Document:

Exhibit
10.1

Execution
Version

$125,000,000

ISIS
PHARMACEUTICALS, INC.

2 5¤8%
Convertible Subordinated Notes due 2027

PURCHASE
AGREEMENT

January 17, 2007

LEHMAN BROTHERS INC., 

As Representative of the several
   Initial Purchasers named in Schedule I
attached hereto,

c/o Lehman Brothers Inc.

745 Seventh Avenue

New York, New York 10019

Ladies and
Gentlemen:

Isis Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), proposes, upon the terms and
conditions set forth in this agreement (this “Agreement”),
to issue and sell to you, as the initial purchasers (the “Initial
Purchasers”), $125,000,000 in aggregate principal amount of its 2 5¤8% Convertible Subordinated Notes due
2027 (the “Firm Securities”).  The Firm Securities will (i) have terms and
provisions that are summarized in the Pricing Disclosure Package (as defined
below) and Offering Memorandum (as defined below) and (ii) are to be issued
pursuant to an Indenture (the “Indenture”) to
be entered into between the Company and Wells Fargo Bank, NA, as trustee (the “Trustee”).  The
Company also proposes to issue and sell to the Initial Purchasers not more than
an additional $37,500,000 principal amount of its 2 5¤8%
Convertible Subordinated Notes due 2027 (the “Additional
Securities”) if and to the extent that you, as Representative of the
Initial Purchasers, shall have determined to exercise, on behalf of the Initial
Purchasers, the right to purchase such 2 5¤8%
Convertible Subordinated Notes due 2027 granted to the Initial Purchasers in
Section 3(a) hereof.  The Firm Securities
and the Additional Securities are hereinafter collectively referred to as the “Securities.”  The
Securities will be convertible into shares of the Company’s common stock (par
value $0.001 per share) (the “Underlying Securities”).  This is to confirm the agreement concerning
the purchase of the Securities from the Company by the Initial Purchasers.

1.             Purchase
and Resale of the Securities. 
The Securities will be offered and sold to the Initial Purchasers
without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on an exemption pursuant to
Section 4(2) under the Securities Act. 
The Company has prepared a preliminary offering memorandum, dated
January 16, 2007 (together with the documents incorporated by reference
therein, the “Preliminary Offering Memorandum”),
a pricing term sheet substantially in the form attached hereto as Schedule II
(the “Pricing Term Sheet”) setting forth the
terms of the Securities omitted from the Preliminary Offering Memorandum and an
offering memorandum, dated January 17, 2007 (together with the documents
incorporated by reference therein, the “Offering Memorandum”),

setting forth information
regarding the Company and the Securities (as defined herein).  The Preliminary Offering Memorandum, as
supplemented and amended as of the Applicable Time (as defined below), together
with the Pricing Term Sheet and any of the documents listed on Schedule III
hereto are collectively referred to as the “Pricing
Disclosure Package.” The Company hereby confirms that it has authorized the use of the
Preliminary Offering Memorandum, the Pricing Disclosure Package and the
Offering Memorandum in connection with the offering and resale of the
Securities by the Initial Purchasers. “Applicable Time”
means 7:00 p.m. (New York City time) on the date of this Agreement.

Any reference to the Preliminary Offering Memorandum, the Pricing Disclosure Package or theOffering Memorandum shall be deemed to refer to and include
the Company’s most recent Annual Report
on Form 10-K, the Company’s most recent Quarterly  Report on Form 10-Q and all subsequent
documents filed with the United States Securities and Exchange Commission (the
“Commission”) pursuant to Section
13(a) or 15(d) of the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”), on or prior
to the date of the Preliminary Offering Memorandum, the Pricing Disclosure
Package or the Offering Memorandum, as the case may be.  Any reference to the Preliminary Offering Memorandum,
Pricing Disclosure Package or theOffering Memorandum, as the case may be, as
amended or supplemented, as of any specified date, shall be deemed to include
(i) any documents filed with the Commission pursuant to Section 13(a) or 15(d)
of the Exchange Act after the date of the Preliminary Offering Memorandum,
Pricing Disclosure Package or the Offering Memorandum, as the case may be, and
prior to such specified date.  All
documents referenced above that are filed under the Exchange Act and so deemed
to be included in the Preliminary Offering Memorandum, Pricing Disclosure
Package or the Offering Memorandum, as the case may be, or any amendment or
supplement thereto are hereinafter called the “Exchange Act Reports.”

It is understood and acknowledged that upon original
issuance thereof, and until such time as the same is no longer required under
the applicable requirements of the Securities Act, the Securities (and all
securities issued in exchange therefor or in substitution thereof) shall bear
the following legend (along with such other legends as the Initial Purchasers
and their counsel deem necessary):

‘‘THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL
BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT),

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(2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE
REQUIRED BY APPLICABLE LAW (THE “RESALE RESTRICTION TERMINATION DATE”), OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
“QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR (D)  PURSUANT TO ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE
AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.

You have advised the Company that you will make offers
(the “Exempt Resales”) of the Securities
purchased by you hereunder on the terms set forth in each of the Pricing
Disclosure Package and the Offering Memorandum, as amended or supplemented,
solely to persons (the “Eligible Purchasers”)
whom you reasonably believe to be “qualified institutional buyers” as defined
in Rule 144A under the Securities Act (“QIBs”).  You will offer the Securities to Eligible
Purchasers initially at a price equal to 100% of the principal amount thereof
plus accrued interest, if any.  Such
price may be changed at any time without notice.

Holders (including subsequent transferees) of the
Securities will have the registration rights set forth in the registration
rights agreement attached hereto as Exhibit A (the “Registration
Rights Agreement”) between the Company and the Initial Purchasers to
be dated January 23, 2007 (the “Closing Date”),
for so long as such Securities constitute “Transfer Restricted
Securities” (as defined in the Registration Rights Agreement).  Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Commission under the
circumstances set forth therein, a shelf registration statement under the
Securities Act (the

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“Resale Registration
Statement”) relating to resales by holders of the Securities and the
Underlying Securities.

2.             Representations,
Warranties and Agreements of the Company.  The Company represents, warrants and agrees
as follows:

(a)           When
the Securities are issued and delivered pursuant to this Agreement, the
Securities will not be of the same class (within the meaning of Rule 144A under
the Securities Act) as securities of the Company that are listed on a United
States national securities exchange registered or that are quoted in a United
States automated inter-dealer quotation system.

(b)           Neither
the Company nor any subsidiary is, and after giving effect to the offer and
sale of the Securities and the application of the proceeds therefrom as
described under “Use of Proceeds” in each of the Pricing Disclosure Package and
the Offering Memorandum will be, (i) an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940 (the “Investment Company
Act”), as amended, and the rules and regulations of the Commission
thereunder or (ii) a “business development company” (as defined in Section
2(a)(48) of the Investment Company Act).

(c)           Assuming that your representations and
warranties in Section 3(b) are true, the purchase and resale of the Securities
pursuant hereto (including pursuant to the Exempt Resales) is exempt from the
registration requirements of the Securities Act.  No form of general solicitation or general
advertising within the meaning of Regulation D (including, but not limited to,
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising) was used by the Company or any of its
representatives (other than you, as to whom the Company makes no
representation) in connection with the offer and sale of the Securities.

(d)           Each
of the Preliminary Offering Memorandum, the Pricing Disclosure Package and the
Offering Memorandum, each as of its respective date, contains all the
information specified in, and meeting the requirements of, Rule 144A(d)(4)
under the Securities Act.

(e)           The
Preliminary Offering Memorandum, the Pricing Disclosure Package and the
Offering Memorandum have been prepared by the Company for use by the Initial
Purchasers in connection with the Exempt Resales.  No order or decree preventing the use of the
Preliminary Offering Memorandum, the Pricing Disclosure Package or the Offering
Memorandum, or any order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Securities Act
has been issued, and no proceeding for that purpose has commenced or is pending
or, to the knowledge of the Company is contemplated.

(f)            The
Pricing Disclosure Package did not, as of the Applicable Time, and will not, as
of the Closing Date, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the

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circumstances under which they were made, not misleading; provided that no representation or warranty
is made as to information contained in or omitted from the Pricing Disclosure
Package in reliance upon and in conformity with written information furnished
to the Company through the Representative by or on behalf of any Initial
Purchaser specifically for inclusion therein, which information is specified in
Section 8(e).

(g)           The
Offering Memorandum will not, as of its date and as of the Closing Date,
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the Offering
Memorandum in reliance upon and in conformity with written information
furnished to the Company through the Representative by or on behalf of any
Initial Purchaser specifically for inclusion therein, which information is
specified in Section 8(e).

(h)           The
Company has not made any offer to sell or solicitation of an offer to buy the
Securities that would constitute a “free writing prospectus” (if the offering
of the Securities was made pursuant to a registered offering under the
Securities Act), as defined in Rule 405 under the Securities Act (a “Free Writing Offering Document”) without
the prior consent of the Representative; any such Free Writing Offering
Document the use of which has been previously consented to by the Initial
Purchasers is set forth substantially in form and substance as attached hereto
on Schedule III.

(i)            The Exchange Act Reports, when they were or
are filed with the Commission, conformed or will conform in all material
respects to the applicable requirements of the Exchange Act and the applicable
rules and regulations of the Commission thereunder.  The Exchange Act Reports did not, when
filed with the Commission, contain an untrue statement of material fact or omit
to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.

(j)            The
statistical and market-related data included under the captions “Business” in
the Company’s annual report on Form 10-K for the year ended December 31, 2005
and in “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in the Company’s quarterly report on Form 10-Q for the nine
months ended September 30, 2006 incorporated by reference in the Pricing
Disclosure Package and the consolidated financial statements of the Company and
its subsidiaries included in the Pricing Disclosure Package are based on or
derived from sources that the Company believes do not contain an untrue
statement of material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.

(k)           Each
of the Company and its subsidiaries (as defined in Section 15) has been duly
organized and is validly existing and in good standing as a corporation or
other business entity under the laws of its jurisdiction of organization and is
duly qualified to do business and in good standing as a foreign corporation or
other business entity in each jurisdiction in which its ownership or lease of
property or the conduct of its businesses requires such qualification, except
where the failure to be so qualified or in good standing would not, in

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the aggregate, reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), results of operations, stockholders’
equity, properties, business or prospects of the Company and its subsidiaries
taken as a whole or a material adverse effect on the performance by the Company
of the performance of this Agreement, the Indenture, the Securities or the
Registration Rights Agreement or the consummation of any of the transactions
contemplated hereby or thereby (a “Material
Adverse Effect”); each of the Company and its subsidiaries has all
power and authority necessary to own or hold its properties and to conduct the
businesses in which it is engaged. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
(i) the subsidiaries listed in the Company’s Annual Report on Form 10-K for the
most recent fiscal year and (ii) the Company’s Ibis Biosciences, Inc.
subsidiary. None of the subsidiaries of the Company is a “significant
subsidiary” (as defined in Rule 405 under the Securities Act).

