Exhibit 10.3


METABASIS THERAPEUTICS, INC.


2004 NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN


Adopted by Board on May 6, 2004


Approved by Stockholders on May 10, 2004


Amendment
Adopted by Board on January 17, 2007


1.             PURPOSES.


(a)           Eligible Option Recipients.  The persons eligible to receive Options are
the Non-Employee Directors of the Company.


(b)           Available Options.  The purpose of the Plan is to provide a means
by which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.


(c)           General Purpose.  The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.


2.             DEFINITIONS.


(a)           “Accountant”
means the independent public accountants of the Company.


(b)           “Affiliate”
means any parent corporation or subsidiary corporation of the Company, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and
(f), respectively, of the Code.


(c)           “Annual Grant”
means an Option granted annually to all Non-Employee Directors who meet the
specified criteria pursuant to Section 6(b).


(d)           “Annual Meeting”
means the annual meeting of the stockholders of the Company.


(e)           “Board”
means the Board of Directors of the Company.


(f)            “Capitalization Adjustment” has
the meaning ascribed to that term in Section 11(a).


(g)           “Change in Control”
means the occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:


(i)            any Exchange Act
Person becomes the Owner, directly or indirectly, of securities of the Company
representing more than 50% of
the combined voting power of the Company’s then outstanding securities other
than by virtue of a merger, consolidation or similar



 1
 









transaction.  Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur (A) on account
of the acquisition of securities of the Company by an investor, any affiliate
thereof or any other Exchange Act Person from the Company in a transaction or
series of related transactions the primary purpose of which is to obtain
financing for the company through the issuance of equity securities or (B)  solely because the
level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage
threshold of the outstanding voting securities as a result of a repurchase or
other acquisition of voting securities by the Company reducing the number of
shares outstanding, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of voting
securities by the Company, and after such share acquisition, the Subject Person
becomes the Owner of any additional voting securities that, assuming the
repurchase or other acquisition had not occurred, increases the percentage of
the then outstanding voting securities Owned by the Subject Person over the
designated percentage threshold, then a Change in Control shall be deemed to
occur;


(ii)           there is
consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such
merger, consolidation or similar transaction, the stockholders of the Company
immediately prior thereto do not Own, directly or indirectly, either (A)
outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting
power of the parent of the surviving Entity in such merger, consolidation or
similar transaction, in each case in substantially the same proportions as
their Ownership of the outstanding voting securities of the Company immediately
prior to such transaction;


(iii)         there is consummated
a sale, lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries, other than a sale,
lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries to an Entity, more than
50% of the combined voting power
of the voting securities of which are Owned by stockholders of the Company in
substantially the same proportions as their Ownership of the outstanding voting
securities of the Company immediately prior to such sale, lease, license or
other disposition; or


(iv)          individuals who, on
the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the members of the
Board; provided, however, that if the appointment
or election (or nomination for election) of any new Board member was approved
or recommended by a majority vote of the members of the Incumbent Board then
still in office, such new member shall, for purposes of this Plan, be
considered as a member of the Incumbent Board.


Notwithstanding the foregoing or any other provision
of this Plan, the definition of Change in Control (or any analogous term) in an
individual written agreement between the Company or any Affiliate and the
Optionholder shall supersede the foregoing definition with respect to Stock
Awards subject to such agreement (it being understood, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply).



 2
 









(h)           “Code”
means the Internal Revenue Code of 1986, as amended.


(i)            “Committee”
means a committee of one or more members of the Board appointed by the Board in
accordance with Section 3(c).


(j)            “Common Stock”
means the common stock of the Company.


(k)           “Company”
means Metabasis Therapeutics, Inc., a Delaware corporation.


(l)            “Consultant”
means any person, including an advisor, (i) engaged by the Company or an
Affiliate to render consulting or advisory services and who is compensated for
such services or (ii) serving as a member of the Board of Directors of an
Affiliate.  However, the term “Consultant”
shall not include either Directors of the Company who are not compensated by
the Company for their services as Directors or Directors of the Company who are
merely paid a director’s fee by the Company for their services as Directors.


