1.2 Milestone Shares. At the election of Investor (such election to be made withinthirty (30) days from the receipt by Investor of notice that a Milestone Event has occurred), eachRegulatory Milestone and Commercial Milestone shall be paid in shares of Common Stock.Notwithstanding the foregoing, the Company shall not be obliged to issue Milestone Shares toInvestor at the occurrence of a Milestone Event if either:          (a) the aggregate number of Shares issued to Investor (including the Initial Shares), as aresult of cumulative election by Investor, shall exceed 10.300.000 shares; or          (b) such issuance could reduce the amount of the Company’s accumulated net operating lossesdeductible for tax purposes against future earnings (Internal Revenue Code Section 382) in excessof USD [***]([***] dollars), as determined by the Company.     If the Company is not obligated to issue Milestone Shares to Investor at the occurrence of aMilestone Event as a result of (a) or (b) above, the Company shall pay such Milestone in cash bymeans of wire transfer on the account designated by Investor within ten (10) working days afterreceipt by the Company of notice of Investor’s election.          1.3 Closings.               (a) The initial closing for the issuance of the Initial Shares shall take place at the officesof Latham & Watkins LLP, 12636 High Bluff Drive, Suite 400, San Diego, California, three (3)working days following the Effective Date, or at such other time and place as the Company andInvestor mutually agree upon orally or in writing (which time and place are designated as the“Initial Closing”).               (b) The closings for the issuance of any Milestone Shares shall take place at the offices ofLatham & Watkins LLP, 12636 High Bluff Drive, Suite 400, San Diego, California, ten (10) workingdays following receipt by the Company from the Investor of its election to receive the MilestonePayment in the form of the Milestone Shares, or at such other time and place as the Company andInvestor mutually agree upon orally or in writing (which time and place are *** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
 

 
designated as a “Milestone Closing” and together with the Initial Closing, a “Closing”).               (c) At each Closing, the Company shall deliver to Investor a certificate representing theInitial Shares or the Milestone Shares, as the case may be. No cash consideration is payable bythe Investor in connection with the issuance of any Shares.          1.4 Registration Rights Agreement. In connection with the issuance of the Shares, theCompany and Investor have entered into a Registration Rights Agreement dated as of the EffectiveDate, providing for the registration for resale of the Initial Shares and, when and if issued, theMilestone Shares (the “Registration Rights Agreement”).     2. Representations and Warranties of the Company. The Company hereby represents andwarrants to Investor that:          2.1 Organization, Good Standing and Qualification. The Company is a corporation dulyorganized, validly existing and in good standing under the laws of the State of Delaware and hasall requisite corporate power and authority to carry on its business as now conducted and asproposed to be conducted. The Company is duly qualified to transact business and is in goodstanding in each jurisdiction in which the failure so to qualify as the case may be, would notreasonably be expected, individually or in the aggregate, to (i) materially and adversely affectthe legality, validity or enforceability of this Agreement, (ii) have or result in a materialadverse effect on the results of operations, assets, business or financial condition of theCompany, or (iii) materially and adversely impair the Company’s ability to perform fully on atimely basis its obligations under this Agreement (any of (i), (ii) or (iii), a”MaterialAdverse Effect”). The Company has no subsidiaries. The Company is not in violation of any of theprovisions of its certificate of incorporation or bylaws.          2.2 Authorization. The Company has all requisite corporate power and authority (i) toexecute, deliver and perform its obligations under this Agreement; (ii) to issue the Shares in themanner and for the purpose contemplated by this Agreement, and (iii) to execute, deliver andperform its obligations under all other agreements and instruments executed and delivered by itpursuant to or in connection with this Agreement. All corporate action on the part of the Company,its officers, directors and stockholders necessary for the authorization, execution and delivery ofthis Agreement, the performance of all obligations of the Company
 

