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Exhibit 10.22    
    



	

Master Security Agreement	
 	

No. 3081034




MASTER SECURITY AGREEMENT

No. 3081034
  Dated as of August 27, 2003 ("Agreement") 


        THIS AGREEMENT is between Oxford Finance Corporation (together with its successors and
assigns, if any, "Secured Party") and Metabasis Therapeutics, Inc.,
("Debtor"). Secured Party has an office at 133 N. Fairfax Street, Alexandria, VA 22314. Debtor is a corporation organized and existing under the laws of
the state of Delaware. Debtor's mailing address and chief place of business is 9390 Towne Centre Dr., Building 300, San Diego, CA 92121. 


        1.    CREATION OF SECURITY INTEREST.    


        Debtor
grants to Secured Party, its successors and assigns, a security interest in and against the equipment and property listed on any collateral schedule now or in the future annexed
to or made a part of this Agreement ("Collateral Schedule"), and in and against all additions, attachments, accessories and accessions to such property,
all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such equipment and property is individually and collectively called the  "Collateral"). This
security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of
Debtor to Secured Party, now existing or arising in the future, in connection with the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule
(collectively "Notes" and each a "Note"), and any renewals, extensions and modifications of such debts,
obligations and liabilities
(such Notes, debts, obligations and liabilities are called the "Indebtedness"). Unless otherwise provided by applicable law, notwithstanding anything to
the contrary contained in this Agreement, to the extent that Secured Party asserts a purchase money security interest in any items of Collateral ("PMSI
Collateral"): (i) the PMSI Collateral shall secure only that portion of the Indebtedness which has been advanced by Secured Party to enable Debtor to purchase, or
acquire rights in or the use of such PMSI Collateral (the "PMSI Indebtedness"), and (ii) no other Collateral shall secure the PMSI Indebtedness. 


        2.    REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.    



        Debtor
represents, warrants and covenants as of the date of this Agreement and as of the date of each Collateral Schedule that: 



	(a)
	Debtor's
exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the state
set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction
wherever necessary to carry on its business and operations;



	(b)
	Debtor
has adequate power and capacity to enter into, and to perform its obligations under this Agreement, each Note and any other documents evidencing, or given in connection with,
any of the Indebtedness (all of the foregoing are called the "Debt Documents");



	(c)
	This
Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance
with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws or laws affecting creditors' rights generally; 



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	(d)
	No
approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of any of the
Debt Documents, except any already obtained;



	(e)
	The
entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation
applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any
of Debtor's property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a
party;



	(f)
	There
are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a
material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or
proceedings are threatened;



	(g)
	All
financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the
date of the most recent financial statement, there has been no material adverse change in Debtors financial condition;



	(h)
	The
Collateral is not, and will not be, used by Debtor for personal, family or household purposes;



	(i)
	The
Collateral is, and will remain, in good condition and repair, normal wear and tear excepted, and Debtor will not be negligent in its care and use;



	(j)
	All
of the tangible Collateral is located at the locations set forth on each Collateral Schedule. Debtor shall give the Secured Party 30 days prior written notice of any
relocation of any Collateral;



	(k)
	Debtor
is, and will remain, the sole and lawful owner, and in possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in
this Agreement;



	(l)
	The
Collateral is, and will remain, free and clear of all liens, claims and encumbrances of any kind whatsoever, except for (i) liens in favor of Secured Party,
(ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the
Collateral, and (iii) inchoate material men's, mechanic's, repairmen's and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all
of such liens are called "Permitted Liens").



