulatory
Authorities, to qualify facilities for manufacturing or finishing the Product
outside of the Territory or to label or re-label the Product in a manner that
would permit it to be marketed or sold outside of the Territory, (b) sell or
export the Product to any Third Party for use or resale outside of the
Territory, (c) or sell the Product to any Third Party that Faulding has reason
to believe intends to resell or export the Product outside of the Territory.

            7.2.5 INSURANCE. Faulding shall obtain, effect and maintain with a
reputable insurer, product liability insurance with a minimum value of [*****]
for any one loss and in the aggregate, to cover its activities and obligations
(including without limitation indemnified obligations) contemplated under this
Agreement. Faulding shall provide Connetics with evidence of such insurance upon
request.

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   23

                                  ARTICLE VIII
                          CONFIDENTIALITY AND PUBLICITY

        8.1 PUBLIC RELATIONS AND ANNOUNCEMENTS. The Parties shall provide
courtesy copies of any public announcements concerning the relationship created
by this Agreement. Neither Party shall make any representations concerning the
other without the prior consent from the other Party. Except for such disclosure
as is required by applicable law and/or stock exchange regulation, neither Party
shall make any announcement, news release, public statement, publication or
presentation relating to the existence of this Agreement or the arrangements
referred to in this Agreement without the other Party's prior consent, which
consent will not be unreasonably withheld or delayed.

        8.2 CONFIDENTIALITY.

            8.2.1 CONFIDENTIAL INFORMATION. The Parties acknowledge that by
reason of their relationship to each other under this Agreement, each will have
access to certain information and materials concerning Relaxin Information, the
other's business, plans, trade secrets, customers (including, but not limited
to, customer lists of both Parties), technology, and/or products that is
confidential and of substantial value to that Party, which value would be
impaired if such information were disclosed to Third Parties ("CONFIDENTIAL
INFORMATION"). Each Party agrees that it will not use in any way other than
expressly authorized or contemplated under this Agreement, nor disclose to any
Third Party, any such Confidential Information revealed to it by the other Party
(except that Confidential Information may be disclosed, as required for the
purposes of this Agreement, to any Regulatory Authority, an Affiliate, assignee,
distributor, consultant or Third Party contractor or research and development
organization under similar written obligations of non-disclosure and non-use),
and will take every reasonable precaution to protect the confidentiality of such
information and with no less restrictive precautions than it takes to protect
its own confidential information. If Confidential Information is required to be
disclosed in response to a valid order by a court, regulatory authority or other
government body of competent jurisdiction, or if otherwise required to be
disclosed by law, or if necessary to establish the rights of either Party under
this Agreement, the receiving Party shall use commercially reasonable efforts to
provide the disclosing Party with advance notice of such required disclosure to
give the disclosing Party sufficient time to seek a protective order or other
protective measures, if any are available, for such Confidential Information.

            8.2.2 EXCEPTIONS. For purposes of this Agreement, information shall
be deemed Confidential Information if such information, by its nature or due to
the context within which it is disclosed, is obviously intended by the
disclosing Party to be kept confidential even if not identified as such in
writing or with legends or other markings, provided that Relaxin Information
shall automatically be treated as Confidential Information. Upon request by
either Party, the other Party will advise whether or not it considers any
particular information or materials to be Confidential Information. Confidential
Information does not include information, technical data or know-how which: (a)
is rightfully in the possession of the receiving Party at the time of disclosure
as shown by the receiving Party's files and records immediately prior to the
time of disclosure; (b) becomes part of the public knowledge or literature, not
as a result of any inaction or action of the receiving Party; (c) is
independently developed by a Party without the use of any Confidential
Information of the other Party; (d) is obtained from any Third Party who is
authorized to disclose such data and information without obligation of
confidentiality to the disclosing party, or (e) is approved for release in
writing by the disclosing Party.

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   24

        8.3 REMEDY. If either Party breaches any of its obligations with respect
to this ARTICLE VIII, or if such a breach is likely to occur, the other Party
shall be entitled to seek equitable relief, including specific performance or an
injunction, in addition to any other rights or remedies, including money
damages, provided by law, without posting a bond.

        8.4 AGREEMENT TERMS. Subject to SECTION 8.1 and the exclusions set forth
in SECTION 8.2.2, the Parties shall treat the terms and conditions of this
Agreement as Confidential Information; provided, however, after written
notification to the other Party, each Party may disclose the existence of this
Agreement and the material terms and conditions of this Agreement under
circumstances that reasonably ensure the confidentiality thereof to: (a) any
government or regulatory authorities, including without limitation the United
States Security and Exchange Commission pursuant to applicable law (excluding,
to the extent legally permitted, disclosure of financial terms in any publicly
available versions of information so disclosed), (b) its legal representatives,
advisors and prospective investors, and (c) to Connetics' licensors to the
extent required for compliance with Connetics' obligations under the Third Party
Licenses.