 
hereunder and the authorization, issuance (or reservation for issuance) and delivery of theShares has been taken or will be taken prior to the Closing, and this Agreement constitutes a validand legally binding obligation of the Company, enforceable in accordance with its terms, except (i)as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws ofgeneral application affecting enforcement of creditors’ rights generally and (ii) as limited bylaws relating to the availability of specific performance, injunctive relief or other equitableremedies.          2.3 Valid Issuance of Securities. The Shares which are being issued hereunder, whenissued, sold and delivered in accordance with the terms hereof for the consideration expressedherein, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens,charges, claims, security interests or encumbrances (except as set forth herein) and shall not besubject to preemptive or similar rights of stockholders, and, based in part upon therepresentations of Investor in this Agreement, the Shares will be issued in compliance with allapplicable federal and state securities laws.          2.4. No Conflicts. The execution, delivery and performance of this Agreement and theconsummation by the Company of the transactions contemplated hereby do not, and will not, (i)conflict with or violate any provision of the Company’s certificate of incorporation or bylaws,(ii) conflict with, or constitute a default under any material agreement to which the Company is aparty or by which any material property or asset of the Company is bound, except to the extent thatsuch conflict, violation or default (A) could not reasonably be expected to have a Material AdverseEffect or (B) is waived pre-Closing, or (iii) result in a violation of any law, rule, regulation,order, judgment, injunction, decree or other restriction of any court or governmental authority towhich the Company is subject, or by which any material property or asset of the Company is bound,except to the extent that such violation could not reasonably be expected to have a MaterialAdverse Effect. The Company has reserved from its duly authorized capital stock the maximum numberof Shares.          2.5 Capitalization. The capitalization of the Company as of September 30, 2008, is asset forth in the most recent applicable SEC Report (as defined below), increased as set forth inthe next sentence. The Company has not issued any capital stock since that date other thanpursuant to (i) employee and director benefit option or stock purchase plans disclosed in the SECReports, or (ii) outstanding warrants, options or other securities disclosed in the SEC Reports.The outstanding shares of capital stock of the Company have been duly and validly
 

 
issued and are fully paid and nonassessable and have been issued in compliance with allfederal and state securities laws.          2.6 Absence of Litigation. Except as disclosed in the Company’s SEC Reports, there isno action, suit, claim, or proceeding, or, to the Company’s knowledge, inquiry or investigation,before or by any court, public board, government agency, self-regulatory organization or bodypending or, to the knowledge of the Company, threatened against or affecting the Company that couldhave a Material Adverse Effect.          2.7 SEC Reports; Financial Statements. The Company has filed all reports required tobe filed by it under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the datehereof (the foregoing materials (together with any materials filed by the Company under theExchange Act and the Securities Act of 1933, as amended (the “Securities Act”), whether or notrequired) being collectively referred to herein as the “SEC Reports”) on a timely basis or hasreceived a valid extension of such time of filing and has filed any such SEC Reports prior to theexpiration of any such extension. As of their respective dates, the SEC Reports complied in allmaterial respects with the requirements of the Securities Act and the Exchange Act and the rulesand regulations of the Securities and Exchange Commission (the “SEC”) promulgated thereunder, andnone of the SEC Reports, when filed, contained any untrue statement of a material fact or omittedto state a material fact required to be stated therein or necessary in order to make the statementstherein, in the light of the circumstances under which they were made, not misleading.          2.8 No General Solicitation; Placement Agent’s Fees. Neither the Company, nor, to theCompany’s knowledge, any of its Affiliates, nor any person acting on its or, to the Company’sknowledge, on their behalf, has engaged in any form of general solicitation or general advertising(within the meaning of Regulation D) in connection with the offer or sale of the Shares. TheCompany shall be responsible for the payment of any placement agent’s fees, financial advisoryfees, or brokers’ commissions relating to or arising out of the issuance of the Shares pursuant tothis Agreement. The Company shall pay, and hold Investor harmless against, any liability, loss orexpense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses)arising in connection with any such claim for fees (other than for persons engaged by, or on behalfof, Investor or its agents or investment advisors) arising out of the issuance of the Sharespursuant to this Agreement.
 