(m)          “Continuous Service”
means that the Optionholder’s service with the Company or an Affiliate, whether
as an Employee, Director or Consultant, is not interrupted or terminated.  The Optionholder’s Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity in
which the Optionholder renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for which the
Optionholder renders such service, provided that there is no interruption or
termination of the Optionholder’s Continuous Service.  For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service.  The Board or the chief
executive officer of the Company, in that party’s sole discretion, may
determine whether Continuous Service shall be considered interrupted in the
case of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.


(n)           “Corporate Transaction” means the
occurrence, in a single transaction or in a series of related transactions, of
any one or more of the following events:


(i)            a sale or other
disposition of all or substantially all, as determined by the Board in its
discretion, of the consolidated assets of the Company and its Subsidiaries;


(ii)           a sale or other
disposition of at least 90% of the outstanding securities of the Company;


(iii)         a merger,
consolidation or similar transaction following which the Company is not the
surviving corporation; or


(iv)          a merger,
consolidation or similar transaction following which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding
the merger, consolidation or similar transaction are converted or exchanged by
virtue of the merger, consolidation or similar transaction into other property,
whether in the form of securities, cash or otherwise.


(o)           “Director”
means a member of the Board of Directors of the Company.



 3
 









(p)           “Disability”
means the inability of a person, in the opinion of a qualified physician
acceptable to the Company, to perform the major duties of that person’s
position with the Company or an Affiliate of the Company because of the
sickness or injury of the person.


(q)           “Employee”
means any person employed by the Company or an Affiliate.  Service as a Director or payment of a
director’s fee by the Company or an Affiliate shall not be sufficient to
constitute “employment” by the Company or an Affiliate.


(r)           “Entity” means a corporation,
partnership or other entity.


(s)           “Exchange Act”
means the Securities Exchange Act of 1934, as amended.


(t)            “Exchange Act Person” means any
natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d)
of the Exchange Act), except that “Exchange Act Person” shall not include (A)
the Company or any Subsidiary of the Company, (B) any employee benefit plan of
the Company or any Subsidiary of the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
Subsidiary of the Company, (C) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (D) an Entity Owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their Ownership of stock of the Company.


(u)           “Fair Market Value”
means, as of any date, the value of the Common Stock determined as follows:


(i)            If the Common
Stock is listed on any established stock exchange, the Fair Market Value of a
share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, and in each case rounded up where
necessary to the nearest whole cent) as quoted on such exchange (or the
exchange with the greatest volume of trading in the Common Stock) on the day of
determination, as reported in The Wall
Street Journal or such other source as the Board deems
reliable.  Unless otherwise provided by
the Board, if there is no closing sales price (or closing bid, if no sales were
reported) for the Common Stock on the day of determination, then the Fair
Market Value shall be the closing sales price (or the closing bid, if no sales
were reported, and in each case rounded up where necessary to the nearest whole
cent) on the last preceding date for which such quotation exists.


(ii)           In the absence of
such market for the Common Stock, the Fair Market Value shall be determined in
good faith by the Board.


(v)            “Initial Grant”
means an Option granted to a Non-Employee Director who meets the specified
criteria pursuant to Section 6(a).


(w)           “IPO Date”
means the effective date of the initial public offering of the Common Stock.


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



 4
 









(y)           “Nonstatutory Stock Option”
means an Option not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.


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


(aa)         “Option” means
a Nonstatutory Stock Option granted pursuant to the Plan.


(bb)         “Option Agreement” means
a written agreement between the Company and an Optionholder evidencing the
terms and conditions of an individual Option grant.  Each Option Agreement shall be subject to the
terms and conditions of the Plan.


(cc)         “Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.


(dd)         “Own,” “Owned,” “Owner,” “Ownership”  A person or Entity shall be deemed to “Own,”
to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of
securities if such person or Entity, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares
voting power, which includes the power to vote or to direct the voting, with
respect to such securities.


(ee)         “Plan”
means this Metabasis Therapeutics, Inc. 2004 Non-Employee Directors’ Stock
Option Plan.