                                   ARTICLE IX
                              TERM AND TERMINATION

        9.1 TERM. Subject to the preceding sentence, the term of this Agreement
shall commence on the Effective Date and continue in full force and effect until
the later of (a) twenty years after the Effective Date, and (b) the last to
expire of the Relaxin Patents, or any regulatory extensions which provide
exclusivity for the Product in the Territory ("TERM").

        9.2 TERMINATION. In addition to and notwithstanding the termination
rights stated elsewhere in this ARTICLE IX and in SECTION 11.8 of this
Agreement, this Agreement may be terminated as follows:

            9.2.1 FOR BREACH BY CONNETICS. Upon breach by Connetics of any of
its material obligations contained in this Agreement ("CONNETICS BREACH"),
Faulding shall be entitled to give Connetics notice specifying the nature of the
Connetics Breach and stating its intent to terminate this Agreement if the
Connetics Breach is not cured. This Agreement shall terminate sixty (60) days
after Connetics receives such notice (a) if Connetics does not cure the
Connetics Breach to the reasonable satisfaction of Faulding, or (b) if a plan,
reasonably acceptable to Faulding, is not implemented to cure as soon as
practicable after notice of the Connetics Breach.

            9.2.2 FOR BREACH BY FAULDING. Upon breach by Faulding of any of its
material obligations contained in this Agreement ("FAULDING BREACH"), Connetics
shall be entitled to give Faulding notice specifying the nature of the Faulding
Breach and stating its intent to terminate this Agreement if the Faulding Breach
is not cured. This Agreement shall terminate sixty (60) days after Faulding
receives such notice (a) if Faulding does not cure the Faulding Breach to the
reasonable satisfaction of Connetics, or (b) if a plan, reasonably acceptable to
Connetics, is not implemented to cure as soon as practicable after notice of the
Faulding Breach.

            9.2.3 LOSS OF THIRD PARTY LICENSES. Notwithstanding the provisions
of SECTION 9.2.1, Faulding may terminate this Agreement on notice to Connetics
if either of the following

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   25

agreements is terminated resulting in the loss of Faulding's license under the
Third Party Licenses: (a) the License Agreement dated September 27, 1993 between
Genentech and Connective Therapeutics, Inc. (now known as Connetics) or (b) the
License Agreement dated December 31, 1982 and re-executed as amended and varied
as of June 30, 1987 between the Howard Florey Institute of Experimental
Physiology and Medicine and Genentech, Inc. Connetics shall use Commercially
Reasonable Efforts to obtain from relevant Third Parties an acknowledgement
that, should the relationship contemplated by the Third Party License terminate
through no fault of Faulding, Faulding shall have the right to continue to
commercialize the Product as set forth in this Agreement.

            9.2.4 TERMINATION BY FAULDING. Faulding shall have the right to
terminate this Agreement by giving one hundred eighty (180) days prior written
notice to Connetics for any reason or no reason; provided that Connetics may
elect at its sole discretion to continue development of the Product in the
Territory.

            9.2.5 TERMINATION FOR INSOLVENCY. Either Party may terminate this
Agreement immediately upon delivery of written notice to the other Party (a)
upon the institution by or against the other Party of insolvency, receivership
or bankruptcy proceedings or any other proceedings for the settlement of the
other Party's debts, provided, however with respect to involuntary proceedings,
that such proceedings are not dismissed within one hundred and twenty (120)
days; (b) upon the other Party's making an assignment for the benefit of
creditors; or (c) upon the other Party's dissolution or ceasing to do business.

        9.3 EFFECT OF TERMINATION.

            9.3.1 EFFECT ON LICENSE. Upon the expiration or earlier termination
of this Agreement, the rights licensed under this Agreement shall be treated as
follows:

                (a) Upon the expiration of the Term, Faulding shall have a fully
        paid-up, perpetual, irrevocable, royalty-free, transferable, worldwide,
        non-exclusive right and license under the Licensed IP existing as of the
        date of such expiration to make, have made, use, offer to sell, and sell
        Product.

                (b) Upon termination pursuant to SECTIONS 9.2.2, 9.2.4, or 11.8,
        or termination by Connetics pursuant to SECTION 9.2.5, all rights to the
        Product (except to Faulding's trademarks) in the Territory shall revert
        to Connetics.

                (c) Upon termination by Faulding pursuant to SECTIONS 9.2.1,
        9.2.3, or 9.2.5, the license granted to Faulding pursuant to this
        Agreement shall become a perpetual, irrevocable, royalty-free (as to
        Connetics), transferable, exclusive as to the Territory, license under
        the Licensed IP existing as of the date of such termination, to make,
        have made, use, offer to sell, and sell Product in the Territory, with
        the right to sublicense; provided that Faulding assumes Connetics'
        obligations to Third Parties under existing Third Party Licenses with
        respect to the Territory.