(l)            The
Company has an authorized capitalization as set forth in each of the Pricing
Disclosure Package and the Offering Memorandum on the dates indicated therein,
and all of the issued shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and non-assessable, conform to
the description thereof contained in each of the Pricing Disclosure Package and
the Offering Memorandum and were issued in compliance with federal and state
securities laws and not in violation of any preemptive right, resale right,
right of first refusal or similar right. 
All of the Company’s options, warrants and other rights to purchase or
exchange any securities for shares of the Company’s capital stock have been
duly authorized and validly issued, conform to the description thereof
contained in each of the Pricing Disclosure Package and the Offering Memorandum
and were issued in compliance with federal and state securities laws.  There is no and has been no policy or
practice of the Company to intentionally coordinate the grant of options to
employees with the release or other public announcement of material information
regarding the Company or its results of operations or prospects to minimize the
exercise price of such options. All of the issued shares of capital stock of
each subsidiary of the Company have been duly authorized and validly issued,
are fully paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims, except
for such liens, encumbrances, equities or claims as would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.

(m)          The
Company has all requisite corporate power and authority to execute, deliver and
perform its obligations under the Indenture. 
The Indenture has been duly and validly authorized by the Company, and
upon its execution and delivery and, assuming due authorization, execution and
delivery by the Trustee, will constitute the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors’ rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
no qualification of the Indenture under the Trust Indenture Act of 1939 (the “1939 Act”) is required in connection with
the offer and sale of the Securities contemplated hereby or in connection with
the Exempt Resales.  The Indenture will
conform in all material respects to the description thereof in each of the
Pricing Disclosure Package and the Offering Memorandum.

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(n)           The
Company has all requisite corporate power and authority to execute, issue, sell
and perform its obligations under the Securities.  The Securities have been duly authorized by
the Company and, when duly executed by the Company in accordance with the terms
of the Indenture, assuming due authentication of the Securities by the Trustee,
upon delivery to the Initial Purchasers against payment therefor in accordance
with the terms hereof, will be validly issued and delivered and will constitute
valid and binding obligations of the Company entitled to the benefits of the
Indenture, enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors’ rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).  The Securities will
conform in all material respects to the description thereof in each of the
Pricing Disclosure Package and the Offering Memorandum.

(o)           The
Company has all the requisite corporate power and authority to issue the
Underlying Securities issuable upon conversion of the Securities.  The Underlying Securities have been duly and
validly authorized by the Company and, and when issued upon conversion of the
Securities in accordance with the terms of the Securities, will be validly
issued, fully paid and non-assessable, and the issuance of the Underlying
Securities will not be subject to any preemptive or similar rights.

(p)           The
Company has all requisite corporate power and authority to execute, deliver and
perform its obligations under the Registration Rights Agreement.  The Registration Rights Agreement has been
duly authorized by the Company and, when executed and delivered by the Company
in accordance with the terms hereof and thereof, will be validly executed and
delivered and (assuming the due authorization, execution and delivery thereof
by you) will be the legally valid and binding obligation of the Company in
accordance with the terms thereof, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditor’s rights generally, by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and, as to rights of indemnification and
contribution, by principles of public policy. 
The Registration Rights Agreement will conform in all material respects
to the description thereof in each of the Pricing Disclosure Package and the
Offering Memorandum.

(q)           The
Company has all requisite corporate power to execute, deliver and perform its
obligations under this Agreement.  This
Agreement has been duly and validly authorized, executed and delivered by the
Company.

(r)            The
issue and sale of the Securities, the execution, delivery and performance by
the Company of the Securities, the Indenture, the Registration Rights Agreement
and this Agreement, the application of the proceeds from the sale of the
Securities as described under “Use of Proceeds” in each of the Pricing
Disclosure Package and the Offering Memorandum and the consummation of the
transactions contemplated hereby and thereby, will not (i) conflict with or
result in a breach or violation of any of the terms or provisions of, impose
any lien, charge or encumbrance upon any property or assets of the Company or
its subsidiaries, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, license,

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lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, (ii) result in any violation of the provisions of the
charter or by-laws or similar organizational document of the Company or any of
its subsidiaries or (iii) result in any violation of any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or federal, state, local
or foreign governmental agency or regulatory authority having jurisdiction over
the properties or assets of the Company or any of its subsidiaries or
any of their properties or assets (“Governmental
Authority”), except, with respect to clauses (i) and (iii),
conflicts, breaches or violations that would not reasonably be expected to have
a Material Adverse Effect, and with respect to clause (i) those that have been
waived or consented to prior to the execution of this Agreement.

(s)           No
consent, approval, authorization or order of, or filing, registration or
qualification with any Governmental Authority is required for the issue and
sale of the Securities, the execution, delivery and performance by the Company
of the Securities, the Indenture, the Registration Rights Agreement and this
Agreement, the application of the proceeds from the sale of the Securities as
described under “Use of Proceeds” in each of the Pricing Disclosure Package and
the Offering Memorandum and the consummation of the transactions contemplated
hereby and thereby, except for the filing of a registration statement by the
Company with the Commission pursuant to the Securities Act as required by the
Registration Rights Agreement and such consents, approvals, authorizations,
orders, filings, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Securities by the Initial Purchasers and listing of the Underlying
Securities on the NASDAQ Global Market.

(t)            Except
as identified in the Pricing Disclosure Package and the Offering Memorandum,
there are no contracts, agreements or understandings between the Company and
any person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any securities
of the Company (other than the Registration Rights Agreement) owned or to be
owned by such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Rights Agreement or in
any securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act.

(u)           Neither
the Company nor any other person acting on behalf of the Company has sold or
issued any securities that would be integrated with the offering of the
Securities contemplated by this Agreement pursuant to the Securities Act, the
rules and regulations thereunder or the interpretations thereof by the
Commission. The Company will take reasonable precautions designed to insure
that any offer or sale, direct or indirect, in the United States or to any U.S.
person (as defined in Rule 902 under the Securities Act), of any Securities or
any substantially similar security issued by the Company, within six months
subsequent to the date on which the distribution of the Securities has been
completed (as notified to the Company by the Initial Purchasers), is made under
restrictions and other circumstances reasonably designed not to affect the
status of the offer and sale of the Securities in the United States and to U.S.
persons contemplated by this Agreement as transactions exempt from the
registration provisions of the Securities Act, including any sales pursuant to
Rule 144A under the Securities Act.

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(v)           Except
as described in the each of the Pricing Disclosure Package and the Offering
Memorandum, neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Pricing Disclosure Package, any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree, and,
since such date, there has not been any change in the total current assets,
capital stock or long-term debt of the Company or any of its subsidiaries or
any adverse change, or any development involving a prospective adverse change,
in or affecting the condition (financial or otherwise), results of operations,
stockholders’ equity, properties, management, business or prospects of the
Company and its subsidiaries, taken as a whole, in each case except as would
not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.

(w)          The
historical financial statements (including the related notes and supporting
schedules) included or incorporated by reference in the Pricing Disclosure
Package and the Offering Memorandum present fairly in all material respects the
financial condition, results of operations and cash flows of the entities
purported to be shown thereby, at the dates and for the periods indicated, and
have been prepared in conformity with accounting principles generally accepted
in the United States applied on a consistent basis throughout the periods
involved.  The other financial
information and data included in the Offering Memorandum are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.

(x)            Ernst
& Young LLP, who have certified certain financial statements of the
Company, whose report appears in the Pricing Disclosure Package and who have
delivered the initial letter referred to in Section 8(e) hereof, are
independent public accountants as required by the Securities Act and the rules
and regulations thereunder.

(y)           (i)
The Company and each of its subsidiaries has good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects, except such as are described in the Pricing Disclosure Package and
the Offering Memorandum and such as do not affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company or any of its subsidiaries; and (ii) all assets held under lease
by the Company or any of its subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as do not interfere
with the use made and proposed to be made of such assets by the Company or any
of its subsidiaries; except, in the case of (i) and (ii), as would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.

(z)            Except
such as are described in the Pricing Disclosure Package and the Offering
Memorandum, the Company and each of its subsidiaries carry, or are covered by,
insurance from insurers of recognized financial responsibility in such amounts
and covering such risks as, based on the Company’s internal assessments, is
adequate for the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries.  All
policies of insurance of the Company and its subsidiaries are in full force and
effect; the Company and its subsidiaries are in compliance with the terms of
such policies in all material respects; and neither the Company nor any of its
subsidiaries has received notice from any insurer or agent of such insurer that
capital

 9
 

improvements or other expenditures are required or necessary to be made
in order to continue such insurance; there are no claims by the Company or any
of its subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause; and neither the Company nor any such subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
reasonably be expected to have a Material Adverse Effect.

(aa)         The
Company and each of its subsidiaries have such permits, licenses, patents,
franchises, certificates of need and other approvals or authorizations of such
Governmental Authorities (“Permits”)
as are necessary under applicable law to own their properties and conduct their
businesses in the manner described in the Pricing Disclosure Package and the
Offering Memorandum, except for any of the foregoing that would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect or except
as described in the Pricing Disclosure Package and the Offering Memorandum;
each of the Company and its subsidiaries has fulfilled and performed all of its
obligations with respect to the Permits, and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination thereof
or results in any other impairment of the rights of the holder or any such
Permits, except for any of the foregoing that would not reasonably be expected
to have a Material Adverse Effect or except as described in the Pricing
Disclosure Package.

(bb)         The Company
and each of its subsidiaries own or possess adequate rights to use all patents,
patent applications, inventions, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
know-how, software, systems and technology (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) or other intellectual property, including, without limitation,
all of the intellectual property described in the Pricing Disclosure Package
and the Offering Memorandum as being owned or licensed by the Company and its
subsidiaries (collectively, “Intellectual
Property”), necessary for the conduct of their respective
businesses, except where the failure to own or possess such Intellectual
Property would not, individually or in the aggregate, have a Material Adverse
Effect.  The Company and its subsidiaries
have no reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict with,
any such rights of others, except where such conflict or claims of conflict
would not, individually or in the aggregate, have a Material Adverse Effect. Except as disclosed in the Pricing
Disclosure Package and the Offering Memorandum, (A) there is no infringement, misappropriation or violation by third
parties of any such Intellectual Property, except as such infringement,
misappropriation or violation would not result in a Material Adverse Effect;
(B) there is no pending or, to the knowledge of the Company and its
subsidiaries, threatened action, suit, proceeding or claim by others
challenging the rights of the Company and its subsidiaries in or to any such
Intellectual Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim which would have a Material Adverse Effect;
(C) the Intellectual Property owned by the Company and its subsidiaries and, to
the knowledge of the Company, the Intellectual Property licensed to the Company
and its subsidiaries has not been adjudged invalid or unenforceable, in whole
or in part, and there is no pending or threatened in writing action, suit,
proceeding or claim by others challenging the validity or scope of any such
Intellectual Property,

 10
 

and
the Company is unaware of any facts which would form a reasonable basis for any
such claim which would have a Material Adverse Effect; (D) there is no
pending or threatened action, suit, proceeding or claim by others that the
Company or its subsidiaries infringe, misappropriate or otherwise violate any
Intellectual Property or other proprietary rights of others, the Company and
its subsidiaries have not received any written notice of such claim and the
Company is unaware of any other facts which would form a reasonable basis for
any such claim which would have a Material Adverse Effect; and (E) to the
Company’s knowledge, no employee of the Company or a subsidiary of the Company
is in or has ever been in violation of any term of any employment contract,
patent disclosure agreement, invention assignment agreement, non-competition
agreement, non-solicitation agreement, nondisclosure agreement or any
restrictive covenant to or with a former employer where the basis of such
violation relates to such employee’s employment with the Company or a
subsidiary of the Company, or actions undertaken by the employee while employed
with the Company or a subsidiary of the Company, except for such violations as
would not have a Material Adverse Effect. 
To the Company’s knowledge, all material technical information developed
by and belonging to the Company and its subsidiaries which has not been
patented has been kept confidential, except as would not have a Material
Adverse Effect.  The Company is
not a party to or bound by any options, licenses or agreements with respect to
the Intellectual Property that would be required to be described in a
registration statement filed under the Securities Act or would be required to
be filed as exhibits to a registration statement of the Company pursuant to
Item 601(10) of Regulation S-K that have not been described or incorporated by
reference in the Pricing Disclosure Package and the Offering Memorandum.

