Exhibit 10.1


Execution Copy


COMMON
STOCK PURCHASE AGREEMENT


by
and between


KINGSBRIDGE
CAPITAL LIMITED


and


METABASIS
THERAPEUTICS, INC.


dated
as of November 2, 2006

















 


TABLE OF
CONTENTS


	
  

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I            DEFINITIONS

  	
   

  	
  2

  
	
  Section 1.01.

  	
  “Blackout Amount”

  	
   

  	
  2

  
	
  Section 1.02.

  	
  “Blackout Shares”

  	
   

  	
  2

  
	
  Section 1.03.

  	
  “Business Day”

  	
   

  	
  2

  
	
  Section 1.04.

  	
  “Bylaws”

  	
   

  	
  2

  
	
  Section 1.05.

  	
  “Certificate”

  	
   

  	
  2

  
	
  Section 1.06.

  	
  “Closing Date”

  	
   

  	
  2

  
	
  Section 1.07.

  	
  “Closing Price”

  	
   

  	
  2

  
	
  Section 1.08.

  	
  “Commission”

  	
   

  	
  2

  
	
  Section 1.09.

  	
  “Commission Documents”

  	
   

  	
  2

  
	
  Section 1.10.

  	
  “Commitment Period”

  	
   

  	
  2

  
	
  Section 1.11.

  	
  “Common Stock”

  	
   

  	
  2

  
	
  Section 1.12.

  	
  “Condition Satisfaction Date”

  	
   

  	
  2

  
	
  Section 1.13.

  	
  “Consolidated Subsidiary”

  	
   

  	
  2

  
	
  Section 1.14.

  	
  “Convertible Security”

  	
   

  	
  2

  
	
  Section 1.15.

  	
  “Conversion Price”

  	
   

  	
  2

  
	
  Section 1.16.

  	
  “Damages”

  	
   

  	
  3

  
	
  Section 1.17.

  	
  “Draw Down”

  	
   

  	
  3

  
	
  Section 1.18.

  	
  “Draw Down Amount”

  	
   

  	
  3

  
	
  Section 1.19.

  	
  “Draw Down Discount Price”

  	
   

  	
  3

  
	
  Section 1.20.

  	
  “Draw Down Notice”

  	
   

  	
  3

  
	
  Section 1.21.

  	
  “Draw Down Pricing Period”

  	
   

  	
  3

  
	
  Section 1.22.

  	
  “DTC”

  	
   

  	
  3

  
	
  Section 1.23.

  	
  “Effective Date”

  	
   

  	
  3

  
	
  Section 1.24.

  	
  “Exchange Act”

  	
   

  	
  3

  
	
  Section 1.25.

  	
  “Excluded Merger or Sale”

  	
   

  	
  3

  
	
  Section 1.26.

  	
  “Knowledge”

  	
   

  	
  3

  
	
  Section 1.27.

  	
  “LIBOR”

  	
   

  	
  3

  
	
  Section 1.28.

  	
  “Make Whole Amount”

  	
   

  	
  3

  
	
  Section 1.29.

  	
  “Market Capitalization”

  	
   

  	
  3

  
	
  Section 1.30.

  	
  “Material Adverse Effect”

  	
   

  	
  4

  
	
  Section 1.31.

  	
  “Maximum Commitment Amount”

  	
   

  	
  4

  
	
  Section 1.32.

  	
  “Maximum Draw Down Amount”

  	
   

  	
  4

  
	
  Section 1.33.

  	
  “NASD”

  	
   

  	
  4

  
	
  Section 1.34.

  	
  “Permitted Transaction”

  	
   

  	
  4

  
					



 



 i
 






 



 


	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  Section 1.35.

  	
  “Person”

  	
   

  	
  4

  	 

	
  Section 1.36.

  	
  “Principal Market”

  	
   

  	
  4

  	 

	
  Section 1.37.

  	
  “Prohibited Transaction”

  	
   

  	
  5

  	 

	
  Section 1.38.

  	
  “Prospectus”

  	
   

  	
  5

  	 

	
  Section 1.39.

  	
  “Registrable Securities”

  	
   

  	
  5

  	 

	
  Section 1.40.

  	
  “Registration Rights Agreement”

  	
   

  	
  5

  	 

	
  Section 1.41.

  	
  “Registration Statement”

  	
   

  	
  5

  	 

	
  Section 1.42.

  	
  “Regulation D”

  	
   

  	
  5

  	 

	
  Section 1.43.

  	
  “Section 4(2)”

  	
   

  	
  5

  	 

	
  Section 1.44.

  	
  “Securities Act”

  	
   

  	
  5

  	 

	
  Section 1.45.

  	
  “Settlement Date”

  	
   

  	
  5

  	 

	
  Section 1.46.

  	
  “Shares”

  	
   

  	
  5

  	 

	
  Section 1.47.

  	
  “Trading Day”

  	
   

  	
  5

  	 

	
  Section 1.48.

  	
  “VWAP”

  	
   

  	
  6

  	 

	
  Section 1.49.

  	
  “Warrant”

  	
   

  	
  6

  	 

	
  Section 1.50.

  	
  “Warrant Shares”

  	
   

  	
  6

  	 

	
  ARTICLE II           PURCHASE
  AND SALE OF COMMON STOCK

  	
   

  	
  6

  	 

	
  Section 2.01.

  	
  Purchase and Sale of Stock

  	
   

  	
  6

  	 

	
  Section 2.02.

  	
  Closing

  	
   

  	
  6

  	 

	
  Section 2.03.

  	
  Registration Statement and Prospectus

  	
   

  	
  6

  	 

	
  Section 2.04.

  	
  Warrant

  	
   

  	
  6

  	 

	
  Section 2.05.

  	
  Blackout Shares

  	
   

  	
  6

  	 

	
  ARTICLE III          DRAW
  DOWN TERMS

  	
   

  	
  6

  	 

	
  Section 3.01.

  	
  Draw Down Notice

  	
   

  	
  6

  	 

	
  Section 3.02.

  	
  Number of Shares

  	
   

  	
  7

  	 

	
  Section 3.03.

  	
  Limitation on Draw Downs

  	
   

  	
  7

  	 

	
  Section 3.04.

  	
  Trading Cushion

  	
   

  	
  7

  	 

	
  Section 3.05.

  	
  Settlement

  	
   

  	
  7

  	 

	
  Section 3.06.

  	
  Delivery of Shares; Payment of Draw Down Amount

  	
   

  	
  7

  	 

	
  Section 3.07.

  	
  Failure to Deliver Shares

  	
   

  	
  8

  	 

	
  ARTICLE IV          REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  	
  8

  	 

	
  Section 4.01.

  	
  Organization, Good Standing and Power

  	
   

  	
  8

  	 

	
  Section 4.02.

  	
  Authorization; Enforcement

  	
   

  	
  9

  	 

	
  Section 4.03.

  	
  Capitalization

  	
   

  	
  9

  	 




 



 ii
 






 



 


	
  

  	
   

  	
   

  	
  Page

  
	
  Section 4.04.

  	
  Issuance of Shares

  	
   

  	
  9

  
	
  Section 4.05.

  	
  No Conflicts

  	
   

  	
  10

  
	
  Section 4.06.

  	
  Commission Documents, Financial Statements

  	
   

  	
  10

  
	
  Section 4.07.

  	
  No Material Adverse Change

  	
   

  	
  11

  
	
  Section 4.08.

  	
  No Undisclosed Liabilities

  	
   

  	
  11

  
	
  Section 4.09.

  	
  No Undisclosed Events or Circumstances

  	
   

  	
  11

  
	
  Section 4.10.

  	
  Actions Pending

  	
   

  	
  11

  
	
  Section 4.11.

  	
  Compliance with Law

  	
   

  	
  12

  
	
  Section 4.12.

  	
  Certain Fees

  	
   

  	
  12

  
	
  Section 4.13.

  	
  Disclosure

  	
   

  	
  12

  
	
  Section 4.14.

  	
  Material Non-Public Information

  	
   

  	
  12

  
	
  Section 4.15.

  	
  Exemption from Registration; Valid Issuances

  	
   

  	
  12

  
	
  Section 4.16.

  	
  No General Solicitation or Advertising in Regard to
  this Transaction

  	
   

  	
  13

  
	
  Section 4.17.

  	
  No Integrated Offering

  	
   

  	
  13

  
	
  Section 4.18.

  	
  Acknowledgment Regarding Investor’s Purchase of
  Shares

  	
   

  	
  13

  
	
  ARTICLE V           REPRESENTATIONS,
  WARRANTIES AND COVENANTS OF THE INVESTOR

  	
   

  	
  13

  
	
  Section 5.01.

  	
  Organization and Standing of the Investor

  	
   

  	
  13

  
	
  Section 5.02.

  	
  Authorization and Power

  	
   

  	
  13

  
	
  Section 5.03.

  	
  No Conflicts

  	
   

  	
  14

  
	
  Section 5.04.

  	
  Financial Capability

  	
   

  	
  14

  
	
  Section 5.05.

  	
  Information

  	
   

  	
  14

  
	
  Section 5.06.

  	
  Selling Restrictions

  	
   

  	
  14

  
	
  Section 5.07.

  	
  Statutory Underwriter Status

  	
   

  	
  15

  
	
  Section 5.08.

  	
  Not an Affiliate

  	
   

  	
  15

  
	
  Section 5.09.

  	
  Manner of Sale

  	
   

  	
  15

  
	
  Section 5.10.

  	
  Prospectus Delivery

  	
   

  	
  15

  
	
  ARTICLE VI          COVENANTS
  OF THE COMPANY

  	
   

  	
  15

  
	
  Section 6.01.

  	
  Securities

  	
   

  	
  15

  
	
  Section 6.02.

  	
  Reservation of Common Stock

  	
   

  	
  16

  
	
  Section 6.03.

  	
  Registration and Listing

  	
   

  	
  16

  
	
  Section 6.04.

  	
  Registration Statement

  	
   

  	
  16

  
	
  Section 6.05.

  	
  Compliance with Laws

  	
   

  	
  16

  
	
  Section 6.06.

  	
  Reporting Requirements

  	
   

  	
  16

  



 



 iii
 






 



 


	
  

  	
   

  	
   

  	
  Page

  
	
  Section 6.07.

  	
  Other Financing

  	
   

  	
  17

  
	
  Section 6.08.

  	
  Prohibited Transactions

  	
   

  	
  17

  
	
  Section 6.09.

  	
  Corporate Existence

  	
   

  	
  18

  
	
  Section 6.10.

  	
  Non-Disclosure of Non-Public Information

  	
   

  	
  18

  
	
  Section 6.11.

  	
  Notice of Certain Events Affecting Registration;
  Suspension of Right to Request a Draw Down

  	
   

  	
  18

  
	
  Section 6.12.

  	
  Amendments to the Registration Statement

  	
   

  	
  18

  
	
  Section 6.13.

