License Agreement

Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.


RESEARCH COLLABORATION


and


LICENSE AGREEMENT


between


BAYER AG


AND


CAMBRIDGE NEUROSCIENCE, INC. 2
TABLE OF CONTENTS


1. DEFINITIONS...............................................................1


1.1 Meaning.............................................................1


1.2 Affiliates..........................................................1


1.3 CNSI Know How.......................................................1


1.4 CNSI Patent Rights..................................................2


1.5 CNSI Technology.....................................................2


1.6 Competitive Product.................................................2


1.7 Cost of Research....................................................2


1.8 Data................................................................2


1.9 Decision Point......................................................3


1.10 Effective Date......................................................3


1.11 Field...............................................................3


1.12 Improvements........................................................3


1.13 Launch..............................................................3


1.14 Licensed Technology.................................................3


1.15 Major Market........................................................3


1.16 Market Approval.....................................................3


1.17 Net Sales...........................................................3


1.18 Phase I Study.......................................................3


1.19 Phase III Study.....................................................3


1.20 Primary Indication..................................................4


1.21 Product.............................................................4


1.22 Research Steering Committee.........................................4


1.23 Research Protocol...................................................4


1.24 Territory...........................................................4


2. RESEARCH AND DEVELOPMENT..................................................4


2.1 Research Steering Committee.........................................4


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2.1.1 Formation..................................................4


2.1.2 Membership.................................................4


2.1.3 Voting Powers..............................................4


2.1.4 Meetings...................................................5


2.1.5 Functions and Authority....................................5


2.1.6 Expenses...................................................6


2.1.7 Dispute Resolution.........................................6


2.1.8 Disbanding.................................................6


2.2 CNSI Research.......................................................6


2.2.1 Representation.............................................6


2.2.2 Scope of Research..........................................6


2.2.3 Payment....................................................6


2.2.4 Records and Audits.........................................6


2.2.5 Subcontracting.............................................7


2.2.6 Subcontractee Improvements.................................7


2.2.7 Independent Contractor.....................................7


2.2.8 Technology Transfer........................................7


2.2.9 Research Warranty..........................................8


2.2.10 Records and Reports........................................8


2.2.11 Rights in DATA.............................................8


2.3 BAYER Research and Development......................................8


2.3.1 Scope of Research..........................................8


2.3.2 Development Studies........................................8


2.3.3 Contracted Clinical Trials.................................8


2.3.4 Regulatory Filings.........................................8


2.3.5 Assistance.................................................9


2.3.6 Costs......................................................9


2.3.7 Reporting..................................................9


2.3.8 Diligence..................................................9


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2.4 Research Publications...............................................9