(cc)         Except as described
in the Pricing Disclosure Package and the Offering Memorandum, the Company and each of its subsidiaries:
(A) are and at all times have been in full compliance with all statutes,
rules, regulations, or guidances applicable to the ownership, testing,
development, manufacture, packaging, processing, use, distribution, marketing,
labeling, promotion, sale, offer for sale, storage, import, export or disposal of
any product or product candidate manufactured or distributed by the Company and
its subsidiaries (“Applicable Laws”);
(B) have not received any U.S. Food and Drug Administration (“FDA”) Form 483, notice of adverse finding,
warning letter, untitled letter or other correspondence or notice from the FDA
or any other Governmental Authority alleging or asserting noncompliance with
any Applicable Laws or any licenses, certificates, approvals, clearances,
authorizations, permits and supplements or amendments thereto required by any
such Applicable Laws (“Authorizations”);
(C) possess all Authorizations and such Authorizations are valid and in
full force and effect and are not in violation of any term of any such
Authorizations; (D) have not received written notice of any claim, action,
suit, proceeding, hearing, enforcement, investigation, arbitration or other
action from any Governmental Authority or third party alleging that any product
operation or activity is in violation of any Applicable Laws or Authorizations
and have no knowledge that any such Governmental Authority or third party is
considering any such claim, litigation, arbitration, action, suit,
investigation or proceeding; (E) have not received notice that any
Governmental Authority has taken, is taking or intends to take action to limit,
suspend, modify or revoke any Authorizations and have no knowledge that any
such Governmental Authority is considering such action; (F) have filed,
obtained, maintained or submitted all reports, documents, forms, notices,
applications, records, claims, submissions and supplements or amendments as
required by any Applicable Laws or Authorizations and represent that all such
reports, documents, forms, notices, applications, records, claims, submissions
and supplements or 

 11
 

amendments
were complete and correct on the date filed (or were corrected or supplemented
by a subsequent submission), except where the failure to so file, obtain,
maintain or submit would not reasonably be expected to have a Material Adverse
Effect; and (G) have not, either voluntarily or involuntarily, initiated,
conducted, or issued or caused to be initiated, conducted or issued, any
recall, market withdrawal or replacement, safety alert, post-sale warning,
“dear doctor” letter, or other notice or action relating to the alleged lack of
safety or efficacy of any of its product or any alleged product defect or
violation and, to the Company’s knowledge, no third party has initiated,
conducted or intends to initiate any such notice or action.

(dd)         The studies, tests and preclinical and
clinical trials conducted by or on behalf of the Company and each of its
subsidiaries were and, if still pending, are being conducted in accordance with
experimental protocols, procedures and controls pursuant to accepted professional
scientific standards and all Applicable Laws and Authorizations, including,
without limitation, the Federal Food, Drug and Cosmetic Act and the rules and
regulations promulgated thereunder; the descriptions of the results of such
studies, tests and trials contained in the Pricing Disclosure Package
and the Offering Memorandum are
accurate and complete in all material respects and fairly present the data
derived from such studies, tests and trials; except to the extent disclosed in the
Pricing Disclosure Package and the Offering Memorandum, the Company is not aware of any studies, tests or trials, the results
of which the Company believes reasonably refute the study, test, or trial
results described or referred to in the Pricing Disclosure Package and
the Offering Memorandum when viewed in
the context in which such results are described and the clinical state of
development; and the Company and its subsidiaries have not received any notices
or correspondence from any Governmental Authority requiring the termination,
suspension or material modification of any studies, tests or preclinical or
clinical trials conducted by or on behalf of the Company or its
subsidiaries.  All of the
descriptions in the Pricing Disclosure Package and the Offering Memorandum of
the legal and governmental procedures and requirements of the FDA or any
foreign, state or local governmental body exercising comparable authority are
accurate in all material respects.

(ee)         Except
as described in the Pricing Disclosure Package and the Offering Memorandum,
there are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject that would, in the aggregate,
reasonably be expected to have a Material Adverse Effect or to have a material
adverse effect on the performance by the Company of the performance of this
Agreement, the Indenture, the Securities or the Registration Rights Agreement
or the consummation of any of the transactions contemplated hereby; and to the
Company’s knowledge, no such proceedings are threatened in writing or
contemplated by Governmental Authorities or others.

(ff)           There
are no legal or governmental proceedings or contracts or other documents that
would be required to be described in a registration statement filed under the
Securities Act or, in the case of documents, would be required to be filed as
exhibits to a registration statement of the Company pursuant to Item 601(10) of
Regulation S-K that have not been described or incorporated by reference in the
Pricing Disclosure Package and the Offering Memorandum.  Neither the Company nor any of its
subsidiaries has knowledge that any other party to any such contract, agreement
or arrangement has any intention not to render full performance as contemplated
by the terms thereof; and that statements made or incorporated by

 12
 

reference in
the Pricing Disclosure Package and the Offering Memorandum insofar as they purport to constitute
summaries of the terms of statutes, rules or regulations, legal or governmental
proceedings or contracts and other documents, constitute accurate summaries of
the terms of such statutes, rules and regulations, legal and governmental
proceedings and contracts and other documents in all material respects.

(gg)         No
relationship, direct or indirect, that would be required to be described in a
registration statement of the Company pursuant to Item 404 of Regulation S-K,
exists between or among the Company, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company, on the other
hand, that has not been described in the Pricing Disclosure Package and the
Offering Memorandum.

(hh)         Except
as described in the Pricing Disclosure Package and the Offering Memorandum, no
labor disturbance by the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is imminent that would reasonably
be expected to have a Material Adverse Effect.

(ii)           (i)
Each “employee benefit plan” (within the meaning of Section 3(3) of the
Employee Retirement Security Act of 1974, as amended (“ERISA”)) for which the Company or any
member of its “Controlled Group” (defined as any organization which is a member
of a controlled group of corporations within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each a “Plan”) has been maintained in material
compliance with its terms and with the requirements of all applicable statutes,
rules and regulations including ERISA and the Code; (ii) with respect to each
Plan subject to Title IV of ERISA (a) no “reportable event” (within the meaning
of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur,
(b) no “accumulated funding deficiency” (within the meaning of Section 302 of
ERISA or Section 412 of the Code), whether or not waived, has occurred or is
reasonably expected to occur, (c) the fair market value of the assets under
each Plan exceeds the present value of all benefits accrued under such Plan
(determined based on those assumptions used to fund such Plan) and (d) neither
the Company or any member of its Controlled Group has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA (other than
contributions to the Plan or premiums to the Pension Benefit Guaranty
Corporation in the ordinary course and without default) in respect of a Plan
(including a “multiemployer plan,” within the meaning of Section 4001(c)(3) of
ERISA); and (iii) each Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by action
or by failure to act, which would cause the loss of such qualification.

(jj)           The
Company and each of its subsidiaries have filed all federal, state, local and
foreign income and franchise tax returns required to be filed through the date
hereof, subject to permitted extensions, and have paid all taxes due thereon,
and no material tax deficiency has been determined adversely to the Company or
any of its subsidiaries, nor does the Company have any knowledge of any tax
deficiencies that would, in the aggregate, reasonably be expected to have a
Material Adverse Effect.

(kk)         There
are no transfer taxes or other similar fees or charges under Federal law or the
laws of any state, or any political subdivision thereof, required to be paid in

 13
 

connection with the execution and delivery of this Agreement or the
issuance by the Company or sale by the Company of the Securities.

(ll)           Since
the date as of which information is given in the Pricing Disclosure Package and
except as otherwise described in the Pricing Disclosure Package and the
Offering Memorandum, the Company has not (i) issued or granted any securities,
(ii) incurred any liability or obligation, direct or contingent, other than
liabilities and obligations that were incurred in the ordinary course of
business, (iii) entered into any material transaction not in the ordinary
course of business or (iv) declared or paid any dividend on its capital stock.

(mm)       The
Company and each of its subsidiaries (i) make and keep accurate books and
records and (ii) maintain and have maintained effective internal control over
financial reporting as defined in Rule 13a-5 under the Exchange Act and a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with management’s
general or specific authorization, (B) transactions are recorded as necessary
to permit preparation of its financial statements in conformity with accounting
principles generally accepted in the United States and to maintain
accountability for its assets, (C) access to its assets is permitted only in
accordance with management’s general or specific authorization, and (D) the
reported accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(nn)         Neither
the Company nor any of its subsidiaries (i) is in violation of its charter or
by-laws (or similar organizational documents), (ii) is in default, and no event
has occurred that, with notice or lapse of time or both, would constitute such
a default, in the due performance or observance of any term, covenant,
condition or other obligation contained in any indenture, mortgage, deed of
trust, loan agreement, license or other agreement or instrument to which it is
a party or by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation of any statute or any order, rule or
regulation of any Governmental Authority or has failed to obtain any license,
permit, certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its business,
except in the case of clauses (ii) and (iii), to the extent any such conflict,
breach, violation or default would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.

(oo)         Neither
the Company nor any of its subsidiaries, nor, to the knowledge of the Company,
any director, officer, agent, employee or other person acting on behalf of the
Company or any of its subsidiaries, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.