 
          2.9 Private Placement. Neither the Company nor any person acting on the Company’sbehalf has, directly or indirectly, at any time within the past six months, made any offer or saleof any security or solicitation of any offer to buy any security under circumstances that would (i)eliminate the availability of the exemption from registration under Regulation D under theSecurities Act in connection with the offer and issuance by the Company of the Shares ascontemplated hereby or (ii) cause the offering of the Shares pursuant to this Agreement to beintegrated with prior offerings by the Company for purposes of any applicable law, regulation orstockholder approval provisions, including, without limitation, under the rules and regulations ofany Trading Market (as defined in the Registration Rights Agreement).          2.10 Form S-3 Eligibility. The Company is eligible to register the Shares for resaleby the Investor using Form S-3 promulgated under the Securities Act.          2.11 Listing and Maintenance Requirements. The Company has not, in the twelve monthspreceding the date hereof, received written notice from any Trading Market on which its CommonStock is or has been listed or quoted to the effect that the Company is not in compliance with thelisting or maintenance requirements of such Trading Market. The Company is in compliance with allsuch material listing and maintenance requirements.          2.12 Registration Rights. Except as disclosed in or contemplated by the SEC Reports,the Company has not granted or agreed to grant to any person any rights (including “piggy-back”registration rights) to have any securities of the Company registered with the SEC or any othergovernmental authority. The Investor acknowledges that certain stockholders of the Company may beentitled to exercise piggy-back registration rights in connection with the registration of theresale of the Shares.     3. Representations and Warranties of the Investor. Investor hereby represents andwarrants that:          3.1 Organization, Good Standing and Qualification. Investor is a corporation dulyorganized, validly existing and in good standing under the laws of Ireland and has all requisitecorporate power and authority to carry on its business as now conducted and as proposed to beconducted.          3.2 Authorization. All corporate action on the part of Investor, its
 

 
officers and directors necessary for the authorization, execution and delivery of thisAgreement, the performance of all obligations of Investor hereunder has been taken or will be takenprior to the Closing, and this Agreement constitutes a valid and legally binding obligation ofInvestor enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy,insolvency, reorganization, moratorium and other laws of general application affecting theenforcement of creditors’ rights generally and (ii) as limited by laws relating to the availabilityof specific performance, injunctive relief or other equitable remedies.          3.3 Shares Received Entirely for Own Account. The Shares to be received by Investorwill be acquired for investment for Investor’s own account, not as a nominee or agent, and not witha view to the resale or distribution of any part thereof, and Investor has no present intention ofselling, granting any participation in, or otherwise distributing the same. By executing thisAgreement, Investor further represents that Investor does not have any contract, undertaking,agreement or arrangement with any person to sell, transfer or grant participations to such personor to any third person, with respect to any of the Shares. Investor represents that it has fullpower and authority to enter into this Agreement.          3.4 Investment Experience. Investor acknowledges that it is able to fend for itself,can bear the economic risk of its investment and has such knowledge and experience in financial orbusiness matters that it is capable of evaluating the merits and risks of the investment in theShares. Investor also represents it has not been organized for the purpose of acquiring theShares.          3.5 Accredited Investor. Investor is an “accredited investor” within the meaning ofSEC Rule 501 of Regulation D, as presently in effect.          3.6 Restricted Securities. Investor understands that the Shares it is purchasing arecharacterized as “restricted securities” under the federal securities laws inasmuch as they arebeing acquired from the Company in a transaction not involving a public offering and that undersuch laws and applicable regulations such Shares may be resold without registration under theSecurities Act, only in certain limited circumstances. In this connection, Investor representsthat it is familiar with SEC Rule 144, as presently in effect, and understands the resalelimitations imposed thereby and by the Securities Act.          3.7 Further Limitations on Disposition. Without in any way limiting therepresentations set forth above or the obligations set forth in Section 4.1, Investor furtheragrees not to make any disposition of all or any portion of the
 

 
Shares unless and until the transferee has agreed in writing for the benefit of the Company tobe bound by Sections 3.7, 4.2, 4.3 and 5 of this Agreement, if applicable, and:               (a) There is then in effect a Registration Statement under the Securities Act covering suchproposed disposition and such disposition is made in accordance with such Registration Statement;or               (b) (i) Investor shall have notified the Company of the proposed disposition and shall havefurnished the Company with a reasonably detailed statement of the circumstances surrounding theproposed disposition, and (ii) if reasonably requested by the Company, such Investor shall havefurnished the Company with an opinion of counsel (which may be Investor’s inside counsel), in formand substance reasonably satisfactory to the Company, that such disposition will not requireregistration of such shares under the Securities Act. It is agreed that the Company will notrequire opinions of counsel for transactions made pursuant to Rule 144 except in unusualcircumstances.          3.8 Legends. It is understood that the certificates evidencing the Shares may bearone or all of the following legends:               (a) “These securities have not been registered under the Securities Act of 1933, as amended.They may not be sold, offered for sale, pledged or hypothecated in the absence of a registrationstatement in effect with respect to the securities under such Act or an opinion of counselsatisfactory to the Company that such registration is not required or unless sold pursuant to Rule144 of such Act.”               (b) “These securities are subject to certain transfer restrictions contained in a certainStock Issuance Agreement dated December 10, 2008, as amended from time to time, a copy of which maybe obtained from the corporation without charge.”               (c) Any legend required by any applicable state securities laws.     To the extent that such legends are no longer applicable, the Company shall cause its transferagent to remove the legends upon request by Investor.     4. Covenants of Investor.
 