	(m)
	All
federal, state and local tax returns required to be filed by Debtor have been filed with the appropriate governmental agencies and all taxes due and payable by Debtor have been
timely paid. Debtor will pay when due all taxes, assessments and other liabilities except as contested in good faith and by appropriate proceedings and for which adequate reserves have been
established;



	(n)
	No
event or condition exists under any material agreement, instrument or document to which Debtor is a party or may be subject, or by which Debtor or any of its properties are bound,
which constitutes a default or an event of default thereunder, or will, with the giving of notice, passage of time, or both, would constitute a default or event of default thereunder; 



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	(o)
	All
reports, certificates, schedules, notices and financial information submitted by Debtor to the Secured Party pursuant to this Agreement shall be certified as true and correct to
the best of the knowledge of the president or chief financial officer of Debtor;



	(p)
	Debtor
shall give the Secured Party prompt written notice of any event, occurrence or other matter which has resulted or may result in a material adverse change in its financial
condition, or business operations which, in Debtor's reasonable opinion, would impair the ability of Debtor to perform its obligations hereunder or under any of the other financing agreements to which
it is a party or of Secured Party to enforce the Indebtedness or realize upon the Collateral; 




        3.    COLLATERAL.    



	(a)
	Until
the declaration of any default, Debtor shall remain in possession of the Collateral; except that Secured Party shall have the right to possess (i) any chattel paper or
instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Party's security interest may be perfected only by possession. Secured Party may inspect any
of the Collateral during normal business hours after giving Debtor reasonable prior notice; provided, however, such inspections shall occur no more than four times per calendar year unless a default
(as provided in Section 7 hereof) has occurred and is continuing.



	(b)
	Debtor
shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good operating order and repair, normal wear and tear excepted,
(iii) use and maintain the Collateral only in compliance with manufacturers recommendations and all applicable laws, and (iv) keep all of the Collateral free and clear of all liens,
claims and encumbrances (except for Permitted Liens).



	(c)
	Secured
Party does not authorize Debtor to, and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and
repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or
encumber (except for Permitted Liens) any of the Collateral.



	(d)
	Debtor
shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral except as contested in good faith by
appropriate proceedings, for which adequate reserves have been established and which do not involve, in the judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the
Collateral, on its use, or on this Agreement or any of the other Debt Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or
placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor
agrees to reimburse Secured Party, promptly after receipt of an invoice therefor, all costs and reasonable expenses incurred by Secured Party in connection with such payment or performance and agrees
that such reimbursement obligation shall constitute Indebtedness.



	(e)
	Debtor
shall, at all times, keep accurate and complete records of the Collateral, and Secured Party shall have the right to inspect and make copies of all of Debtor's books and
records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice; provided, however, such inspections shall occur no more than four times per calendar year
unless a default (as provided in Section 7 hereof) has occurred and is continuing.



	(f)
	Debtor
agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the
agent of, and as pledge holder for, Secured Party. Secured Party may, at any time after a default (as 



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provided
in Section 7 hereof) has occurred and is continuing, give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent
of, and as pledge holder for, the Secured Party. 





        4.    INSURANCE.    



	(a)
	Debtor
shall at all times bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever.



	(b)
	Debtor
agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral, which are vehicles, for risk
of loss by collision, and if requested by Secured Party, against such other risks as Secured Party may reasonably require. The insurance coverage shall be in an amount no less than the full
replacement value of the Collateral, and deductible amounts, insurers and policies shall be reasonably acceptable to Secured Party. Debtor shall deliver to Secured Party policies or certificates of
insurance evidencing such coverage. Each policy shall name Secured Party as a loss payee, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-insurance, and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior
written notice to Secured Party. Debtor appoints Secured Party as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive
payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Party shall not act as Debtor's attorney-in-fact unless Debtor
is in default. Proceeds of insurance shall be applied, at the option of Secured Party if a default (as provided in Section 7 hereof) has occurred and is continuing, to repair or replace the
Collateral or to reduce any of the Indebtedness. 




        5.    REPORTS.    



	(a)
	Debtor
shall promptly notify Secured Party of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation or registration, (iii) any
relocation of its chief executive offices, (iv) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out (normal wear and tear excepted), or (v) any
lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral.