  	
  Prospectus Delivery

  	
   

  	
  19

  
	
  ARTICLE VII            CONDITIONS TO THE OBLIGATION OF
  THE INVESTOR TO ACCEPT A DRAW DOWN

  	
   

  	
  19

  
	
  Section 7.01.

  	
  Accuracy of the Company’s Representations and
  Warranties

  	
   

  	
  19

  
	
  Section 7.02.

  	
  Performance by the Company

  	
   

  	
  19

  
	
  Section 7.03.

  	
  Compliance with Law

  	
   

  	
  20

  
	
  Section 7.04.

  	
  Effective Registration Statement

  	
   

  	
  20

  
	
  Section 7.05.

  	
  No Knowledge

  	
   

  	
  20

  
	
  Section 7.06.

  	
  No Suspension

  	
   

  	
  20

  
	
  Section 7.07.

  	
  No Injunction

  	
   

  	
  20

  
	
  Section 7.08.

  	
  No Proceedings or Litigation

  	
   

  	
  20

  
	
  Section 7.09.

  	
  Sufficient Shares Registered for Resale

  	
   

  	
  20

  
	
  Section 7.10.

  	
  Warrant

  	
   

  	
  20

  
	
  Section 7.11.

  	
  Opinion of Counsel

  	
   

  	
  21

  
	
  Section 7.12.

  	
  Accuracy of Investor’s Representation and Warranties

  	
   

  	
  21

  
	
  Section 7.13.

  	
  Payment of Fees

  	
   

  	
  21

  
	
  ARTICLE VIII       TERMINATION

  	
   

  	
  21

  
	
  Section 8.01.

  	
  Term

  	
   

  	
  21

  
	
  Section 8.02.

  	
  Other Termination

  	
   

  	
  21

  
	
  Section 8.03.

  	
  Effect of Termination

  	
   

  	
  22

  
	
  ARTICLE IX         INDEMNIFICATION

  	
   

  	
  22

  
	
  Section 9.01.

  	
  Indemnification

  	
   

  	
  22

  
	
  Section 9.02.

  	
  Notification of
  Claims for Indemnification

  	
   

  	
  23

  
	
  ARTICLE X           MISCELLANEOUS

  	
   

  	
  25

  
	
  Section 10.01.

  	
  Fees and Expenses

  	
   

  	
  25

  
	
  Section 10.02.

  	
  Reporting Entity for the Common Stock

  	
   

  	
  25

  
	
  Section 10.03.

  	
  Brokerage

  	
   

  	
  25

  



 



 iv
 






 



 


	
  

  	
   

  	
   

  	
  Page

  
	
  Section 10.04.

  	
  Notices

  	
   

  	
  25

  
	
  Section 10.05.

  	
  Assignment

  	
   

  	
  27

  
	
  Section 10.06.

  	
  Amendment; No Waiver

  	
   

  	
  27

  
	
  Section 10.07.

  	
  Entire Agreement

  	
   

  	
  27

  
	
  Section 10.08.

  	
  Severability

  	
   

  	
  27

  
	
  Section 10.09.

  	
  Title and Subtitles

  	
   

  	
  28

  
	
  Section 10.10.

  	
  Counterparts

  	
   

  	
  28

  
	
  Section 10.11.

  	
  Choice of Law

  	
   

  	
  28

  
	
  Section 10.12.

  	
  Specific Enforcement, Consent to Jurisdiction

  	
   

  	
  28

  
	
  Section 10.13.

  	
  Survival

  	
   

  	
  28

  
	
  Section 10.14.

  	
  Publicity

  	
   

  	
  28

  
	
  Section 10.15.

  	
  Further Assurances

  	
   

  	
  29

  
	
  Section 10.16.

  	
  Absence of Presumption

  	
   

  	
  29

  



 



 v














 


COMMON
STOCK PURCHASE AGREEMENT


by
and between


KINGSBRIDGE
CAPITAL LIMITED


and


METABASIS
THERAPEUTICS, INC.


dated as November 2, 2006


This COMMON STOCK
PURCHASE AGREEMENT (the “Agreement”) is entered into as of the 1st day
of November, 2006 by and between Kingsbridge Capital Limited, an entity
organized and existing under the laws of the British Virgin Islands, whose
registered address is Palm Grove House, 2nd Floor, Road Town, Tortola, British
Virgin Islands (the “Investor”) and Metabasis Therapeutics, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
“Company”).


WHEREAS, the parties desire that, upon the terms and
subject to the conditions and limitations set forth herein, the Company may
issue and sell to the Investor, from time to time as provided herein, and the
Investor shall purchase from the Company, up to $50 million worth of shares of
Common Stock (as defined below); and


WHEREAS, such investments will be made in reliance
upon the provisions of Section 4(2) (“Section 4(2)”) and
Regulation D (“Regulation D”) of the United States Securities Act of
1933, as amended and the rules and regulations promulgated thereunder (the “Securities
Act”), and/or upon such other exemption from the registration requirements
of the Securities Act as may be available with respect to any or all of the
investments in Common Stock to be made hereunder; and


WHEREAS, the parties hereto are concurrently entering
into a Registration Rights Agreement in the form of Exhibit A hereto (the “Registration
Rights Agreement”) pursuant to which the Company shall register the Common
Stock issued and sold to the Investor under this Agreement and under the
Warrant (as defined below), upon the terms and subject to the conditions and
limitations set forth therein; and


WHEREAS, in consideration for the Investor’s execution
and delivery of, and its performance of its obligations under, this Agreement,
the Company is concurrently issuing to the Investor a warrant in the form of Exhibit
B hereto (the “Warrant”) pursuant to which the Investor may purchase
from the Company up to 260,000 shares of Common Stock, upon the terms and
subject to the conditions and limitations set forth therein;


NOW, THEREFORE, the parties hereto agree as follows:

















 


ARTICLE
I



DEFINITIONS


Section 1.01.      “Blackout Amount”
shall have the meaning assigned to such term in the Registration Rights
Agreement.


Section 1.02.      “Blackout Shares”
shall have the meaning assigned to such term in the Registration Rights
Agreement.


Section 1.03.      “Business Day” shall
mean any day other than a Saturday, a Sunday or a day on which banks in New
York City, New York are authorized or obligated by executive order to close.


Section 1.04.      “Bylaws” shall have
the meaning assigned to such term in Section 4.03 hereof.


Section 1.05.      “Certificate” shall
have the meaning assigned to such term in Section 4.03 hereof.


Section 1.06.      “Closing Date” means
the date on which this Agreement is executed and delivered by the Company and
the Investor.


Section 1.07.      “Closing Price” means
the closing price per share of Common Stock at 4:00 PM New York time as
reported by Bloomberg L.P. on such day.


Section 1.08.      “Commission” means
the United States Securities and Exchange Commission.


Section 1.09.      “Commission Documents”
shall have the meaning assigned to such term in Section 4.06 hereof.


Section 1.10.      “Commitment Period”
means the period commencing on the Effective Date and expiring on the earliest
to occur of (i) the date on which the Investor shall have purchased Shares
pursuant to this Agreement for an aggregate purchase price equal to the Maximum
Commitment Amount, (ii) the date this Agreement is terminated pursuant to
Article VIII hereof, and (iii) the date occurring thirty-six (36)
months from the Effective Date.


Section 1.11.      “Common Stock” means
the common stock of the Company, par value $0.001 per share.


Section 1.12.      “Condition Satisfaction
Date” shall have the meaning assigned to such term in Article VII
hereof.


Section 1.13.      “Consolidated Subsidiary”
means any subsidiary that the Company consolidates in the preparation of its
audited consolidated financial statements.


Section 1.14.      “Convertible Security”
shall have the meaning assigned to such term in Section 6.08 hereof.


Section 1.15.      “Conversion Price”
shall have the meaning assigned to such term in Section 6.08 hereof.



 2
 






 



Section 1.16.      “Damages” means any
loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorneys’ fees and expenses and costs and reasonable
expenses of expert witnesses and investigation).


Section 1.17.      “Draw Down” shall
have the meaning assigned to such term in Section 3.01 hereof.


Section 1.18.      “Draw Down Amount”
means the actual amount of a Draw Down paid to the Company.


Section 1.19.      “Draw Down Discount Price”
means (i) 90% of the VWAP on any Trading Day during a Draw Down Pricing Period
when the VWAP equals or exceeds $2.25 but is less than or equal to $5.75, (ii)
92% of the VWAP on any Trading Day during a Draw Down Pricing Period when the
VWAP exceeds $5.75 but is less than or equal to $9.50, or (iii) 94% of the VWAP
on any Trading Day during a Draw Down Pricing Period when the VWAP exceeds
$9.50.


Section 1.20.      “Draw Down Notice”
shall have the meaning assigned to such term in Section 3.01 hereof.


Section 1.21.      “Draw Down Pricing Period”
shall mean, with respect to each Draw Down, a period of eight (8) consecutive
Trading Days beginning on the first Trading Day specified in a Draw Down
Notice.


Section 1.22.      “DTC” shall mean the
Depository Trust Company, or any successor thereto.


Section 1.23.      “Effective Date”
means the first Trading Day immediately following the date on which the
Registration Statement is declared effective by the Commission.


Section 1.24.      “Exchange Act” means
the U.S. Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.


Section 1.25.      “Excluded Merger or Sale”
shall have the meaning assigned to such term in the Warrant.


Section 1.26.      “Knowledge” with
respect to the Company means the actual knowledge of the Company’s Chief
Executive Officer, President and Secretary; Chief Scientific Officer and
Executive Vice President of Research and Development; Senior Vice President of
Finance, Chief Financial Officer and Treasurer; and Senior Vice President of
Business Development.


Section 1.27.      “LIBOR” means the offered rate for twelve-month U.S. dollar
deposits that appears on Moneyline Telerate Page 3750 (or such other page as
may replace such Moneyline Telerate Page 3750 for the purpose of displaying
comparable rates), as of 11:00 a.m. (London time) two (2) Business Days prior
to the beginning of the relevant period.


Section 1.28.      “Make Whole Amount”
shall have the meaning specified in Section 3.07.


Section 1.29.      “Market Capitalization”
means, as of any Trading Day, the product of (i) the closing sale price of
the Common Stock as reported by Bloomberg L.P. using the AQR



 3
 






 



function and (ii) the number of outstanding
shares of Common Stock of the Company as reported by Bloomberg L.P. using the
DES function.