(pp)         The
Company and each of its subsidiaries (i) are, and at all times prior hereto
were, in compliance with all laws, regulations, ordinances, rules, orders,
judgments, decrees, permits or other legal requirements of any Governmental
Authority, including without limitation any international, national, state,
provincial, regional, or local authority, relating to the

 14
 

protection of human health or safety, the environment, or natural
resources, or to hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”)
applicable to such entity, which compliance includes, without limitation,
obtaining, maintaining and complying with all permits and authorizations and
approvals required by Environmental Laws to conduct their respective
businesses, and (ii) have not received written notice of any actual or
alleged violation of Environmental Laws, or of any potential liability for or
other obligation concerning the presence, disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except in the case of
clause (i) or (ii) where such non-compliance, violation, liability, or other
obligation would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.  Except as
described in the Pricing Disclosure Package and the Offering Memorandum, (A)
there are no proceedings that are pending, or known to be contemplated, against
the Company or any of its subsidiaries under Environmental Laws in which a
Governmental Authority is also a party, other than such proceedings regarding
which it is reasonably believed no monetary sanctions of $250,000 or more will
be imposed, (B) the Company and its subsidiaries are not aware of any issues
regarding compliance with Environmental Laws, or liabilities or other
obligations under Environmental Laws or concerning hazardous or toxic
substances or wastes, pollutants or contaminants, that would reasonably be
expected to have a Material Adverse Effect, and (C) none of the Company and its
subsidiaries anticipates material capital expenditures relating to
Environmental Laws.

(qq)         None
of the transactions contemplated by this Agreement (including, without
limitation, the use of the proceeds from the sale of the Securities), will
violate or result in a violation of Section 7 of the Exchange Act, or any
regulation promulgated thereunder, including, without limitation, Regulations
T, U and X of the Board of Governors of the Federal Reserve System.

(rr)           The
statements set forth in each of the Pricing Disclosure Package and the Offering
Memorandum under the caption “Description of the Notes,” insofar as they
purport to constitute a summary of the terms of the Securities and under the
captions “Description of Capital Stock,” “Material U.S. Federal Tax
Considerations,” and “Plan of Distribution,” insofar as they purport to
describe the provisions of the laws and documents referred to therein, are
accurate in all material respects.

(ss)         The
Company and its affiliates have not taken, directly or indirectly, any action
(A) designed to or that has constituted or that reasonably can be expected to
cause or result in the stabilization or manipulation of the price of any
security of the Company in connection with the offering of the Securities to
facilitate the sale or resale of such securities or (B) prohibited by
Regulation M under the Exchange Act.

(tt)           (i) The Company and each of its
subsidiaries have established and maintain disclosure controls and procedures
(as such term is defined in Rule 13a-15 under the Exchange Act), (ii) such
disclosure controls and procedures are designed to ensure that the information
required to be disclosed by the Company in the reports they file or submit under
the Exchange Act (assuming the Company was required to file or submit such
reports under the Exchange Act) is accumulated and communicated to management
of the Company and its subsidiaries, including their respective principal
executive officers and principal financial officers, as appropriate, to allow
timely decisions regarding required disclosure to be made; and

 15

(iii) such disclosure controls and procedures are effective in all
material respects to perform the functions for which they were established.

(uu)                          Since the date of the most
recent balance sheet of the Company and its consolidated subsidiaries reviewed
or audited by Ernst & Young LLP and the audit committee of the board of
directors of the Company, (i) the Company has not been advised of (A) any
significant deficiencies in the design or operation of internal controls that
would adversely affect the ability of the Company or any of its subsidiaries to
record, process, summarize and report financial data, or any material
weaknesses in internal controls or (B) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
internal controls of the Company and each of its subsidiaries, and (ii) since
that date, there have been no significant changes in internal controls or in
other factors that would significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

(vv)                          No subsidiary of the Company
is currently prohibited, directly or indirectly, from paying any dividends to
the Company, from making any other distribution on such subsidiary’s capital
stock, from repaying to the Company any loans or advances to such subsidiary
from the Company or from transferring any of such subsidiary’s property or
assets to the Company or any other subsidiary of the Company, except as
described in the Pricing Disclosure Package.

(ww)                      There is and has been no failure
on the part of the Company and any of the Company’s directors or officers, in
their capacities as such, to comply in all material respsects with the
provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith.

(xx)                              Neither the Company nor
any subsidiary is in violation of or has received notice of any violation with
respect to any federal or state law relating to discrimination in the hiring,
promotion or pay of employees, nor any applicable federal or state wage and
hour laws, nor any state law precluding the denial of credit due to the
neighborhood in which a property is situated, the violation of any of which
would reasonably be expected to have a Material Adverse Affect.

(yy)                          The operations of the Company
and its subsidiaries are and have been conducted at all times in compliance
with applicable financial recordkeeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended, the money
laundering statutes of all jurisdictions, the rules and regulations thereunder
and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any Governmental Authority (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by
or before any Governmental Authority involving the Company or any of its
subsidiaries with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company, threatened, except, in each case, as would not
reasonably be expected to have a Material Adverse Effect.

(zz)                              Neither the Company nor
any of its subsidiaries nor, to the knowledge of the Company, any director,
officer, agent, employee or affiliate of the Company or any of its

 16
 

subsidiaries is currently subject to any U.S. sanctions administered by
the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly
or indirectly use the proceeds of the offering, or lend, contribute or
otherwise make available such proceeds to any subsidiary, joint venture partner
or other person or entity, for the purpose of financing the activities of any
person currently subject to any U.S. sanctions administered by OFAC.

(aaa)                      The Company does not own any
“margin securities” as that term is defined in Regulation U of the Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”), and none
of the proceeds of the sale of the Stock will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security, for the purpose
of reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might
cause any of the Stock to be considered a “purpose credit” within the meanings
of Regulations T, U or X of the Federal Reserve Board.

(bbb)                   Each forward-looking statement
(within the meaning of Section 27A of the 1933 Act and Section 21E of the 1934
Act) contained or incorporated by reference in the Pricing Disclosure Package
and the Offering Memorandum has been made with a reasonable basis, at the time
is was made, or has been disclosed in good faith, at the time it was disclosed.

(ccc)                      On and immediately after the
Closing Date, each of the Company and its subsidiaries (after giving effect to
the issuance of the Securities and to the other transactions related thereto as
described in each of the Pricing Disclosure Package and the Offering
Memorandum) will be Solvent. As used in this paragraph, the term “Solvent” means, with respect to a
particular date, that on such date (i) the present fair market value (or
present fair saleable value) of the assets of each of the Company and its
subsidiaries is not less than the total amount required to pay the probable
liabilities on its total existing debts and liabilities (including contingent
liabilities) as they become absolute and matured, (ii) each of the Company and
its subsidiaries is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments as they mature and become
due in the normal course of business, (iii) assuming the sale of the Securities
as contemplated by this Agreement and each of the Pricing Disclosure Package
and the Offering Memorandum, neither the Company nor its subsidiaries is
incurring debts or liabilities beyond its ability to pay as such debts and
liabilities mature; and (iv) neither the Company nor its subsidiaries is
engaged in any business or transaction, and neither of them is about to engage
in any business or transaction, for which its property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which each of the Company and its subsidiaries is
engaged. In computing the amount of such contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in the
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.

Any certificate signed by any officer of the Company
and specifically identified in and required to be delivered to the
Representative under this Agreement or the Registration Rights Agreement in
connection with the offering of the Securities shall be deemed a representation
and warranty by the Company, as to matters covered thereby, to each Initial
Purchaser.

 17
 

3.                                       Purchase of the Securities by the Initial Purchasers,
Agreements to Sell, Purchase and Resell.  (a)  The Company hereby agrees, on
the basis of the representations, warranties and agreements of the Initial
Purchasers contained herein and subject to all the terms and conditions set
forth herein, to issue and sell to the Initial Purchasers and, upon the basis
of the representations, warranties and agreements of the Company herein
contained and subject to all the terms and conditions set forth herein, each
Initial Purchaser agrees, severally and not jointly, to purchase from the
Company, at a purchase price of 97.0% of the principal amount thereof (the “Purchase Price”), the total principal amount of Securities
set forth opposite the name of such Initial Purchaser in Schedule I
hereto.  The Company shall not be
obligated to deliver any of the securities to be delivered hereunder except
upon payment for all of the securities to be purchased as provided herein.

(b)                                 On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to sell to the Initial Purchasers the
Additional Securities, and the Initial Purchasers shall have the right to
purchase, severally and not jointly, up to $37,500,000 aggregate principal
amount of Additional Securities at the Purchase Price. The Representative may
exercise this right on behalf of the Initial Purchasers in whole or from time
to time in part by giving written notice not later than 30 days after the date
of this Agreement.  Any exercise notice
shall specify the principal amount of Additional Securities to be purchased by
the Initial Purchasers and the date on which such Additional Securities are to
be purchased.  Each purchase date must be
at least one business day after the written notice is given and may not be
earlier than the closing date for the Firm Securities nor later than ten
business days after the date of such notice. 
On each day, if any, that Additional Securities are to be purchased (an
“Option Closing Date”), each
Initial Purchaser agrees, severally and not jointly, to purchase the principal
amount of Additional Securities (subject to such adjustments to eliminate
fractional Securities as you may determine) that bears the same proportion to
the total principal amount of Additional Securities to be purchased on such
Option Closing Date as the principal amount of Firm Securities set forth in
Schedule I opposite the name of such Initial Purchaser bears to the total
principal amount of Firm Securities.

(c)                                  Each of the Initial
Purchasers, severally and not jointly hereby represents and warrants to the
Company that it will offer the Securities for sale upon the terms and
conditions set forth in this Agreement and in the Pricing Disclosure
Package.  Each of the Initial Purchasers
hereby represents and warrants to, and agrees with, the Company, that such
Initial Purchaser: (i) on the basis of the representations, warranties and
agreements of the Company, is purchasing the Securities pursuant to a private
sale exempt from registration under the Securities Act; (ii) is a QIB with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Securities;
(iii) in connection with the Exempt Resales, will solicit offers to buy the
Securities only from, and will offer to sell the Securities only to, the
Eligible Purchasers in accordance with this Agreement and on the terms
contemplated by the Pricing Disclosure Package; and (iv) will not directly or
indirectly offer or sell the Securities, nor has it offered or sold the Securities
by, or otherwise engaged in, any form of general solicitation or general
advertising (within the meaning of Regulation D, including, but not limited to,
advertisements, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio,
or any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising). 
The Initial Purchasers have advised the Company that they

 18
 

will offer the Securities to Eligible Purchasers at a price initially
equal to 100% of the principal amount thereof, plus accrued interest, if any,
from the date of issuance of the Securities. 
Such price may be changed by the Initial Purchasers at any time without
notice.

(d)                                 Each such Initial
Purchaser has not nor, prior to the later to occur of (A) the Closing Date and
(B) completion of the distribution of the Securities, will not, use, authorize
use of, refer to or distribute any material in connection with the offering and
sale of the Securities other than (i) the Preliminary Offering Memorandum, the
Pricing Disclosure Package, the Offering Memorandum, (ii) any written
communication that contains no “issuer information” (as defined in Rule
433(h)(2) under the Act) that was not included (including through incorporation
by reference) in the Preliminary Offering Memorandum or any Free Writing
Offering Document listed on Schedule III hereto, (iii) the Free Writing
Offering Documents listed on Schedule III hereto, (iv) any written communication
prepared by such Initial Purchaser and approved by the Company in writing, or
(v) any written communication relating to or that contains the terms of the
Securities and/or other information that was included (including through
incorporation by reference) in the Preliminary Offering Memorandum, the Pricing
Disclosure Package or the Offering Memorandum. 
Each such use of documents in this section shall be made only in
accordance with Section 3(c)(iv).