(ff)           “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.


(gg)         “Securities Act”
means the Securities Act of 1933, as amended.


(hh)         “Subsidiary” means, with respect
to the Company, (i) any corporation of which more than 50% of the outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly
or indirectly, Owned by the Company, and (ii) any partnership in which the
Company has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50%.


3.             ADMINISTRATION.


(a)           Administration by Board.  The Plan shall be administered by the Board
unless and until the Board delegates administration of the Plan to a Committee,
as provided in Section 3(c).


(b)           Powers of Board.  The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:



 5
 









(i)            To determine the
provisions of each Option to the extent not specified in the Plan.


(ii)           To construe and
interpret the Plan and Options granted under it, and to establish, amend and
revoke rules and regulations for its administration.  The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.


(iii)         To amend the Plan or
an Option as provided in Section 12.


(iv)          To terminate or
suspend the Plan as provided in Section 13.


(v)            Generally, to
exercise such powers and to perform such acts as the Board deems necessary or
expedient to promote the best interests of the Company and that are not in
conflict with the provisions of the Plan.


(c)           Delegation to Committee.  The Board may delegate
administration of the Plan to a Committee or Committees of one or more members
of the Board, and the term “Committee”
shall apply to any person or persons to whom such authority has been
delegated.  If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may
be adopted from time to time by the Board. 
The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.


(d)           Effect
of Board’s Decision.  All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.


4.             SHARES SUBJECT TO THE PLAN.


(a)           Share Reserve.  Subject to the provisions of Section 11
relating to adjustments upon changes in the Common Stock, the Common Stock that
may be issued pursuant to Options shall not exceed in the aggregate 300,000
shares of Common Stock, plus an annual increase to be added on the first day of
the fiscal year of the Company for a period commencing on the first day of the
fiscal year that begins on January 1, 2005 and ending on (and including) the
first day of the fiscal year that begins on January 1, 2014 (each such day, a “Calculation
Date”), equal to 100,000 shares of Common Stock.  Notwithstanding the foregoing, the Board may
act, prior to the first day of any fiscal year of the Company, to increase the
share reserve by such number of shares of Common Stock as the Board shall
determine, which number shall be less than 100,000.


(b)           Reversion of Shares to the Share
Reserve.  If any Option
shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the shares of Common Stock not acquired
under such Option shall revert to and again become available for issuance under
the Plan.  If the exercise price of any Option
is satisfied by tendering



 6
 









shares of Common Stock held by the Optionholder
(either by actual delivery or attestation), then the number of such tendered
shares shall revert to and again become available for issuance under the Plan.


(c)           Source of Shares.  The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.


5.             ELIGIBILITY.


The Options, as set forth
in Section 6, automatically shall be granted under the Plan to all Non-Employee
Directors who meet the criteria specified in Section 6.


6.             NON-DISCRETIONARY GRANTS.


(a)           Initial Grants.   Without any further action
of the Board, each person who is serving as a Non-Employee Director on the IPO
Date automatically shall, on the IPO Date, be granted, on the terms and
conditions set forth herein, an Initial Grant to purchase 20,000 shares of
Common Stock, less the number of shares of Common Stock (if any) subject to a
stock option or options granted by the Company to such Non-Employee Director
within the six month period prior to the IPO Date (if applicable, as adjusted
for the reverse stock split effected by the Company prior to the IPO
Date).  Additionally, without any further
action of the Board, each person who after the IPO Date is elected or appointed
for the first time to be a Non-Employee Director automatically shall, upon the
date of his or her initial election or appointment to be a Non-Employee
Director, be granted an Initial Grant to purchase 20,000 shares of Common Stock
on the terms and conditions set forth herein.


(b)           Annual Grants. Without any further action of the Board, on
the date of each Annual Meeting, commencing with the first Annual Meeting
following the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Annual Grant to purchase 10,000 shares of
Common Stock on the terms and conditions set forth herein; provided, however, that if the person has
not been serving as a Non-Employee Director for the entire twelve month period
preceding the date of grant, then the number of shares subject to such Annual
Grant shall be reduced pro rata for each full quarter prior to the date of
grant during which such person did not serve as a Non- Employee Director.