3. LICENSE GRANT


3.1 CNSI Grant of Patent Rights........................................10


3.2 Term of Grant......................................................10


3.3 Reservation of Rights CNSI.........................................10


3.4 CNSI Grant of Rights in Know How...................................10


3.5 CNSI Funded Research...............................................10


3.6 Term of Grant......................................................11


3.7 BAYER Grant of Rights..............................................11


3.8 Bankruptcy or Insolvency...........................................11


4. LICENSE FEE, MILESTONES AND ROYALTIES....................................11


4.1 Consideration for License Granted..................................11


4.2 Milestone Payments.................................................11


4.3 Royalty Payments...................................................12


4.3.1 Royalties for Patent Rights...............................12


4.3.2 Royalties for Know How....................................13


4.3.3 CNSI Royalties............................................14


4.3.4 Default on Third Party Contract...........................14


4.3.5 License to Third Party Patent Rights......................14


4.3.6 Cap on Royalties..........................................14


4.4 Accounting Records and Procedures..................................14


4.4.1 Royalties Payments........................................14


4.4.2 Currency..................................................15


4.4.3 Records and Audits........................................15


4.4.4 Confidentiality of Financial Reports......................15


4.4.5 Payment of Taxes..........................................15


4.4.6 Sublicensees..............................................15


4.4.7 Non-Product Related Sublicenses...........................16


5. SUPPLY OF MATERIAL 5
5.1 Research Material..................................................16


5.2 Other Material.....................................................16


5.3 BAYER Cost of Manufacture..........................................16


6. PRODUCT COMMERCIALIZATION................................................16


6.1 Right to Commercialize.............................................16


6.2 Co-Promotion.......................................................16


6.3 Cost of Commercialization..........................................16


6.4 Product Liability..................................................17


6.5 Trade Marks........................................................17


7. CONFIDENTIALITY..........................................................17


7.1 Definition.........................................................17


7.2 Obligations........................................................17


7.3 Exceptions.........................................................17


7.4 Term of Confidentiality............................................18


7.5 Return of Information..............................................18


7.6 Business Publications..............................................18


8. INVENTIONS AND PATENTS...................................................18


8.1 Rights In Inventions...............................................18


8.2 Sole Inventions....................................................18


8.3 Joint Inventions...................................................19


8.4 Invention Disclosure...............................................19


8.5 Know-how...........................................................19


8.6 CNSI Patent Maintenance............................................19


8.7 BAYER Patent Maintenance...........................................19


8.8 BAYER/CNSI Patents.................................................19


8.9 Assignment of Rights...............................................19


8.10 No Waiver..........................................................19


8.11 Cost of CNSI Patents...............................................19


8.12 Reimbursement of Costs.............................................20 6


8.13 No Further Interest in Patents/Applications........................20


9. PATENT INFRINGEMENT......................................................20


9.1 Infringement by Third Parties......................................20


9.1.1 Notification..............................................20


9.1.2 Initiating Proceedings....................................20


9.1.3 Distribution of Awards....................................20


9.1.4 Voluntary Disposition.....................................21


9.2 Claims Against Licensed Technology.................................21


9.2.1 Notice....................................................21


9.2.2 Damages...................................................21


9.2.3 Patent Indemnification....................................21


10. TERM AND TERMINATION.....................................................22


10.1 Term and Expiration................................................22


10.2 Termination by CNSI................................................22


10.3 Termination by BAYER...............................................22


10.3.1 Upon Written Notice.......................................22


10.3.2 Duty to Mitigate..........................................22


10.3.3 Without Cause.............................................23


10.3.4 With Cause................................................23


10.3.5 Termination Upon Reorganization...........................23


10.4 Disposition of Inventory...........................................23


11. REPRESENTATIONS AND WARRANTIES...........................................24


11.1 Corporate Existence and Power......................................24


11.2 Authorization and Enforcement of Obligations.......................24


11.3 Consents...........................................................24


11.4 No Conflict........................................................24


11.5 Authorization of Obligations.......................................24


11.6 CNSI Representations...............................................24


11.7 Certain Covenants of CNSI and BAYER................................25 7 12. MISCELLANEOUS............................................................25


12.1 Indemnification....................................................25


12.1.3 Force Majeure.............................................26


12.1.4 Survival..................................................26


12.1.5 Notice....................................................26


12.2 Waivers............................................................26


12.3 Applicable Law.....................................................26


12.4 Dispute Resolution.................................................27


12.5 Assignment.........................................................27


12.6 Severability.......................................................27


12.7 Integration Clause.................................................27


12.8 Amendment of Agreement.............................................27


APPENDICES


Appendix 1 CNSI KNOW HOW.................................................29


Appendix 2 CNSI PATENT RIGHTS............................................37


Appendix 3 RESEARCH PROTOCOL.............................................39


Appendix 4 CNSI THIRD PARTY CONTRACTS....................................47


Appendix 5 CNSI SUBCONTRACTEES AND PROPOSED BUDGET............................55 8


RESEARCH COLLABORATION
AND LICENSE AGREEMENT


This Agreement is between Cambridge NeuroScience, Inc., a Delaware corporation, with offices located at One Kendall Square, Building 700, Cambridge, MA 02139 ("CNSI"), and Bayer AG, a German corporation, on behalf of its Pharmaceutical Division, with offices located at D-51368 Leverkusen, Germany ("BAYER").


WHEREAS CNSI owns or is the exclusive licensee, through the*******************************************************, of certain technology and patent rights relating to glial growth factor 2 ("GGF2"), its manufacture and use for the treatment of multiple sclerosis and other pharmaceutical indications;


WHEREAS CNSI and BAYER are interested in forming a collaboration concerning the research, development, manufacture and commercialization of GGF2 product(s) where, generally, CNSI would license certain patent rights exclusively to BAYER, CNSI and BAYER both would collaborate on GGF2 research, and BAYER could develop, manufacture and commercialize GGF2 product(s) worldwide.


NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound hereby, the Parties hereto agree as follows:


Article 1
DEFINITIONS


1.1 Meaning: Whenever a term is written in this Agreement with capital
letters, it shall have the following meaning.


1.2 AFFILIATES. shall mean any business entity which directly or indirectly
controls, is controlled by, or is under common control with either
Party to this Agreement. A business entity shall be deemed to "control"
another business entity if it owns, directly or indirectly, more than
fifty percent of the outstanding voting securities, capital stock, or
other comparable equity or ownership interest of such business entity.
If the laws of the jurisdiction in which such entity operates prohibit
ownership by a Party or more than fifty percent (50%) , control shall
be deemed to exist at the maximum level of ownership allowed by such
jurisdiction.


1.3 CNSI KNOW HOW: shall mean all information and data including but not
limited to formulae, protocols, techniques and results of
experimentation and testing, which, except for published patent
applications which are also included within this definition, is
generally not known to the public, and in which CNSI holds rights, and
which provides or may provide a competitive advantage in relation to
research, development, manufacture, use and/or sale of PRODUCT. CNSI
KNOW HOW includes that information which exists at the EFFECTIVE DATE
and in which CNSI has either ownership or licensed rights such as those
which arise directly out of CNSI's conduct, or out of its contract
service providers conduct under previous agreements between CNSI and
other parties (see Appendix 4, CNSI Third Party Contracts). CNSI KNOW
HOW also includes all IMPROVEMENTS which arise after the EFFECTIVE DATE
either out of CNSI's or its contract service providers conduct under
this Agreement. CNSI KNOW HOW includes that information which is not
the subject of any patent application, as well as that information
which is the subject of a patent application that has not yet issued.
Such patent applications that have not issued as of the EFFECTIVE DATE
are included in Appendix 1, which is incorporated herein. Appendix 1
shall be updated periodically to include CNSI KNOW HOW embodied in
patent applications arising after the EFFECTIVE DATE and during the


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term of this Agreement, and CNSI KNOW HOW that is the subject of a
patent application shall be deemed to be and shall be transferred from
Appendix 1 to Appendix 2 (CNSI PATENT RIGHTS) upon grant.


1.4 CNSI PATENT RIGHTS: shall mean all rights held by CNSI in any of the
following patents: any patent issuing on any patent application
identified in Appendix 1, as well as any patent issuing from any
continuing applications of the patents listed in Appendix 2, such
applications including any divisions, continuations, and
continuation-in-part applications, as well as any patents issuing on
any reissue and/or reexamination application, and including any Patent
Term Restoration of any such patents. CNSI PATENT RIGHTS also includes
any foreign patents which correspond to or are generally equivalent to
those described above, and includes any patents in which CNSI holds
rights that claim IMPROVEMENTS. This definition includes CNSI's
interest in any patent rights CNSI may have in any joint invention with
BAYER or a third party, and includes any third party patent rights
licensed by CNSI that relate to CNSI TECHNOLOGY and (a) that exist at
the EFFECTIVE DATE and (b) that arise after the EFFECTIVE DATE (i.e.,
IMPROVEMENTS). CNSI PATENT RIGHTS that exist as of the EFFECTIVE DATE
are listed in Appendix 2, which is attached hereto and incorporated
herein. The Parties intend that Appendix 2 include all CNSI patent
rights that relate to CNSI TECHNOLOGY in the FIELD and are in existence
at the EFFECTIVE DATE, as well as all CNSI patent rights arising under
this Agreement. If at any time it is discovered that such CNSI PATENT
RIGHTS are not but should be included in Appendix 2, the Parties agree
to amend Appendix 2 accordingly, and such amendment will be
incorporated herein and shall supersede any previous Appendix 2.


1.5 CNSI TECHNOLOGY: shall mean GGF2 , neuregulin-1, DNA sequences,
protein(s) and other related materials covered by CNSI PATENT RIGHTS or
CNSI KNOW HOW, any modification and fraction thereof, including any
preparation containing GGF2, and/or any modification and/or fraction
thereof, as well as all materials relating to the manufacture, use
and/or delivery (including gene delivery) of GGF2, modifications and/or
fractions thereof. This definition includes the following : cDNA,
genomic DNA, vectors, cell lines and probes which relate to GGF2, any
modification and/or fraction thereof that CNSI owns or otherwise holds
rights in as of the EFFECTIVE DATE. This definition includes any and
all IMPROVEMENTS. *********************************.