Each of the Initial Purchasers understands that the
Company and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Sections 8(c) and 8(d) hereof, counsel to the Company
and counsel to the Initial Purchasers, will rely upon the accuracy and truth of
the foregoing representations, warranties and agreements, and the Initial
Purchasers hereby consent to such reliance.

4.                                       Delivery of the Securities and Payment Therefor.  Delivery to the Initial Purchasers of and
payment for the Firm Securities shall be made at the office of Latham &
Watkins LLP, 12636 High Bluff Drive, Suite 400, San Diego, California 92130, at
10:00 a.m., New York City time, on January 23, 2007 (the “Closing Date”).  The place of closing for the Securities and
the Closing Date may be varied by agreement between the Initial Purchasers and
the Company.

Payment for any
Additional Securities shall be made to the Company against delivery of such
Additional Securities for the respective accounts of the several Initial
Purchasers at 10:00 a.m., New York City time, on the date specified in the
corresponding notice described in Section 3(a) or at such other time on the
same or on such other date, as may be varied by agreement between the Initial
Purchasers and the Company.

The Securities will be delivered to the Initial
Purchasers, or the Trustee as custodian for The Depository Trust Company (“DTC”), against payment by or on behalf of the Initial
Purchasers of the purchase price therefor by wire transfer in immediately
available funds, by causing DTC to credit the applicable Securities to the
account of the Initial Purchasers at DTC. 
The Securities will be evidenced by one or more global securities in
definitive form (the “Global Securities”)
or by additional definitive securities, and will be registered, in the case of the
Global Securities, in the name of Cede & Co. as nominee of DTC, and in the
other cases, in such names and in such denominations as the Initial Purchasers
shall request prior to 9:30 a.m., New York City time, on the second business
day preceding the Closing Date or the Option 

 19
 

Closing Date, as the case
may be.  The Securities to be delivered
to the Initial Purchasers shall be made available to the Initial Purchasers in
New York City for inspection and packaging not later than 9:30 a.m., New York
City time, on the business day next preceding the Closing Date or the Option
Closing Date, as the case may be.

5.                                       Agreements of the Company.  The Company agrees with each of the Initial
Purchasers as follows:

(a)                                  The Company will
furnish (which may be satisfied through electronic means) to the Initial
Purchasers, without charge, within one business day of the date of the Offering
Memorandum, such number of copies of the Offering Memorandum as may then be
amended or supplemented as they may reasonably request.

(b)                                 The Company will not
make any amendment or supplement to the Pricing Disclosure Package or to the
Offering Memorandum of which the Initial Purchasers shall not previously have
been advised or to which they shall reasonably object after being so advised; except that the Company will be able to
file any current report on Form 8-K, that the Company’s counsel determines is
required to be filed by the Company.

(c)                                  The Company consents
to the use of the Pricing Disclosure Package and the Offering Memorandum in accordance
with the securities or Blue Sky laws of the jurisdictions in which the
Securities are offered by the Initial Purchasers and by all dealers to whom
Securities may be sold, in connection with the offering and sale of the
Securities.

(d)                                 If, at any time prior
to completion of the distribution of the Securities by the Initial Purchasers
to Eligible Purchasers, any event occurs or information becomes known that, in
the judgment of the Company or in the opinion of counsel for the Initial
Purchasers, should be set forth in the Pricing Disclosure Package or the
Offering Memorandum so that the Pricing Disclosure Package or the Offering
Memorandum, as then amended or supplemented, does not include any untrue
statement of material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary to supplement or amend
the Pricing Disclosure Package or the Offering Memorandum in order to comply
with any law, the Company will forthwith prepare an appropriate supplement or
amendment thereto, and will expeditiously furnish to the Initial Purchasers and
dealers a reasonable number of copies thereof.

(e)                                  The Company will not
make any offer to sell or solicitation of an offer to buy the Securities that
would constitute a Free Writing Offering Document without the prior consent of
the Representative, which consent shall not be unreasonably withheld or
delayed; if at any time following issuance of a Free Writing Offering Document
any event occurred or occurs as a result of which such Free Writing Offering
Document conflicts with the information in the Preliminary Offering Memorandum,
the Pricing Disclosure Package or the Offering Memorandum or, when taken
together with the information in the Preliminary Offering Memorandum, the
Pricing Disclosure Package or the Offering Memorandum, includes an untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances then
prevailing, not misleading, as promptly as practicable after becoming aware
thereof, the Company will give notice thereof to the Initial

 20
 

Purchasers through the Representative and, if requested by the Representative,
will prepare and furnish without charge to each Initial Purchaser a Free
Writing Offering Document or other document which will correct such conflict,
statement or omission.

(f)                                    Promptly from time
to time to take such action as the Initial Purchasers may reasonably request to
qualify the Securities for offering and sale under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may request and to comply
with such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the distribution
of the Securities; provided that
in connection therewith the Company shall not be required to (i) qualify as a
foreign corporation in any jurisdiction in which it would not otherwise be
required to so qualify, (ii) file a general consent to service of process in
any such jurisdiction or (iii) subject itself to taxation in any jurisdiction
in which it would not otherwise be subject.

(g)                                 For a period
commencing on the date hereof and ending on the 90th day after the date of the
Offering Memorandum (the “Lock-up Period”),
the Company agrees not to, directly or indirectly, (1) offer for sale, sell, or
otherwise dispose of (or enter into any transaction or device that is designed
to, or would be expected to, result in the disposition by any person at any
time in the future of) any common stock (par value $0.001 per share) of the
Company or securities convertible into or exchangeable for such common stock of
the Company, or sell or grant options, rights or warrants with respect to the
common stock of the Company or securities convertible into or exchangeable for
the common stock of the Company, (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of the common stock of the Company, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of common stock securities of the Company or other securities, in cash
or otherwise, (3) file or cause to be filed a registration statement (other
than on Form S-8 or any successor form or the registration statement
contemplated by the Registration Rights Agreement), with respect to the
registration of common stock of the Company or securities convertible,
exercisable or exchangeable into shares of common stock of the Company or (4)
publicly announce an offering of any shares of common stock of the Company or
securities convertible or exchangeable into shares of common stock of the
Company, in each case without the prior written consent of Lehman Brothers
Inc., on behalf of the Initial Purchasers, except that a subsidiary of the
Company may sell equity securities exchangeable for the Company’s common stock,
so long as such exchange cannot occur until after the expiry of the Lock-up
Period.  The Company will cause each
officer and director of the Company set forth on Schedule IV hereto to furnish
to Lehman Brothers Inc., prior to the Closing Date, a letter or letters,
substantially in the form of Exhibit B hereto (the “Lock-Up Agreements”).

(h)                                 The Company will
furnish to the holders of the Securities as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, stockholders’
equity and cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants) and, as soon as practicable after
the end of each of the first three quarters of each fiscal year (beginning with
the fiscal quarter ending after the date of the Offering Memorandum), will make
available to its securityholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail; provided
that so long as the Company files periodic reports pursuant to

 21
 

Section 13 or 15(d) of the Exchange Act for the foregoing periods, the
Company shall be deemed to comply with this Section 5(h).

(i)                                     So long as any of
the Securities or the Underlying Securities are outstanding, the Company will
furnish to the Initial Purchasers (i) as soon as available, a copy of each
report of the Company mailed to stockholders generally or filed with any stock
exchange or regulatory body and (ii) from time to time such other information
concerning the Company as the Initial Purchasers may reasonably request.  The Company may satisfy its obligations to
furnish such reports by filing them on the Commission’s electronic data
gathering and retrieval system (EDGAR).

(j)                                     The Company will
apply the net proceeds from the sale of the Securities to be sold by it
hereunder substantially in accordance with the description set forth in the
Pricing Disclosure Package and the Offering Memorandum under the caption “Use
of Proceeds.”

(k)                                  The Company and its
affiliates will not take, directly or indirectly, any action designed to or
that has constituted or that reasonably would be expected to cause or result in
the stabilization or manipulation of the price of any security of the Company
in connection with the offering of the Securities.

(l)                                     The Company will
use its best efforts to permit the Securities to be designated as Private
Offerings, Resales and Trading through Automated Linkages (PORTAL) MarketSM (the “PORTAL
MarketSM”)
securities in accordance with the rules and regulations adopted by the National
Association of Securities Dealers, Inc. relating to trading in the PORTAL
MarketSM and to permit the Securities to be eligible
for clearance and settlement through DTC.

(m)                               The Company will not,
and will not permit any of its affiliates (as defined in Rule 144 under the
Securities Act) to, resell any of the Securities that have been acquired by any
of them, except for Securities purchased by the Company or any of its
affiliates and resold in a transaction registered under the Securities Act.

(n)                                 The Company agree not
to sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) that would be
integrated with the sale of the Securities in a manner that would require the
registration under the Securities Act of the sale to the Initial Purchasers or
the Eligible Purchasers of the Securities.

(o)                                 The Company agrees to
comply with all the terms and conditions of the Registration Rights Agreement
and all agreements set forth in the representation letters of the Company to
DTC relating to the approval of the Securities by DTC for “book entry”
transfer.

(p)                                 The Company will take
such steps as shall be necessary to ensure that neither the Company nor any of
the its subsidiaries becomes an “investment company” within the meaning of such
term under the Investment Company Act of 1940, as amended.

(q)                                 The Company will do
and perform all things required or necessary to be done and performed under
this Agreement by it prior to the Closing Date, and to satisfy all conditions
precedent to the Initial Purchasers’ obligations hereunder to purchase the
Securities.