 
               4.1 Transfer Restriction. Investor hereby agrees that during the time periodcommencing as of the Initial Closing until fifteen (15) months following the Initial Closing (withsuch time period being referred to as the “Initial Restricted Period”), that neither it nor anyAffiliate shall, directly or indirectly sell, offer to sell, contract to sell (including, withoutlimitation, any short sale), grant any option to purchase or otherwise transfer or dispose of(other than to donees who agree to be similarly bound) any of the Shares at any time during theInitial Restricted Period. Investor hereby also agrees that during the time period commencing asof the date on which the Company provides notice to the Investor that a Milestone Event has occured(the “Milestone Share Issuance Date”) until six (6) months following that date (with each such timeperiod being referred to as a “Milestone Restricted Period” for the applicable Milestone Sharesissued within such period only), that neither it nor any Affiliate shall, directly or indirectlysell, offer to sell, contract to sell (including, without limitation, any short sale), grant anyoption to purchase or otherwise transfer or dispose of (other than to donees who agree to besimilarly bound) any of the Milestone Shares during the applicable Milestone Restricted Period. Inorder to enforce the foregoing covenant, the Company may impose legends with respect to the Sharesheld by Investor (and the Shares of every other person subject to the foregoing restriction) untilsix (6) months following the Initial Closing or the applicable Milestone Share Issuance Date;provided that the Company may impose stop transfer instructions and Investor shall continue to besubject to the transfer restrictions set forth herein through the entire Initial Restricted Periodor applicable Milestone Restricted Period. Following the last day of the last Milestone RestrictedPeriod, any restrictions under this Section 4.1 shall terminate and be of no further force andeffect.4,2 Standstill Provisions. Subject to the following, for a period of two (2) yearscommencing as of the Initial Closing, Investor (including all Affiliates) shall not acquirebeneficial ownership of any shares of Common Stock of the Company, any securities convertible intoor exchangeable for Common Stock, or any other right to acquire Common Stock, except by way ofstock dividends or other distributions or offerings made available to holders of Common Stockgenerally (collectively, “Company Stock”), from the Company or any other person or entity, withoutthe prior written consent of the Company, which consent may be withheld in its sole discretion;provided, however, that (i) in no event shall the issuance of Shares pursuant to this Agreementconstitute a violation of this Section 4.2; (ii) in the event that following the expiration of theapplicable periods set forth in Section 4.1 Investor sells a portion of the Shares, Investor maypurchase up to the same number of Shares it has sold (provided that Investor provides notice to theCompany within three (3) working days following any such purchase); and (iii) the
 