	(b)
	So
long as Debtor is not subject to the reporting requirements of Sections 12 or 15 of the Securities and Exchange Act, Debtor will deliver to Secured Party within one hundred twenty
(120) days of the close of each fiscal year of Debtor, Debtor's complete financial statements including a balance sheet, income statement, statement of shareholders' equity and statement of
cash flows, each prepared in accordance with generally accepted accounting principles consistently applied, certified by a recognized firm of certified public accountants satisfactory to Secured
Party. Debtor will deliver to Secured Party copies of Debtor's quarterly financial statements including a balance sheet, income statement and statement of cash flows, each prepared by Debtor in
accordance with generally accepted accounting principles consistently applied by Debtor and certified by Debtor's chief financial officer, within ninety (90) days after the close of each of
Debtor's fiscal quarter. Debtor will deliver to Secured Party copies of Debtor's monthly financial statements including a balance sheet and income statement, each prepared by Debtor in accordance with
generally accepted accounting principles consistently applied by Debtor and certified by Debtor's chief financial officer, within forty-five (45) days after the close of each month.
Debtor will deliver to Secured Party promptly upon request of Secured Party, in form satisfactory to Secured Party, such other and additional financial information as Secured Party may reasonably
request from time to time. 



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        6.    FURTHER ASSURANCES.    



	(a)
	Debtor
shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without
limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Party may at any time reasonably request relating to the perfection or protection of the
security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or
advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall use commercially reasonable efforts to obtain and furnish to Secured Party any
subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, and similar documents as may be from time to time requested by, and in form and substance
satisfactory to, Secured Party.



	(b)
	Debtor
shall perform any and all acts requested by the Secured Party to establish, maintain and continue the Secured Party's security interest and liens in the Collateral, including
but not limited to, executing or authenticating financing statements and such other instruments and documents when and as reasonably requested by the Secured Party. Debtor hereby authorizes Secured
Party through any of Secured Party's employees, agents or attorneys to file any and all financing statements, including, without limitation, any original filings, continuations, transfers or
amendments thereof required to perfect Secured Party's security interest and liens in the Collateral under the UCC without authentication or execution by Debtor. Debtor hereby irrevocably authorizes
the Secured Party at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statement(s) and amendments thereto that
(a) describes the Collateral as the equipment and property listed on any collateral schedule, regardless of whether any particular asset comprised in the Collateral falls within the scope of
Article 9 of the Uniform Commercial Code of the State or such jurisdiction, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial
Code of the State or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Debtor is an organization, the
type of organization and any organization identification number issued to the Debtor, and (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of real
property to which the Collateral relates. The Debtor agrees to furnish any such information to the Secured Party promptly upon the Secured Party's request.



	(c)
	Debtor
shall indemnify and defend the Secured Party, its successors and assigns, and their respective directors, officers and employees (each, an "Indemnitee"), from and against all
claims, actions and suits (including, without limitation, related reasonable attorneys' fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, except
for claims, actions, and suits (and any costs or attorneys' fees related thereto) arising out of Secured Party's gross negligence or willful misconduct. Each Indemnitee shall use its reasonable
efforts to cooperate with Debtor respecting the defense of any matter indemnified hereunder except insofar and to the extent the Secured Party's interests with respect thereto may be adverse to
Debtor's, as determined by Secured Party in Secured Party's sole discretion. 




        7.    DEFAULT AND REMEDIES.    



	(a)
	Debtor
shall be in default under this Agreement and each of the other Debt Documents if:



	(i)
	Debtor
breaches its obligation to pay when due any installment or other amount due or coming due under any of the Debt Documents within ten (10) days after the
same is due; 






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	(ii)
	Debtor,
without the prior written consent of Secured Party, attempts to or does sell, rent, lease, license, mortgage, grant a security interest in, or otherwise
transfer or encumber (except for Permitted Liens) any of the Collateral;



	(iii)
	Debtor
breaches any of its insurance obligations under Section 4;



	(iv)
	Debtor
breaches any of its other non-payment obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after
written notice from Secured Party;



	(v)
	Any
warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or
misleading in any material respect as of the date made;