7.             OPTION PROVISIONS.


Each Option shall be in
such form and shall contain such terms and conditions as required by the
Plan.  Each Option shall contain such
additional terms and conditions, not inconsistent with the Plan, as the Board
shall deem appropriate.  Each Option
shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:


(a)           Term.  No Option shall be exercisable after the
expiration of ten years from the date it was granted.


(b)           Exercise Price.  The exercise price of each Option shall be
100% of the Fair Market Value of the stock subject to the Option on the date
the Option is granted.



 7
 









(c)           Consideration.  The purchase price of stock acquired pursuant
to an Option may be paid, to the extent permitted by applicable law, in any
combination of (i) cash or check, (ii) delivery to the Company of other Common
Stock or (iii) pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash
(or check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.   The purchase price of Common Stock acquired
pursuant to an Option that is paid by delivery to the Company of other Common
Stock acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six months
(or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes).


(d)           Transferability.  An Option
is transferable by will or by the laws of descent and distribution.  An Option also may be transferable upon
written consent of the Company if, at the time of transfer, a Form S-8
registration statement under the Securities Act is available for the exercise
of the Option and the subsequent resale of the underlying securities.  In addition, an Optionholder may, by
delivering written notice to the Company, in a form provided by or otherwise
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.


(e)           Vesting.  Except as otherwise provided in Section 11
herein, Options shall vest as follows:


(i)            Initial Grants
shall provide for vesting of 1/24th of the shares each month after the date of
the grant.


(ii)           Annual Grants shall
provide for vesting of 1/12th of the shares each month after the date of the
grant.


(f)            Termination of Continuous Service.  In the event that an Optionholder’s
Continuous Service terminates (other than upon the Optionholder’s death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three months following the termination of the Optionholder’s
Continuous Service (or such longer or shorter period specified in the Option
Agreement or (ii) the expiration of the term of the Option as set forth in the
Option Agreement.  If, after termination,
the Optionholder does not exercise his or her Option within the time specified
in the Option Agreement, the Option shall terminate.


(g)           Extension of Termination Date.  An Optionholder’s Option Agreement may also
provide that if the exercise of the Option following the termination of the
Optionholder’s Continuous Service (other than upon the Optionholder’s death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the Option Agreement or (ii)
the expiration of a period of three months after the termination of the
Optionholder’s Continuous



 8
 









Service during which the exercise of the Option would
not be in violation of such registration requirements.


(h)           Disability of Optionholder.  In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date 12 months following such termination (or such longer or shorter period
specified in the Option Agreement or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. 
If, after termination, the Optionholder does not exercise his or her
Option within the time specified herein, the Option shall terminate.


(i)            Death of Optionholder.  In the event that (i) an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder’s Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder’s estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder’s death pursuant to Section 6(d), but only within
the period ending on the earlier of (1) the date 18 months following the date
of death (or such longer or shorter period specified in the Option Agreement or
(2) the expiration of the term of such Option as set forth in the Option
Agreement.  If, after death, the Option
is not exercised within the time specified herein, the Option shall terminate.


8.             SECURITIES
LAW COMPLIANCE.


The Company shall seek to
obtain from each regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to grant Options and to issue and sell
shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require
the Company to register under the Securities Act the Plan, any Option or any
stock issued or issuable pursuant to any such Option.  If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.


9.             USE OF PROCEEDS FROM STOCK.


Proceeds from the sale of
stock pursuant to Options shall constitute general funds of the Company.


10.          MISCELLANEOUS.


(a)           Acceleration of Exercisability and
Vesting.  The Board
shall have the power to accelerate the time at which an Option may first be
exercised or the time during which an Option or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the



 9
 









Plan or the Option stating the time at which it may
first be exercised or the time during which it will vest.


(b)           Stockholder Rights.  No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.


(c)           No Service Rights.  Nothing in the Plan or any instrument
executed or Option granted pursuant thereto shall confer upon any Optionholder
any right to continue to serve the Company as a Non-Employee Director or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant’s agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.