Section 1.30.      “Material Adverse Effect”
means any effect that is not negated, corrected, cured or otherwise remedied
within a reasonable period of time on the business, operations, properties or
financial condition of the Company and its Consolidated Subsidiaries that is
material and adverse to the Company and such subsidiaries, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to perform any of its
obligations under this Agreement, the Registration Rights Agreement or the
Warrant in any material respect; provided, however, that none of
the following shall constitute a “Material Adverse Effect”:  (i) the effects of conditions or events that
are generally applicable to the capital, financial, banking or currency markets
or the biotechnology or pharmaceutical industries; (ii) the effects of
conditions or events that are reasonably expected to occur in the Company’s
ordinary course of business (such as, by way of example only, failed clinical
trials, serious adverse events involving the Company’s product candidates,
delays in product development, unfavorable regulatory determinations,
difficulties involving collaborators or intellectual property disputes), except
for purposes of Section 4.09 herein; (iii) any changes or effects resulting
from the announcement or consummation of the transactions contemplated by this
Agreement, including, without limitation, any changes or effects associated
with any particular Draw Down, and (iv) changes in the market price of the
Common Stock.


Section 1.31.      “Maximum Commitment
Amount” means the lesser of (i) $50 million in aggregate Draw Down Amounts
or (ii) 6,046,471 shares of Common Stock (as adjusted for stock splits, stock
combinations, stock dividends, recapitalizations and the like that occur on or
after the date of this Agreement minus (i) the number of Blackout Shares, if
any, delivered to the Investor under the Registration Rights Agreement and (ii)
the number of Warrant Shares, if any, issued to the Investor upon exercise of
the Warrant), provided, however, that the Maximum Commitment
Amount shall not exceed that number of shares of Common Stock which the Company
may issue pursuant to the Agreement and the transactions contemplated herein,
without breaching the Company’s obligations under the rules and regulations of
the Principal Market.


Section 1.32.      “Maximum Draw Down Amount”
means the lesser of:


(a)    $10 million, or


(b)   (i) if the Company’s Market
Capitalization is equal to or exceeds $175 million at the time of the delivery
of the applicable Draw Down Notice, 1.5% of the Company’s Market Capitalization
at the time of the delivery of the applicable Draw Down Notice; (ii) if the
Company’s Market Capitalization is equal to or exceeds $100 million but is less
than $175 million at the time of the delivery of the applicable Draw Down
Notice, 1% of the Company’s Market Capitalization at the time of the delivery
of the applicable Draw Down Notice; or (iii) if the Company’s Market Capitalization
is equal to or exceeds $65 million but is less than $100 million at the time of
the delivery of the applicable Draw Down Notice, 0.75% of the Company’s Market
Capitalization at the time of the delivery of the applicable Draw Down Notice.


Section 1.33.      “NASD” means the
National Association of Securities Dealers, Inc.


Section 1.34.      “Permitted Transaction”
shall have the meaning assigned to such term in Section 6.07 hereof.



 4
 






 



Section 1.35.      “Person” means any
individual, corporation, partnership, limited liability company, association,
trust or other entity or organization, including any government or political
subdivision or an agency or instrumentality thereof.


Section 1.36.      “Principal Market”
means the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
Capital Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the
Common Stock.


Section 1.37.      “Prohibited Transaction”
shall have the meaning assigned to such term in Section 6.08 hereof.


Section 1.38.      “Prospectus” as used
in this Agreement means the prospectus in the form included in the Registration
Statement, as supplemented from time to time pursuant to Rule 424(b) of
the Securities Act.


Section 1.39.      “Registrable Securities”
means (i) the Shares, (ii) the Warrant Shares, and (iii) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.  As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the Commission and such Registrable Securities have been disposed
of pursuant to the Registration Statement, (x) such Registrable Securities
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act (“Rule
144”) are met, (y) such time as such Registrable Securities have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive
legend or (z) in the opinion of inside or outside counsel to the Company
such Registrable Securities may be sold without registration and without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.


Section 1.40.      “Registration Rights
Agreement” shall have the meaning set forth in the recitals of this
Agreement.


Section 1.41.      “Registration Statement”
shall have the meaning assigned to such term in the Registration Rights
Agreement.


Section 1.42.      “Regulation D” shall
have the meaning set forth in the recitals of this Agreement.


Section 1.43.      “Section 4(2)” shall
have the meaning set forth in the recitals of this Agreement.


Section 1.44.      “Securities Act”
shall have the meaning set forth in the recitals of this Agreement.


Section 1.45.      “Settlement Date”
shall have the meaning assigned to such term in Section 3.05 hereof.



 5
 






 



Section 1.46.      “Shares” means the
shares of Common Stock of the Company that are and/or may be purchased
hereunder.


Section 1.47.      “Trading Day” means
any day other than a Saturday or a Sunday on which the Principal Market is open
for trading in equity securities.


Section 1.48.      “VWAP” means the
volume weighted average price (the aggregate sales price of all trades of
Common Stock during each Trading Day divided by the total number of shares of
Common Stock traded during such Trading Day) of the Common Stock during any
Trading Day as reported by Bloomberg, L.P. using the AQR function.


Section 1.49.      “Warrant” shall have
the meaning set forth in the recitals of this Agreement.


Section 1.50.      “Warrant Shares”
means the shares of Common Stock issuable to the Investor upon exercise of the
Warrant.


ARTICLE
II



PURCHASE
AND SALE OF COMMON STOCK


Section 2.01.      Purchase and Sale of
Stock.  Upon the terms and subject to
the conditions set forth in this Agreement, the Company shall, to the extent it
elects to make Draw Downs in accordance with Article III hereof, issue and
sell to the Investor and the Investor shall purchase from the Company Common
Stock for an aggregate in Draw Down Amounts of up to the Maximum Commitment
Amount, consisting of purchases based on Draw Downs in accordance with Article III
hereof.


Section 2.02.      Closing.  In consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Company agrees to issue and sell to the Investor, and the
Investor agrees to purchase from the Company, that number of the Shares to be
issued in connection with each Draw Down. 
The execution and delivery of this Agreement (the “Closing”)
shall take place on November 2, 2006 (the “Closing Date”).  Each party shall deliver at or prior to the
Closing all documents, instruments and writings required to be delivered at the
Closing by such party pursuant to this Agreement.


Section 2.03.      Registration Statement
and Prospectus.  The Company shall
prepare and file with the Commission the Registration Statement (including the
Prospectus) in accordance with the provisions of the Securities Act and the
Registration Rights Agreement.


Section 2.04.      Warrant.  On the Closing Date, the Company shall issue
and deliver the Warrant to the Investor.


Section 2.05.      Blackout Shares.  The Company shall deliver any Blackout Amount
or issue and deliver any Blackout Shares to the Investor in accordance with
Section 1(e) of the Registration Rights Agreement.



 6
 






 



ARTICLE
III



DRAW
DOWN TERMS


Subject to the satisfaction of the conditions
hereinafter set forth in this Agreement, the parties agree as follows:


Section 3.01.      Draw Down Notice.  During the Commitment Period, the Company
may, in its sole discretion, issue a Draw Down Notice (defined below)
specifying the dollar amount of Shares it elects to sell to the Investor (each
such election a “Draw Down”) up to a Draw Down Amount equal to the
Maximum Draw Down Amount, which Draw Down the Investor will be obligated to
accept.  The Company shall inform the
Investor in writing via e-mail to the addresses set forth in Section 10.04 and
via facsimile transmission to the number set forth in Section 10.04, with a
copy to the Investor’s counsel, as to such Draw Down Amount before commencement
of trading on the first Trading Day of the related Draw Down Pricing Period
(the “Draw Down Notice”).  In
addition to the Draw Down Amount, each Draw Down Notice shall designate the
first Trading Day of the Draw Down Pricing Period.  In no event shall any Draw Down Amount exceed
the Maximum Draw Down Amount.  Each Draw
Down Notice shall be accompanied by a certificate, signed by the Chief
Executive Officer or Chief Financial Officer and dated as of the date of such
Draw Down Notice, in the form of Exhibit C hereof.


Section 3.02.      Number of Shares.  Subject to Section 3.06(b), the number
of Shares to be issued in connection with each Draw Down shall be equal to the
sum of the number of shares issuable on each Trading Day of the Draw Down
Pricing Period.  Subject to Section
3.06(b), the number of Shares issuable on a Trading Day during a Draw Down
Pricing Period shall be equal to the quotient of one eighth (1/8th) of the Draw Down Amount divided by the
Draw Down Discount Price for such Trading Day.


Section 3.03.      Limitation on Draw Downs.  Only one Draw Down shall be permitted for
each Draw Down Pricing Period.


Section 3.04.      Trading Cushion.  Unless the parties agree in writing
otherwise, there shall be a minimum of three (3) Trading Days between the
expiration of any Draw Down Pricing Period and the beginning of the next
succeeding Draw Down Pricing Period.


Section 3.05.      Settlement.  Subject to Section 3.06(b), the number of
Shares purchased by the Investor in any Draw Down shall be determined and
settled no later than the second Trading Day after the last Trading Day of such
Draw Down Pricing Period.  Each date on
which settlement of the purchase and sale of Shares occurs hereunder is
referred to herein as a “Settlement Date.”  The Investor shall provide the Company with
delivery instructions for the Shares to be issued at each Settlement Date at
least two Trading Days in advance of such Settlement Date.  The number of Shares actually issued shall be
rounded to the nearest whole number of Shares.


Section 3.06.      Delivery of Shares;
Payment of Draw Down Amount.


(a)   On each Settlement Date, the
Company shall deliver the Shares purchased by the Investor to the Investor or
its designees exclusively via book-entry through the DTC to an account
designated by the Investor, and upon receipt of the Shares, the Investor shall
cause payment therefor to be made to the Company’s designated account by wire
transfer of immediately available funds, if the Shares are received by the
Investor no later than 12:00 p.m.



 7
 






 



(Eastern Time), or next day available funds, if the
Shares are received thereafter.  Upon the
written request of the Company, the Investor will cause its banker to confirm
to the Company that the Investor has provided irrevocable instructions to cause
payment for the Shares to be made as set forth above, upon confirmation by such
banker that the Shares have been delivered through the DTC in unrestricted
form.


(b)   For each Trading Day during a
Draw Down Pricing Period that the VWAP is less than the greater of (i) 90% of
the Closing Price of the Company’s Common Stock on the Trading Day immediately
preceding the commencement of such Draw Down Pricing Period, or
(ii) $2.25, such Trading Day shall not be used in calculating the number
of Shares to be issued in connection with such Draw Down, and the Draw Down Amount
in respect of such Draw Down Pricing Period shall be reduced by one eighth (1/8th) of the initial Draw Down
Amount specified in the Draw Down Notice. 
If trading in the Company’s Common Stock is suspended for any reason for
more than three (3) consecutive or non-consecutive hours during any Trading Day
during a Draw Down Pricing Period, such Trading Day shall not be used in
calculating the number of Shares to be issued in connection with such Draw
Down, and the Draw Down Amount in respect of such Draw Down Pricing Period
shall be reduced by one eighth (1/8th) of the initial Draw Down Amount
specified in the Draw Down Notice.