            9.3.2 ONGOING OBLIGATIONS. Except as expressly provided in this
Agreement, termination of this Agreement pursuant to the terms and conditions
set forth in this Agreement shall not relieve the Parties of any right or
obligation, including but not limited to any payment

<PAGE>   26

obligations, accruing prior to or upon such expiration or termination. Upon
expiration or termination of this Agreement for any reason, each Party shall
immediately return to the other Party or destroy any Confidential Information
disclosed by the other Party, except that each Party may retain one copy of such
Confidential Information marked and used for legal archival purposes only. In
the event of termination pursuant to SECTION 9.2.2 by Connetics or SECTION 9.2.4
by Faulding, then Faulding shall assign and deliver to Connetics all data and
information (including registration dossier) obtained in pursuing regulatory
approvals, and all regulatory approvals (e.g., to Connetics' designee in the
Territory as permitted under the applicable law) for the Product in the
Territory received as of such termination date. Except for the provisions of
SECTIONS 2.2 (License to Faulding Improvements), 3.4 (Records), 5.4 (Product
Markings), 5.6 (Audit), 9.3 (Effect of Termination) and 11.4 (Dispute Resolution
and Governing Law), and ARTICLES VI (Warranties and INDEMNITIES), VIII
(Confidentiality and Publicity), and X (Regulatory Compliance and Reporting)
which shall survive such expiration or termination (except as limited by the
terms of such section or Article), all other rights and obligations of the
Parties shall cease upon expiration or termination of this Agreement.

            9.3.3 INVENTORY. Notwithstanding the foregoing, upon early
termination of this Agreement pursuant to SECTION 9.2.4, Faulding shall have the
right to sell all remaining Product in its inventory within [*****] the date of
termination, subject to the payment to Connetics of the amounts specified in
SECTIONS 4.1 and 5.2. Thereafter, Faulding agrees to destroy any remaining
supply of Product and Relaxin Materials at Connetics' request and direction.

                                    ARTICLE X
                       REGULATORY COMPLIANCE AND REPORTING

        10.1 GOVERNMENT INSPECTION.

             10.1.1 Connetics shall advise Faulding by telephone and facsimile
immediately of any proposed or announced visit or inspection, and as soon as
possible but in any case within twenty-four (24) hours (or, in the case of a
Contract Manufacturer, within twenty-four [24] hours after receipt by Connetics
of notice thereof), of any unannounced visit or inspection, by any Regulatory
Authority of any facilities used by Connetics or its Contract Manufacturers in
the performance of its obligations under this Agreement, including the processes
or procedures used at such facilities in the manufacture of Relaxin Materials,
Relaxin or Product. Connetics shall provide Faulding with a reasonable
description of each such visit or inspection promptly (but in no event later
than five [5] calendar days) thereafter, and with copies of any letters, reports
or other documents (including Form 483's) issued by any such authorities that
relate to Relaxin, Relaxin Materials, or the Product, or such facilities,
processes or procedures. Faulding may review Connetics' responses to any such
reports and communications, and if practicable, and, insofar as timely received,
Faulding's reasonable views and requests shall be taken into account prior to
submission of such reports and communications to the relevant Regulatory
Authority. Connetics shall also provide Faulding with the notice, information,
documentation, and opportunity to comment provided for above with respect to
Contract Manufacturers.

             10.1.2 Each Party shall notify, and shall cause its Affiliates and
sublicensees to notify, the other Party promptly upon receipt of:

[*****] CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   27

        (a)     any information regarding any pending or threatened action which
                may affect the safety or efficacy claims of the Product or the
                continued marketing of the Product in any nation or
                jurisdiction,

        (b)     any material communications with or notice from a Regulatory
                Authority indicating that it intends to visit or inspect a
                Party's facilities, or the facilities of an Affiliate or
                sublicensee of such Party, for a purpose relevant to the
                development, manufacture or marketing of the Product.

        (c)     a communication or directive from a Regulatory Authority
                commencing or threatening seizure of (or other removal from the
                market of) Relaxin, Relaxin Materials, or Product.

        10.2 ADVERSE EXPERIENCE REPORTING. Each Party shall comply with the
provisions of EXHIBIT D as though it were fully set forth in this Agreement,
with respect to notification and reporting of adverse drug experiences and/or
adverse events. Without limiting the foregoing, each Party shall make such
reports as are necessary to comply with laws and regulations applicable to it,
at its sole expense.

        10.3 NOTIFICATION AND RECALL. If any Regulatory Authority issues or
requests a recall or takes similar action in connection with Relaxin or the
Product, or if either Party determines that an event, incident or circumstance
has occurred which may result in the need for a recall or market withdrawal, the
Party notified of or wishing to call such recall or similar action shall, within
twenty-four (24) hours, advise the other Party of notification or its
determination by telephone or facsimile, after which the Parties shall promptly
discuss and work together to effect an appropriate course of action; provided,
however, that either Party may initiate a recall or market withdrawal thereafter
if it deems such action necessary or appropriate. Connetics shall be responsible
for notification to FDA (or such other applicable Regulatory Authority with
respect to countries other than the United States and the Territory) and
compliance with applicable laws outside the Territory in conducting such recall.
Faulding shall be responsible for notification to the applicable Regulatory
Authority with respect to countries in the Territory and compliance with
applicable laws in the Territory in conducting such recall.