	(vi)
	Any
of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative
proceeding is commenced against Debtor or any of the Collateral, which in the good faith judgment of Secured Party subjects any of the Collateral to a material risk of attachment, execution, levy,
seizure or confiscation and no bond is posted or protective order obtained to negate such risk;



	(vii)
	Debtor
breaches or is in default under any other agreement between Debtor and Secured Party, and such breach or default is not cured by Debtor or waived by Secured
Party within the applicable cure period, if any;



	(viii)
	Debtor
or any guarantor or other obligor for any of the Indebtedness (collectively "Guarantor") dissolves, terminates
its existence, becomes insolvent or ceases to do business as a going concern;



	(ix)
	Debtor
or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent;



	(x)
	A
receiver is appointed for all or of any part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors;



	(xi)
	Debtor
or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not
dismissed within forty-five (45) days;



	(xii)
	Debtor's
filing of an amendment or termination statement relating to a filed financing statement describing the Collateral without Secured Party's authorization.



	(xiii)
	Debtor
shall merge with or consolidate into any other entity or sell all or substantially all of its assets or in any manner terminate its existence without prior
written consent of Secured Party, which consent shall not be unreasonably withheld, conditioned or delayed;



	(xiv)
	If
Debtor is a privately held corporation, there shall occur, without the prior written consent of Secured Party, a change in its ownership of more than 50% of
Debtor's voting capital stock (other than by the sale in a public offering or to venture capital and other institutional investors); provided that, if
such change in ownership results in the overall financial condition being no worse than the overall financial condition of Debtor before the change of ownership in Secured Party's sole and reasonable
opinion, Secured Party's consent to such change in ownership shall not be required. In the event that Secured Party fails to consent to a proposed change in ownership for which its consent is
required, then Debtor may prepay the Indebtedness, either prior to or simultaneously with the closing of the change in ownership event, upon payment of (i) all accrued and unpaid interest and
the outstanding principal balance of the Notes and (ii) an amount equal to 




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three
percent (3%) of the outstanding principal balance of the Notes on the date of prepayment; 



	(xv)
	Debtor
is a publicly held corporation, there shall be a change in the ownership of Debtor's stock such that Debtor is no longer subject to the reporting requirements of
the Securities Exchange Act of 1934 or no longer has a class of equity securities registered under Section 12 of the Securities Act of 1933, without prior written consent of Secured Party,
which consent shall not be unreasonably withheld, conditioned or delayed;



	(xvi)
	Debtor
defaults under any material financing arrangement between Debtor and a third party and such default is reasonably likely to impair Debtor's ability to perform
under this Agreement; and



	(xvii)
	Any
material adverse change in the general affairs, senior management, results of operations, or financial condition of Debtor, whether or not arising from
transactions in the ordinary course of business, that is likely to impair the ability of Debtor to repay any portion of the obligations owing to Secured Party or a material impairment in the value or
priority of Secured Party's security interests in the Collateral;






	(b)
	If
Debtor is in default, the Secured Party, at its option, may declare any or all of the Indebtedness to be immediately due and payable, without demand or notice to Debtor or any
Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate
not prohibited by applicable law.



	(c)
	After
a default (as set forth in Section 7 hereof) has occurred and is continuing, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform
Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any
instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process (to the extent permitted by applicable law), enter any premises
where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises, (iii) sell the Collateral at public or private sale, in whole or in
part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds from such disposition to the obligations then
in default. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party, which is reasonably
convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Debtor's premises and may dispose of such Collateral on such premises without liability for rent
or costs for a period not to exceed thirty (30) days. Any notice that Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or
the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of
Debtor at least ten (10) days prior to such action. Upon the occurrence and during the continuation of an Event of Default, Debtor hereby appoints Secured Party as Debtor's
attorney-in-fact, with full authority in Debtor's place and stead and in Debtor's name or otherwise, from time to time in Secured Party's sole and arbitrary discretion, to take
any action and to execute any instrument which Secured Party may deem necessary or advisable solely to accomplish the purpose of this Agreement.