 22
 

6.                                       Expenses. 
Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated, the Company
agrees, to pay all costs, expenses, fees and taxes incident to and in
connection with: (i) the preparation, printing, filing and distribution of the
Preliminary Offering Memorandum, the Pricing Disclosure Package and the
Offering Memorandum (including, without limitation, financial statements and
exhibits) and all amendments and supplements thereto (including the fees,
disbursements and expenses of the Company’s accountants and counsel, but not,
however, legal fees and expenses of the Initial Purchasers’ counsel incurred in
connection therewith); (ii) the preparation, printing (including, without
limitation, word processing and duplication costs) and delivery of this
Agreement, the Indenture, the Registration Rights Agreement, all Blue Sky
memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection therewith and with the Exempt
Resales (but not, however, legal fees and expenses of the Initial Purchasers’
counsel incurred in connection with any of the foregoing other than fees of
such counsel plus reasonable disbursements incurred in connection with the
preparation, printing and delivery of such Blue Sky memoranda, not to exceed
$7,500); (iii) the issuance and delivery by the Company of the Securities and
any taxes payable in connection therewith; (iv) the qualification of the
Securities for offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, the reasonable fees and
disbursements of the Initial Purchasers’ counsel relating to such registration
or qualification); (v) the furnishing of such copies of the Pricing Disclosure
Package and the Offering Memorandum, and all amendments and supplements
thereto, as may be reasonably requested for use in connection with the Exempt
Resales; (vi) the preparation of certificates for the Securities (including,
without limitation, printing and engraving thereof); (vii) the application for
quotation of the Securities in the PORTAL MarketSM (including all disbursements and listing
fees); (viii) the approval of the Securities by DTC for “book-entry” transfer
(including fees and expenses of counsel); (ix) the rating of the Securities;
(x) the obligations of the Trustee, any agent of the Trustee and the counsel
for the Trustee in connection with the Indenture and the Securities; (xi) the
performance by the Company of their other obligations under this Agreement; and
(xii) all travel expenses (consistent with the Company’s travel policy) of each
Initial Purchaser and the Company’s officers and employees and any other
expenses of each Initial Purchaser and the Company in connection with attending
or hosting meetings with prospective purchasers of the Securities, and expenses
associated with any electronic road show.

7.                                       Conditions to Initial Purchasers’ Obligations.  The respective obligations of the Initial
Purchasers hereunder are subject to the accuracy, when made and on and as of
the Closing Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:

(a)                                  The Initial
Purchasers shall not have discovered and disclosed to the Company on or prior
to the Closing Date that the Pricing Disclosure Package or the Offering
Memorandum, or any amendment or supplement thereto, contains an untrue
statement of a fact which, in the opinion of Latham & Watkins LLP, counsel
to the Initial Purchasers, is material or omits to state a fact which, in the
opinion of such counsel, is material and is necessary to make the statements
therein not misleading.

 23
 

(b)                                 All corporate
proceedings and other legal matters incident to the authorization, form and
validity of this Agreement, the Securities, the Registration Rights Agreement,
the Indenture, the Pricing Disclosure Package and the Offering Memorandum, and
all other legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material respects
to counsel for the Initial Purchasers, and the Company shall have furnished to
such counsel all documents and information that they may reasonably request to
enable them to pass upon such matters.

(c)                                  (i) Cooley Godward
Kronish LLP shall have furnished to the Initial Purchasers its written opinion,
as counsel to the Company, addressed to the Initial Purchasers and dated the
Closing Date, substantially in the form of Exhibit C-1 hereto.

(ii) Grantland Bryce, General
Counsel of the Company, shall have furnished to the Initial Purchasers its
written opinion, as counsel to the Company, addressed to the Initial Purchasers
and dated the Closing Date, substantially in the form of Exhibit C-2
hereto.

(d)                                 (i) Knobbe Martens
Olson & Bear shall have furnished to the Initial Purchasers its written
opinion, as intellectual property counsel to the Company, addressed to the
Initial Purchasers and dated the Closing Date, substantially in the form of Exhibit
D-1 hereto.

(ii) The Elmore Patent
Law Group shall have furnished to the Initial Purchasers its written opinion,
as intellectual property counsel to the Company, addressed to the Initial
Purchasers and dated the Closing Date, substantially in the form of Exhibit
D-2 hereto. 

(e)                                  The
Initial Purchasers shall have received from Latham & Watkins LLP, counsel
for the Initial Purchasers, such opinion or opinions, dated the Closing Date,
with respect to the issuance and sale of the Securities, the Pricing Disclosure
Package, the Offering Memorandum and other related matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished to such
counsel such documents and information as they reasonably request for the
purpose of enabling them to pass upon such matters.

(f)                                    At
the time of execution of this Agreement, the Initial Purchasers shall have
received from Ernst & Young LLP a letter, in form and substance
satisfactory to the Initial Purchasers, addressed to the Initial Purchasers and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Pricing Disclosure Package, as of a date not more than three days prior to the
date hereof), the conclusions and findings of such firm with respect to the
financial information and (iii) covering such other matters as are ordinarily
covered by accountants’ “comfort letters” to underwriters in connection with
registered public offerings.

(g)                                 With
respect to the letter of Ernst & Young LLP referred to in the preceding
paragraph and delivered to the Initial Purchasers concurrently with the
execution of this Agreement (the “initial letter”),
the Company shall have furnished to the Initial Purchasers a letter (the “bring-down letter”) of such accountants, addressed to the
Initial Purchasers and

 24
 

dated the Closing Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the Closing Date (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in each of the Pricing Disclosure Package or the Offering
Memorandum, as of a date not more than three days prior to the date of the
Closing Date), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set forth in
the initial letter.

(h)                                 Except
as described in the Pricing Disclosure Package, (i) neither the Company nor any
of its subsidiaries shall have sustained, since the date of the latest audited
financial statements included in the Pricing Disclosure Package, any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree or (ii) since such date, there shall not
have been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the condition (financial or otherwise),
results of operations, stockholders’ equity, properties, management, business
or prospects of the Company and its subsidiaries, taken as a whole, the effect
of which, in any such case described in clause (i) or (ii), is, individually or
in the aggregate, in the judgment of the Representative, so material and
adverse as to make it impracticable or inadvisable to proceed with the offering
or the delivery of the Securities being delivered on the Closing Date on the
terms and in the manner contemplated in the Offering Memorandum.

(i)                                     The
Company shall have furnished or caused to be furnished to the Initial
Purchasers on the Closing Date certificates of an executive officer of the
Company stating that:

(i)                                     The
representations, warranties and agreements of the Company in Section 2 are
true and correct on and as of the Closing Date, and the Company has complied
with all the agreements contained herein and satisfied all the conditions on
its part required hereunder to be performed or satisfied hereunder at or prior
to the Closing Date; and

(ii)                                  They have examined
the Pricing Disclosure Package and the Offering Memorandum, and, in their opinion,
(A) the Pricing Disclosure Package, as of the Applicable Time and as of the
Closing Date, and the Offering Memorandum, as of its date and as of the Closing
Date, did not and do not contain any untrue statement of a material fact and
did not and do not omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (B) since the
Applicable Time with respect to the Pricing Disclosure Package and the date of
the Offering Memorandum with respect to the Offering Memorandum, no event has
occurred which should have been set forth in a supplement or amendment to the
Pricing Disclosure Package or the Offering Memorandum that has not been so
disclosed; provided that no representation or
warranty is made as to information contained in or omitted from either the
Pricing Disclosure Package or the Offering Memorandum in reliance upon and in
conformity with written information furnished to the Company through the
Representative by or on behalf of any Initial Purchaser specifically for
inclusion therein, which information is specified in Section 8(e); and

 25
 

(iii)                               Except as described in the each of the Pricing Disclosure Package and
the Offering Memorandum, (A) neither the Company nor any of its
subsidiaries shall have sustained, since the date of the latest audited
financial statements included in the Pricing Disclosure Package, any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree or (B) since such date, there shall not
have been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the condition (financial or otherwise),
results of operations, stockholders’ equity, properties, management, business
or prospects of the Company and its subsidiaries, taken as a whole, the effect
of which, in any such case described in clause (A) or (B), is, individually or
in the aggregate, in their judgment, so material and adverse as to make it
impracticable or inadvisable to proceed with the offering or the delivery of
the Securities being delivered on the Closing Date on the terms and in the
manner contemplated in the Offering Memorandum.

(j)                                     The Securities
shall have been designated for trading on the PORTAL MarketSM.

(k)                                  The Company shall
have executed and delivered the Registration Rights Agreement, and the Initial
Purchasers shall have received a copy thereof, duly executed by the Company
(with an original signature page to follow).

(l)                                     The Company and
the Trustee shall have executed and delivered the Indenture, and the Initial
Purchasers shall have received a copy thereof, duly executed by the Company and
the Trustee (with an original signature page to follow).

(m)                               Subsequent to the
execution and delivery of this Agreement there shall not have occurred any of
the following:  (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or
materially limited or the settlement of such trading generally shall have been
materially disrupted or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or Governmental Authority having jurisdiction, (ii) a banking
moratorium shall have been declared by federal or state authorities, (iii) the
United States shall have become engaged in hostilities, there shall have been
an escalation in hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse change in general economic,
political or financial conditions, including, without limitation, as a result
of terrorist activities after the date hereof (or the effect of international
conditions on the financial markets in the United States shall be such), as to
make it, in the judgment of the Representative, impracticable or inadvisable to
proceed with the offering or delivery of the Securities being delivered on the
Closing Date on the terms and in the manner contemplated in the Offering
Memorandum or that, in the judgment of the Representative, would materially and
adversely affect the financial markets or the markets for the Securities and
other debt securities.

 26
 

(n)                                 The Company shall have
furnished to the Initial Purchasers a certificate dated the Closing Date, of
the Chief Financial Officer of the Company as to the solvency of the Company
following the consummation of the transactions.

The several obligations of the Initial Purchasers to
purchase Additional Securities hereunder are subject to the delivery to the
Representative on the applicable Option Closing Date of such documents as the
Representative may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Securities to be
sold on such Option Closing Date and other matters related to the issuance of
such Additional Securities.

8.                                       Indemnification and Contribution.

(a)                                  The Company hereby
agrees to indemnify and hold harmless each Initial Purchaser, its directors,
officers and employees and each person, if any, who controls any Initial
Purchaser within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not limited
to, any loss, claim, damage, liability or action relating to purchases and sales
of the Securities), to which that Initial Purchaser, director, officer,
employee or controlling person may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in (A) the Pricing Disclosure
Package or the Offering Memorandum or in any amendment or supplement thereto,
(B) any Blue Sky application or other document prepared or executed by the
Company (or based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Securities under
the securities laws of any state or other jurisdiction (any such application, document
or information being hereinafter called a “Blue
Sky Application”) or (C)
any roadshow or investor presentations made to investors by the Company
(whether in person or electronically) (“Marketing Materials”),
or (ii) the omission or alleged omission to state in the Pricing Disclosure
Package or the Offering Memorandum, or in any amendment or supplement thereto,
or in any Blue Sky Application or in any Marketing Materials, any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and shall reimburse
each Initial Purchaser and each such director, officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably incurred
by that Initial Purchaser, director, officer, employee or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred; provided, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in the Pricing
Disclosure Package or the Offering Memorandum, or in any such amendment or
supplement thereto, or in any Blue Sky Application or in any Marketing
Materials, in reliance upon and in conformity with written information
concerning such Initial Purchaser furnished to the Company through the
Representative by or on behalf of any Initial Purchaser specifically for
inclusion therein, which information consists solely of the information
specified in Section 8(e).  The foregoing
indemnity agreement is in addition to any liability that the Company may
otherwise have to any

 27
 

Initial Purchaser or to any director, officer, employee or controlling
person of that Initial Purchaser.