        10.4 RECALL EXPENSE. If a recall results from the breach of a Party's
warranties or obligations under this Agreement, the breaching Party shall bear
the full expense of both Parties incurred in any such recall. Such expenses of
recall shall include, without limitation, the expenses of notification and
destruction or return of the recalled Product and the sum paid for the recalled
Product. Without limitation of the foregoing, if the failure to meet applicable
legal requirements is caused by the act or omission of Connetics in manufacture
or sale of Product to Faulding, (a) Connetics shall have the option of (i)
replacing the recalled Product, or (ii) reimbursing Faulding for any amounts
paid to Connetics by Faulding under this Agreement for Product which are
recalled and/or cannot be shipped by Faulding due to the condition requiring the
recall, and (b) with respect to Product manufactured by Connetics, Connetics
shall reimburse Faulding for all liabilities incurred by Faulding by virtue of
being unable to meet its supply obligations to its customers because Product
could not be shipped by Connetics or Faulding due to the condition requiring
recall. In the event, however, that a recall is partially caused by Connetics'
actions or omissions and partially

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   28

caused by Faulding's actions or omissions, then each Party shall be responsible
for its proportionate share of the recall expenses based on its proportionate
share of causation.

                                   ARTICLE XI
                                  MISCELLANEOUS

        11.1 TAXES, TARIFFS, FEES. Faulding shall have the right to deduct from
the payments set forth in SECTION 4.1 any withholding tax applicable to
Connetics' income which Faulding is obliged to pay by under applicable law;
provided however that Faulding shall provide Connetics with an appropriate tax
receipt for the deducted amount which Connetics can present to its tax authority
and sufficient for Connetics to receive the corresponding credit to which it is
entitled. The Parties agree to cooperate in all respects necessary to take
advantage of such double taxation agreements as may be available to optimize the
tax obligations of each Party.

        11.2 CURRENCY OF PAYMENTS. For purposes of calculating Net Sales and
payments to be made to Connetics in respect of Net Sales, all amounts payable to
Connetics by Faulding pursuant to this Agreement shall be made to Connetics in
U.S. dollars and by wire transfer to the U.S. bank account(s) specified by
Connetics from time to time. Faulding shall apply a conversion rate from
Australian currency to U.S. dollars for amounts payable under this Agreement
equal to the average of the conversion rates in effect on the last day of each
month in the quarterly period for which such payment is due. The conversion
rates to be used in this Agreement shall be the rates reported in the Wall
Street Journal (West Coast Edition).

        11.3 COMPLIANCE WITH LAWS. In performing this Agreement, each Party
shall comply with all applicable laws and government regulations at all times,
including but not limited to any applicable laws and regulations in the
Territory and the U.S. with respect to the export or re-export or release of
technology and technical data.

        11.4 DISPUTE RESOLUTION AND GOVERNING LAW. The Parties shall endeavor to
resolve in good faith any disputes, controversy, conflicts or claims arising
from or relating to the subject matter of this Agreement, or the breach or
termination of this Agreement, failing which the following process shall apply:

             11.4.1 MEDIATION. The dispute, controversy or claim shall first be
referred to the chief executive officer of each of Faulding and Connetics for
resolution at a place to be agreed between such chief executive officers and,
failing agreement, at the head office of the Faulding (if Connetics requests the
referral) or Connetics (if Faulding requests the referral).

             11.4.2 FORMAL ARBITRATION. If the dispute, controversy or claim is
not settled or agreed between such chief executive officers within a period of
one (1) month, then it shall be settled by arbitration in accordance with the
[*****] then in effect. At the written request of either party, Faulding and
Connetics may each nominate one or more appropriately qualified experts, but
both parties must agree to the expert to be appointed. If the Parties are unable
to agree on an expert or experts, the arbitration will be conducted by a panel
of three (3) arbitrators who are knowledgeable in the subject matter that is at
issue in the dispute, are not affiliated directly or indirectly with either
Party, one of whom is selected by Faulding, one of whom is selected by
Connetics, and one of whom is selected by the mutual agreement of the other two
arbitrators.

[*****] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   29

During the arbitration, the Parties shall have such discovery rights as the
arbitrators may allow, consistent with the discovery permitted by the Federal
Code of Civil Procedure.

            11.4.3 POWERS OF ARBITRATORS. In any arbitration pursuant to this
section, the arbitrators shall be able to decree any and all relief of an
equitable nature, including but not limited to such relief as a temporary
restraining order, a preliminary or permanent injunction, as well as specific
performance. The arbitrators shall also be able to award direct and indirect
damages, but shall not award any other form of damage (e.g., punitive or
exemplary damages). The reasonable fees and expenses of the arbitrators, the
fees and expenses of a court reporter, and any expenses for a hearing room,
shall be borne equally by the Parties. The decision of the arbitrators shall be
final and will be handed down within a period of sixty days of being appointed.
The Party in whose favor the decision runs may enter, sue on or enforce the
decision in any court of competent jurisdiction at the option of such Party.