(d)           Investment Assurances.  The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder’s
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters and that he or she is capable
of evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Option; and (ii) to give written assurances
satisfactory to the Company stating that the Optionholder is acquiring the
stock subject to the Option for the Optionholder’s own account and not with any
present intention of selling or otherwise distributing the stock.  The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (1) the
issuance of the shares upon the exercise or acquisition of stock under the
Option has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.  The Company may, upon advice of counsel to
the Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the
transfer of the stock.


(e)           Withholding Obligations.  The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company’s right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means:  (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the Optionholder as a result of the exercise or acquisition
of stock under the Option; provided,
however, that no shares of Common Stock are withheld with a value
exceeding the minimum amount of tax required to be withheld by law; or (iii)
delivering to the Company owned and unencumbered shares of the Common Stock.



 10















11.          ADJUSTMENTS UPON CHANGES IN
COMMON STOCK.


(a)           Capitalization Adjustments.  If any change is made in, or other events
occur with respect to, the stock subject to the Plan, or subject to any Option,
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company (each a “Capitalization
Adjustment”)), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
Section 4 and to the nondiscretionary Options specified in Section 6, and the
outstanding Options will be appropriately adjusted in the class(es) and number
of securities and price per share of stock subject to such outstanding
Options.  The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.  (The conversion of any convertible securities
of the Company shall not be treated as a transaction “without receipt of
consideration” by the Company.)


(b)           Dissolution or Liquidation.  In the event of a dissolution or liquidation
of the Company, then all outstanding Options shall terminate immediately prior
to the completion of such dissolution or liquidation.


(c)           Corporate Transaction. 
In the event of a Corporate Transaction, any surviving corporation or
acquiring corporation may assume or continue any or all Options outstanding
under the Plan or may substitute similar stock options for Options outstanding
under the Plan (it being understood that similar stock options include, but are
not limited to, options to acquire the same consideration paid to the
stockholders of the Company, as the case may be, pursuant to the Corporate
Transaction).  In the event that any
surviving corporation or acquiring corporation does not assume or continue all
such outstanding Options or substitute similar stock options for all such
outstanding Options, then with respect to Options that have not been assumed,
continued or substituted and that are held by Optionholders whose Continuous
Service has not terminated prior to the effective time of the Corporate
Transaction, the vesting of such Options (and, if applicable, the time at which
such Options may be exercised) shall (contingent upon the effectiveness of the
Corporate Transaction) be accelerated in full to a date prior to the effective
time of such Corporate Transaction as the Board shall determine (or, if the
Board shall not determine such a date, to the date that is five days prior to
the effective time of the Corporate Transaction), such Options shall terminate
if not exercised (if applicable) at or prior to such effective time.  With respect to any other Options outstanding
under the Plan that have been neither assumed nor substituted, the vesting of
such Options (and, if applicable, the time at which such Options may be
exercised) shall not be accelerated unless otherwise provided in Section 11(d)
or in a written agreement between the Company or any Affiliate and the holder
of such Options, and such Options shall terminate if not exercised (if
applicable) prior to the effective time of the Corporate Transaction.


(d)           Change in Control.  Notwithstanding any other provisions of the
Plan to the contrary, if a Change in Control occurs and the Optionholder’s
Continuous Service has not terminated as of the date immediately prior to the
effective date of such Change in Control, then the vesting and exercisability
of the shares of Common Stock subject to the Optionholder’s Options shall be
accelerated in full as of the effective date of the Change in Control.  Following



 11
 









such Change in Control and notwithstanding any other
provision of the Plan to the contrary and provided that the Optionholder’s
Continuous Service has not terminated prior to the effective date of the Change
in Control, then the Optionholder’s Options shall remain exercisable pursuant
to their terms until the earlier of (i) 12 months following the effective date
of such Change in Control or (ii) the Expiration Date indicated in the
Optionholder’s Grant Notice.