(b)                                 Each Initial
Purchaser, severally and not jointly, hereby agrees to indemnify and hold
harmless the Company, its officers and employees, each of its directors, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer, employee or
controlling person may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Pricing Disclosure Package or
the Offering Memorandum or in any amendment or supplement thereto, (B) any Blue
Sky Application, or (C) any Marketing Materials or (ii) the omission or alleged
omission to state in the Pricing Disclosure Package or the Offering Memorandum,
or in any amendment or supplement thereto, or in any Blue Sky Application or in
any Marketing Materials any material fact necessary to make the statements
therein not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information concerning such
Initial Purchaser furnished to the Company through the Representative by or on
behalf of that Initial Purchaser specifically for inclusion therein, which
information is limited to the information set forth in Section 8(e).  The foregoing indemnity agreement is in
addition to any liability that any Initial Purchaser may otherwise have to the
Company or any such director, officer, employee or controlling person.

(c)                                  Promptly after
receipt by an indemnified party under this Section 8 of notice of any claim or
the commencement of any action, the indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this Section
8, notify the indemnifying party in writing of the claim or the commencement of
that action; provided, that the
failure to notify the indemnifying party shall not relieve it from any
liability that it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and; provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability that it may have to
an indemnified party otherwise than under this Section 8.  If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and,
to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. 
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided, that the Initial Purchasers
shall have the right to employ counsel to represent jointly the Initial
Purchasers and their respective directors, officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Initial Purchasers against the Company
under this Section 8, if (i) the Company and the Initial Purchasers shall have
so mutually agreed; (ii) the Company has failed within a reasonable time to
retain counsel reasonably satisfactory to the Initial Purchasers; (iii) the
Initial Purchasers and their respective directors, officers, employees and
controlling persons shall have reasonably

 28
 

concluded, based on the advice of counsel, that there may be legal
defenses available to them that are different from or in addition to those
available to the Company; or (iv) the named parties in any such proceeding
(including any impleaded parties) include both the Initial Purchasers or their
respective directors, officers, employees or controlling persons, on the one
hand, and the Company, on the other hand, and representation of both sets of
parties by the same counsel would present a conflict due to actual or potential
differing interests between them, and in any such event the fees and expenses
of such separate counsel shall be paid by the Company.  No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such settlement
or judgment.

(d)                                 If the indemnification
provided for in this Section 8 shall for any reason be unavailable to or
insufficient to hold harmless an indemnified party under Section 8(a) or 8(b)
in respect of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Initial Purchasers, on the other, from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, on the one hand, and the Initial Purchasers, on the other, with
respect to the statements or omissions that resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations.  The relative
benefits received by the Company, on the one hand, and the Initial Purchasers,
on the other, with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities
purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting discounts and commissions
received by the Initial Purchasers with respect to the Securities purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the Securities under this Agreement as set forth on the cover
page of the Offering Memorandum.  The
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, or the
Initial Purchasers, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission.  The Company and the Initial
Purchasers agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were to be determined by pro rata allocation
(even if the Initial Purchasers were treated as one entity for such purpose) or
by any other method of

 29
 

allocation that does not take into account the equitable considerations
referred to herein.  The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 8(d)
shall be deemed to include, for purposes of this Section 8(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.  Notwithstanding the provisions of this
Section 8(d), no Initial Purchaser shall be required to contribute any amount
in excess of the amount by which the net proceeds from the sale to Eligible
Purchasers of the Securities initially purchased by it exceeds the amount of any
damages that such Initial Purchaser has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.  The
Initial Purchasers’ obligations to contribute as provided in this Section 8(d)
are several in proportion to their respective underwriting obligations and not
joint.

(e)                                  The Initial
Purchasers severally confirm and the Company acknowledges and agrees that the
statements with respect to the offering of the Securities by the Initial
Purchasers set forth in the second sentence of the third paragraph, the third
sentence of the paragraph under the caption entitled “Restrictions on Resale”
and the first paragraph under the caption entitled “Stabilization, Short
Positions, Market Making and Trading” of the section entitled “Plan of Distribution”
in the Pricing Disclosure Package and the Offering Memorandum are correct and
constitute the only information concerning such Initial Purchasers furnished in
writing to the Company by or on behalf of the Initial Purchasers specifically
for inclusion in the Pricing Disclosure Package and the Offering Memorandum or
in any amendment or supplement thereto.

9.                                       Defaulting Initial Purchasers.  If on the Closing Date, or on an Option
Closing Date, as the case may be, any Initial Purchaser defaults in the performance
of its obligations under this Agreement, the remaining non-defaulting Initial
Purchasers shall be obligated to purchase the Securities that the defaulting
Initial Purchaser agreed but failed to purchase on the Closing Date or the
Option Closing Date, as the case may be, in the respective proportions that the
principal amount of Securities set opposite the name of each remaining
non-defaulting Initial Purchaser in Schedule I hereto bears to the total
principal amount of Securities set opposite the names of all the remaining
non-defaulting Initial Purchasers in Schedule I hereto; provided, that the remaining
non-defaulting Initial Purchasers shall not be obligated to purchase any of the
Securities on the Closing Date or the Option Closing Date, as the case may be,
if the aggregate principal amount of Securities that the defaulting Initial
Purchaser or Initial Purchasers agreed but failed to purchase on such date
exceeds 9.09% of the aggregate principal amount of Securities to be purchased
on the Closing Date, or on the Option Closing Date, as the case may be, and any
remaining non-defaulting Initial Purchasers shall not be obligated to purchase
more than 110% of the aggregate principal amount of Securities that it agreed
to purchase on the Closing Date, or on the Option Closing Date, as the case may
be, pursuant to the terms of Section 3. 
If the foregoing maximums are exceeded, the remaining non-defaulting
Initial Purchasers, or those other Initial Purchasers satisfactory to the
Initial Purchasers who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them,
all the Securities to be purchased on the Closing Date, or on the Option
Closing Date, as the case may be.

 30
 

If other Initial Purchasers
are obligated or agree to purchase the Securities of a defaulting or
withdrawing Initial Purchaser, either the remaining Initial Purchasers or the
Company may postpone the Closing Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Initial Purchasers may be necessary in the Pricing Disclosure
Package, the Offering Memorandum or in any other document or arrangement.

If the remaining Initial
Purchasers or other Initial Purchasers satisfactory to the Initial Purchasers
do not elect to purchase:  (a) the
Securities that the defaulting Initial Purchaser or Initial Purchasers agreed
but failed to purchase on the Closing Date, this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchaser or the
Company; or (b) the Additional Securities that the defaulting Initial
Purchaser or Initial Purchasers agreed but failed to purchase on the Option
Closing Date, the non-defaulting Initial Purchasers shall have, the option to
either: (i) terminate their obligation hereunder to purchase the
Additional Securities to be sold on such Option Closing Date; or
(ii) purchase not less than the principal amount of Additional Securities
that such non-defaulting Initial Purchaser would have been obligated to
purchase in the absence of such default.

As used in this
Agreement, the term “Initial Purchaser” includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in Schedule
I hereto that, pursuant to this Section 10, purchases Securities that a
defaulting Initial Purchaser agreed but failed to purchase.

Nothing contained herein shall relieve: (a) a
defaulting Initial Purchaser of any liability it may have to the Company for
damages caused by its default; or (b) the Company of any liability for the
payment of expenses to the extent set forth in Sections 7 and 12. 

10.                                 Termination.  The
obligations of the Initial Purchasers hereunder may be terminated by the
Initial Purchasers by notice given to and received by the Company prior to
delivery of and payment for the Securities if, prior to that time, any of the
events described in Sections 7(g) or (l) shall have occurred or if the Initial
Purchasers shall decline to purchase the Securities for any reason permitted
under this Agreement.

11.                                 Reimbursement of Initial
Purchasers’ Expenses.  If (a) the Company fails to tender the
Securities for delivery to the Initial Purchasers or (b) the Initial Purchasers
shall decline to purchase the Securities because any of the conditions set
forth in Section 7 of this Agreement is not met, the Company shall reimburse
the Initial Purchasers for all reasonable out-of-pocket expenses (including
fees and disbursements of counsel) incurred by the Initial Purchasers in
connection with this Agreement and the proposed purchase of the Securities, and
upon demand the Company shall pay the full amount thereof to the Initial
Purchasers.

12.                                 Notices, etc.  All statements, requests, notices and
agreements hereunder shall be in writing, and:

(a)                                  if to any Initial
Purchaser, shall be delivered or sent by hand delivery, mail, telex, overnight
courier or facsimile transmission to Lehman Brothers Inc., 745 Seventh Avenue,
New York, New York  10019, Attention:  Syndicate Registration (Fax:  646-834-8133)

 31
 

with a copy to Latham & Watkins LLP, 12636 High Bluff Drive, Suite
400, San Diego, California 92130, Attention: 
Faye H. Russell (Fax: 
858-523-5450), and with a copy, in the case of any notice pursuant to
Section 8(c), to the Director of Litigation, Office of the General Counsel,
Lehman Brothers Inc., 399 Park Avenue, 10th Floor, New York, New York  10022 (Fax: 
212-520-0421);

(b)                                 if to the Company,
shall be delivered or sent by mail, telex, overnight courier or facsimile
transmission to Isis Pharmaceuticals, Inc., 1896 Rutherford Road, Carlsbad,
California 92008, Attention:  B. Lynne
Parshall (Fax: 760-603-4650), with a copy to (i) General Counsel (Fax:
760-268-4922) and (ii) Cooley Godward Kronish LLP, 4401 Eastgate Mall, San
Diego, California 92121, Attention: Julie M. Robinson (Fax: 858-550-6420);

provided, that
any notice to an Initial Purchaser pursuant to Section 8(c) shall be delivered
or sent by hand delivery, mail, telex or facsimile transmission to such Initial
Purchaser at its address set forth in its acceptance telex to Lehman Brothers
Inc., which address will be supplied to any other party hereto by Lehman
Brothers Inc. upon request.  Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof.  The Company shall be
entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Initial Purchasers by Lehman Brothers Inc.

13.                                 Persons Entitled to Benefit of Agreement.  This Agreement shall inure to the benefit of
and be binding upon the Initial Purchasers, the Company, and their respective
successors.  This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except
that the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of
directors, officers and employees of the Initial Purchasers and each person or
persons, if any, controlling any Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to the
extent necessary for such person to exercise its rights under Section 8
hereof.  Nothing in this Agreement is intended
or shall be construed to give any person, other than the persons referred to in
this Section 14, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.

14.                                 Survival. 
The respective indemnities, representations, warranties and agreements
of the Company and the Initial Purchasers contained in this Agreement or made
by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Securities and shall remain in full
force and effect, regardless of any investigation made by or on behalf of any
of them or any person controlling any of them.

15.                                 Definition of the Terms “Business Day,” “Affiliate”
and “Subsidiary.”  For
purposes of this Agreement, (a) “business day” means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) “affiliate” and
“subsidiary” have the meanings set forth in Rule 405 under the Securities Act.

16.                                 Governing Law.  This Agreement shall be
governed by and construed in accordance with the laws of New York.