Section 3.07.      Failure to Deliver Shares.  If
the Company fails, on any Settlement Date, to take all actions within its
reasonable control to cause the delivery of the Shares purchased by the
Investor, and such failure is not cured within two (2) Trading Days following
such Settlement Date, the Company shall pay to the Investor on demand in cash
by wire transfer of immediately available funds to an account designated by the
Investor the “Make Whole Amount;” provided, however, that
in the event that the Company is prevented from delivering Shares in respect of
any such Settlement Date in a timely manner by any fact or circumstance that is
reasonably within the control of, or directly attributable to, the Investor,
then such two (2) Trading Day period shall be automatically extended until such
time as such fact or circumstance is cured. 
As used herein, the Make Whole Amount shall be an amount equal to the
sum of (i) the Draw Down Amount actually paid by the Investor in respect of
such Shares plus (ii) an amount equal to the actual loss suffered by the
Investor in respect of sales to subsequent purchasers, pursuant to transactions
entered into before the Settlement Date, of the Shares that were required to be
delivered by the Company, which shall be based upon documentation reasonably
satisfactory to the Company demonstrating the difference (if greater than zero)
between (A) the price per share paid by the Investor to purchase such number of
shares of Common Stock necessary for the Investor to meet its share delivery
obligations to such subsequent purchasers minus (B) the average Draw Down
Discount Price during the applicable Draw Down Pricing Period.  In the event that the Make Whole Amount is
not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a
rate of LIBOR plus 300 basis points per annum, up to and including the date on
which the Make Whole Amount is actually paid. 
Notwithstanding anything to the contrary set forth in this Agreement, in
the event that the Company pays the Make Whole Amount (plus interest, if applicable)
in respect of any Settlement Date in accordance with this Section 3.07, such
payment shall be the Investor’s sole remedy in respect of the Company’s failure
to deliver Shares in respect of such Settlement Date, and the Company shall not
be obligated to deliver such Shares.


ARTICLE
IV



REPRESENTATIONS
AND WARRANTIES OF THE COMPANY


The Company hereby makes the following representations
and warranties to the Investor:



 8
 






 



Section 4.01.      Organization, Good
Standing and Power.  The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted.  Except as set forth in the
Commission Documents (as defined below), as of the date hereof the Company does
not own more than fifty percent (50%) of the outstanding capital stock of or
control any other business entity, other than any wholly-owned subsidiary that
is not “significant” within the meaning of Regulation S-X promulgated by the
Commission.  The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify or be in good standing would not have a Material Adverse
Effect.


Section 4.02.      Authorization;
Enforcement.  (i) The Company
has the requisite corporate power and authority to enter into and perform its obligations
under this Agreement, the Registration Rights Agreement and the Warrant and to
issue the Shares, the Warrant, the Warrant Shares and any Blackout Shares
(except to the extent that the number of Blackout Shares required to be issued
exceeds the number of authorized shares of Common Stock under the Certificate);
(ii) the execution and delivery of this Agreement and the Registration
Rights Agreement, and the execution, issuance and delivery of the Warrant, by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required (other than as contemplated by Section 6.05); and
(iii) each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered, and the Warrant has been duly executed,
issued and delivered, by the Company and constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, securities, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors’ rights and remedies, or
indemnification or by other equitable principles of general application.


Section 4.03.      Capitalization.  The authorized capital stock of the Company
and the shares thereof issued and outstanding as of June 30, 2006 are set forth
in the Commission Documents.  All of the
outstanding shares of the Common Stock as of June 30, 2006 have been duly and
validly authorized and issued, and are fully paid and non-assessable.  Except as set forth in this Agreement or in
the Commission Documents, as of June 30, 2006 no shares of Common Stock were
entitled to preemptive rights or registration rights, and there were no
outstanding options, warrants, scrip, rights issued by the Company to subscribe
to, call or commitments of any character whatsoever issued by the Company
relating to, or securities or rights convertible into or exchangeable for or
giving any right to subscribe for, any shares of capital stock of the
Company.  Except as set forth in this
Agreement or in the Commission Documents, as of June 30, 2006 there were no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into or exchangeable for
or giving any right to subscribe for any shares of capital stock of the
Company.  Except as described in the
Commission Documents, as of the date hereof the Company is not a party to any
agreement granting registration rights to any Person with respect to any of its
equity or debt securities.  Except as set
forth in the Commission Documents or as previously disclosed to the Investor in
writing, as of the date hereof the Company is not a party to, and it has no
Knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company.  The
offer and sale of all capital stock, convertible securities, rights, warrants,
or options of the Company issued during the twelve month period immediately prior
to the Closing complied in all material respects with all applicable federal
and state securities laws, and no stockholder has a right of rescission or



 9
 






 



damages with respect thereto that could reasonably be
expected to have a Material Adverse Effect. 
The Company has furnished or made available to the Investor true and
correct copies of the Amended and Restated Certificate of Incorporation of the
Company, as amended, as in effect on the date hereof (the “Certificate”),
and the Amended and Restated Bylaws of the Company, as amended, as in effect on
the date hereof (the “Bylaws”).


Section 4.04.      Issuance of Shares.  Subject to Section 6.05, the Shares, the
Warrant and the Warrant Shares have been, and any Blackout Shares will be, duly
authorized by all necessary corporate action (except to the extent that the
number of Blackout Shares required to be issued exceeds the number of
authorized shares of Common Stock under the Certificate) and, when issued and
paid for in accordance with the terms of this Agreement, the Registration
Rights Agreement and the Warrant, the Shares and the Warrant Shares shall be
validly issued and outstanding, fully paid and non-assessable, and the Investor
shall be entitled to all rights accorded to a holder of shares of Common Stock.


Section 4.05.      No Conflicts.  The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby or thereby, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not:  (i) violate any provision
of the Certificate or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party where such default or conflict would constitute a Material
Adverse Effect, (iii) create or impose a lien, charge or encumbrance on
any property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound which would constitute a Material
Adverse Effect, (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, writ, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
any of its Consolidated Subsidiaries or by which any property or asset of the
Company or any of its Consolidated Subsidiaries are bound or affected where
such violation would constitute a Material Adverse Effect, or (v) require any consent
of any third party that has not been obtained pursuant to any material contract
to which the Company is subject or to which any of its assets, operations or
management may be subject where the failure to obtain any such consent would
constitute a Material Adverse Effect. 
The Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant Shares or the Blackout Shares (except to the extent that the number of
Blackout Shares required to be issued exceeds the number of authorized shares
of Common Stock under the Certificate) in accordance with the terms hereof and
thereof (other than any filings that may be required to be made by the Company
with the Commission, the NASD/Nasdaq or state securities commissions subsequent
to the Closing, and, any registration statement (including any amendment or
supplement thereto) which may be filed pursuant hereto); provided that,
for purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.


Section 4.06.      Commission Documents,
Financial Statements.  The Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
since June 15, 2004, the Company has timely filed all reports, schedules,
forms, statements and other documents required



 10
 






 



to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing, including
any such reports, schedules, forms, statements and other documents filed after
the date hereof, and the Company’s Registration Statement on Form S-3 as filed
with the Commission on February 3, 2006, including filings incorporated by
reference in any such filings, being referred to herein as the “Commission
Documents”).  Except as previously
disclosed to the Investor in writing, since June 15, 2004, the Company has
maintained all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the Nasdaq
Global Market.  To the extent not
available on the Commission’s EDGAR filing system, the Company has made
available to the Investor true and complete copies of the Commission Documents
filed with the Commission since January 1, 2006, and prior to the Closing
Date.  The Company has not provided to
the Investor any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement.  As of its date, the Company’s
Form 10-K for the year ended December 31, 2005 complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder applicable to such
document, and, as of its date, after giving effect to the information disclosed
and incorporated by reference therein, such Form 10-K did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial
statements of the Company included in the Commission Documents filed with the
Commission since June 15, 2004, complied as to form and substance in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such
financial statements have been prepared in accordance with generally accepted
accounting principles (“GAAP”) applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its Consolidated Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).


Section 4.07.      No Material Adverse
Change.  Except as disclosed in the
Commission Documents, since June 30, 2006 no event or series of events has or
have occurred that would, individually or in the aggregate, have a Material
Adverse Effect on the Company.


Section 4.08.      No Undisclosed
Liabilities.  Neither the Company nor
any of its Consolidated Subsidiaries has any liabilities, obligations, claims
or losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) that would be required to be disclosed on a
balance sheet of the Company or any Consolidated Subsidiary (including the
notes thereto) in conformity with GAAP and are not disclosed in the Commission
Documents, other than those incurred in the ordinary course of the Company’s or
its Consolidated Subsidiaries respective businesses since June 30, 2006, or
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.


Section 4.09.      No Undisclosed Events or
Circumstances.  To the Company’s
Knowledge, no event or circumstance has occurred or exists with respect to the
Company or its Consolidated Subsidiaries or their respective businesses,
properties, operations or financial condition, which, under applicable law,
rule or regulation, requires public disclosure or



 11
 






 



announcement by the Company but which has not been so
publicly announced or disclosed and which, individually or in the aggregate,
would have a Material Adverse Effect on the Company.


Section 4.10.      Actions Pending.  There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any Consolidated Subsidiary which questions
the validity of this Agreement or the transactions contemplated hereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth in
the Commission Documents, there is no action, suit, claim, investigation or proceeding
pending or, to the Knowledge of the Company, threatened against or involving
the Company, any Consolidated Subsidiary or any of their respective properties
or assets that could be reasonably expected to have a Material Adverse Effect
on the Company.  Except as set forth in
the Commission Documents or as previously disclosed to the Investor in writing,
no judgment, order, writ, injunction or decree or award has been issued by or,
to the Knowledge of the Company, requested of any court, arbitrator or
governmental agency which could be reasonably expected to result in a Material
Adverse Effect.


Section 4.11.      Compliance with Law.  The businesses of the Company and its
Consolidated Subsidiaries have been and are presently being conducted in
accordance with all applicable federal, state and local governmental laws,
rules, regulations and ordinances, except as set forth in the Commission
Documents or such that would not reasonably be expected to cause a Material
Adverse Effect.  Except as set forth in
the Commission Documents, the Company and each of its Consolidated Subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it, except for such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, the failure to possess which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.


Section 4.12.      Certain Fees.  Except as expressly set forth in this
Agreement, no brokers, finders or financial advisory fees or commissions will
be payable by the Company or any of its Consolidated Subsidiaries in respect of
the transactions contemplated by this Agreement.


Section 4.13.      Disclosure.  To the Company’s Knowledge, neither this
Agreement nor any other documents, certificates or instruments furnished to the
Investor by or on behalf of the Company or any Consolidated Subsidiary in
connection with the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Warrant contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under
which they were made herein or therein, not misleading.


Section 4.14.      Material Non-Public
Information.  Except for this
Agreement and the transactions contemplated hereby, neither the Company, nor
its employees nor its agents have disclosed to the Investor, any material
non-public information that, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company prior to the date hereof but
which has not been so disclosed.