	(d)
	Proceeds
from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys',
appraisers', and auctioneers' fees; second, to discharge the obligations then in default; third, to discharge any 



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other
Indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the
Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency. 



	(e)
	Debtor
agrees to pay all reasonable attorneys' fees and other costs incurred by Secured Party in connection with the enforcement, assertion, defense or preservation of Secured Party's
rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall constitute Indebtedness.



	(f)
	Secured
Party's rights and remedies under this Agreement or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the
part of the Secured Party to exercise any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude
any other or further exercise of that or any other right, power or privilege. SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT,
INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.



	(g)
	DEBTOR
AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT
DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS
IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER
DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 






        8.    MISCELLANEOUS.    



	(a)
	This
Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor agrees not to assert
against any such assignee, or assignee's assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Party for any reason
whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor will pay when due all amounts payable under any assigned Debt Documents to such assignee or
as instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Party or assignee.



	(b)
	All
notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and
until a different address may be specified in a written notice to the other party), and shall be 



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deemed
given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth
business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which
commercial banks in New York, New York are required or authorized to be closed. 



	(c)
	Secured
Party may correct patent errors and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties.



	(d)
	Time
is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the "Debtor" and their respective heirs, executors,
representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns.



	(e)
	This
Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior
understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT,
BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this
Agreement.



	(f)
	This
Agreement shall continue in full force and effect until all of the Indebtedness has been paid in full to Secured Party or its assignee. Upon the payment in full of the
Indebtedness, Secured Party shall promptly (i) release its lien on the Collateral and (ii) execute and deliver to Debtor, or authorize Debtor to file, such documents as Debtor shall
reasonably request to evidence such release. This Agreement shall automatically be reinstated if Secured Party is ever required to return or restore the payment of all or any portion of the
Indebtedness (all as though such payment had never been made).



	(g)
	DEBTOR
AGREES THAT SECURED PARTY AND/OR ITS SUCCESSORS AND ASSIGNS SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE
COMMONWEALTH OF VIRGINIA; OR (B) IF COLLATERAL HAS BEEN PLEDGED TO SECURE THE LIABILITIES, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE COLLATERAL IS LOCATED, AT SECURED PARTY'S OPTION.
THIS CHOICE OF STATE LAWS IS EXCLUSIVE TO THE SECURED PARTY. DEBTOR SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS AGREEMENT SHALL BE GOVERNED. DEBTOR ACKNOWLEDGES THAT THIS AGREEMENT IS
BEING SIGNED BY THE SECURED PARTY IN PARTIAL CONSIDERATION OF SECURED PARTY'S RIGHT TO ENFORCE IN THE JURISDICTION STATED ABOVE. DEBTOR CONSENTS TO JURISDICTION IN THE COMMONWEALTH OF VIRGINIA OR THE
STATE IN WHICH ANY COLLATERAL IS LOCATED AND VENUE IN ANY FEDERAL OR STATE COURT IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH COLLATERAL IS LOCATED FOR SUCH PURPOSES AND WAIVES ANY AND ALL
RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT SAID COUNTY IS NOT CONVENIENT. DEBTOR WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST SECURED PARTY IN ANY JURISDICTION EXCEPT
VIRGINIA, OR IF SECURED PARTY CHOOSES TO LITIGATE IN A STATE WHERE COLLATERAL IS LOCATED THEN IN SUCH COUNTY AND STATE. SECURED PARTY AND DEBTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS 



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TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE DOCUMENTS. 





        IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more
counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. 



	

SECURED PARTY:	
 	

DEBTOR:
	
Oxford Finance Corporation	
 	

Metabasis Therapeutics, Inc.
 