 32
 

17.                                 No Fiduciary Duty. 
The Company acknowledges and agrees that in connection with this
offering, or any other services the Initial Purchasers may be deemed to be
providing hereunder, notwithstanding any preexisting relationship, advisory or
otherwise, between the parties or any oral representations or assurances
previously or subsequently made by the Initial Purchasers: (i) no fiduciary or
agency relationship between the Company, and any other person, on the one hand,
and the Initial Purchasers, on the other, exists; (ii) the Initial Purchasers
are not acting as advisors, expert or otherwise, to the Company, including,
without limitation, with respect to the determination of the purchase price of
the Securities, and such relationship between the Company, and the Initial
Purchasers is entirely and solely commercial, based on arms-length
negotiations; (iii) any duties and obligations that the Initial Purchasers may
have to the Company shall be limited to those duties and obligations specifically
stated herein; and (iv) the Initial Purchasers and their respective affiliates
may have interests that differ from those of the Company.  The Company hereby waive any claims that the
Company may have against the Initial Purchasers with respect to any breach of
fiduciary duty in connection with the Securities.

18.                                 Counterparts.  This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.

19.                                 Headings. 
The headings herein are inserted for convenience of reference only and
are not intended to be part of, or to affect the meaning or interpretation of,
this Agreement.

 33
 

If the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers, please indicate your acceptance
in the space provided for that purpose below.

	
  

  	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ISIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ B. Lynne Parshall

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  B. Lynne Parshall

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Executive Vice President, Chief

  Financial Officer & Secretary

  
						

 

Accepted:

LEHMAN BROTHERS INC.

COWEN AND COMPANY, LLC

LEERINK SWANN & CO., INC

NEEDHAM & COMPANY, LLC

By LEHMAN BROTHERS INC., as Authorized Representative

	
  By 

  	
  /s/ Tran Nguyen

  	
   

  
	
   

  	
  Name:

  	
  Tran Nguyen

  
	
   

  	
  Title:

  	
  Vice President

  
				

 

 34

SCHEDULE I

	
  Initial
  Purchasers

  	
   

  	
  Principal

  Amount of

  Firm Securities

  to be

  Purchased

  	
   

  
	
  Lehman Brothers Inc

  	
   

  	
  $

  	
  77,500,000

  	
   

  
	
  Cowen and Company, LLC

  	
   

  	
  37,500,000

  	
   

  
	
  Leerink Swann &
  Co., Inc.

  	
   

  	
  5,250,000

  	
   

  
	
  Needham & Company,
  LLC

  	
   

  	
  4,750,000

  	
   

  
	
  Total

  	
   

  	
  $

  	
  125,000,000

  	
   

  

 

Schedule II

 

ISIS
PHARMACEUTICALS, INC.

PRICING
TERM SHEET

 

 

Initial Purchasers:

 

Amount (face):

Security Offered:

Issuer:

Underlying (Ticker):

 

Issue Price:

Coupon / YTM:

Stock Price at Pricing:

Conversion Price:

Bond Denomination:

Conversion Rate:

 

Maturity:

 

Call Feature:

Call Price Stepdown:

 

Puts:

 

1st Coupon: 

 

Coupon Payment Dates:

 

Gross Spread (3.00%)

Management 

Underwriting

Selling Concession

 

Offering Status:

 

144A CUSIP:

Registered CUSIP:

 

Trade Date:

Settlement Date:

 

Pot Split:

 

Contingent Conversion:

 

Contingent Interest:

 

Change of Control Protection:

 

Billing, Delivering, and Stabilizing:

 

Initial Purchasers' Option:

 

Conversion Rate Cap:

 

 II-1

Schedule III

 

1.                                       Electronic
Road show slides presented to potential investors.

 

2.                                       Term
sheet containing the terms of the securities, substantially in the form of
Schedule II.

 III-1

Schedule IV

 

Directors

Spencer R. Berthelsen, M.D.

Stanley T. Crooke, M.D., Ph.D.

Richard D. DiMarchi

Joseph Klein

Frederick T. Muto

B. Lynne Parshall, J.D.

John C. Reed, M.D., Ph.D.

Joseph H. Wender

 

Officers

C. Frank Bennett, Ph.D.

David J. Ecker, Ph.D.

Arthur A. Levin, Ph.D.

Michael J. Treble

Mark K. Wedel, M.D., J.D.

 IV-1Promissory Note

    
      

      

    

      EXHIBIT
        10.17

    
 

    

        PROMISSORY
          NOTE

      

      
        

          
            	$30,000.00	
                    April
                      12, 2006

                  

          

                

      

      

        1. Obligation.
          For value received, LitFunding Corp., a Nevada corporation (the “Maker”), with
          offices at 6375 Pecos Road, Suite 217, Las Vegas, Nevada 89120 promises
          to pay
          to Imperial Capital Holdings, LLC, with offices at Apdo. 10559-1000, San
          Jose,
          Costa Rica, or its order (the “Holder”) the Principal Amount and Interest (both
          as defined below) in the manner and upon the terms and conditions set forth
          herein.

      

        2. Amount
          and Payment. The principal amount (“Principal Amount”) of this Promissory
          Note (the “Note”) is Thirty Thousand Dollars and No Cents ($30,000.00). This
          Note shall bear interest on the unpaid Principal Amount of twelve percent
          (12%)
          per annum simple interest. The entire Principal Amount and accrued Interest
          shall be due and payable on July 12, 2006. All interest payable on the
          Principal
          Amount of this Note shall be calculated on the basis of a 360-day year.
          This
          Note may be prepaid in whole or part, without penalty, at any time.

      

        3. Manner
          and Place of Payment. Payment of the Principal Amount and Interest shall be
          made in lawful money of the United States of America. Such payment shall
          be
          delivered to the address of the Holder set forth in the records of the
          Maker or
          at such other place as the Holder shall have designated to the Maker in
          writing.

      

        4. Events
          of Default. The following shall each constitute an “Event of Default” under
          this Note: (i) default in the payment when due of Principal Amount and
          Interest,
          and such default shall continue for a period of five (5) days; and (ii)
          any of
          the following events of bankruptcy or insolvency: (A) the Maker shall file
          a
          voluntary bankruptcy or reorganization petition under the provisions of
          the
          Federal Bankruptcy Act, any other bankruptcy or insolvency law or any other
          similar statute applicable to the Maker (“Bankruptcy Laws”), (B) the Maker shall
          consent to the filing of any bankruptcy or reorganization petition against
          it
          under any Bankruptcy Law, or (C) the Maker shall file a petition or answer
          or
          consent seeking relief or assisting in seeking relief for the Maker in
          a
          proceeding under any Bankruptcy Law or any answer admitting the material
          allegations of a petition filed against it in such a
          proceeding.

      

        5. Remedies
          Upon Event of Default. Upon the occurrence of an Event of Default specified
          in Section 4 above, the Holder shall have to right to declare that all
          the
          Principal Amount of and Interest on this Note shall, at the option of Holder,
          be
          immediately due and payable, without further presentment, notice or demand
          for
          payment. The Maker hereby agrees and acknowledges that the exercise of
          such
          rights shall not be construed as an election of remedy by the Holder or
          the
          Holder’s waiver of right to sue on this Note. In the event of default, the
          unpaid Principal and Interest shall bear Interest at a default rate of
          twenty-four percent (24%) or the maximum amount chargeable by law if less.
          

      

        6. Expenses
          of Enforcement. The Maker agrees to pay all reasonable costs and expenses,
          including, without limitation, reasonable attorneys’ fees, as a court of
          competent jurisdiction shall award, which the Holder shall incur in connection
          with any legal action or legal proceeding commenced for the collection
          of this
          Note or the exercise, preservation or enforcement of the Holder’s rights and
          remedies thereunder.

      

        7. Cumulative
          Rights and Remedies. All rights and remedies of the Holder under this Note
          shall be cumulative and not alternative and shall be in addition to all
          rights
          and remedies available to the Holder under applicable law.

      

        8. Governing
          Law. This Note shall be governed by and interpreted and construed in
          accordance with the laws of the Country of Costa Rica.

      

        IN
          WITNESS WHEREOF, Maker has caused this Note to be executed and delivered
          as of
          the day and year first above written.

       

      

          
            	 	 	 	“Maker”
	 	 	 	LitFunding
                    Corp.
                    
	 	 	 	a Nevada
                    corporation
	 	 	 	 
	 	 	 	 
	 	 	
                    By:  
                      

                  	/s/ Morton
                    Reed
	
                  	 	 	
                    
Morton
                    Reed, Chief Executive Officer

          

         

      

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
 

      PROMISSORY
        NOTE EXTENSION AGREEMENT

    

      
        	$30,000.00	
                 July
                  17,
                  2006

              

      

            

      This
        Promissory Note Extension Agreement is executed as of the 12th
        day of
        October, 2006. 

    

      For
        value
        received, LitFunding Corp., a Nevada corporation (the “Maker”), with offices at
        6375 Pecos Rd., Las Vegas, Nevada 89120 promised to pay to Imperial Capital
        Holdings, LLC, with offices at Apdo. 10559-1000, San Jose, Costa Rica, or
        its
        order (the “Holder”) the Principal Amount and Interest (both as defined below)
        in the manner and upon the terms and conditions as set forth in that Promissory
        Note (“Note”) in the sum of Thirty thousand dollars ($30,000), dated April 12,
        2006, which Note became due and payable on July 12, 2006, and was subsequently
        extended to have a maturity date of October 12, 2006.

    

      By
        execution by the parties herein, this Promissory Note Extension Agreement
        extends the Maturity Date of the Note to and including March 31, 2007. All
        terms
        and conditions of the Note shall remain the same other than the Maturity
        Date,
        which shall be March 31, 2007. In consideration for the second extension
        of the
        Note, Maker agrees to pay to Holder an additional 200,000 shares of common
        stock
        of Maker, which common stock shall be consideration for the extension of
        the
        Note in addition to constituting the accrued interest on the Note through
        the
        Maturity Date of October 12, 2006. The 200,000 shares of common stock shall
        be
        registered pursuant to Form SB-2, which registration shall be filed with
        the
        Securities and Exchange Commission, no later than seventy five (75) days
        from
        the date hereof. 

    

    

      IN
        WITNESS WHEREOF, Maker and Holder have caused this Promissory Note Extension
        Agreement to be executed and delivered as of the day and year first above
        written.

     

     

      
        	 	 	 	“Maker”
	 	 	 	LitFunding
                Corp.
                
	 	 	 	a Nevada
                corporation
	 	 	 	 
	 	 	 	 
	 	 	
                By:  
                  

              	/s/ Morton
                Reed
	
              	 	 	
                
Morton
                Reed, Chief Executive Officer

      

     

     

      
        	 	 	 	
                “Holder”

              
	 	 	 	Imperial
                Capital
                Holdings, LLC.
	 	 	 	 
	 	 	 	 
	 	 	
                By:
                   

              	/s/ Maritza
                Sanabria
	
              	 	 	
                
Maritza
                Sanabria, Managing Director

      

     

    2

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