Section 4.15.      Exemption from
Registration; Valid Issuances. 
Subject to, and in reliance on the representations, warranties and
covenants made herein by the Investor, the issuance and sale of the Shares, the
Warrant, the Warrant Shares and any Blackout Shares in accordance with the
terms and on the bases of the representations and warranties set forth in this
Agreement, may and shall be properly issued pursuant to Section 4(2),
Regulation D and/or any



 12
 






 



other applicable federal and state securities laws; provided, however, that at the request of and with the
express agreement of the Investor, the Shares and, under certain circumstances,
the Warrant Shares, will be delivered to the Investor via book entry through
DTC and shall not bear legends noting restrictions as to resale of such shares
under federal and state securities laws, nor shall such shares be subject to
stop transfer instructions.  Neither the
sales of the Shares, the Warrant, the Warrant Shares or any Blackout Shares
pursuant to, nor the Company’s performance of its obligations under, this
Agreement, the Registration Rights Agreement, or the Warrant shall
(i) result in the creation or imposition of any liens, charges, claims or
other encumbrances upon the Shares, the Warrant Shares, any Blackout Shares or
any of the assets of the Company, or (ii) except as previously disclosed
to the Investor in writing, entitle the holders of any outstanding shares of
capital stock of the Company to preemptive or other rights to subscribe to or
acquire the shares of Common Stock or other securities of the Company.  The Shares, the Warrant Shares and any
Blackout Shares shall not subject the Investor to personal liability to the
Company, its officers, directors, employees or stockholders simply by reason of
the Investor’s ownership thereof.


Section 4.16.      No General Solicitation
or Advertising in Regard to this Transaction.  Neither the Company nor any of its affiliates
or any person acting on its or their behalf (i) has conducted any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Shares, the Warrant, the Warrant Shares
or any Blackout Shares or (ii) has made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Shares under the Securities Act.


Section 4.17.      No Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement and employee benefit
plans, under circumstances that would require registration under the Securities
Act of shares of the Common Stock issuable hereunder with any other offers or
sales of securities of the Company.


Section 4.18.      Acknowledgment Regarding
Investor’s Purchase of Shares.  The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm’s length investor with respect to this Agreement and the
transactions contemplated hereunder.  The
Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereunder, and that any
advice given by the Investor or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereunder is
merely incidental to the Investor’s purchase of the Shares.


ARTICLE
V


REPRESENTATIONS,
WARRANTIES AND COVENANTS OF THE INVESTOR


The Investor hereby makes the following
representations, warranties and covenants to the Company:


Section 5.01.      Organization and Standing
of the Investor.  The Investor is a
company duly organized, validly existing and in good standing under the laws of
the British Virgin Islands.



 13
 






 



Section 5.02.      Authorization and Power.  The Investor has the requisite power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and the Warrant and to purchase the Shares, the
Blackout Shares, the Warrant and the Warrant Shares in accordance with the
terms hereof and thereof.  The execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by the Investor and the consummation by it of the transactions
contemplated hereby or thereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Investor, its
Board of Directors or stockholders is required. 
Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Investor and constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting
generally the enforcement of creditor’s rights and remedies or by other
equitable principles of general application.


Section 5.03.      No Conflicts.  The execution, delivery and performance of
this Agreement, the Warrant, the Registration Rights Agreement and any other
document or instrument contemplated hereby, by the Investor and the
consummation of the transactions contemplated thereby do not (i) violate
any provision of the Investor’s charter documents or bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Investor is a party,
(iii) create or impose a lien, charge or encumbrance on any property of
the Investor under any agreement or any commitment to which the Investor is a
party or by which the Investor is bound or by which any of its respective
properties or assets are bound, (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, writ, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Investor or by which any property or asset of the Investor are bound or
affected, or (v) require the consent of any third-party that has not been
obtained pursuant to any material contract to which Investor is subject or to
which any of its assets, operations or management may be subject.  The Investor is not required under federal,
state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement or to purchase the Shares or the Warrant
in accordance with the terms hereof, provided that, for purposes of the
representation made in this sentence, the Investor is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.


Section 5.04.      Financial Capability.  The Investor has the financial capability to
perform all of its obligations under this Agreement, including the capability
to purchase the Shares, the Warrant and the Warrant Shares in accordance with
the terms hereof.  The Investor has such
knowledge and experience in business and financial matters that it is capable
of evaluating the merits and risks of an investment in Common Stock and the
Warrant.  The Investor is an “accredited
investor” as defined in Regulation D. 
The Investor is a “sophisticated investor” as described in Rule
506(b)(2)(ii) of Regulation D.  The
Investor acknowledges that an investment in the Common Stock and the Warrant is
speculative and involves a high degree of risk.


Section 5.05.      Information.  The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares, the Blackout Shares, the Warrant and the Warrant



 14
 






 



Shares which have been requested by the Investor.  The Investor has reviewed or received copies
of the Commission Documents. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company.  The Investor has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Shares, the Warrant and
the Warrant Shares.  The Investor
understands that it (and not the Company) shall be responsible for its own tax
liabilities that may arise as a result of this investment or the transactions
contemplated by this Agreement.


Section 5.06.      Selling Restrictions.  The Investor covenants that during the
Commitment Period, neither the Investor nor any of its affiliates nor any
entity managed or controlled by the Investor will ever enter into or execute or
cause any Person to enter into or execute any “short sale” (as such term is
defined in Rule 200 of Regulation SHO promulgated by the Commission under the
Exchange Act or any successor regulation) of any shares of Common Stock.


Section 5.07.      Statutory Underwriter
Status.  The Investor acknowledges
that, pursuant to the Commission’s current interpretations of the Securities
Act, the Investor will be disclosed as an “underwriter” within the meaning of
the Securities Act in the Registration Statement (and amendments thereto) and
in any Prospectus contained therein to the extent required by applicable
law.  The Company acknowledges that the
Investor does not necessarily agree with such characterization.


Section 5.08.      Not an Affiliate.  The Investor is not an officer, director or “affiliate”
(as defined in Rule 405 of the Securities Act) of the Company.


Section 5.09.      Manner of Sale.  At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising by or on
behalf of the Company.


Section 5.10.      Prospectus Delivery.  The Investor agrees that unless the Shares,
the Warrant Shares and the Blackout Shares are eligible for resale pursuant to
all the conditions of Rule 144, it will resell the Shares, the Warrant Shares
and the Blackout Shares only pursuant to the Registration Statement, in a
manner described under the caption “Plan of Distribution” in the Registration
Statement, and in a manner in compliance with all applicable securities laws,
including, without limitation, the insider trading restrictions of the Exchange
Act and the prospectus delivery requirements of the Securities Act, if any, as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement, and the Investor shall have delivered a current
prospectus in connection with such sale or shall have confirmed that a current
prospectus is deemed to be delivered in connection with such sale, or relied on
an exemption from such prospectus delivery requirements. The Investor,
acknowledges that the delivery of the Shares, the Warrant Shares or the
Blackout Shares through DTC is predicated upon the Company’s reliance that the
Investor will sell any Shares, Warrant Shares or Blackout Shares pursuant to
either (i) the registration requirements of the Securities Act, or
(ii) an exemption therefrom. The Investor further acknowledges and agrees
that the Company shall be under no obligation to supplement the Prospectus to
reflect the issuance of any Shares pursuant to a Draw Down at any time prior to
the day following the Settlement Date with respect to such Shares.



 15














 


ARTICLE
VI



COVENANTS
OF THE COMPANY


The Company covenants with the Investor as follows,
which covenants are for the benefit of the Investor and its permitted assignees
(as defined herein):


Section 6.01.          Securities.  The Company shall notify the Commission and
the Principal Market, if and as applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall use
commercially reasonable efforts to take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares, the Warrant Shares
and the Blackout Shares, if any, to the Investor; provided, that in no
event shall the Company be under any obligation to supplement the Prospectus to
reflect the issuance of any Shares pursuant to a Draw Down at any time prior to
the day following the Settlement Date with respect to such Shares.


Section 6.02.          Reservation of Common Stock.  As of the date hereof, the Company has available
and the Company shall reserve and keep available at all times, free of
preemptive rights and other similar contractual rights of stockholders, shares
of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue the Shares in connection with all Draw Downs contemplated
hereunder and the Warrant Shares.  The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares
actually delivered hereunder.


Section 6.03.          Registration and Listing.  During the Commitment Period, the Company
shall use commercially reasonable efforts: 
(i) to take all action necessary to cause its Common Stock to
continue to be registered under Section 12(b) or 12(g) of the Exchange
Act, (ii) to comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) to prevent the termination or
suspension of such registration, or the termination or suspension of its
reporting and filing obligations under the Exchange Act or Securities Act
(except as expressly permitted herein). 
The Company shall use commercially reasonable efforts to maintain the
listing and trading of its Common Stock and the listing of the Shares purchased
by Investor hereunder on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all material
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market. The Company will not be
required to carry out any action pursuant to this Agreement, the Registration
Rights Agreement or the Warrant that would adversely impact the listing of the
Company’s securities on the Principal Market as now in effect or as
subsequently modified by applicable rules and regulations.


Section 6.04.          Registration Statement.  Without the prior written consent of the
Investor, the Registration Statement shall be used solely in connection with
the transactions between the Company and the Investor contemplated hereby.


Section 6.05.          Compliance with Laws.


(a)   The Company shall comply, and cause each
Consolidated Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could reasonably be expected to have a
Material Adverse Effect.


(b)   Without the consent of its stockholders in
accordance with NASD rules, the Company will not be obligated to issue, and the
Investor will not be obligated to purchase, any



 16
 






 



Shares or Blackout Shares which would result in the
issuance under this Agreement, the Warrant and the Registration Rights
Agreement of Shares, Warrant Shares and Blackout Shares (collectively)
representing more than the applicable percentage under the rules of the NASD,
including, without limitation, NASD Rule 4350(i), that would require
stockholder approval of the issuance thereof. 
Nothing herein shall compel the Company to seek such consent of its
stockholders.


Section 6.06.          Reporting Requirements.  Upon reasonable written request of the
Investor during the Commitment Period, the Company shall furnish copies of the
following to the Investor within three Business Days of such request (but not
sooner than filed with or submitted to the Commission):


(a)   Quarterly Reports on Form 10-Q;


(b)   Annual Reports on Form 10-K;


(c)   Current Reports on Form 8-K; and


(d)   any other documents publicly submitted to the
Commission.