(e)           Parachute Payments.  If any payment or benefit the Optionholder
would receive pursuant to a Change in Control from the Company or otherwise (a “Payment”) would (i)
constitute a “parachute payment” within the meaning of Section 280G of the
Code, and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the
Reduced Amount.  The “Reduced Amount” shall
be either (x) the largest portion of the Payment that would result in no
portion of the Payment being subject to the Excise Tax or (y) the largest
portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable
marginal rate), results in the Optionholder’s receipt, on an after-tax basis,
of the greater amount of the Payment notwithstanding that all or some portion
of the Payment may be subject to the Excise Tax.  If a reduction in payments or benefits constituting
“parachute payments” is necessary so that the Payment equals the Reduced
Amount, reduction shall occur in the following order unless the Optionholder
elects in writing a different order (provided, however,
that such election shall be subject to Company approval if made on or after the
effective date of the event that triggers the Payment): reduction of cash
payments; cancellation of accelerated vesting of Options; reduction of employee
benefits.  In the event that acceleration
of vesting of Option compensation is to be reduced, such acceleration of
vesting shall be cancelled in the reverse order of the date of grant of the
Optionholder’s Options unless the Optionholder elects in writing a different
order for cancellation.


The accounting firm engaged by the Company for general
audit purposes as of the day prior to the effective date of the Change in
Control shall perform the foregoing calculations.  If the accounting firm so engaged by the
Company is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, the Company shall appoint a nationally
recognized accounting firm to make the determinations required hereunder.  The Company shall bear all expenses with
respect to the determinations by such accounting firm required to be made
hereunder.


The accounting firm
engaged to make the determinations hereunder shall provide its calculations,
together with detailed supporting documentation, to the Optionholder and the
Company within 15 calendar days after the date on which the Optionholder’s
right to a Payment is triggered (if requested at that time by the Optionholder
or the Company) or such other time as requested by the Optionholder or the
Company.  If the accounting firm
determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Optionholder with an opinion reasonably acceptable to the
Optionholder that no Excise Tax will be imposed with respect to such Payment.  Any good faith determinations of the
accounting firm made hereunder shall be final, binding and conclusive upon the
Optionholder and the Company.



 12
 









12.          AMENDMENT OF THE PLAN AND
OPTIONS.


(a)           Amendment of Plan.  The Board, at any time and from time to time,
may amend the Plan.  However, except as
provided in Section 11 relating to adjustments upon changes in Common Stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy the requirements of
applicable laws.


(b)           Stockholder Approval.  The Board, in its sole discretion, may submit
any other amendment to the Plan for stockholder approval.


(c)           No Impairment of Rights.  Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.


(d)           Amendment of Options.  The Board, at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that the rights under
any Option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the Optionholder and (ii) the Optionholder consents in
writing.


13.          TERMINATION OR SUSPENSION OF
THE PLAN.


(a)           Plan Term.  The Board may suspend or terminate the Plan
at any time. No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.


(b)           No Impairment of Rights.  Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.


14.          EFFECTIVE DATE OF PLAN.


The Plan shall become
effective on the IPO Date, but no Option shall be exercised unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within 12 months before or after the date the Plan is adopted by the
Board.


15.          CHOICE OF LAW.


The law of the state of California shall govern all
questions concerning the construction, validity and interpretation of this
Plan, without regard to such state’s conflict of laws rules.



 13















METABASIS
THERAPEUTICS, INC.


2004
NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN


STOCK OPTION
AGREEMENT


Pursuant to your Stock Option
Grant Notice (“Grant
Notice”) and this Stock Option Agreement, Metabasis
Therapeutics, Inc. (the “Company”)
has granted you an option under its 2004 Non-Employee Directors’ Stock Option
Plan (the “Plan”)
to purchase the number of shares of the Company’s Common Stock indicated in
your Grant Notice at the exercise price indicated in your Grant Notice.  Defined terms not explicitly defined in this
Stock Option Agreement but defined in the Plan shall have the same definitions
as in the Plan.


The details of your option are
as follows:


1.             VESTING.  Subject
to the limitations contained herein, your option will vest as provided in your
Grant Notice, provided that vesting will cease upon the termination of
your Continuous Service.