            11.4.4 GOVERNING LAW. This Agreement shall be governed, controlled,
interpreted and defined by and under the laws of the [*****] without regard to
that body of law known as conflicts of law. The place of arbitration shall be
[*****]. The arbitrators shall apply the law of the [*****] (regardless of that
jurisdiction's or any other jurisdiction's choice of law principles). The
Parties specifically disclaim application to this Agreement of the Convention on
Contracts for the International Sale of Goods.

        11.5 SECTION HEADINGS. The section headings contained in this Agreement
are included for convenience of reference only and form no part of the agreement
between the Parties. Therefore, the headings shall not affect in any way the
meaning or interpretation of this Agreement.

        11.6 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be sent by prepaid registered or certified mail, return
receipt requested; by facsimile; by internationally recognized courier; or by
personal delivery, in each case addressed to the other Party as follows:

If to Connetics, to:

               Connetics Corporation
               Attn: President and Chief Executive Officer
               3400 West Bayshore Road
               Palo Alto, California 94303
               U.S.A.
               Facsimile 650-843-2899

<PAGE>   30

If to Faulding, to:

               F. H. Faulding & Co. Limited
               Attn:  The Company Secretary
               115 Sherriff Street
               Underdale, SA 5032
               AUSTRALIA
               Facsimile +61 8 8234 8230

Either Party may designate a different address by giving notice pursuant to this
Section to the other Party. Any notice given pursuant to this Section shall be
deemed to have been given when delivered or, if delivery is not accomplished by
some fault of the addressee, when tendered.

        11.7 FORCE MAJEURE. Neither Party shall be considered in default of
performance of its obligations under this Agreement, except any obligation under
this Agreement to make payments when due, to the extent that performance of such
obligations is delayed by contingencies or causes beyond the reasonable control
and not caused by the negligence or willful misconduct of such Party, including
but not limited to strike, fire, flood, earthquake, windstorm, governmental acts
or orders or restrictions, or force majeure, to the extent that the failure to
perform is beyond the reasonable control of the nonperforming Party.

        11.8 NONASSIGNABILITY AND BINDING EFFECT. Each Party agrees that its
rights and obligations under this Agreement may not be transferred or assigned
directly or indirectly, except as follows: (a) either Party may transfer or
assign this Agreement to an Affiliate of such Party which agrees in writing to
undertake the obligations under this Agreement provided the assigning Party
remains primarily liable, (b) either Party may transfer or assign this Agreement
in connection with the sale of all or substantially all of the assigning Party's
related business, and (c) either Party may transfer or assign this Agreement to
a non-Affiliate Third Party with the prior written consent of the other Party,
which consent shall not be unreasonably withheld. Subject to the foregoing, this
Agreement shall be binding upon and inure to, the benefit of the Parties, their
successors and assigns. Any attempted assignment contrary to the provisions of
this SECTION 11.8 shall be deemed ineffective, and either Party shall have the
right to terminate this Agreement, with the effect described in SECTION 9.3.1
with respect to a Connetics Breach or a Faulding Breach, as applicable.

        11.9 PARTIAL INVALIDITY. If any provision of this Agreement is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction: (a) such provision will be deemed amended to conform to applicable
laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be
so amended without materially altering the intention of the parties, it will be
stricken; (b) the validity, legality and enforceability of such provision will
not in any way be affected or impaired thereby in any other jurisdiction; and
(c) the remaining provisions of this Agreement will remain in full force and
effect. The Parties agree to renegotiate in good faith any term held invalid and
to be bound by the mutually agreed substitute provision in order to give the
most approximate effect intended by the Parties.

        11.10 NO WAIVER. No failure or delay on the part of a party in
exercising any right under this Agreement will operate as a waiver of, or
impair, any such right, unless a waiver is made in writing signed by the waiving
party. No single or partial exercise of any such right will preclude any

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<PAGE>   31

other or further exercise thereof or the exercise of any other right. No waiver
of any such right will be deemed a waiver of any other right under this
Agreement.

        11.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

        11.12 ENTIRE AGREEMENT. This Agreement, including the attached Exhibits
which are incorporated in this Agreement by reference, constitutes the entire
agreement of the Parties with respect to the subject matter, and supersedes all
prior or contemporaneous understandings or agreements, whether written or oral,
between Connetics and Faulding with respect to such subject matter.
Specifically, this Agreement supercedes in their entirety the Confidential
Disclosure Agreement between the Parties dated August 13, 1999, and the Letter
of Understanding signed by the Parties effective February 7, 2000, both of which
shall have no further force or effect as of the Effective Date. This Agreement
may not be modified except by a writing signed by the Parties' authorized
representatives, and no amendment or modification of this Agreement shall be
valid or binding upon the Parties unless made in writing and signed by the duly
authorized representatives of both Parties.