Section 6.07.          Other Financing.  Nothing in this Agreement shall be construed
to restrict the right of the Company to offer, sell and/or issue securities of
any kind whatsoever, provided such transaction is not a Prohibited Transaction
(as defined below) (any such transaction that is not a Prohibited Transaction
is referred to in this Agreement as a “Permitted Transaction”).  Without limiting the generality of the
preceding sentence, the Company may, without the prior written consent of the
Investor, (i) establish stock option, restricted stock, stock purchase or other
equity incentive or award plans or agreements (for directors, employees,
consultants and/or advisors), and issue securities thereunder, and amend such
plans or agreements, including increasing the number of shares available
thereunder, (ii) issue equity securities to finance, or otherwise in connection
with, the acquisition, license or sale of one or more other companies,
equipment, technologies or lines of business, (iii) issue shares of Common
Stock and/or Preferred Stock in connection with the Company’s option,
restricted stock or other equity incentive or award plans, stock purchase
plans, rights plans, warrants or options, (iv) issue shares of Common Stock
and/or Preferred Stock in connection with the acquisition of products,
licenses, equipment or other assets and strategic partnerships or joint
ventures; (v) issue shares of Common and/or Preferred Stock to consultants
and/or advisors as consideration for services rendered or to be rendered, (vi)
issue and sell equity or debt securities in a public offering, (vii) issue and
sell any equity or debt securities in a private placement (other than in
connection with any Prohibited Transaction), (viii) issue equity securities to
equipment lessors, equipment vendors, banks or similar lending institutions in
connection with leases or loans, or in connection with strategic commercial or
licensing transactions, (ix) issue securities in connection with any stock
split, stock dividend, recapitalization, reclassification or similar event by
the Company, and (x) issue shares of Common Stock to the Investor under any
other agreement entered into between the Investor and the Company.


Notwithstanding the foregoing, other than in the
ordinary course of the Company’s business, the Company shall not engage in any
Permitted Transaction involving the issuance, sale, disposition or other transaction
in the capital markets (whether public or private) involving the Common Stock
or any other capital or debt securities of the Company during any Draw Down
Pricing Period.  Notwithstanding the
foregoing, during any Draw Down Pricing Period, the Company shall have the
right to issue stock options and/or shares of Common Stock and/or



 17
 






 



Preferred Stock in connection with the Company’s
option, restricted stock or other equity incentive or award plans, stock
purchase plans, rights plans or upon the exercise of warrants or options in the
ordinary course of the Company’s business.


Section 6.08.          Prohibited Transactions.  During the term of this Agreement, the
Company shall not enter into any Prohibited Transaction without the prior
written consent of the Investor, which consent may be withheld in the sole and
absolute discretion of the Investor. For the purposes of this Agreement, the
term “Prohibited Transaction” shall refer to: (i) the issuance by the
Company of any rights, warrants or options to subscribe for or purchase Common
Stock, or any other securities directly or indirectly convertible into or
exchangeable or exercisable for Common Stock, at an effective conversion,
exchange or exercise price that varies or may vary with or is otherwise
issuable in relation to the market price of Common Stock, including by way of
one or more resets to any fixed price; (ii) any “at-the-market offering” (as
defined in Rule 415(a)(4) under the Securities Act or any successor rule
thereto) of the Company’s securities by or on behalf of the Company; and (iii)
any equity line or other form of financing that is substantially similar to the
financing provided for under this Agreement, provided that any future issuance
by the Company of a convertible security (“Convertible Security”) that
contains provisions that adjust the conversion price of such Convertible
Security (“Conversion Price”) in the event of stock splits, dividends,
distributions or similar events or pursuant to anti-dilution provisions shall
not be a Prohibited Transaction for purposes of this Section 6.08 so long as
such Convertible Security does not contain a provision that adjusts the
Conversion Price as a result of any decline in the market price of the Common
Stock after the issue date of the Convertible Security, other than a decline
resulting directly from stock splits, dividends, distributions or similar
events including, without limitation, the type of conversion price adjustments
customarily found in a firm commitment Rule 144A offering to qualified
institutional buyers.  For the avoidance
of confusion, the term “Prohibited Transaction” shall not include (i) a
customary, firm-commitment underwritten public offering of the Company’s
securities or (ii) a registered direct public offering or an unregistered
private placement of the Company’s securities where the price per share of such
securities is fixed concurrently with the execution of definitive documentation
relating to the offering or placement, as applicable.


Section 6.09.          Corporate Existence. The
Company shall take all steps necessary to preserve and continue the corporate
existence of the Company; provided, however, that nothing in this
Agreement shall be deemed to prohibit the Company from engaging in any Excluded
Merger or Sale with another Person provided that in the event of an Excluded
Merger or Sale, if the surviving, successor or purchasing Person does not agree
to assume the obligations under the Warrant, then the Company shall deliver a
notice to the Investor at least ten (10) days before the consummation of such
Excluded Merger or Sale (provided that, to the extent that such transaction has
not been publicly disclosed, then the Investor agrees to maintain the
confidentiality of such information and to use such information only in
connection with a decision to exercise the Warrant), the Investor may exercise
the Warrant at any time before the consummation of such Excluded Merger or Sale
(and such exercise may be made contingent upon the consummation of such
Excluded Merger or Sale), and any portion of the Warrant that has not been
exercised before consummation of such Excluded Merger or Sale shall terminate
and expire, and shall no longer be outstanding.


Section 6.10.          Non-Disclosure of Non-Public
Information.  Except as otherwise
expressly provided in this Agreement, including Section 6.09 hereof, the
Registration Rights Agreement or the Warrant, none of the Company, its
officers, directors, employees nor agents shall disclose material non-public
information to the Investor, its advisors or representatives.



 18
 






 



Section 6.11.          Notice of Certain Events Affecting
Registration; Suspension of Right to Request a Draw Down.  The Company shall promptly notify the
Investor upon the occurrence of any of the following events in respect of the
Registration Statement or the Prospectus related to the offer, issuance and
sale of the Shares and the Warrant Shares hereunder:  (i) receipt of any request for
additional information by the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or the Prospectus;
(ii) the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
and (iii) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.  The Company
shall not be required to disclose to the Investor the substance or specific
reasons of any of the events set forth in clauses (i) through (iii) of the
previous sentence, only that the event has occurred. The Company shall not
request a Draw Down during the continuation of any of the foregoing events.


Section 6.12.          Amendments to the Registration
Statement.  When the Registration
Statement is declared effective by the Commission, the Company shall (i) not
file any amendment to the Registration Statement or make any amendment or
supplement to the Prospectus of which the Investor shall not previously have
been advised or to which the Investor shall reasonably object in writing after
being so advised; provided, however, that the Company shall, to
the extent it deems advisable, and without the prior consent of or notice to
Investor, supplement the Prospectus within one Trading Day following the
Settlement Date for each Draw Down solely to reflect the issuance of Shares
with respect to such Draw Down and (ii) so long as, in the reasonable
opinion of counsel for the Investor, a Prospectus is required to be delivered
in connection with sales of the Shares by the Investor, if the Company files
any information, documents or reports that are incorporated by reference in the
Registration Statement pursuant to the Exchange Act, the Company shall, if
requested in writing by the Investor, deliver a copy of such information,
documents or reports to the Investor promptly following such filing.


Section 6.13.          Prospectus Delivery.  From time to time for such period as in the
reasonable opinion of counsel for the Investor a prospectus is required by the
Securities Act to be delivered in connection with sales by the Investor, the
Company will expeditiously deliver to the Investor, without charge, as many
copies of the Prospectus (and of any amendment or supplement thereto) as the
Investor may reasonably request.  The
Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Securities Act and
state securities laws in connection with the offering and sale of the Shares
and the Warrant Shares and for such period of time thereafter as the Prospectus
is required by the Securities Act to be delivered in connection with sales of
the Shares and the Warrant Shares. 
Notwithstanding the foregoing, in no event shall the Company be under
any obligation to supplement the Prospectus or to reflect the issuance of any
Shares pursuant to a Draw Down or deliver any Prospectus as so supplemented at
any time prior to the Trading Day following the Settlement Date with respect to
such Shares.  Notwithstanding the
foregoing, in no event shall the Company be under any obligation to supplement
the Prospectus or to reflect the issuance of any Shares pursuant to a Draw Down
or deliver any Prospectus as so supplemented at any time prior to the Trading
Day following the Settlement Date with respect to such Shares.



 19
 






 



ARTICLE
VII



CONDITIONS
TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN


The obligation of the Investor hereunder to accept a
Draw Down Notice and to acquire and pay for the Shares in accordance therewith
is subject to the satisfaction or waiver, at each Condition Satisfaction Date,
of each of the conditions set forth below. 
Other than those conditions set forth in Section 7.12 which are for
the Company’s sole benefit and may be waived by the Company at any time in its
sole discretion, the conditions are for the Investor’s sole benefit and may be
waived by the Investor at any time in its sole discretion.  As used in this Agreement, the term “Condition
Satisfaction Date” shall mean, with respect to each Draw Down, the date on
which the applicable Draw Down Notice is delivered to the Investor and each
Settlement Date in respect of the applicable Draw Down Pricing Period.


Section 7.01.          Accuracy of the Company’s
Representations and Warranties.  Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made as though made at that time
except for representations and warranties that are expressly made as of a
particular date.


Section 7.02.          Performance by the Company.  The Company shall have, in all material
respects, performed, satisfied and complied with all covenants, agreements and
conditions required by this Agreement, the Registration Rights Agreement and
the Warrant to be performed, satisfied or complied with by the Company.


Section 7.03.          Compliance with Law.  The Company shall have complied in all
respects with all applicable federal, state and local governmental laws, rules,
regulations and ordinances in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby except for any failures to so comply which could not
reasonably be expected to have a Material Adverse Effect.


Section 7.04.          Effective Registration Statement.  Upon the terms and subject to the conditions
set forth in the Registration Rights Agreement, the Registration Statement
shall have previously become effective and shall remain effective and
(i) neither the Company nor the Investor shall have received notice that
the Commission has issued or intends to issue a stop order with respect to the
Registration Statement or that the Commission otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily
or permanently, or intends or has threatened to do so (unless the Commission’s
concerns have been addressed and the Investor is reasonably satisfied that the
Commission no longer is considering or intends to take such action), and
(ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or the Prospectus shall exist.


Section 7.05.          No Knowledge.  The Company shall have no Knowledge of any
event that could reasonably be expected to have the effect of causing the
Registration Statement with respect to the resale of the Registrable Securities
by the Investor to be suspended or otherwise ineffective (which event is more
likely than not to occur within eight Trading Days following the Trading Day on
which a Draw Down Notice is delivered).


Section 7.06.          No Suspension.  Trading in the Company’s Common Stock shall
not have been suspended by the Commission, the Principal Market or the NASD and
trading in



 20
 






 



securities generally as reported on the Principal
Market shall not have been suspended or limited as of the Condition
Satisfaction Date.


Section 7.07.          No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.


Section 7.08.          No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and, to the
Knowledge of the Company, no investigation by any governmental authority shall
have been threatened, against the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking to
enjoin, prevent or change the transactions contemplated by this Agreement.


Section 7.09.          Sufficient Shares Registered for
Resale.  The Company shall have
sufficient Shares, calculated using the Closing Price of the Common Stock as of
the Trading Day immediately preceding such Draw Down Notice, registered under
the Registration Statement to issue and sell such Shares in accordance with
such Draw Down Notice.