1.6 COMPETITIVE PRODUCT : shall mean any drug product(s) that promotes the
growth and differentiation of glial cells and is used for the treatment
of a PRIMARY INDICATION or other indication contemplated hereunder,
that is sold by one or more third party which is not a Bayer
sublicensee or Affiliate, and the individual or cumulative sales or
other distribution of such third party product(s), in a given calendar
year in the applicable country, are equivalent to ******************or
more of NET SALES of PRODUCT in such country,


1.7 COST OF RESEARCH: shall mean actual costs incurred by CNSI for
conducting research hereunder calculated by adding (a) all out of
pocket costs incurred in a calendar year that are directly related to
research conducted by CNSI hereunder, as verified by itemized invoices
therefor, and (b) the cost of CNSI personnel who actively conduct
research in a calendar year hereunder at the annualized rate of
*************per full-time personnel for either Ph.D. or technical
personnel, calculated as a percent of the full time rate, depending on
what percent of time was actually spent conducting research hereunder
in a calendar year. The sum of (a) and (b) includes all direct and
indirect costs of CNSI hereunder.


1.8 DATA: is defined in Article 2.2.10 (Records and Reports).


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1.9 DECISION POINT: is not a defined term in this Agreement.


1.10 EFFECTIVE DATE: The date of the last signature required below or the
date of any required United States governmental approval or
registration of this transaction, whichever is later.


1.11 FIELD : shall mean all uses of the CNSI TECHNOLOGY in animals,
including humans, including but not limited to all therapeutic,
prophylactic, and diagnostic uses, except this definition does not
include the field of *************


1.12 IMPROVEMENTS: shall mean any information and/or material including, not
by way of limitation, know-how, discoveries, technology and information
of any type whatsoever, compositions, methods, processes, techniques
and the uses thereof, whether patented or not, that arise after the
EFFECTIVE DATE out of conduct by CNSI and/or its subcontractees as a
result of conduct under this Agreement. IMPROVEMENTS include any sole
CNSI IMPROVEMENT, and any CNSI IMPROVEMENT held jointly with BAYER or
with any subcontractee, as well as any subcontractee IMPROVEMENT in
which CNSI has or may obtain rights during this Agreement.


1.13 LAUNCH: shall mean the date of the first invoice for the sale of
PRODUCT in a MAJOR MARKET after receipt of governmental approval to
sell PRODUCT in that market.


1.14 LICENSED TECHNOLOGY: shall mean that CNSI TECHNOLOGY, the use of which,
but for the licenses granted hereunder, would infringe CNSI PATENT
RIGHTS or misappropriate CNSI KNOW HOW.


1.15 MAJOR MARKET: shall mean the United States, United Kingdom, Germany, or
France.


1.16 MARKET APPROVAL: shall mean, for each country in which sales of PRODUCT
is contemplated, the date upon which the last of all governmental
approvals required for the sale of PRODUCT in that country has been
granted.


1.17 NET SALES: shall mean the invoiced sales price billed to third party
customers by BAYER, its AFFILIATES and sublicensees less (a) actual
credits, allowances, discounts (including trade, cash, and quantity
discounts), and rebates to (including documented price reduction
programs) and charge backs from the account of such third party
customer for spoiled, damaged, out-dated, recalled or returned PRODUCT;
(b) amounts equivalent to five percent (5%) of the invoiced sales price
for PRODUCT as an allowance for transportation and insurance costs, and
(c) all direct taxes including sales, value-added and other direct
taxes incurred, as well as all customs fees, duties, surcharges and
other governmental charges incurred in connection with the exportation
or importation of PRODUCT for sale as far as they are not charged
separately to third party customers.


1.18 PHASE I STUDY: shall mean the first study designed for introduction of
a PRODUCT into humans for the primary purpose of determining the safety
of the PRODUCT.


1.19 PHASE III STUDY: shall mean the first study designed for administration
of PRODUCT to a number of human patients adequate to produce
statistically significant evidence of efficacy and designed for the
primary purpose of proving the efficacy of PRODUCT in order to obtain
approval of the Biological License Application therefor, or any
equivalent approval in any MAJOR MARKET.


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1.20 PRIMARY INDICATION: shall mean therapeutic or prophylactic uses
relating to multiple sclerosis and/or peripheral neuropathy. This
definition does not include any reference to diagnostic uses of
LICENSED TECHNOLOGY.


1.21 PRODUCT: shall mean that LICENSED TECHNOLOGY that is advanced for
development and/or sold by or on behalf of BAYER under this Agreement.


1.22 RESEARCH STEERING COMMITTEE: shall mean the committee comprising
representatives of CNSI and BAYER as defined in Article 2.1.


1.23 RESEARCH PROTOCOL: shall mean the program of research as described in
App ...