        11.13 INDEPENDENT CONTRACTORS. The Parties to this Agreement are
independent contractors. This Agreement does not establish a relationship of
agency, partnership, joint venture, employment or franchise between the Parties
and neither Party shall have any authority to bind the other Party or incur any
obligation on the other Party's behalf.

The undersigned have executed this Agreement on behalf of the Parties as of the
Effective Date.

CONNETICS CORPORATION                  FAULDING

By:  /s/ T. G. Wiggans                 By: /s/ R. Finder
     ----------------------------          ------------------------------------
     Thomas G. Wiggans                     Robert Finder
     President and                         Chief Operating Officer,
     Chief Executive Officer               Oral Pharmaceuticals Australia/China

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<PAGE>   32

                                LIST OF EXHIBITS

EXHIBIT A-1          Amino Acid Sequence

EXHIBIT A-2          Substances

EXHIBIT A-3          Relaxin Bulk Testing

EXHIBIT B            Relaxin Patents

EXHIBIT C            Third Party Licenses to Connetics

EXHIBIT D            Adverse Event Reporting

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                                   EXHIBIT A-1

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                                   EXHIBIT A-2

[*****]

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                                   EXHIBIT A-3

                              RELAXIN BULK TESTING

                                  CONFIDENTIAL

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<PAGE>   36

              EXHIBIT B TO AGREEMENT BETWEEN FAULDING AND CONNETICS

<TABLE>
<CAPTION>
Patent No.        Issue Date           Inventors              Title
----------        ----------           ---------              -----
<S>                <C>                 <C>                   <C>
[*****]             [*****]             [*****]              [*****]
</TABLE>

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<PAGE>   37

                                    EXHIBIT C

                              THIRD PARTY LICENSES

1.      Grant by the Howard Florey Institute of Experimental Physiology and
        Medicine ("FLOREY") to Genentech, Inc. ("GNE") of an exclusive,
        worldwide license to certain patents and know-how owned by Florey
        pertaining to the hormone(s) known as Relaxin pursuant to the License
        Agreement made on December 31, 1982 and re-executed as amended and
        varied as of June 30, 1987 (the "FLOREY/GNE AGREEMENT").

2.      Grant by Genentech, Inc. to Connetics ("CONNETICS") of an exclusive,
        worldwide license to certain patents and know-how owned by Genentech
        pertaining to the hormone(s) known as Relaxin and an exclusive
        sublicense under its license from Florey pursuant to the License
        Agreement, effective September 27, 1993, as amended July 14, 1994 (the
        "GNE/CONNETICS AGREEMENT").

3.      Grant by Genentech, Inc. to Connetics of an exclusive license to make,
        use and sell Relaxin in the territory of Japan, the Republic of Korea
        and the Republic of China (the "ASIA TERRITORY") relinquished and
        returned to Genentech by Mitsubishi Chemical Corporation (formerly
        Mitsubishi Kasei Corporation; "MITSUBISHI"), pursuant to an agreement
        dated April 1, 1996.

4.      Agreement between the Howard Florey Institute of Experimental Physiology
        and Medicine and Connetics with regard to payment terms and obligations
        pursuant to Section 4.1.1 (as amended by Paragraph 26) of the
        GNE/Connetics Agreement and Clauses 5.1 and 5.2 of the Florey/GNE
        Agreement.

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                                    EXHIBIT D
           REPORTING OF ADVERSE EVENTS BETWEEN CONNETICS AND FAULDING

[*****]

[*****] CONFIDENTIAL TREATMENT REQUESTED<PAGE>   1

                               PURCHASE AGREEMENT

        THIS PURCHASE AGREEMENT (the "Agreement") is entered into effective as
of August 1, 1999 by and between VIALTA.com, a California corporation, with
principal offices at 48401 Fremont Boulevard, Fremont, California 94538
("Buyer") and ESS Technology, Inc., a California corporation, with principal
offices at 48401 Fremont Boulevard, Fremont, California 94538 and any of its
subsidiaries (collectively referred to as "Seller").

        1. PURPOSE

             A. The purpose of this Agreement is to set forth the terms and
conditions under which Buyer may purchase Products (as defined below) from
Seller. Buyer intends to enter into a long-term relationship with Seller. As
such, Seller agrees to use reasonable commercial efforts to cooperate with Buyer
to further mutual long-term goals by sharing product road map and technology
directions. Buyer also expects Seller to cooperate to achieve Buyer's long term
program goals such as shortening product lead-times, increasing volume
flexibility, achieving Just-in-Time delivery, achieving ongoing cost reductions,
specific quality goals, and continuous quality improvement.

             B. This Agreement is not a requirements contract and does not
obligate Buyer to purchase any minimum quantity or product, but only establishes
the terms and conditions for such purchases if and when they occur. Seller is
not obligated to accept any orders from Buyer under the terms hereof.