Section 7.10.          Warrant.  The Warrant shall have been duly executed,
delivered and issued to the Investor, and the Company shall not be in default
in any material respect under any of the provisions thereof, provided that any
refusal by or failure of the Company to issue and deliver Warrant Shares in
respect of any exercise (in whole or in part) thereof shall be deemed to be
material for the purposes of this Section 7.10.


Section 7.11.          Opinion of Counsel.  The Investor shall have received an opinion
of counsel to the Company, dated as of the Effective Date, in the form
reasonably agreed to by the Investor and its counsel prior to the date hereof.


Section 7.12.          Accuracy of Investor’s
Representation and Warranties.  The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made as though made at that time except
for representations and warranties that are made as of a particular date.


Section 7.13.          Payment of Fees.  The Company shall be current on all
undisputed expense invoices that the Company is required to pay pursuant to
Section 10.01.


ARTICLE
VIII



TERMINATION


Section 8.01.          Term.  Unless otherwise terminated in accordance
with Section 8.02 below, this Agreement shall terminate upon the earlier
to occur of (i) the expiration of the Commitment Period or (ii) the issuance of
Shares pursuant to this Agreement in an amount equal to the Maximum Commitment
Amount.


Section 8.02.          Other Termination.


(a)   The Investor may terminate this Agreement
upon (x) one (1) Business Day’s notice if the Company enters into any
Prohibited Transaction as set forth in Section 6.08 without the



 21
 






 



Investor’s prior written consent or (y) one (1)
Business Day’s notice within ten (10) Business Days after the Investor obtains
actual knowledge that an event resulting in a Material Adverse Effect has
occurred.


(b)   The Investor may terminate this Agreement upon
one (1) Business Day’s notice to the Company at any time in the event that the
Registration Statement is not first declared effective in accordance with the
Registration Rights Agreement; provided, however, that in the
event the Registration Statement is declared effective prior to the delivery of
such notice, the Investor shall thereafter have no right to terminate this
Agreement pursuant to this Section 8.02(b).


(c)   The Investor may terminate this Agreement
upon one (1) Business Day’s notice to the Company at any time in the event that
following the first twelve (12) month period of the term of this Agreement, the
Company fails to make cumulative Draw Downs of at least $1.25 million during
any consecutive twelve (12) month period during the term of this Agreement.  For the avoidance of doubt, this provision
shall not entitle the Investor to terminate this Agreement prior to the end of
the twenty-fourth (24th) month of the term of this Agreement.


(d)   The Company may terminate this Agreement upon
one (1) Business Day’s notice; provided, however, that the Company shall not
terminate this Agreement pursuant to this Section 8.02(d) during any Draw
Down Pricing Period; provided however,
that, in the event of any termination of this Agreement by the Company hereunder,
so long as the Investor owns Shares purchased hereunder and/or Warrant Shares,
unless all of such shares of Common Stock may be resold by the Investor without
registration and without any time, volume or manner limitations pursuant to
Rule 144(k) (or any similar provision then in effect) under the Securities Act,
the Company shall not suspend, except as provided in the Registration Rights
Agreement and subject to the conditions and limitations set forth therein, or
withdraw the Registration Statement or otherwise cause the Registration
Statement to become ineffective, or voluntarily delist the Common Stock from,
the Principal Market without listing the Common Stock on another Principal
Market.


(e)   Each of the parties hereto may terminate this
Agreement upon one (1) Business Day’s notice if the other party has breached a
material representation, warranty or covenant to this Agreement and such breach
is not remedied within ten (10) Business Days after notice of such breach is
delivered to the breaching party.


(f)    The obligation of the Investor to purchase
shares of Common Stock shall terminate permanently in the event that the
Commission shall issue any stop order concerning, or suspend the effectiveness
of, the Registration Statement for an aggregate of sixty (60) calendar days
during the Commitment Period.


Section 8.03.          Effect of Termination.  In the event of termination by the Company or
the Investor, written notice thereof shall forthwith be given to the other
party and the transactions contemplated by this Agreement shall be terminated
without further action by either party. 
If this Agreement is terminated as provided in Section 8.01 or 8.02
herein, this Agreement shall become void and of no further force and effect,
except as provided in Section 10.13. 
Nothing in this Section 8.03 shall be deemed to release the Company
or the Investor from any liability for any breach under this Agreement
occurring prior to such termination, or to impair the rights of the Company and
the Investor to compel specific performance by the other party of its
obligations under this Agreement arising prior to such termination.



 22
 






 



ARTICLE
IX



INDEMNIFICATION


Section 9.01.          Indemnification.


(a)   Except as otherwise
provided in this Article IX, unless disputed as set forth in Section 9.02,
the Company agrees to indemnify, defend and hold harmless the Investor and its
affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons (each, an “Investor
Indemnified Party”), to the fullest extent permitted by law from and
against any and all Damages directly resulting from or directly arising out of
any breach of any representation or warranty, covenant or agreement by the
Company in this Agreement, the Registration Rights Agreement or the Warrant; provided,
however, that the Company shall not be liable under this Article IX
to an Investor Indemnified Party to the extent that such Damages resulted or
arose from the breach by an Investor Indemnified Party of any representation, warranty,
covenant or agreement of an Investor Indemnified Party contained in this
Agreement, the Registration Rights Agreement or the Warrant or the gross
negligence, recklessness, willful misconduct or bad faith of an Investor
Indemnified Party.  The parties intend
that any Damages subject to indemnification pursuant to this Article IX
will be net of insurance proceeds (which the Investor Indemnified Party agrees
to use commercially reasonable efforts to recover).  Accordingly, the amount which the Company is
required to pay to any Investor Indemnified Party hereunder (a “Company
Indemnity Payment”) will be reduced by any insurance proceeds actually
recovered by or on behalf of any Investor Indemnified Party in reduction of the
related Damages. In addition, if an Investor Indemnified Party receives a
Company Indemnity Payment required by this Article IX in respect of any
Damages and subsequently receives any such insurance proceeds, then the
Investor Indemnified Party will pay to the Company an amount equal to the
Company Indemnity Payment received less the amount of the Company Indemnity
Payment that would have been due if the insurance proceeds had been received,
realized or recovered before the Company Indemnity Payment was made.


(b)   Except as otherwise provided in this Article IX, unless
disputed as set forth in Section 9.02, the Investor agrees to indemnify,
defend and hold harmless the Company and its affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, a “Company Indemnified Party”), to the
fullest extent permitted by law from and against any and all Damages directly
resulting from or directly arising out of any breach of any representation or
warranty, covenant or agreement by the Investor in this Agreement, the
Registration Rights Agreement or the Warrant; provided, however,
that the Investor shall not be liable under this Article IX to a Company
Indemnified Party to the extent that such Damages resulted or arose from the breach
by a Company Indemnified Party of any representation, warranty, covenant or
agreement of a Company Indemnified Party contained in this Agreement, the
Registration Rights Agreement or the Warrant or gross negligence, recklessness,
willful misconduct or bad faith of a Company Indemnified Party.  The parties intend that any Damages subject
to indemnification pursuant to this Article IX will be net of insurance
proceeds (which the Company agrees to use commercially reasonable efforts to
recover).  Accordingly, the amount which
the Investor is required to pay to any Company Indemnified Party hereunder (an “Investor
Indemnity Payment”) will be reduced by any insurance proceeds theretofore
actually recovered by or on behalf of any Company Indemnified Party in
reduction of the related Damages.  In
addition, if a Company Indemnified Party receives an Investor Indemnity Payment
required by this Article IX in respect of any Damages and subsequently
receives any such insurance proceeds, then the Company Indemnified Party will
pay to the Investor an amount equal to the Investor Indemnity Payment received
less the amount of the



 23
 






 



Investor Indemnity
Payment that would have been due if the insurance proceeds had been received,
realized or recovered before the Investor Indemnity Payment was made.


Section 9.02.      Notification
of Claims for Indemnification.  Each
party entitled to indemnification under this Article IX (an “Indemnified
Party”) shall, promptly after the receipt of notice of the commencement of
any claim against such Indemnified Party in respect of which indemnity may be
sought from the party obligated to indemnify such Indemnified Party under this
Article IX (the “Indemnifying Party”), notify the Indemnifying
Party in writing of the commencement thereof. 
Any such notice shall describe the claim in reasonable detail.  The failure of any Indemnified Party to so
notify the Indemnifying Party of any such action shall not relieve the
Indemnifying Party from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article IX or (b) under this
Article IX unless, and only to the extent that, such failure results in
the Indemnifying Party’s forfeiture of substantive rights or defenses or the
Indemnifying Party is prejudiced by such delay.  The procedures listed below shall govern the
procedures for the handling of indemnification claims.


(a)   Any claim for
indemnification for Damages that do not result from a Third Party Claim as
defined in the following paragraph, shall be asserted by written notice given
by the Indemnified Party to the Indemnifying Party.  Such Indemnifying Party shall have a period
of thirty (30) days after the receipt of such notice within which to respond
thereto.  If such Indemnifying Party does
not respond within such thirty (30) day period, such Indemnifying Party shall
be deemed to have refused to accept responsibility to make payment as set forth
in Section 9.01.  If such
Indemnifying Party does not respond within such thirty (30) day period or
rejects such claim in whole or in part, the Indemnified Party shall be free to
pursue such remedies as specified in this Agreement.


(b)   If an Indemnified Party
shall receive notice or otherwise learn of the assertion by a person or entity
not a party to this Agreement of any threatened legal action or claim
(collectively a “Third Party Claim”), with respect to which an
Indemnifying Party may be obligated to provide indemnification, the Indemnified
Party shall give such Indemnifying Party written notice thereof within twenty
(20) days after becoming aware of such Third Party Claim.