	

By:	

/s/  MICHAEL J. ALTENBURGER      
	
 	

By:	

/s/  JOHN W. BECK      

	

Name:	

Michael J. Altenburger
	
 	

Name:	

John W. Beck

	

Title:	

Chief Financial Officer
	
 	

Title:	

VP of Finance & CFO





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	Promissory Note	 	Schedule 01




PROMISSORY NOTE

To Master Security Agreement No. 3081034  


(Date)



        FOR
VALUE RECEIVED, Metabasis Therapeutics, Inc., a Delaware corporation, located
at the address stated below ("Maker") promises, jointly and severally if more than one, to pay to the order of Oxford Finance
Corporation or any subsequent holder hereof (each, a "Payee") at its office located at 133 N. Fairfax
Street, Alexandria, VA 22314 or at such other place as Payee or the holder hereof may designate, the principal sum of Seven Hundred
Sixty-One Thousand Six Hundred Twenty Three and 00/100 Dollars ($761,623.00), with interest on the unpaid principal balance, from the date hereof through and
including the dates of payment, at a fixed interest rate of Ten and 35/100 percent (10.35%) per annum, in forty eight (48) consecutive monthly installments of principal and interest as
follows: 



	Periodic

Installment
 
	 	Amount

	1-48	 	$	19,278.73






each
("Periodic Installment") and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic
Installment shall be due and payable on or about August 28, 2003 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding
month beginning October 1, 2003 (each, a "Payment Date"). Such installments have been calculated on the basis of a 360-day year of
twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. 



        The
acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in
full at such time or at any prior or subsequent time. 


        The
Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. 


        This
Note is secured by that certain Master Security Agreement by and between Maker and Payee dated August 27, 2003 (the "Security
Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Security Agreement. 



        Time
is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received when due, the Maker agrees to pay, in addition to the
amount of each such installment or other sum, a late payment charge of two percent (2%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails
to make payment of any amount due hereunder within ten (10) days after the same is due; or (ii) Maker is in default under the Security Agreement, and such default is not cured within the
applicable cure period, if any, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or the Security Agreement, at the
election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date
of such accelerated maturity until paid (both before and after any judgment). 


        Notwithstanding
anything to the contrary contained herein or in the Security Agreement, Maker may not prepay in full or in part any indebtedness hereunder without the express written
consent of Payee in its sole discretion. 


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        The
Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "Obligor") who may at any time
become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of
any party primarily or secondarily liable on this Note or the Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be
brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed
against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security
hereof, and agrees to pay (if and to the extent permitted by law) all reasonable expenses incurred in collection, including Payee's actual attorneys' fees. Maker and each Obligor agrees that fees not
in excess of ten percent (10%) of the amount then due shall be deemed reasonable. 


        Maker
and Lender intend to strictly comply with all applicable federal and Virginia laws, including applicable usury laws (or the usury laws of any jurisdiction whose usury laws are
deemed to apply to the Note or any other Debt Document despite the intention and desire of the parties to apply the usury laws of the Commonwealth of Virginia). Accordingly, the provisions of this
paragraph shall govern and control over every other provision of this Note or any other Debt Document which conflicts or is inconsistent with this Section, even if such provision declares that it
controls. As used in this paragraph, the term "interest" includes the aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall
be characterized as an expense or as compensation for something other than the use, forbearance or detention of money and not as interest, and (b) all interest at any time contracted for,
reserved, charged or received shall be amortized, prorated, allocated and spread, in equal parts during the full term of the obligations. In no event shall Maker or any other person be obligated to
pay, or Holder have any right or privilege to reserve, receive or retain, (a) any interest in excess of the maximum amount of non-usurious interest permitted under the laws of the
Commonwealth of Virginia or the applicable laws (if any) of the United States or of any other state, or (b) total interest in excess of the amount which Holder could lawfully have contracted
for, reserved, received, retained or charged had the interest been calculated for the full term of the obligations. On each day, if any, that the interest rate (the "Stated
Rate") called for under this Note or any other Debt Document exceeds the maximum non-usurious rate, the rate at which interest shall accrue shall automatically be
fixed by operation of this sentence at the maximum non-usurious rate for that day. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the
maximum non-usurious rate, in which case, the provisions of the immediately preceding sentence shall again automatically operate to limit the interest accrual rate to the maximum
non-usurious rate. The daily interest rates to be used in calculating interest at the maximum non-usurious rate shall be determined by dividing the applicable maximum
non-usurious rate by the number of days in the calendar year for which such calculation is being made. None of the terms and provisions contained in this Note or in any other Debt Document
which directly or indirectly relate to interest shall ever be construed without reference to this paragraph, or be construed to create a contract to pay for the use, forbearance or detention of money
at an interest rate in excess of the maximum non-usurious rate. If the term of any obligation is shortened by reason of acceleration of maturity as a result of any Default or by any other
cause, or by reason of any required or permitted prepayment, and if for that (or any other) reason Holder at any time, including but not limited to, the stated maturity, is owed or receives (and/or
has received) interest in excess of interest calculated at the maximum non-usurious rate, then and in any such event all of any such excess interest shall be canceled automatically as of
the date of such acceleration, prepayment or other event which produces the excess, and, if such excess interest has been paid to Holder, it shall be credited pro
tanto against 