        2. PRODUCTS AND PURCHASE ORDERS

             A. This Agreement covers the sale by Seller to Buyer of all
products, hereinafter referred to as ("Products"), as will be indicated on
purchase orders issued by Buyer to Seller.

             B. Buyer will purchase Products only by issuing purchase orders
(hereinafter referred to as an "Order" or "Orders") to Seller. Each Order shall
include information regarding Product quantities, part numbers (including
identification of revision levels where relevant), prices and desired delivery
dates.

             C. Seller agrees that all Buyer sites, subsidiaries, affiliate
companies and subcontractors, wherever located, shall be entitled to make
purchases under the terms and conditions of this Agreement. Seller agrees to
drop-ship Products to subcontractor sites as specified by Buyer in the Order.

        3. PRICING

             A. Buyer shall hold "most favored customer" status which means that
during the term of this Agreement, the terms and conditions for Products sold to
Buyer, including the prices for which such Products are offered, shall be no
less favorable than those accorded by Seller to any of its other customers. In
the event Seller provides prices and/or terms and conditions for Products to
another of its customers that are more favorable than those set forth in
Order(s), Buyer shall be entitled to a reduction or amendment of such prices and
terms retroactive to the date such prices and/or terms were made available to
such other customer.

<PAGE>   2
             B. Seller shall maintain a vigorous cost reduction program to
ensure that pricing is competitive at all times. In the event that Buyer does
not consider Seller's pricing aggressive relative to the market, Buyer shall
have the right to request an immediate meeting with the Seller to re-negotiate
pricing.

        4. TERM OF AGREEMENT

             A. This Agreement shall continue in force for a fixed term of one
(1) year from the date hereof. At the end of the fixed term, this Agreement
shall renew automatically for additional one (1) year terms, without notice,
unless prior to that time one party provides thirty (30) days' written notice of
non-renewal to the other party.

             B. The terms and conditions of this Agreement shall remain in full
force and effect and shall be applicable to any Order(s) issued by Buyer to
Seller during the term of this Agreement until any and all obligations of the
parties under such Order(s) have been fulfilled.

        5. DELIVERY

             A. All sales are F.O.B. Point of Shipment. Title and risk of loss
shall pass to Buyer upon Seller's delivery of Product purchased hereunder to
carrier authorized by Buyer.

             B. Buyer has the option to reschedule any scheduled delivery by
giving Seller thirty (30) calendar days notice. The Buyer, however, can not
reschedule the delivery beyond 90 days from the original requested delivery
date.

        6. QUALITY

             A. Seller agrees to deliver defect-free material to Buyer at all
times. A product shall be deemed defective to the extent that it does not comply
with Seller's published specification with regard to that product. Seller agrees
that the Products will be free of defects for 12 months from the original date
of Product shipment to Buyer or of any replacement thereof. This warranty shall
run in favor of Buyer only, and is contingent upon proper use of the Product for
which it was intended. Buyer's sole remedy shall be limited to the repair or
replacement of defective products.

             B. Seller agrees to establish and/or maintain a quality improvement
plan reasonably acceptable to Buyer. Seller agrees to provide relevant outgoing
inspection, quality and reliability data upon Buyer's request, but not more
frequently than once per month.

                                       2
<PAGE>   3

             C. The express warranties set forth herein specifically exclude and
do not apply to defects: (a) caused through no fault of SELLER during shipment
to or from Buyer, (b) caused by the use or operation of Products in an
application or environment other than that intended or recommended by SELLER,
(c) caused by modifications or alterations made to the Products by Buyer or any
third party, (d) caused by maintenance performed on the Products by Buyer or any
third party, (e) caused by failure of Buyer to comply with any of the return
procedures specified in this Agreement, (f) caused by subjecting the Product to
unusual physical or electrical stress, or (g) defects caused by misuse, theft,
vandalism, fire, water or other peril. EXCEPT AS STATED HEREIN, THERE ARE NO
OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

             D. Seller agrees to advise Buyer of any material changes to its
processes, materials, or sources of supply and agrees to ensure that such
changes do not compromise specifications, quality, or reliability of the
Products purchased by Buyer and subsequently incorporated into Buyer's products.

        7. TERMINATION

             A. TERMINATION FOR CONVENIENCE. This Agreement may be terminated by
either party for any reason or no reason, whether or not extended beyond the
first year, by giving written notice 60 days in advance of the termination to
the other party.

             B. TERMINATION FOR CAUSE. If either party materially defaults in
its performance or breaches any of the terms or conditions of this Agreement,
then the other party may give written notice to the breaching or defaulting
party that if the breach or default is not cured within 30 days that the
Agreement will be terminated. If such notice is given and the breach or default
is not cured during the 30-day period, then the Agreement shall automatically
terminate at the end of that notice period.

             C. TERMINATION FOR INSOLVENCY. This Agreement shall terminate
immediately without notice: (i) upon the institution by or against Buyer or
Seller of insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of Buyer's or Seller's debts; (ii) upon Buyer's
or Seller's making an assignment for the benefit of creditors; or (iii) upon
Buyer's or Seller's dissolution or liquidation.