 
provisions of this Section 4.2 shall be inoperative and of no force or effect if a CompetingTransaction occurs with respect to the Company. “Competing Transaction” shall mean that a person(as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Person”)),other than Cosmo or its affiliates and other than the Company or its subsidiaries: (A) enters intoan agreement providing for the merger or consolidation, or any similar transaction, involving theCompany in which, following consummation of such transaction, substantially all of the persons orentities who, immediately prior to such transaction, had beneficial ownership of 50% or more of thevoting power of the Company do not continue to beneficially own at least 50% of the voting power ofthe combined entity and do not have the ability to elect a majority of the directors of thecombined entity, (B) enters into an agreement providing for the purchase or other acquisition of,or purchases or otherwise acquires, more than 40% of the assets of the Company, (C) enters into anagreement providing for the purchase or other acquisition of, or purchases or otherwise acquires,beneficial ownership of securities representing 40% or more of the voting power of the Company, (D)commences a tender offer or exchange offer with respect to securities representing 40% or more ofthe voting power of the Company, or (E) enters into an agreement or commences a proxy solicitationin which the Person would acquire the ability to elect a majority of the Board of Directors of theCompany.          4.3 Market Stand-off. The Investor hereby agrees that during the period of durationnot to exceed 180 days specified by the Company and an underwriter of capital stock of the Company,following the effective date of a registration statement pursuant to which the Company is offeringsecurities under the Securities Act, it shall not, to the extent requested by the Company and suchunderwriter (and provided the same restriction is agreed to by the officers and directors of theCompany), directly or indirectly sell, offer to sell, contract to sell (including, withoutlimitation, any short sale but excluding private placements in reliance on the so-called “4(1-1/2)”exemption under the Securities Act), grant any option to purchase or otherwise transfer or disposeof (other than to donees who agree to be similarly bound) any securities of the Company held by itat any time during such period except Common Stock included in such registration. In order toenforce the foregoing covenant, the Company may impose stop-transfer instructions with respect tothe Shares until the end of such period.          4.4 Breach of License Agreement. In the event that Investor notifies the Company ofthe occurrence of a material breach by the Company in accordance with the terms of the LicenseAgreement which breach is not rectified
 

 
in the opinion of Investor in accordance with the terms of the License Agreement, then therestrictions set forth in Section 4.1 shall terminate and be of no further force and effect. TheCompany agrees to remove any existing stop transfer instruction if such breach is not rectified inthe opinion of Investor.The Company would reserve the right to challenge such determination of abreach under the License Agreement..     5. Additional Notification. Investor agrees to provide the Company with oral orwritten notice at least three (3) working days before buying shares of Common Stock, selling,offering to sell, contracting to sell (including, without limitation, any short sale), granting anyoption to purchase or otherwise transferring or disposing of any of the Shares and shall providethe Company with the reasonable opportunity to bid on any such Shares.     6. Company Covenants.          6.1 Reports Under Exchange Act. With a view to making available to the Investor thebenefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit theInvestor to sell the Shares to the public without registration, the Company agrees to: (a) makeand keep public information available, as those terms are understood and defined in Rule 144, atall times; (b) file with the SEC in a timely manner all reports and other documents required ofthe Company under the Securities Act and the Exchange Act; and (c) furnish to the Investor, solong as the Investor owns any Shares, forthwith upon request (i) a written statement by the Companythat it has complied with the reporting requirements of Rule 144, the Securities Act and theExchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and suchother reports and documents so filed by the Company, and (iii) such other information as may bereasonably requested in availing the Investor of any rule or regulation of the SEC which permitsthe selling of any Shares without registration.          6.2 Rights Plans. The Company will amend its Rights Agreement dated as of November12, 2004, as amended April 19, 2006, in the form previously provided to the Investor.
 

 
     7. Miscellaneous.          7.1 Survival of Warranties. The warranties, representations and covenants of theCompany and Investor contained in or made pursuant to this Agreement shall survive the executionand delivery of this Agreement and the Closing and shall in no way be affected by any investigationof the subject matter thereof made by or on behalf of the Investor or the Company.          7.2 Successors and Assigns. Except as otherwise provided herein, the terms andconditions of this Agreement shall inure to the benefit of and be binding upon the respectivesuccessors and assigns of the parties (including transferees of any of the Shares sold hereunder).Nothing in this Agreement, express or implied, is intended to confer upon any party other than theparties hereto or their respective successors and assigns any rights, remedies, obligations, orliabilities under or by reason of this Agreement, except as expressly provided in this Agreement.          7.3 Governing Law. This Agreement shall be governed by and construed under the lawsof the State of Delaware as applied to agreements among Delaware residents entered into and to beperformed entirely within Delaware.          7.4 Counterparts. This Agreement may be executed in two or more counterparts, each ofwhich shall be deemed an original, but all of which together shall constitute one and the sameinstrument.          7.5 Titles and Subtitles. The titles and subtitles used in this Agreement are usedfor convenience only and are not to be considered in construing or interpreting this Agreement.          7.6 Notices. Any notice authorized or required to be given under the terms of thisAgreement shall be given by facsimile transmission or international courier sent to:If to the Company:Santarus, Inc.