2





 



the
then-outstanding principal balance of Maker's obligations to Holder, effective as of the date or dates when the event occurs which causes it to be excess interest, until such excess is
exhausted or all of such principal has been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess shall be promptly refunded to its payor. 


        This
Note and the Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements
and representations, express or implied. 


        No
variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and
Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. 


        Any
provision in this Note or the Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. 


        Upon
receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of this Note or any Debt Document which is not of public record, and, in the case of
any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other Debt Document, Maker will issue, in lieu thereof, a replacement Note or other Debt Document in
the same principal amount thereof and otherwise of like tenor. 


        It
is understood and agreed that this Note and all of the Debt Documents were negotiated and have been or will be delivered to Lender in the Commonwealth of Virginia, which State the
parties agree has a substantial relationship to the parties and to the underlying transactions embodied by this Note and the Debt Documents. Maker agrees to furnish to Lender at Lender's office in
Alexandria, VA, all further instruments, certifications and documents to be furnished hereunder.    The parties also agree that if collateral is pledged to secure the debt evidenced by
this Note, that the state or states in which such collateral is located each have a substantial relationship to the parties and to the underlying transaction embodied by this Note and the Debt
Documents. 


        MAKER
AGREES THAT THE HOLDER OF THIS NOTE SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS NOTE SHALL BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE COMMONWEALTH OF VIRGINIA; OR
(B) IF COLLATERAL HAS BEEN PLEDGED TO SECURE THE DEBT EVIDENCED BY THIS NOTE, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE COLLATERAL IS LOCATED, AT HOLDER'S OPTION. THIS CHOICE OF STATE
LAWS IS EXCLUSIVE TO THE HOLDER OF THIS NOTE. MAKER SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS NOTE SHALL BE GOVERNED. MAKER AND GUARANTORS HEREBY CONSENT TO THE EXERCISE OF
JURISDICTION OVER IT BY ANY FEDERAL COURT SITTING IN VIRGINIA OR ANY VIRGINIA COURT SELECTED BY HOLDER, FOR THE PURPOSES OF ANY AND ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE, THE
LOAN AGREEMENT AND ALL OTHER DOCUMENTS. MAKER AND GUARANTORS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH PROCEEDING BROUGHT IN ANY SUCH COURT, ANY CLAIM BASED ON THE CONSOLIDATION OF PROCEEDINGS IN SUCH COURTS IN WHICH PROPER VENUE MAY 


3





 



LIE
IN DIVERGENT JURISDICTIONS, AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 



	 	 	 	Metabasis Therapeutics, Inc.
	

/s/  DANIEL A. MILLES      
 (Witness)	
 	

By:	

/s/  JOHN W. BECK      

	

Daniel A. Milles
 (Print name)	
 	

Name:	

John W. Beck

	

9390 Towne Centre Dr., Bldg. 300
 (Address) San Diego, CA 92121	
 	

Title:	

VP of Finance & CFO

	

 	
 	

Federal Tax ID #: 33-0753322
	

 	
 	

Address: 9390 Towne Centre Dr., Building 300

                 San Diego, CA 92121




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