        8. LIMITATION ON LIABILITY

             BUYER'S AND SELLER'S LIABILITY ARISING OUT OF THIS AGREEMENT SHALL
BE LIMITED TO THE FULFILLMENT OF OPEN ORDERS BY SELLER AND THE PAYMENTS OF SUCH
ORDERS BY BUYER. IN NO EVENT SHALL BUYER OR SELLER BE LIABLE TO THE OTHER PARTY
OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT
DAMAGES HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, AND NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

                                       3
<PAGE>   4

        9. CONFIDENTIALITY

             Buyer and Seller each acknowledge that by reason of its
relationship with the other party hereunder it may have access to certain
information and materials concerning such other party's business, plans,
customers, technology, and products that are confidential and of substantial
value to Buyer or Seller, as the case may be, which value would be impaired if
such information were disclosed to third parties. Buyer and Seller each agree
that they shall not use in any way for their own account or the account of any
third party, nor disclose to any third party, any such confidential information
revealed to it by the other party. Buyer and Seller shall each take every
reasonable precaution to protect the confidentiality of such information,
including, at the request of the other party, the entry by Buyer's or Seller's
agents and employees into confidentiality agreements in a form approved by the
other party, prohibiting any disclosure to third parties of confidential
information provided by Buyer or Seller, as the case may be. In the event of
termination or expiration of this Agreement, there shall be no use or disclosure
by Buyer or Seller, their agents, or employees of any confidential information
of the other party. Each party shall deliver to the other party all copies
within its possession or within its control of all documents and data relating
to the conduct of Buyer's or Seller's business.

        10. GENERAL PROVISIONS

             A. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed
by and construed under the laws of the State of California, as applied to
contracts made and to be fully performed entirely within that state between
residents of that state. All disputes arising out of this Agreement shall be
subject to the exclusive jurisdiction and venue of the California State courts
of Santa Clara County, California (or, if there is federal jurisdiction, the
United States District Court for the Northern District of California). Buyer and
Seller hereby expressly consent to (i) the personal jurisdiction and venue of
these courts and (ii) service of process being effected by registered airmail
sent to the address set forth in Section 7(c) below.

             B. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the party to be charged.

             C. NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given if sent by prepaid registered or
certified airmail, return receipt requested (if available), or sent by telex,
facsimile or similar communication, and confirmed by such airmail, postage
prepaid, addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives notice
hereunder.

             D. FORCE MAJEURE. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
non-performing party, provided that the non-performing party uses its reasonable
best efforts to promptly resume performance once it is possible to do so.

                                       4
<PAGE>   5

             E. NON-ASSIGNABILITY AND BINDING EFFECT. Neither party shall,
without the prior written consent of the other party, assign this Agreement in
whole or in part or delegate any right or duty hereunder to any third party,
sub-agent, representative or consultant. Any attempted assignment not having
such consent shall be void and without effect.

             F. LEGAL EXPENSES. The prevailing party in any legal action brought
by one party against the other and arising out of this Agreement shall be
entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court costs and reasonable attorneys'
fees.

             G. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.

             H. SEVERABILITY. If any term, provision, covenant or condition of
this Agreement is held invalid or unenforceable for any reason, the remaining
provisions shall continue in full force and effect as if the Agreement had been
executed with the invalid portion eliminated, so long as the Agreement continues
to express, without material change, the original intent of the parties.

        11. INDEMNIFICATION

             A. Seller shall defend, at its expense, any claim against Buyer
alleging that Products furnished under this Agreement infringes any patent,
copyright or trademark and shall pay all costs and damages awarded provided
Seller is notified in writing of such claims promptly when Buyer becomes aware
of such and Seller is permitted to control, defend and compromise such claim.
Sellers shall use commercially reasonable efforts to obtain for Buyer the right
to continue using the Products if an injunction against Buyer's use of the
Products is resulted. In the event that Seller can not obtain such right for
Buyer, Seller shall repurchase all such Products from Buyers at the purchase
price.

             B. Seller agrees to protect, defend, indemnify and hold Buyer
harmless from all sums, costs and expenses which Buyer may incur or be obligated
to pay as a result of any and all loss, expenses, damages, liabilities, claims,
demands resulting personal injury or damages from the use of any product sold to
Buyer by Seller hereunder provided Buyer provides Seller notice of any such
loss, expenses, damages, liabilities, claims or demands. Seller shall be liable
only to the extent required by applicable law and only where such claims,
expenses, damages and demands are held by the court of law to be the result of
Products provided by Seller hereunder.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

VIALTA.COM                               ESS TECHNOLOGY, INC.

By:  /s/ Fred S. L. Chan                 By:  /s/ Robert L. Blair
   -------------------------------          ----------------------------------
Title:   CEO                             Title:   CEO
      ----------------------------             -------------------------------

                                       5

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