2.             NUMBER OF SHARES AND EXERCISE PRICE.  The
number of shares of Common Stock subject to your option and your exercise price
per share referenced in your Grant Notice may be adjusted from time to time for
Capitalization Adjustments, as provided in the Plan.


3.             METHOD OF PAYMENT.  Payment
of the exercise price is due in full upon exercise of all or any part of your
option.  You may elect to make payment of
the exercise price in cash or by check or in any other manner permitted by your Grant Notice,
which may include one or more of the following:


(a)           In the Company’s sole discretion at the time your
option is exercised and provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal,
pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds.


(b)           Provided that at the time of exercise the Common
Stock is publicly traded and quoted regularly in The Wall Street
Journal, by delivery of already-owned shares of Common Stock either
that you have held for the period required to avoid a charge to the Company’s
reported earnings (generally six months) or that you did not acquire, directly
or indirectly from the Company, that are owned free and clear of any liens,
claims, encumbrances or security interests, and that are valued at Fair Market
Value on the date of exercise.  “Delivery”
for these purposes, in the sole discretion of the Company at the time you
exercise your option, shall include delivery to the Company of your attestation
of ownership of such shares of Common Stock in a form approved by the
Company.  Notwithstanding the foregoing,
you may not exercise your option by tender to the Company of Common Stock to
the extent such tender



 1
 









would violate the provisions of
any law, regulation or agreement restricting the redemption of the Company’s
stock.


4.             WHOLE SHARES.  You may
exercise your option only for whole shares of Common Stock.


5.             SECURITIES LAW COMPLIANCE. 
Notwithstanding anything to the contrary contained herein, you may not
exercise your option unless the shares of Common Stock issuable upon such
exercise are then registered under the Securities Act or, if such shares of
Common Stock are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.  The exercise of your
option must also comply with other applicable laws and regulations governing
your option, and you may not exercise your option if the Company determines
that such exercise would not be in material compliance with such laws and
regulations.


6.             TERM.  You may not exercise your option
before the commencement of its term or after its term expires.  The term of your option commences on
the date of grant and expires upon the earliest of the following:


(a)           three months after
the termination of your Continuous Service for any reason other than your
Disability or death, provided that if during any part of such three-month
period your option is not exercisable solely because of the condition set forth
in Section 5, your option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an aggregate period of three months
after the termination of your Continuous Service;


(b)           12 months after the
termination of your Continuous Service due to your Disability;


(c)           18 months after
your death if you die either during your Continuous Service or within three
months after your Continuous Service terminates;


(d)           the Expiration Date
indicated in your Grant Notice; or


(e)           the day before the
tenth anniversary of the date of grant.


7.             EXERCISE. 
You may
exercise your option during its term by delivering a Notice of Exercise (in a
form designated by the Company) together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.


8.             TRANSFERABILITY.  Your
option is not transferable, except (i) by will or by the laws of descent and
distribution, (ii) with the prior written approval of the Company, by
instrument to an inter vivos or testamentary trust, in a form accepted by the
Company, in which the option is to be passed to beneficiaries upon the death of
the trustor (settlor) and (iii) with the prior written approval of the Company,
by gift, in a form accepted by the Company, to a permitted transferee under
Rule 701 of the Securities Act. Notwithstanding the foregoing, by



 2
 









delivering written notice to the Company, in a form
satisfactory to the Company, you may designate a third party who, in the event
of your death, shall thereafter be entitled to exercise your option.


9.             OPTION NOT A SERVICE CONTRACT.  Your
option is not an employment or service contract, and nothing in your option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company or an Affiliate, or of the Company or an
Affiliate to continue your employment. 
In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.


10.          NOTICES.  Any
notices provided for in your option or the Plan shall be given in writing and
shall be deemed effectively given upon receipt or, in the case of notices
delivered by mail by the Company to you, five days after deposit in the United
States mail, postage prepaid, addressed to you at the last address you provided
to the Company.


11.          GOVERNING PLAN DOCUMENT.  Your
option is subject to all the provisions of the Plan, the provisions of which
are hereby made a part of your option, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan.  In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the Plan
shall control.


 



 3