(c)   An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise) at such Indemnifying Party’s own expense and by such
Indemnifying Party’s own counsel, any Third Party Claim.  Within thirty (30) days after the receipt of
notice from an Indemnified Party (or sooner if the nature of such Third Party
Claim so requires), the Indemnifying Party shall notify the Indemnified Party
whether the Indemnifying Party will assume responsibility for defending such
Third Party Claim, which election shall specify any reservations or
exceptions.  If such Indemnifying Party
does not respond within such thirty (30) day period or rejects such claim in
whole or in part, the Indemnified Party shall be free to pursue such remedies
as specified in this Agreement.  In case
any such Third Party Claim shall be brought against any Indemnified Party, and
it shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to assume the defense thereof at its own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own
expense, retain separate counsel to participate in such defense at its own
expense.  Notwithstanding the foregoing,
in any Third Party Claim in which both the Indemnifying Party, on the one hand,
and an Indemnified Party, on the other hand, are, or are reasonably likely to
become, a party, such Indemnified Party shall have the right to employ separate
counsel and to control its own defense of such claim if, in the reasonable
opinion of counsel to such Indemnified Party, either (x) one or more
significant defenses are available to the



 24
 






 



Indemnified Party
that are not available to the Indemnifying Party or (y) a conflict or
potential conflict exists between the Indemnifying Party, on the one hand, and
such Indemnified Party, on the other hand, that would make such separate
representation advisable; provided, however, that in such
circumstances the Indemnifying Party (i) shall not be liable for the fees
and expenses of more than one counsel to all Indemnified Parties and
(ii) shall reimburse the Indemnified Parties for such reasonable fees and
expenses of such counsel incurred in any such Third Party Claim, as such
expenses are incurred, provided that the Indemnified Parties agree to repay
such amounts if it is ultimately determined that the Indemnifying Party was not
obligated to provide indemnification under this Article IX.  The Indemnifying Party agrees that it will
not, without the prior written consent of the Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is
a party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of such Indemnified Party from all liability arising or that may arise out of
such claim.  The Indemnifying Party shall
not be liable for any settlement of any claim effected against an Indemnified
Party without the Indemnifying Party’s written consent, which consent shall not
be unreasonably withheld, conditioned or delayed.  The rights accorded to an Indemnified Party
hereunder shall be in addition to any rights that any Indemnified Party may
have at common law, by separate agreement or otherwise; provided, however,
that notwithstanding the foregoing or anything to the contrary contained in
this Agreement, nothing in this Article IX shall restrict or limit any
rights that any Indemnified Party may have to seek equitable relief.


ARTICLE
X


MISCELLANEOUS


Section 10.01.        Fees and Expenses.


(a)   Each of the Company and the Investor agrees
to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall be solely responsible for (i) all
reasonable attorneys fees and expenses incurred by the Investor in connection
with (A) the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant, and (B) the review
and assistance in preparation of the Registration Statement, correspondence
with the Commission and amendments and supplements to the Registration
Statement and Prospectus, (ii) all reasonable fees and expenses incurred by the
Investor in connection with any amendments, modifications or waivers of this
Agreement, including, without limitation, all reasonable attorneys fees and
expenses, (iii) all
reasonable fees and expenses incurred in connection with the Investor’s
enforcement of this Agreement, including, without limitation, all reasonable
attorneys fees and expenses, (iv) due
diligence expenses incurred by the Investor during the term of this Agreement
equal to $12,500 per calendar quarter, and (v) all stamp or other similar
taxes and duties, if any, levied in connection with issuance of the Shares
pursuant hereto; provided, however, that in each of the above
instances the Investor shall provide customary supporting invoices or similar
documentation in reasonable detail describing such expenses (however, the
Investor shall not be obligated to provide detailed time sheets); provided
further that the maximum aggregate amount payable by the Company
pursuant to clause (i)  and (ii) above
shall be $75,000 and the Investor shall bear all fees and expenses in excess of
$75,000 incurred in connection with the events described under clauses (i)
and (ii) above.


(b)   If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement or the Warrant, the prevailing party shall be



 25
 






 



entitled to reasonable fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.


Section 10.02.        Reporting Entity for the Common Stock.  The reporting entity relied upon for the
determination of the trading price or trading volume of the Common Stock on any
given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P.
or any successor thereto.  The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.


Section 10.03.        Brokerage. Each of the parties
hereto represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of any fee or
commission from the other party.  The
Company, on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder’s fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.


Section 10.04.        Notices.  All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice
given in accordance herewith, in each case with a copy to the e-mail address
set forth beside the facsimile number for the addressee below.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is
to be received), or the first Business Day following such delivery (if
delivered other than on a Business Day during normal business hours where such
notice is to be received) or (b) on the second Business Day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall
be:


If to the Company:


Metabasis
Therapeutics, Inc.


11119 North Torrey Pines
Road


La Jolla, CA 92037


Facsimile:  (858) 622-5556


E-mail:  beck@mbasis.com


Attention:  John W. Beck, C.P.A.


With a copy (which shall not constitute notice) to:


Cooley
Godward Kronish LLP


4401
Eastgate Mall


San
Diego, CA 92121-1909


Facsimile:
(858) 550-6420


Attention: Jason Kent,
Esq.


E-mail:  jkent@cooley.com



 26
 






 



If to the
Investor:


Kingsbridge Capital
Limited


Attention: Mr. Tony
Hillman


PO Box 1075


Elizabeth House


9 Castle Street


St Helier


Jersey


JE42QP


Channel Islands


Tel:  011-44-1534-636-041


Fax:  011-44-1534-636-042


Email:  admin@kingsbridgecap.com


With a copy (which
shall not constitute notice) to:


Kingsbridge Corporate
Services


Kingsbridge House


New Abbey


Kilcullen


Co.Kildare


Ireland


Tel:  011-353-45-481-811


Fax: 011-353-45-482-003


Email:  adamgurney@kingsbridge.ie;
emmagalway@kingsbridge.ie, and pwhelan@kingsbridge.ie


And another a copy
(which shall not constitute notice) to:


Clifford Chance US
LLP

31 West 52nd Street

New York, NY  10019

Telephone:    (212) 878-8000

Facsimile:       (212) 878-8375

Attention:      Earl Zimmerman, Esq.

E-mail: 
earl.zimmerman@cliffordchance.com


Either party hereto may
from time to time change its address or facsimile number for notices under this
Section by giving at least ten (10) days’ prior written notice of
such changed address or facsimile number to the other party hereto.


Section 10.05.        Assignment.  Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
Person.


Section 10.06.        Amendment; No Waiver.  No party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement, the Warrant and the Registration
Rights Agreement.  Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended,



 27
 






 



waived, discharged or terminated other than by a
written instrument signed by both parties hereto.  The failure of the either party to insist on
strict compliance with this Agreement, or to exercise any right or remedy under
this Agreement, shall not constitute a waiver of any rights provided under this
Agreement, nor estop the parties from thereafter demanding full and complete
compliance nor prevent the parties from exercising such a right or remedy in
the future.


Section 10.07.        Entire Agreement.  This Agreement, the Registration Rights
Agreement and the Warrant
set forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersede all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written,
relating to the subject matter hereof.


Section 10.08.        Severability.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that, if the severance of such
provision materially changes the economic benefits of this Agreement to either
party as such benefits are anticipated as of the date hereof, then such party
may terminate this Agreement on five (5) Business Days prior written notice to
the other party.  In such event, the Registration Rights Agreement will
terminate simultaneously with the termination of this Agreement; provided that
in the event that this Agreement is terminated by the Company in accordance
with this Section 10.08 and the Warrant Shares either have not been registered
for resale by the Investor in accordance with the Registration Rights Agreement
or are otherwise not freely tradable (if and when issued) in accordance with
applicable law, then the Registration Rights Agreement in respect of the
registration of the Warrant Shares shall remain in full force and effect.


Section 10.09.        Title and Subtitles.  The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.


Section 10.10.        Counterparts.  This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together
shall constitute one and the same instrument.


Section 10.11.        Choice of Law.  This Agreement shall be construed under the
laws of the State of New York.


Section 10.12.        Specific Enforcement, Consent to
Jurisdiction.


(a)   The Company and the Investor acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.


(b)   Subject to Section 9.03, each of the Company
and the Investor (i) hereby irrevocably submits to the jurisdiction of the
United States District Court and other courts of the United States sitting in
the State of New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and
agrees not to assert in any such suit,



 28
 






 



action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper.  Each
of the Company and the Investor consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing in this
Section shall affect or limit any right to serve process in any other
manner permitted by law.


Section 10.13.        Survival.  The representations and warranties of the
Company and the Investor contained in Articles IV and V of this Agreement and
the covenants contained in Articles V, VI and X of this Agreement shall
survive the execution and delivery hereof and the Closing until the termination
of this Agreement, and the agreements and covenants set forth in
Article VIII and Article IX of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder.


Section 10.14.        Publicity.  Except as otherwise required by applicable
law or regulation, or Nasdaq rule or judicial process, prior to the Closing,
neither the Company nor the Investor shall issue any press release or otherwise
make any public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement.  In the event the Company is required by law,
regulation, Nasdaq rule or judicial process, based upon reasonable advice of
the Company’s inside or outside counsel, to issue a press release or otherwise
make a public statement or announcement with respect to this Agreement prior to
the Closing, the Company shall consult with the Investor on the form and
substance of such press release, statement or announcement.  Promptly after the Closing, each party may
issue a press release or otherwise make a public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement; provided that, prior to issuing any such
press release, making any such public statement or announcement, the party
wishing to make such release, statement or announcement consults and cooperates
in good faith with the other party in order to formulate such press release,
public statement or announcement in form and substance reasonably acceptable to
both parties.


Section 10.15.        Further Assurances.  From and after the date of this Agreement,
upon the request of the Investor or the Company, each of the Company and the
Investor shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.


Section 10.16.        Absence of Presumption.  This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.


[Remainder of this page
intentionally left blank]



 29














 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first written.


 


	
   

  	
  KINGSBRIDGE CAPITAL LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARIA
  O’DONOGHUE

  	
   

  
	
   

  	
   

  	
  Maria O’Donoghue

  
	
   

  	
   

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  METABASIS THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ PAUL
  K. LAIKIND

  	
   

  
	
   

  	
   

  	
  Name: Paul K. Laikind, Ph.D.

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  



 


SIGNATURE
PAGE – COMMON STOCK PURCHASE AGREEMENT










 



Exhibit
A


Form of Registration Rights
Agreement










 



Exhibit
B


Warrant










 



Exhibit
C


Officer Certificate


I, [NAME OF OFFICER], do hereby certify to Kingsbridge
Capital Limited (the “Investor”), with respect to the common stock of Metabasis
Therapeutics, Inc. (the “Company”) issuable in connection with the Draw Down
Notice, dated                       
(the “Notice”) attached hereto and delivered pursuant to Article III of
the Common Stock Purchase Agreement, dated as of November 2, 2006 (the “Agreement”),
by and between the Company and the Investor, as follows (capitalized terms used
but undefined herein have the meanings given to such terms in the Agreement):


1.             I
am the duly elected [OFFICER] of the Company.


2.             The
representations and warranties of the Company set forth in Article IV of
the Agreement are true and correct in all material respects as though made on
and as of the date hereof (except for such representations and warranties that
are made as of a particular date).


3.             The
Company has performed in all material respects all covenants and agreements to
be performed by the Company on or prior to the date hereof related to the
Notice and has satisfied each of the conditions to the obligation of the
Investor set forth in Article VII of the Agreement.


4.             The
Shares issuable in respect of the Notice will be delivered without restrictive
legend via book entry through the Depositary Trust Company to an account
designated by the Investor.


The undersigned has executed this Certificate this     
day of         , 200[  ].


	
   

  	
   

  	
   

  
	
  

  	
  Name:

  
	
   

  	
  Title: