Document:

Seventy-Ninth Supplement Indenture

EXHIBIT 4.2 
 
(Real Estate Mortgage) 
 
PUGET SOUND ENERGY, INC. 
 
TO 
 
U.S. BANK NATIONAL ASSOCIATION, 
 
Trustee 
 

 
Seventy-Ninth Supplemental Indenture

 
Dated as of May 1, 2003 
 

 
Relating to First Mortgage Bonds, 
 
Pledged Bonds due Nine Months or More From Date of Issue 
 

 
Supplemental to Indenture dated
as of 
 
June 2, 1924, as supplemented and
modified 
 

 

 
(NOT PART OF INDENTURE)

 

 
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TEXT, INITIALS, REVISIONS OR NOTARY SEAL APPEARING OUTSIDE THESE MARGINS MAY DISQUALIFY THIS DOCUMENT FOR RECORDING 
 
 
THIS SEVENTY-NINTH SUPPLEMENTAL INDENTURE, made as of the 1st
day of May, 2003, by and between Puget Sound Energy, Inc., formerly Puget Sound Power & Light Company, a corporation duly organized and existing under and by virtue of the laws of the State of Washington (hereinafter sometimes called the
“Company”), party of the first part, and U.S. Bank National Association, a national banking association with a principal corporate trust office at 100 Wall Street, Suite 1600, in the city of New York and State of New York
10005 (successor to Old Colony Trust Company) (hereinafter sometimes called the “Trustee”), as Trustee under the First Mortgage (originally, and before modification thereof by certain supplemental indentures, called “First and
Refunding Mortgage”) from Puget Sound Power & Light Company, a Massachusetts corporation (hereinafter sometimes called the “Predecessor Company”), dated as of June 2, 1924 (said Mortgage being hereinafter sometimes called the
“Original Mortgage”), as supplemented and modified by all indentures supplemental thereto heretofore executed and delivered, party of the second part; 
 
WITNESSETH: that 
 
WHEREAS, the Predecessor Company did by the Original Mortgage, filed for record in the offices of the Auditors of the Counties of Chelan,
Clallam, Cowlitz, Douglas, Grant, Grays Harbor, Island, Jefferson, King, Kitsap, Kittitas, Lewis, Mason, Pacific, Pierce, Skagit, Snohomish, Thurston and Whatcom, all in the State of Washington, and left on file as a chattel mortgage in each of said
counties, convey and pledge certain property therein described to Old Colony Trust Company, as Trustee, to be held upon the trusts expressed in the Original Mortgage to equally secure an unlimited authorized amount of mortgage bonds (therein and
herein called the “Bonds”) issued or to be issued in one or more series, all as more fully provided in the Original Mortgage; and 
 
WHEREAS, the Predecessor Company, prior to September 1, 1954, had executed and delivered to the Trustee thirty-nine supplemental
indentures, supplementing and in certain respects modifying the Original Mortgage and providing for the execution, certification and delivery of Bonds of various series from time to time pursuant thereto (which Original Mortgage, as so supplemented
and modified, is therein and herein sometimes called the “First Mortgage”); and 
 

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WHEREAS, the Predecessor Company executed and delivered to the
Trustee a Fortieth Supplemental Indenture, dated as of September 1, 1954, which Supplemental Indenture is divided into two parts, designated as Part I and Part II, and Part I thereof provided for the establishment and the execution, certification
and delivery initially of Twenty-Five Million Dollars ($25,000,000) principal amount of a series of Bonds, designated as First Mortgage Bonds, 3-1/2% Series due 1984, and contained certain covenants, restrictions, conditions and provisions
affecting, and provided for certain modifications of, the First Mortgage (the First Mortgage, as so supplemented and modified by said Part I, being sometimes in said Fortieth Supplemental Indenture and herein called the “Revised First
Mortgage”) and Part II thereof provided for modifications of the Revised First Mortgage as therein set forth, which modifications became effective on October 20, 1955 (the Revised First Mortgage as so modified by Part II of the Fortieth
Supplemental Indenture as heretofore, hereby, and hereafter supplemented and modified being sometimes in said Part II and herein called the “Indenture” and references herein to Sections, Articles or other provisions of the Indenture being
to the revised or modified provisions thereof as set forth in Part II of the Fortieth Supplemental Indenture); and 
 
WHEREAS, the Predecessor Company has heretofore executed and delivered to the Trustee a Forty-First Supplemental Indenture dated as of
December 1, 1954, a Forty-Second Supplemental Indenture dated as of July 1, 1957, a Forty-Third Supplemental Indenture dated as of May 1, 1958, a Forty-Fourth Supplemental Indenture dated as of November l, 1959, and a Forty-Fifth Supplemental
Indenture dated as of April 1, 1960, all of which mortgaged, pledged, assigned, conveyed and transferred to the Trustee and subjected to the lien of the Indenture additional property acquired or constructed, and betterments, improvements and
additions made to the mortgaged property, since the execution and delivery of the Fortieth Supplemental Indenture; and 
 
WHEREAS, the Company has executed and delivered to the Trustee a Forty-Sixth Supplemental Indenture dated as of November 10, 1960, whereby
the Company has succeeded to the Predecessor Company with the same effect as if the Company had been named in the Indenture as the mortgagor company and in the Bonds and coupons as the obligor thereon or maker thereof, and the Predecessor Company
merged into the Company on November 16, 1960, whereupon the Company acquired all the property, real, personal or mixed, including all rights, privileges, easements, 
 

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licenses and franchises, described in the Indenture and
thereby conveyed and mortgaged or intended so to be, including also all such property acquired by the Predecessor Company since the execution and delivery of the Original Mortgage, which by the terms of the Indenture is subjected or intended to be
subjected to the lien thereof; and 
 
WHEREAS, the
Company has executed and delivered to the Trustee the supplemental indentures set forth herein: 
 

	 Supplemental Indenture

	 	 Dated as of

	 Forty-Seventh Supplemental Indenture
	 	 February 1, 1961

	 Forty-Eighth Supplemental Indenture
	 	 November 1, 1963

	 Forty-Ninth Supplemental Indenture
	 	 May 1, 1964

	 Fiftieth Supplemental Indenture
	 	 January 1, 1966

	 Fifty-First Supplemental Indenture
	 	 June 1, 1967

	 Fifty-Second Supplemental Indenture
	 	 February 1, 1969

	 Fifty-Third Supplemental Indenture
	 	 July 1, 1970

	 Fifty-Fourth Supplemental Indenture
	 	 October 1, 1972

	 Fifty-Fifth Supplemental Indenture
	 	 March 1, 1974

	 Fifty-Sixth Supplemental Indenture
	 	 November 1, 1974

	 Fifty-Seventh Supplemental Indenture
	 	 August 1, 1975

	 Fifty-Eighth Supplemental Indenture
	 	 October 1, 1976

	 Fifty-Ninth Supplemental Indenture
	 	 July 1, 1978

	 Sixtieth Supplemental Indenture
	 	 December 1, 1979

	 Sixty-First Supplemental Indenture
	 	 December 1, 1981

	 Sixty-Second Supplemental Indenture
	 	 July 1, 1984

	 Sixty-Third Supplemental Indenture
	 	 January 1, 1986

	 Sixty-Fourth Supplemental Indenture
	 	 April 1, 1986

	 Sixty-Fifth Supplemental Indenture
	 	 April 1, 1986

	 Sixty-Sixth Supplemental Indenture
	 	 August 1, 1986

	 Sixty-Seventh Supplemental Indenture
	 	 November 1, 1986

	 Sixty-Eighth Supplemental Indenture
	 	 September 1, 1987

	 Sixty-Ninth Supplemental Indenture
	 	 February 1, 1990

	 Seventieth Supplemental Indenture
	 	 October 1, 1990

	 Seventy-First Supplemental Indenture
	 	 May 1, 1991

	 Seventy-Second Supplemental Indenture
	 	 August 1, 1991

 

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	 Seventy-Third Supplemental Indenture
	  	 March 1, 1992

	 Seventy-Fourth Supplemental Indenture
	  	 October 1, 1992

	 Seventy-Fifth Supplemental Indenture
	  	 April 1, 1993

	 Seventy-Sixth Supplemental Indenture
	  	 December 1, 1997

	 Seventy-Seventh Supplemental Indenture
	  	 March 1, 1999

	 Seventy-Eight Supplemental Indenture
	  	 October 1, 2000

 
all of which mortgaged,
pledged, assigned, conveyed and transferred to the Trustee and subjected to the lien of the Indenture additional property acquired or constructed, and betterments, improvements and additions made to the mortgaged property since the execution and
delivery of the Fortieth Supplemental Indenture; and 
 
WHEREAS, all Bonds of any series heretofore executed, authenticated and delivered pursuant to the Original Mortgage, as from time to time supplemented and modified, have been retired and canceled or payment duly and irrevocably
provided for, except for the series set forth herein: 
 

	 Principal Amount of Bonds

	  	 Series

	
	 Twenty-Five Million Dollars
 ($25,000,000)
	  	 Secured Medium-Term Notes,
 Series A due November 30, 2006

	
	 One Hundred Million Dollars
 ($100,000,000)
	  	 Secured Medium-Term Notes,
 Series A due February 1, 2007

	
	 Forty-Six Million Dollars
 ($46,000,000)
	  	 Secured Medium-Term Notes,
 Series A due June 19, 2006

	
	 Fifty Million Dollars
 ($50,000,000)
	  	 Secured Medium-Term Notes,
 Series B due December 10, 2004

	
	 Three Million Dollars
 ($3,000,000)
	  	 Secured Medium-Term Notes,
 Series B due December 1, 2003

 

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	 Principal Amount of Bonds

	  	 Series

	 Eleven Million Dollars
 ($11,000,000)
	  	 Secured Medium-Term Notes,
 Series B due December 2, 2003

	
	 Thirty Million Dollars
 ($30,000,000)
	  	 Secured Medium-Term Notes,
 Series B due May 27, 2004

	
	 Fifty-Five Million Dollars
 ($55,000,000)
	  	 Secured Medium-Term Notes,
 Series B due February 1, 2024

	
	 Three Hundred Million Dollars
 ($300,000,000)
	  	 First Mortgage Bonds,
 Pledged Series A due December 1, 2027

	
	 Two Hundred Million Dollars
 ($200,000,000)
	  	 First Mortgage Bonds,
 Pledged Series A due June 15, 2018

	
	 One Hundred Million Dollars
 ($100,000,000)
	  	 First Mortgage Bonds,
 Pledged Series B due
 March 9, 2029

	
	 One Hundred Fifty Million Dollars
 ($150,000,000)
	  	 First Mortgage Bonds,
 Pledged Series B due
 March 9, 2009

	
	 Two Hundred Twenty-Five Million Dollars
 ($225,000,000)
	  	 First Mortgage Bonds,
 Pledged Series B due
 February 22, 2010

	
	 Twenty-Five Million Dollars
 ($25,000,000)
	  	 First Mortgage Bonds,
 Pledged Series B due September 8, 2008

	
	 Two Hundred Sixty Million Dollars
 ($260,000,000)
	  	 First Mortgage Bonds, Pledged
 Series C, due February 1, 2011

 
 

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	 Principal Amount of Bonds

	  	 Series

	
	 Forty Million Dollars
 ($40,000,000)
	  	 First Mortgage Bond, Pledged
 Series C due January 16, 2004

	
	 One Hundred Thirty-Eight Million Four Hundred Sixty Thousand Dollars
 ($138,460,000)
	  	 5% First Mortgage Bonds,
 Pledged Series C due March 1, 2031

	
	 Twenty-Three Million Four Hundred Thousand Dollars
 ($23,400,000)
	  	 5.10% First Mortgage Bonds, Pledged Series C due March 1, 2031

 
which Bonds are now
outstanding and constitute the only Bonds of the Company outstanding under the Indenture; and 
 
WHEREAS, effective as of the opening of business on January 4, 1971, The First National Bank of Boston succeeded Old Colony Trust Company as Trustee under the Indenture by reason of the merger of Old
Colony Trust Company into The First National Bank of Boston; and 
 
WHEREAS, effective as of October 2, 1995, State Street Bank and Trust Company succeeded The First National Bank of Boston as Trustee under the Indenture; and 
 
WHEREAS, effective as of February 15, 2003, U.S. Bank National Association succeeded State Street Bank and
Trust Company as Trustee under the Indenture; and 
 
WHEREAS, the Company has entered into an Indenture (the “Debenture Indenture”) dated as of December 1, 1997 with U.S. Bank National Association (as successor to State Street Bank and Trust Company) as trustee (in such
capacity, the “Debenture Indenture Trustee”) pursuant to which the Company proposes to issue from time to time its Senior Notes (the “Senior Notes”) and the Company has agreed to make certain payments to the Debenture Indenture
Trustee in respect of the principal of, premium, if any, and interest on such Senior Notes; and 
 

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WHEREAS, in order to secure the payment and performance of its
obligations under such Debenture Indenture, the Company has agreed to create new Bonds from time to time with substantially the same terms as the Senior Notes; to issue and deliver such Bonds to the Debenture Indenture Trustee in trust for the
benefit of the owners from time to time of the Senior Notes; and 
 
WHEREAS, the Board of Directors of the Company has established a new series of Bonds to be designated as “Pledged First Mortgage Bonds” due Nine Months or More From Date of Issue (hereinafter sometimes called “Bonds of
the New Series”), and has authorized the issuance of an unlimited aggregate principal amount thereof, and the Company has complied or will comply with all provisions required to issue additional Bonds provided for in the Indenture; and

 
WHEREAS, the Company desires to execute and
deliver this Seventy-Ninth Supplemental Indenture, in accordance with the provisions of the Indenture, for the purpose of providing for the creation of the Bonds of the New Series, designating such series to be created and specifying the form and
provisions of the Bonds of the New Series; and 
 
WHEREAS, all things necessary have been done to authorize the execution, delivery and recording of these presents validly to secure the payment of the principal of and interest on the aggregate principal amount of such Bonds of the
New Series as may be issued pursuant to this Seventy-Ninth Supplemental Indenture, and to make such Bonds, when executed by the Company, authenticated and delivered by the Trustee and duly issued, the valid and binding legal obligations of the
Company, and to constitute the Indenture a valid and binding mortgage for the security of all the Bonds in accordance with its and their terms; 
 
NOW, THEREFORE, this Seventy-Ninth Supplemental Indenture 
 
WITNESSETH, that, pursuant to and in execution of the powers, authorities and obligations conferred, imposed
and reserved in the Indenture, and pursuant to and in execution of every other power, authority and obligation thereto appertaining and/or enabling, in order to secure the payment of the principal of, and the premium, if any, and interest on, the
Bonds of the New Series issued and to be issued under this Seventy-Ninth Supplemental Indenture, and secured thereby and hereby at any time outstanding according to their tenor and effect, and the performance of all the 
 

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covenants and conditions therein and herein and in said Bonds of the New Series contained, and for the purpose of confirming the lien of the
Indenture, said Puget Sound Energy, Inc., organized and existing under the laws of the State of Washington, in consideration of the premises and of One Dollar ($1.00) and other good and valuable consideration to it duly paid by the Trustee, at or
before the execution and delivery of these presents, the receipt whereof is hereby acknowledged, has granted, bargained, sold, conveyed, transferred, assigned, remised, released, mortgaged, set over and confirmed and by these presents does grant,
bargain, sell, convey, transfer, assign, remise, release, mortgage, set over and confirm unto U.S. Bank National Association, as Trustee, and to its successor or successors in the trust created by the Indenture, and to said Trustee and its assigns,
for the uses and purposes created by the Indenture, all property, real, personal or mixed, including all rights, privileges, easements, licenses and franchises, described in the Indenture and thereby conveyed and mortgaged or intended so to be,
including also all such property acquired by the Company since the execution and delivery of the Original Mortgage, which by the terms of the Indenture is subjected or intended to be subjected to the lien thereof, and including also all such
property as the Company may hereafter acquire which by the terms of the Indenture is subjected or intended to be subjected to the lien thereof, excepting from the foregoing, however, all property included within the foregoing general description,
whether now owned or hereafter acquired, which by the provisions of the Indenture is excepted or to be excepted from the conveyance and lien of the Indenture, or which has heretofore been released from the lien of the Indenture or otherwise disposed
of by the Company free from the lien of the Indenture in accordance with the provisions thereof; 
 
TO HAVE AND TO HOLD all and singular the said property, and also all other property and interest of any kind and of every nature that, by virtue of any provision hereof or of the Indenture or
otherwise, has or shall hereafter become subject to the Indenture, to the Trustee, its successor or successors and assigns; 
 
BUT IN TRUST NEVERTHELESS, for the equal and proportionate benefit and security (except as otherwise expressly provided) of all present
and future holders of the Bonds of the New Series issued and to be issued under and secured by this Seventy-Ninth Supplemental Indenture, and to secure the payment of such Bonds of the New Series and the interest thereon, prior to the Substitution
Date (as defined herein), in accordance with the provisions of said Bonds of the New Series and of this 

 

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Seventy-Ninth Supplemental Indenture, without priority or distinction as to lien or otherwise of any Bonds of the New Series over any other
Bonds of the New Series so that, except as otherwise expressly provided, the principal of, and the premium, if any, and interest on, every such Bond shall be equally and proportionately secured by this Seventy-Ninth Supplemental Indenture, and to
secure the performance of and compliance with the covenants and conditions of this Seventy-Ninth Supplemental Indenture, pursuant to and under and subject to the provisions and conditions and for the uses hereinafter and in this Seventy-Ninth
Supplemental Indenture set forth; provided, however, that on the Substitution Date, the Bonds of the New Series will cease to secure the Senior Notes, and, at the option of the Company, the Senior Notes either (i) will become unsecured general
obligations of the Company or (ii) will be secured by first mortgage bonds issued under another mortgage indenture; it being hereby agreed as follows, to wit: 
 
ARTICLE ONE 
 
BONDS OF THE NEW SERIES AND CERTAIN 
PROVISIONS RELATING THERETO 
 
SECTION 1.01 
 
A.    Terms of Bonds of the New Series 
 
There shall be hereby established a series of bonds, known as and entitled “Pledged First Mortgage Bonds” (herein referred to as the “Bonds of the New Series”). The aggregate
principal amount of the Bonds of the New Series shall not be limited (provided that for purposes of Montana law the maximum principal amount of the Pledged First Mortgage Bonds shall be $385,000,000 and they shall be due no later than 2050) and
shall be initially authenticated and delivered from time to time upon delivery to the Trustee of the documents required by the Indenture, including a resolution of the Board of Directors, or the Securities Pricing Committee of such Board of
Directors, of the Company specifying the following with respect to each issue of the Bonds of the New Series: (i) any limitations on the aggregate principal amount of such issue of Bonds of the New Series, (ii) the Original Issue Date (as defined
below) or Dates for such issue of Bonds of the New Series, (iii) the stated maturity of such issue of Bonds of the New Series (provided that no Bond of the New Series shall mature on a date less than nine months from its Original Issue Date),

 

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(iv) the interest rate or rates, or method of calculation of such rate or rates, for such issue of Bonds of the New Series, (v) the terms, if
any, regarding the optional or mandatory redemption of such issue of Bonds of the New Series, including the redemption date or dates, if any, and the price or prices applicable to such redemption (including any premium), (vi) whether or not such
issue of Bonds of the New Series shall be entitled to the benefit of any sinking fund, and the terms, if any, of such sinking fund, (vii) the designation of such issue of Bonds of the New Series, (viii) if the form of such Bonds of the New Series is
not as described herein, the form of such Bonds of the New Series, (ix) the maximum annual interest rate, if any, of the Bonds of the New Series permitted for such issue, (x) any other information necessary to complete the Bonds of the New Series of
such issue and (xi) any other terms of such issue not inconsistent with the Indenture or this Seventy-Ninth Supplemental Indenture. 
 
The definitive Bonds of the New Series shall be issuable in registered form without coupons in denominations of $1,000 and integral
multiples thereof or such other amount or amounts as may be authorized by a resolution of the Board of Directors or the Securities Pricing Committee of the Board of Directors. 
 
Both principal of and interest on the Bonds of the New Series (and premium, if any) are to be paid in any
coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts at a corporate trust office, in the City of New York, New York, or the City of Saint Paul, Minnesota, of the
Trustee. 
 
The definitive Bonds of the New Series
may, at the option of the Company, be fully engraved or printed or lithographed on steel engraved borders. 
 
Notwithstanding any provision in the Indenture to the contrary, each Bond of the New Series shall be dated and issued as of the date of
its authentication by the Trustee (the “Original Issue Date”). Each Bond of the New Series shall bear interest from the later of its Original Issue Date or the most recent date to which interest has been paid or duly provided for with
respect to such Bond of the New Series until the principal of such Bond of the New Series is paid or made available for payment, and interest on each Bond of the New Series shall be payable on each interest payment date after the Original Issue
Date. 
 

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Notwithstanding any provision in the Indenture to the contrary, the person in whose name any Bond of the New Series is registered at the
close of business on any record date (as determined by the Board of Directors or the Securities Pricing Committee of the Board of Directors) with respect to any interest payment date for such Bond of the New Series shall be entitled to receive the
interest payable on such interest payment date notwithstanding the cancellation of such Bond of the New Series upon any registration of transfer, exchange or substitution thereof subsequent to such record date and prior to such interest payment
date, except that, if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then the registered holders of Bonds of the New Series on such record date shall have no further right to or
claim in respect of such defaulted interest as such registered holders on such record date, and the persons entitled to receive payment of any defaulted interest thereafter payable or paid on any Bonds of the New Series shall be the registered
holders of such Bonds of the New Series on the record date for payment of such defaulted interest. Unless otherwise determined by the Board of Directors or the Securities Pricing Committee of the Board of Directors, the term “record date”
as used in this Section 1.01, and in the form of the Bonds of the New Series, with respect to any interest payment date applicable to any Bond of the New Series, shall mean the last day of the calendar month next preceding such interest payment date
unless such interest payment date is the date of maturity of such Bond of the New Series, in which event the record date shall be the date of maturity of such Bond of the New Series. 
 
In case of failure by the Company to pay any interest when due, the claim for such interest shall be deemed
to have been transferred by transfer of any Bond of the New Series registered on the books of the Company, and the Company, by not less than 10 days’ written notice to the bondholders, may fix a subsequent record date, not more than 15 days or
less than 10 days prior to the date fixed for the payment of such interest, for determination of the holders entitled to payment of such interest. Such provision for establishment of a subsequent record date, however, shall in no way affect the
rights of the bondholders or of the Trustee consequent on any default. 
 
The Trustee hereunder shall, by virtue of its office as such Trustee, be the registrar and transfer agent of the Company for the purpose of registering and transferring Bonds of the New Series; however, the Company may also
act as the registrar and transfer agent in lieu of the Trustee. Notwithstanding any provision in 

 

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the Indenture to the contrary, neither the Company nor the
Trustee shall be required to make transfers or exchanges of Bonds of the New Series for a period of 15 days next preceding any designation of Bonds of the New Series to be redeemed, and neither the Company nor the Trustee shall be required to make
transfers or exchanges of any Bonds designated in whole for redemption or that part of any Bond designated in part for redemption. 
 
Notwithstanding any other provision of the Indenture to the contrary, the Company shall receive a credit against its obligations to make
any payment in respect of the principal of, or premium, if any, or interest on, any Bond of the New Series (whether at maturity, upon redemption or otherwise), and such obligations shall be fully or partially, as the case may be, satisfied and
discharged to the extent that, at the time that any such payment shall be due, the then due principal of, or premium, if any, or interest on, the Senior Notes initially issued contemporaneously with such Bond of the New Series shall have been fully
or partially paid or there shall have been deposited with the Debenture Indenture Trustee pursuant to the Debenture Indenture sufficient available funds to fully or partially pay the then due principal of, or premium, if any, or interest on, such
Senior Notes. The obligations of the Company hereunder to make such payment of principal of, premium, if any, or interest on, such Bond of the New Series shall be deemed to have been reduced by the amount of such credit. 
 
The Debenture Indenture requires that if any Senior Note in
respect of which this Bond was delivered to the Debenture Indenture Trustee pursuant to the Debenture Indenture is deemed paid and discharged pursuant to Section 5.01 of the Debenture Indenture, the obligation of the Company to make payment with
respect to the principal of and premium, if any, and interest on this Bond shall be satisfied and discharged and this Bond shall cease to secure such Senior Note in any manner and, the Debenture Indenture Trustee shall surrender this Bond, subject
to the limitations of the Debenture Indenture, to the Company for cancellation. 
 
The Bonds of the New Series shall be issued and delivered pursuant to the Debenture Indenture to, registered in the name of and held by the Debenture Indenture Trustee in trust for the benefit of the
owners from time to time of the Senior Notes. The Debenture Indenture Trustee shall not sell, assign or transfer any of the Bonds of the New Series except to a successor trustee under the Debenture Indenture. The 
 

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Company may take such actions as it shall deem desirable to effect compliance with such restrictions on transfer, including the placing of an appropriate
legend on the Bonds of the New Series. 
 
B.    Form of Bonds of the New Series 
 
The Bonds of the New Series, and the Trustee’s authentication certificate to be executed on the Bonds of the New Series, shall be in substantially the following forms respectively: 
 
[FORM OF FACE OF BOND OF THE NEW SERIES] 
 
REGISTERED 
 
$                       
 
No.
                                        
         
 
PUGET SOUND ENERGY, INC. 
 
PLEDGED FIRST MORTGAGE BOND 
 

	 Original Issue Date:
 ___________________
	    	 Interest Rate:
 _________________%
	    	 Maturity Date:
 ________________

	
	 Initial Redemption
 Date:
  
 ___________________
 

	    	 Initial Redemption
 Percentage:
  
 _________________
	    	 Annual Redemption
 Percentage
 Reduction:
 ________________

 
PUGET
SOUND ENERGY, INC., a corporation of the state of Washington (the “Company”), for value received hereby promises to pay to 
 
DOLLARS 
 
or registered assigns, the principal sum of 
 

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on the Maturity Date set forth above, and to pay interest thereon from the
Original Issue Date set forth above or from the most recent date to which interest has been paid or duly provided for, semiannually in arrears on                 
and                      in each year (each, an “Interest Payment Date”), commencing on the first such Interest Payment Date
succeeding the Original Issue Date set forth above, at the per annum Interest Rate set forth above, until the principal hereof is paid or made available for payment. No interest shall accrue on the Maturity Date, so long as the principal amount of
this Note is paid in full on the Maturity Date. The interest so payable and punctually paid or duly provided for on any such Interest Payment Date will be paid to the person in whose name this Bond is registered (the “Holder”) at the close
of business on the Regular Record Date for such interest, which shall be the                  or
                    , as the case may be, next preceding such Interest Payment Date; provided that the first Interest Payment Date for any
Bond, the Original Issue Date of which is after a Regular Record Date but prior to the applicable Interest Payment Date, shall be the Interest Payment Date following the next succeeding Regular Record Date; and provided, further, that interest
payable on the Maturity Date set forth above or, if applicable, upon redemption or acceleration, shall be payable to the person to whom principal shall be payable. Any such interest not so punctually paid or duly provided for will forthwith cease to
be payable to the Holder on such Regular Record Date and shall be paid to the person in whose name this Bond is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee,
notice whereof shall be given to the Holder not more than 15 days nor fewer than 10 days prior to such Special Record Date. 
 
Both principal of and interest on this Bond (and premium, if any) are to be paid in any coin or currency of the United States of America
which at the time of payment is legal tender for the payment of public and private debts at a corporate trust office, in the City of New York, New York, or the City of Saint Paul, Minnesota, of the Trustee. 
 
If any Interest Payment Date or the date on which the
principal of this Bond is required to paid is not a Business Day, then payment of principal, premium or interest need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on such
Interest Payment Date or the date on which the principal of this Bond is required to be paid, and, in the case of timely 

 

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payment thereof, no interest shall accrue for the period from and after such Interest Payment Date or the date on which the principal of this Bond is
required to be paid. 
 
“Business Day”
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions or trust companies in the Borough of Manhattan, The City of New York, or in the city where the corporate trust office of the Debenture
Indenture Trustee (as defined on the reverse hereof) is located, are obligated or authorized by law or executive order to close. 
 
This Bond shall not become obligatory for any purpose or be entitled to any security or benefit under said Indenture until the
authentication certificate hereon shall have been signed by the Trustee. 
 
The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 
 
IN WITNESS WHEREOF, PUGET SOUND ENERGY, INC. has caused these
presents to be executed in its corporate name and behalf by the facsimile of the signature of its President or one of its Vice Presidents and by the facsimile of the signature of its Treasurer or an Assistant Treasurer or its Secretary, thereunto
duly authorized, and its corporate seal or a facsimile thereof to be hereto affixed. 
 
PUGET SOUND ENERGY, INC. 
 
Dated:                                    
              
 
By
                                        
                 
 
Its
                                        
                 
 
 
And by
                                        
         
 
Its
                                        
                 
 
 

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[FORM OF REVERSE OF BOND OF THE NEW SERIES]

 
PUGET SOUND ENERGY, INC. 
 
Pledged First Mortgage Bond 
 
This Bond is one of the Bonds of the above-designated series,
of an unlimited authorized amount of Bonds of the Company known as First Mortgage Bonds, all issued or to be issued in one or more series under and secured by a First Mortgage dated as of June 2, 1924, executed and delivered by the Company to Old
Colony Trust Company (U.S. Bank National Association, successor) as Trustee, as supplemented and/or modified by indentures supplemental thereto, including particularly the Fortieth Supplemental Indenture, dated as of September 1, 1954, in Part II of
which are set forth the revised provisions of said First Mortgage as theretofore and then supplemented and modified, and the Seventy-Ninth Supplemental Indenture dated as of May 1, 2003, relating, among other things, to the Bonds of the
above-designated series, and by all other instruments supplemental thereto (herein sometimes called the “Indenture”), reference to each and all of which is hereby made for a description of the property mortgaged and pledged as security for
said Bonds, the rights and remedies of the Holder of this Bond in regard thereto, and the terms and conditions upon which Bonds may be issued. 
 
The Bonds of this series shall be issuable in registered form without coupons in denominations of $1,000 and integral multiples thereof or
such other amount or amounts as may be authorized by a resolution of the Board of Directors or the Securities Pricing Committee of the Board of Directors. 
 
This Bond is issued to secure the payment and performance of the Company’s obligations under the Indenture, dated as of December 1,
1997 (the “Debenture Indenture”), with U.S. Bank National Association (successor to State Street Bank and Trust Company), as Trustee (the “Debenture Indenture Trustee”) to make payments in respect of the principal of, premium, if
any, and interest on Senior Notes of the Company (the “Senior Notes”) initially issued contemporaneously with this Bond. 
 
Notwithstanding any other provision of the Indenture to the contrary, the Company shall receive a credit against its obligations to make
any payment in respect of the principal of, or premium, if any, or interest on, this Bond (whether at maturity, 
 

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upon redemption or otherwise), and such obligations shall be fully or partially, as the case may be, satisfied and discharged to the extent that, at the
time that any such payment shall be due, the then due principal of, or premium, if any, or interest on, the Senior Notes of the Company initially issued contemporaneously with this Bond shall have been fully or partially paid or there shall have
been deposited with the Debenture Indenture Trustee pursuant to the Debenture Indenture sufficient available funds to fully or partially pay the then due principal of, or premium, if any, or interest on, such Senior Notes. The obligations of the
Company to make such payment of principal of, premium, if any, or interest on, this Bond shall be deemed to have been reduced by the amount of such credit. 
 
This Bond is not transferable except as required to effect transfer to any successor trustee under the Debenture Indenture. 
 
As provided in the Seventy-Ninth Supplemental Indenture, the
Holder of this Bond, by his acceptance hereof, hereby consents, and all other holders of the Bonds of the above designated series, by their acceptance thereof, shall thereby consent, for the purpose and within the meaning of Section 18.02 of the
Indenture, to modifications of the Indenture that (a) redefine the term “minimum provision for depreciation” by deducting from operating revenues the cost of fuel used in the generation of electricity and (b) allow that any corporation to
which all or substantially all of the corporate trust business of the Trustee may have been transferred shall succeed as trustee without the performance of any other act. These modifications shall become effective without any further approval or
consent of the holder of this Bond when a further supplemental indenture has been executed with the requisite consents of the holders of the Bonds of each other series then outstanding or, in the case of the redefinition of the term “minimum
provision for depreciation,” when Bonds of all series issued prior to the First Mortgage Bonds, 12-5/8% Series due 1999 have ceased to be outstanding and, in the case of the the modification regarding successor trustees, when all Bonds of all
series issued prior to May 1, 2003 have ceased to be outstanding. 
 
This Bond is subject to redemption at the option of the Company on any date on and after the Initial Redemption Date, if any, specified on the face hereof (any date fixed for redemption shall hereafter be referred to as a
“Redemption Date”). If no Initial Redemption Date is set forth on the face hereof, this Bond may not be redeemed at the option of the Company prior to the Maturity Date specified on the 
 

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face hereof. On and after the Initial Redemption Date, if any, this Bond may be redeemed at any time in whole or from time to time in part at the option
of the Company at the applicable Redemption Price (as defined below) together with interest thereon payable to the Redemption Date, on notice given not less than 30 days nor more than 60 days prior to the Redemption Date. In the event of redemption
of this Bond in part only, a new Bond of like tenor and series for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the surrender hereof. 
 
If this Bond is redeemable in the foregoing manner at the option of the Company, the “Redemption
Price” shall initially be the Initial Redemption Percentage, specified on the face hereof, of the principal amount of this Bond to be redeemed and shall decline at each anniversary of the Initial Redemption Date by the Annual Redemption
Percentage Reduction, if any, specified on the face hereof, of the principal amount to be redeemed until the Redemption Price is 100% of such principal amount. 
 
If this Bond or any portion hereof ($1,000 or any multiple thereof) is duly designated for redemption, if payment of the principal hereof
or of such portion, together with accrued interest and premium, if any, is irrevocably provided for, and if notice of such redemption shall have been duly given, this Bond shall cease to be entitled to the lien of the Indenture from and after the
date such payment is irrevocably so provided for and shall cease to bear interest from and after the date fixed for redemption. 
 
The Indenture provides that (1) the Company and the Trustee, with the consent of the holders of not less than 66-2/3% in principal amount
of the Bonds at the time outstanding (determined as provided in the Indenture) including, if more than one series of Bonds shall be at the time outstanding, not less than 66-2/3% in principal amount of the Bonds at the time outstanding of each
series affected, may effect, by an indenture supplemental to the Indenture, further modifications or alterations of the Indenture and of the rights and obligations of the Company and of the holders of the Bonds; provided, however, that no such
modification or alteration shall be made without the consent of the registered owner hereof which will (a) extend the maturity of this Bond or reduce the rate or extend the time of payment of interest hereon or reduce the amount of the principal
hereof or reduce any premium payable on the redemption hereof, or (b) permit the creation of any lien, not otherwise permitted, 
 

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prior to or on a parity with the lien of the Indenture, or
alter the equal and proportionate security afforded by the lien of the Indenture for the Bonds issued thereunder, or (c) reduce the number or percentage of the principal amount of the Bonds upon the consent of the holders of which modifications or
alterations may be made as aforesaid or defaults may be waived; and (2) the holders of like percentages of the principal amount of the Bonds outstanding and of each such series thereof may waive certain uncured past defaults and the consequences
thereof. 
 
In certain events of default, the
principal of this Bond may be declared due and payable before maturity as provided in said Indenture. 
 
The registered owner of this Bond is the Debenture Indenture Trustee. The Debenture Indenture requires that if any Senior Note in respect
of which this Bond was delivered to the Debenture Indenture Trustee pursuant to the Debenture Indenture is deemed paid and discharged pursuant to Section 5.01 of the Debenture Indenture, the obligation of the Company to make payment with respect to
the principal of and premium, if any, and interest on this Bond shall be satisfied and discharged and this Bond shall cease to secure such Senior Note in any manner, and the Debenture Indenture Trustee shall surrender this Bond, subject to the
limitations of the Debenture Indenture, to the Company for cancellation. 
 
The Seventy-Ninth Supplemental Indenture provides that in the event of any default of the interest due on any interest payment date, such interest shall not be payable to the holder of the Bond on the original record date
but shall be paid to the registered holder of such Bond on the subsequent record date established for payment of such defaulted interest. 
 
It is part of the contract herein contained that each holder hereof waives all right of recourse to any personal, statutory or other
liability of any promoter, shareholder, officer or director, past, present or future, of the Company or of any predecessor or successor corporation for the collection of any indebtedness hereunder as more fully provided in said Indenture.

 
[FORM OF TRUSTEE’S AUTHENTICATION
CERTIFICATE] 
 
This is one of the Bonds, of the
series designated herein, described in the within-mentioned Indenture. 
 

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U.S. BANK NATIONAL ASSOCIATION, as Trustee 
 
By                                     
                                        
                    
Authorized Officer 
 
SECTION 1.02 Redemption
Provisions 
 
As designated by resolution of
the Board of Directors or the Securities Pricing Committee of such Board of Directors, the Bonds of the New Series may be subject to redemption prior to maturity, as a whole at any time or in part from time to time, at the option of the Company,
upon payment of the Redemption Price designated by the Board of Directors or the Securities Pricing Committee of the Board of Directors, together with interest accrued thereon to the date fixed for redemption, upon not less than 30 days’ nor
more than 60 days’ notice given by first class mail, postage prepaid, to the holder of record at the date of such notice of each Bond of the New Series affected, at his address as shown on the Bond register. Such notice shall be sufficiently
given if deposited in the United States mail within such period. Neither the failure to mail such notice, nor any defect in any notice so mailed to any holder, shall affect the sufficiency of such notice. The foregoing provision with respect
to notice shall be subject to all other conditions and provisions of the Indenture not inconsistent herewith. 
 
SECTION 1.03 Depreciation Fund 
 
Notwithstanding the provisions of Section Six of Article II Part I of the Fortieth Supplemental Indenture, the Company hereby covenants that, so long as any of the Bonds of the New Series shall remain
outstanding, (a) the covenants made by the Company in Section Four of Article II of Part I of the Fortieth Supplemental Indenture shall continue in full force and effect and (b) Bonds delivered, redeemed or purchased pursuant to said Section Four
and any amount of unfunded Bond credits used as a credit in Item 7 of any depreciation fund certificate shall be deemed to be funded, unless and until the same shall have been reinstated as provided in said Section Four or in Section 2.03 of the
Indenture. Cash deposited in the depreciation fund may not be applied to the redemption of the Bonds of the New Series. 
 

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SECTION 1.04 Duration of Effectiveness of Article One 
 
This Article shall be in force and effect only so long as any of the Bonds of the New Series are outstanding.

 
SECTION 1.05 Minimum Provision for
Depreciation 
 
The Company hereby covenants
that the term “minimum provision for depreciation” shall have the meaning specified in Section 1.32 of the Indenture until the modification set forth in Article Four hereof shall have become effective, whereupon the term “minimum
provision for depreciation” shall have the meaning specified in Section 4.01 hereof. 
 
SECTION 1.06 Execution and Delivery 
 
An unlimited aggregate principal amount of Bonds of the New Series may forthwith, upon execution and delivery of the Seventy-Ninth Supplemental Indenture, or from time to time thereafter, and upon
compliance by the Company with the provisions of Article Five of the Indenture, be executed by the Company and delivered to the Trustee and shall thereupon be authenticated and delivered by the Trustee to or upon the written order of the Company.

 
SECTION 1.07 Substitution 
 
On the Substitution Date (as defined below), the Trustee will
deliver to the Company for cancellation all Bonds of the New Series. The Company will cause the Trustee to provide notice to all holders of Bonds of the New Series prior to the occurrence of the Substitution Date. “Substitution Date” shall
mean the date that all Bonds issued and outstanding under the Indenture (“Electric Bonds”), other than the Bonds of the New Series or any other Bonds issued to secure the Company’s obligations on its Senior Notes, and all first
mortgage bonds of the Company issued and outstanding under the Indenture of First Mortgage, dated as of April 1, 1957 (the “Gas Utility Mortgage”), from the Company, as successor to Washington Natural Gas Company, to Harris Trust and
Savings Bank, as trustee, as supplemented and amended (“Gas Bonds” and, together with the Electric Bonds, the “First Mortgage Bonds”), other than Gas Bonds issued to secure the Company’s obligations on its Senior Notes, have
been retired (at, before or after the maturity thereof) through payment, 
 

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redemption or otherwise (including those Electric Bonds deemed to be paid within the meaning of the Indenture and those Gas Bonds deemed to be paid within
the meaning of the Gas Utility Mortgage). 
 
SECTION 1.08 Definitions 
 
All other terms used but not otherwise defined in this Seventy-Ninth Supplemental Indenture shall be taken to have the same meaning as in the Indenture, except in cases where the context herein clearly indicates otherwise.

 
ARTICLE TWO 
 
PRINCIPAL AMOUNT PRESENTLY TO BE OUTSTANDING

 
SECTION 2.01 
 
The total aggregate principal amount of Bonds of the Company
issued and outstanding and presently to be issued and outstanding under the provisions of and secured by the Indenture will be One Billion Seven Hundred Eighty-One Million Eight Hundred Sixty Thousand Dollars ($1,781,860,000); namely, the series of
Bonds set forth herein: 
 

	 Principal Amount of Bonds

	  	 Series

	 Twenty-Five Million Dollars
 ($25,000,000)
	  	 Secured Medium-Term Notes,
Series A due November 30,
2006

	
	 One Hundred Million Dollars
 ($100,000,000)
	  	 Secured Medium-Term Notes,
Series A due February 1, 2007

	
	 Forty-Six Million Dollars
 ($46,000,000)
	  	 Secured Medium-Term Notes,
Series A due June 19, 2006

	
	 Fifty Million Dollars
 ($50,000,000)
	  	 Secured Medium-Term Notes,
Series B due December 10,
2004

 

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	 Principal Amount of Bonds

	 	 Series

	
	 Three Million Dollars
 ($3,000,000)
	 	 Secured Medium-Term Notes,
 Series B due December 1, 2003

	
	 Eleven Million Dollars
 ($11,000,000)
	 	 Secured Medium-Term Notes,
 Series B due December 2, 2003

	
	 Thirty Million Dollars
 ($30,000,000)
	 	 Secured Medium-Term Notes,
 Series B due May 27, 2004

	
	 Fifty-Five Million Dollars
 ($55,000,000)
	 	 Secured Medium-Term Notes,
 Series B due February 1, 2024

	
	 Three Hundred Million Dollars
 ($300,000,000)
	 	 First Mortgage Bonds,
 Pledged Series A due December 1, 2027

	
	 Two Hundred Million Dollars
 ($200,000,000)
	 	 First Mortgage Bonds,
 Pledged Series A due June 15, 2018

	
	 One Hundred Million Dollars
 ($100,000,000)
	 	 First Mortgage Bonds,
 Pledged Series B due
 March 9, 2029

	
	 One Hundred Fifty Million Dollars
 ($150,000,000)
	 	 First Mortgage Bonds,
 Pledged Series B due
 March 9, 2009

	
	 Two Hundred Twenty-Five Million Dollars
 ($225,000,000)
	 	 First Mortgage Bonds,
 Pledged Series B due
 February 22, 2010

	
	 Twenty-Five Million Dollars
 ($25,000,000)
	 	 First Mortgage Bonds,
 Pledged Series B due September 8, 2008

 

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	 Principal Amount of Bonds

	 	 Series

	
	 Two Hundred Sixty Million Dollars
 ($260,000,000)
	 	 First Mortgage Bonds, Pledged
Series C, due February 1, 2011

	
	 Forty Million Dollars
 ($40,000,000)
	 	 First Mortgage Bond, Pledged
Series C due January 16, 2004

	
	 One Hundred Thirty-Eight Million
Four Hundred Sixty Thousand Dollars
 ($138,460,000)
	 	 5% First Mortgage Bonds,
Pledged Series C due March 1,
2031

	
	 Twenty-Three Million Four Hundred
Thousand Dollars
 ($23,400,000)
	 	 5.10% First Mortgage Bonds,
Pledged Series C due March 1,
2031

 
now issued and
outstanding, and the aggregate principal amount of Bonds of the New Series that may be authenticated and delivered pursuant to Section 2.02 of this Seventy-Ninth Supplemental Indenture. Additional Bonds of the New Series and of any other series
established after the execution and delivery of this Seventy- Ninth Supplemental Indenture may from time to time be authenticated, delivered and issued pursuant to the terms of the Indenture and indentures supplemental thereto. 
 
SECTION 2.02 
 
Without limitation as to aggregate principal amount, Bonds of
the New Series may forthwith, upon execution and delivery of this Seventy-Ninth Supplemental Indenture, or from time to time thereafter, and upon compliance by the Company with the provisions of Article Five of the Indenture, be executed by the
Company and delivered to the Trustee and shall thereupon be authenticated and delivered by the Trustee to or upon the written order of the Company. 
 

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ARTICLE THREE 
 
MISCELLANEOUS 
 
SECTION 3.01 
 
This Seventy-Ninth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and shall form
a part thereof, and the Indenture, as hereby supplemented and modified, is hereby confirmed. Except to the extent inconsistent with the express terms hereof, all the provisions, terms, covenants, and conditions of the Indenture shall be applicable
to the Bonds of the New Series to the same extent as if specifically set forth herein. 
 
SECTION 3.02 
 
The Trustee has accepted the amendment of the Indenture effected by this Seventy-Ninth Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but only upon the terms and conditions
set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, and without limiting the generality of the foregoing, the Trustee shall not be responsible in any manner
whatsoever for or with respect of any of the recitals or statements contained herein, all of which recitals or statements are made solely by the Company, or for or with respect to (a) the validity or sufficiency of this Seventy-Ninth Supplemental
Indenture or any of the terms or provisions hereof, (b) the proper authorization hereof by the Company by corporate action or otherwise, and (c) the due execution hereof by the Company. 
 
SECTION 3.03 
 
The Company covenants that it is lawfully seized and possessed of all the trust estate at the date of the execution of the Seventy-Ninth
Supplemental Indenture except as in the Indenture otherwise stated or permitted; that on said date the trust estate is free and clear from all liens and encumbrances other than permitted encumbrances, except as in the Indenture otherwise stated or
permitted; that the Company will warrant and forever defend the trust estate and the title thereto to the Trustee against the claims of all persons whomsoever except as in the Indenture otherwise stated or permitted; that it will maintain and
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mortgage lien, except as in the Indenture otherwise stated or permitted so long as any of the Bonds issued under the Indenture are
outstanding; and that it has good right and lawful authority to subject said property to the lien of the Indenture, as provided in and by the Indenture. 
 
SECTION 3.04 
 
This Seventy-Ninth Supplemental Indenture may be executed in several counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts, or as many of them as the Company and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. 
 
SECTION 3.05 
 
Although this Seventy-Ninth Supplemental Indenture is dated
for convenience and for the purpose of reference as of May 1, 2003, the actual date or dates of execution by the Company and by the Trustee are as indicated by their respective acknowledgments hereto annexed. 
 
ARTICLE FOUR 
 
MODIFICATION OF THE INDENTURE 
 
SECTION 4.01 
 
Each holder of any of the Bonds of the New Series, by his or
its acceptance thereof, shall thereby consent, for the purpose and within the meaning and intent of Section 18.02 of the Indenture, that Section 1.32 of the Indenture shall be modified (effective at the time provided in Section 4.02 hereof) to read
as follows: 
 
“So long as there are
outstanding any Bonds of the 1984 Series or any Bonds of any other series subsequently authenticated and delivered hereunder as to which it is so provided in the supplemental indenture establishing said Bonds or modifying this Indenture, the term
“minimum provision for depreciation” for each calendar year (or monthly fractions thereof) in the period being computed shall mean an amount by which 15% of the gross operating revenues of the Company derived from the operation 

 

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of its utility property subject to the lien of the Indenture (after deducting from such operating revenues (a) an amount equal to the cost of
electricity purchased, including any standby or service charges or similar charges for electricity and net cost of electricity interchanged, (b) all rentals and lease payments, and (c) the cost of fuel used in the generation of electricity during
such period to the extent such cost is included or reflected in operating expense accounts of the Company) exceeds the charges for maintenance, repairs and renewals of such mortgaged utility property included or which should be included in operating
expense pursuant to sound accounting practice.” 
 
SECTION
4.02 
 
The modification of the Indenture set
forth in Section 4.01 hereof shall become effective without any further approval or consent of the holders of any Bonds of the New Series (a) when a further supplemental indenture making it effective shall have been executed with the consent of the
holders of not less than 66-2/3% in principal amount of the Bonds of each other series at the time outstanding or (b) when all Bonds of all series issued prior to the First Mortgage Bonds, 12-5/8% Series due 1999 have ceased to be outstanding.

 
SECTION 4.03 
 
Each holder of any of the Bonds of the New Series, by his or
its acceptance thereof, shall thereby consent, for the purpose and within the meaning and intent of Section 18.02 of the Indenture, that the first sentence of Section 15.20 of the Indenture shall be modified (effective at the time provided in
Section 4.04 hereof) to read as follows: 
 
“Any corporation into which the Trustee may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Trustee shall be a party or any corporation to which
substantially all the business and assets of the Trustee or of the corporate trust business of the Trustee may be transferred, provided such corporation shall be eligible under the provisions of Section 15.01 and qualified under Section 15.13, shall
be successor Trustee under this Indenture, without the execution or filing of any paper or the performance 

 

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of any further act on the part of any other party hereto, anything herein to the contrary notwithstanding.” 
 
SECTION 4.04 
 
The modification of the Indenture set forth in Section 4.03
hereof shall become effective without any further approval or consent of the holders of any Bonds of the New Series (a) when a further supplemental indenture making it effective shall have been executed with the consent of the holders of not less
than 66-2/3% in principal amount of the Bonds of each other series at the time outstanding or (b) when all Bonds of all series issued prior to the date of this Seventy-Ninth Supplemental Indenture have ceased to be outstanding. 
 
[The remainder of this page intentionally left blank]

 
 

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IN WITNESS WHEREOF, Puget Sound Energy, Inc.
has caused this Seventy-Ninth Supplemental Indenture to be signed in its corporate name and behalf by its President or one of its Vice Presidents or its Treasurer or Assistant Treasurer and its corporate seal to be hereunto affixed and attested by
its Secretary or one of its Assistant Secretaries, and U.S. Bank National Association in token of its acceptance of the trust hereby created has caused this Seventy-Ninth Supplemental Indenture to be signed in its corporate name and behalf by its
Vice President or one of its Assistant Vice Presidents, and its corporate seal to be hereunto affixed and attested by one of its Vice Presidents, Assistant Vice Presidents or one of its Assistant Secretaries, all on May 29, 2003, but as of the day
and year first above written. 
 

	 PUGET SOUND ENERGY, INC.

	
	 By:
	 	 /s/    Donald E. Gaines     

	 	 	 Donald E. Gaines
 Vice President Finance and Treasurer

 
Attest: 
 

	 /s/    James W. Eldredge

	

	 James W. Eldredge
 Corporate Secretary

 

	 U.S. BANK NATIONAL ASSOCIATION

	
	 By:
	 	 /s/    Ward A. Spooner

	 	 	 Ward A. Spooner
 Authorized Officer

 
Attest: 
 

	 /s/    Angelita Pena

	

	 

 

	 SEVENTY-NINTH SUPPLEMENTAL INDENTURE 
	 PAGE  29TERMINATION AGREEMENT DATED MAY 16, 2003

 
Exhibit 10.1

 
Confidential Materials omitted and filed
separately with the 
Securities and Exchange Commission. Asterisks denote omissions 
 
EXECUTION II COPY 
 
TERMINATION AGREEMENT 
 
ELAN CORPORATION, PLC 
 
NEURALAB LIMITED 
 
ELAN INTERNATIONAL SERVICES, LTD. 
 
ELAN PHARMA INTERNATIONAL LIMITED 
 
CURIS, INC. 
 
AND 
 
CURIS NEWCO, LTD. 

INDEX 
 

	 CLAUSE 1
	  	 DEFINITIONS

	
	 CLAUSE 2
	  	 TERMINATION OF THE NEWCO AGREEMENTS

	
	 CLAUSE 3
	  	 REPRESENTATIONS/WARRANTIES/CONFIRMATIONS AND INDEMNITIES

	
	 CLAUSE 4
	  	 INTELLECTUAL PROPERTY

	
	 CLAUSE 5
	  	 RIGHTS RELATED TO SECURITIES

	
	 CLAUSE 6
	  	 SALE OF SHARES AND COMPLETION

	
	 CLAUSE 7
	  	 CONFIDENTIALITY

	
	 CLAUSE 8
	  	 WAIVER OF ACCRUED RIGHTS / MUTUAL RELEASES

	
	 CLAUSE 9
	  	 PAYMENTS, REPORTS AND AUDITS

	
	 CLAUSE 10
	  	 GENERAL

 
THIS TERMINATION
AGREEMENT made this 16th day of May, 2003 (this “Agreement”) 
 
AMONG:- 
 

	 	(1)	 	ELAN CORPORATION, PLC, a public limited company incorporated under the laws of Ireland and having its registered office at Lincoln House, Lincoln Place,
Dublin 2, Ireland (“Elan Corp”); 

 

	 	(2)	 	NEURALAB LIMITED, incorporated under the laws of Bermuda, and having its registered office at Clarendon House, 2 Church St., Hamilton, Bermuda
(“Neuralab”); 

 

	 	(3)	 	ELAN INTERNATIONAL SERVICES, LTD., an exempted limited liability company incorporated under the laws of Bermuda, and having its registered office at Clarendon
House, 2 Church St., Hamilton, Bermuda (“EIS”); 

 

	 	(4)	 	ELAN PHARMA INTERNATIONAL LIMITED, a private limited company incorporated under the laws of Ireland, and having its registered office at WIL House, Shannon
Business Park, Shannon, County Clare, Ireland (“EPIL Shannon”); 

 

	 	(5)	 	CURIS, INC., a corporation duly incorporated and validly existing under the laws of Delaware and having its principal place of business at 61 Moulton Street,
Cambridge, MA 02138-1118 United States of America (“Curis”); and 

 

	 	(6)	 	CURIS NEWCO, LTD., an exempted limited liability company incorporated under the laws of Bermuda, and having its registered office at Clarendon House, 2 Church
St., Hamilton, Bermuda. 

 
RECITALS

 

	A.	 	The Parties entered into various agreements whereby Elan Corp, EIS and JVP established the joint venture company, Newco, and Elan Corp, EIS and JVP each licensed
certain intellectual property to Newco for the Field (as defined below). Specifically: 

 

	 	(i)	 	Elan Corp, EIS, JVP and Newco entered into a Subscription, Joint Development and Operating Agreement dated July 18, 2001 (the “JDOA”);

 

	 	(ii)	 	Elan Corp and Newco entered into a License Agreement dated July 18, 2001 (the “Elan License Agreement”);  

 

	 	(iii)	 	JVP and Newco entered into a License Agreement dated July 18, 2001 (the “JVP License Agreement”); and 

 

	 	(iv)	 	Newco, JVP and EIS entered into a Registration Rights Agreement with respect to the capital stock of Newco dated July 18, 2001 (the “Newco Registration
Rights Agreement”). 

 

	B.	 	The JDOA, Elan License Agreement, JVP License Agreement, and Newco Registration Rights Agreement, are together defined in this Agreement as the “Newco
Agreements”. 

 

	C.	 	The Parties also entered into agreements whereby JVP sold and EIS purchased certain securities of JVP and the Parties agreed to certain matters related to the
ownership of such securities. Specifically: 

 

	 	(i)	 	EIS, EPIL Shannon and JVP entered into a Securities Purchase Agreement dated as of July 18, 2001 (the “Securities Purchase Agreement”);

 

	 	(ii)	 	EIS, EPIL Shannon and JVP entered into a Registration Rights Agreement with respect to the capital stock of JVP dated as of July 18, 2001 (the “JVP
Registration Rights Agreement”); 

 

	 	(iii)	 	JVP issued and delivered to EPIL Shannon a Convertible Promissory Note, dated July 18, 2001, in a principal amount not to exceed $8,010,000 (the “Convertible
Promissory Note”); 

 

	 	(iv)	 	JVP issued and delivered to EIS Warrant No. W-1, dated as of July 18, 2001, to purchase up to 50,000 shares of JVP common stock (the “Warrant”);
and 

 

	 	(v)	 	JVP and EIS entered into a letter agreement, dated June 29, 2001, relating to the participation of EIS on JVP’s Board of Directors (the “Board Seat
Letter Agreement”).  

 

	D.	 	The Parties wish to (i) terminate in full the Newco Agreements as set forth below, (ii) set forth their agreement in relation to other matters including, inter alia,
the transfer of shares by EIS to JVP, and (iii) amend certain agreements as set forth below in relation to matters related to security holdings in JVP. 

 
IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED HEREIN, AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
ADEQUACY OF WHICH ARE HEREBY ACKNOWLEDGED, IT IS HEREBY AGREED AS FOLLOWS: 
 

	1	 	DEFINITIONS 

 

	    	 	Capitalized terms used in this Agreement shall have the same meanings assigned to them in the Newco Agreements, unless such terms are expressly defined to the
contrary in this Agreement. 

 

2 

 

	    	 	“Affiliate” shall mean any corporation or entity controlling, controlled or under the common control of any other corporation or entity, excluding,
in the case of Elan Corp, an Elan JV. For the purpose of this definition, (i) “control” shall mean direct or indirect ownership of [...***...] percent ([...***...] %) or more of the stock or shares entitled to vote for the
election of directors; and (ii) Newco shall not be an Affiliate of Elan Corp or EIS. 

 

	    	 	“Antibodies” shall mean any molecule or gene encoding any molecule with a molecular weight greater than [...***...] and which comprises one or
more [...***...] variable domains or parts of such domains or any existing or future fragments, variants, modifications or derivatives thereof; provided, however, that such fragments, variants, modifications or derivatives retain at least a
functional portion of an [...***...] variable domain. 

 

	    	 	“Balance Sheet” shall mean the unaudited balance sheet of Newco as of the Balance Sheet Date, as set forth in Schedule 1.

 

	    	 	“Balance Sheet Date” shall mean March 31, 2003. 

 

	    	 	“Commercialization Agreement” shall mean: 

 

	 	(i)	 	any license agreement, research and development agreement, or alternative form of collaboration or commercialization agreement, such as, but not limited to, a
co-promotion or co-marketing arrangement to research, develop, import, make, use, offer for sale, and/or sell the DCEC Product, DCNC Product and/or Newco Intellectual Property [...***...] in the Territory; 

 

	 	(ii)	 	any Disposal Agreement; or 

 

	 	(iii)	 	an agreement comprising an option to do any of the foregoing. 

 

	    	 	“Controlled” shall mean ownership (directly, or through a contract right, or otherwise) of a licensable interest. 

 

	    	 	“Date of Commercialization” shall mean the date of execution by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, and any third party of a
Commercialization Agreement. 

 

	    	 	“DCEC Compound” shall mean all hedgehog (Hh) agonists, whether or not patentable, developed by or on behalf of Newco prior to the
Effective Date, which are set forth on Exhibit A hereto. 

 

	    	 	“DCNC Compound” shall mean all hedgehog (Hh) agonists Controlled by JVP at any time prior to, on or after the Effective Date that specifically
agonize the hedgehog pathway as its primary therapeutic or preventative action and relate to DCNC Product Intellectual Property; provided, however, that such DCNC Compounds shall exclude the DCEC Compounds. For avoidance of doubt,

 

3 

 

	    	 	DCNC Compounds shall include peptide, peptidomimetic and small molecule agonist forms, but shall expressly exclude Antibodies. 

 

	    	 	“DCNC Product Improvements” shall mean improvements, whether or not patentable, to the DCNC Product Patents and/or the DCNC Product Know-How,
Controlled by JVP. 

 

	    	 	“DCNC Product Intellectual Property” shall mean the DCNC Product Know-How, the DCNC Product Patents and the DCNC Product Improvements.

 

	    	 	“DCNC Product Know-How” shall mean any and all rights Controlled by JVP at any time to any scientific, pharmaceutical or technical information,
data, discovery, invention (whether patentable or not), know-how, substances, techniques, processes, systems, formulations, designs and expertise relating to the DCNC Compounds including methods and/or reagents used in identifying or
developing such DCNC Compounds, which is not generally known to the public. 

 

	    	 	“DCNC Product Patents” shall mean any and all rights under any and all patent applications and/or patents, now existing, currently pending or
hereafter filed or obtained that are Controlled by JVP at any time relating to the DCNC Compounds, including methods and/or reagents used in identifying or developing such DCNC Compounds, and any foreign counterparts thereof and all
divisionals, continuations, continuations-in-part, any foreign counterparts thereof and all patents issuing on any of the foregoing and any foreign counterparts thereof, together with all registrations, reissues, re-examinations, supplemental
protection certificates, or extensions thereof, and any foreign counterparts thereof. 

 

	    	 	“Deferred Consideration” shall have the meaning set forth in Clause 6.4. 

 

	    	 	“Deferred Consideration Period” shall mean the period commencing on the Effective Date and expiring on a product-by-product and country-by-country
basis: 

 

	 	(a)	 	on the [...***...] anniversary of the date of the first commercial launch of the DCEC Product or DCNC Product in the country concerned; or

 

	 	(b)	 	in any country upon the expiration of the life of the last to expire patent Controlled by JVP, covering the DCEC Product or DCNC Product in that country;

 

	    	 	whichever date is the later to occur. 

 

	    	 	“Deferred Consideration Existing Compounds Product” or “DCEC Product” shall mean all formulations of DCEC Compounds.

 

	    	 	“Deferred Consideration New Compounds Product” or “DCNC Product” shall mean all formulations of DCNC Compounds.

 

4 

 

	    	 	“Disposal Agreement” shall mean any agreement for the assignment or outright sale or disposition, in whole or in part, of the DCEC Product, DCNC
Product, Newco Intellectual Property [...***...]. 

 

	    	 	“Effective Date” shall mean the date of this Agreement. 

 

	    	 	“Elan” shall mean Elan Corp and its Affiliates, including Neuralab. 

 

	    	 	“Elan Improvements” shall have the meaning set forth in the Elan License Agreement.  

 

	    	 	“Elan JV” shall mean an entity that Elan and a third party (i) establish or have established; (ii) take shareholdings in or have a right to take
shareholdings in; and (iii) grant certain licenses in and to certain intellectual property rights for the purpose of implementing a strategic alliance. 

 

	    	 	“Elan Know-How” shall have the meaning set forth in the Elan License Agreement. 

 

	    	 	“Elan Patents” shall have the meaning set forth in the Elan License Agreement. 

 

	    	 	“Exchange Right” shall have the meaning set forth in the Securities Purchase Agreement. 

 

	    	 	“Field” shall mean the treatment and prevention of human neurological disorders. 

 

	    	 	“Force Majeure” shall mean causes beyond a Party’s reasonable control, including, without limitation, acts of God, fires, strikes, acts of war,
or intervention of a governmental authority. 

 

	    	 	“In Market” shall mean the sale of the DCEC Product and/or DCNC Product by Newco and/or JVP, and or an Affiliate of Newco and/or JVP, to an
unaffiliated third party, such as a wholesaler, managed care organization, hospital or pharmacy, and shall exclude the transfer pricing of the DCEC Product or DCNC Product by one Newco and/or JVP Affiliate to another Newco and/or JVP
Affiliate. 

 

	    	 	“Initial Consideration” shall have the meaning set forth in Clause 6.1.2. 

 

	    	 	“JVP” shall mean Curis and its Affiliates. 

 

	    	 	“JVP Improvements” shall mean “Curis Improvements,” as such term is defined in the JVP License Agreement.

 

	    	 	“JVP Know-How” shall mean “Curis Know-How,” as such term is defined in the JVP License Agreement. 

 

5 

 

	    	 	“JVP Patents” shall mean “Curis Patents,” as such term is defined in the JVP License Agreement. 

 

	    	 	“Net Revenues” shall mean:  

 

	 	(i)	 	all license fees, sublicense fees, license option payments (whether in relation to the grant or exercise of any license option) milestone payments, and royalties on
sales of DCEC Product DCNC Product, and/or Newco Intellectual Property, and any other kinds of revenue whatsoever, received by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, in respect of the commercialization of the DCEC Product, DCNC
Product, and/or Newco Intellectual Property; 

 

	 	(ii)	 	any net manufacturing profits realized by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, on any supply of DCEC Product and/or DCNC Product; and

 

	 	(iii)	 	any consideration received by Newco and or JVP, and/or an Affiliate of Newco and/or JVP, in respect of any Disposal Agreement; 

 

	 	(iv)	 	research and development payments received by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, in relation to research and development of the DCEC Product,
DCNC Product, and/or Newco Intellectual Property, where such payments are made other than for reimbursement of direct expenses incurred by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, and other than on an FTE rate based on then current
standard industry rates; where such payments are made other than on an FTE rate based on then current standard industry rates, the surplus over the current industry standard FTE rates shall be included in the calculation of Net Revenues; and

 

	 	(v)	 	in the context of any Commercialization Agreement, any premium paid by a subscriber for stock of JVP and/or Newco; 

 

	 	(1)	 	where JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, is not publicly listed on a recognized stock exchange, the premium paid over the fair market value
of such stock as reasonably determined by the board of directors of JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, in good faith and certified in a board resolution (taking into account (i) the most recently or concurrently completed
arm’s length transaction in which the primary consideration for the stock is cash between the JVP or Newco, and/or an Affiliate of JVP and/or Newco, and an unaffiliated third party that is not part of a strategic investment and the closing of
which occurs within the six months preceding or on the date of such calculation, if any) and shall be reasonably agreed to by the Elan (provided that in the event Elan reasonably does not agree with 

 

6 

	 	    	 	JVP’s or Newco’s, and/or an Affiliate of JVP and/or Newco, fair market value determination, Elan and JVP and/or Newco, as the case may be, shall jointly
appoint an independent nationally-recognized third party to determine the fair market value), (ii) the general market conditions for private biotech securities, and (iii) the general state of progress in clinical and commercial activities in JVP
and/or Newco, and/or an Affiliate of JVP and/or Newco; or 

 

	 	(2)	 	where JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, is publicly listed on a recognized stock exchange, the premium paid over the average closing price
of such stock of JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, for the [...***...] day period immediately prior to any such subscription; 

 

	    	 	having taken account of deductions in respect of any customs and excise duties or other sales taxes that are actually paid by JVP and/or Newco, and/or an Affiliate
of JVP and/or Newco (but, for the avoidance of doubt, not income or corporation tax), directly related to the receipt of revenue by JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, as set forth above. 

 

	    	 	In no event will Net Revenues include any [...***...]. 

 

	    	 	“Net Sales” shall mean that sum determined, in accordance with generally accepted accounting principles, by deducting the following deductions from
the aggregate gross In Market sales proceeds billed for the DCEC Product and/or DCNC Product by Newco and/or JVP, and/or an Affiliate of JVP and/or Newco:  

 

	 	(i)	 	customs and excise duties or other sales taxes (but, for the avoidance of doubt) not income or corporation tax), directly related to the sale of the DCEC Product and
DCNC Product which are actually paid by Newco and/or JVP, and/or by an Affiliate of Newco and/or JVP; 

 

	 	(ii)	 	a discount from the gross sales proceeds to cover such normal costs as are incurred by Newco and/or JVP, and/or by an Affiliate of Newco and/or JVP, in respect of
industry standard transport, shipping and insurance costs; and industry standard or mandatory discounts or rebates directly related to the sale of the DCEC Product and DCNC Product; and 

 

	 	(iii)	 	amounts repaid or credited by Newco and/or JVP, and/or by an Affiliate of Newco and/or JVP, consistent with its normal business practices for similar products, by
reason of the rejection or return of goods. 

 

	    	 	“Newco” shall mean Curis Newco, Ltd. and its Affiliates. 

 

	    	 	“Newco Intellectual Property” shall have the meaning set forth in the JDOA. 

 

	    	 	“Party” shall mean Elan Corp, EPIL Shannon, EIS, JVP or Newco, as the case 

 

7 

	    	 	may be, and “Parties” shall mean all such parties together.  

 

	    	 	“Project” shall have the meaning set forth in the JDOA. 

 

	    	 	“Research and Development Program” shall mean “R&D Program(s),” as such term is defined in the JDOA. 

 

	    	 	“Territory” shall mean all of the countries of the world. 

 

	    	 	“United States Dollar” and “US$” and “$” shall mean the lawful currency of the United States of America.

 

	2.	 	TERMINATION OF THE NEWCO AGREEMENTS 

 

	 	2.1.	 	Subject to the provisions of Clause 2.2 hereof, the Parties hereby agree to terminate the Newco Agreements, including without limitation, those provisions expressly
stated to survive termination, in each case with effect from the Effective Date. 

 

	 	    	 	All the provisions of the Newco Agreements shall terminate forthwith with effect from the Effective Date and be of no further legal force or effect; provided that
the definitions included in the Newco Agreements that are expressly referred to in this Agreement shall survive to the extent incorporated by reference herein. 

 

	 	2.2.	 	For the avoidance of doubt and without prejudice to the generality of the foregoing Clause 2.1, the Parties hereby acknowledge and agree as follows as of the
Effective Date: 

 

	 	2.2.1.	 	the Management Committee and the R&D Committee (as such terms are defined in the JDOA) shall each be dissolved forthwith with effect from the Effective Date and
thereby cease to have any function; 

 

	 	2.2.2.	 	the EIS Director, Kevin Insley, and his alternate director, Debra Moore Buryj, holding office with Newco immediately prior to the Effective Date shall resign;

 

	 	2.2.3.	 	the nominees on the Management Committee of the EIS Director shall be deemed to have been removed from the Management Committee by the EIS Director immediately prior
to the dissolution of the Management Committee; 

 

	 	2.2.4.	 	the nominees on the R&D Committee of the nominees on the Management Committee of the EIS Director, shall be deemed to have been removed from the R&D
Committee by the nominees on 

 

8 

	 	    	 	the Management Committee of the EIS Director, immediately prior to the dissolution of the Management Committee pursuant to Clause 2.2.1; 

 

	 	2.2.5.	 	all rights granted to Newco pursuant to the Elan License Agreement to use the Elan Patents, the Elan Know-How, the Elan Improvements and any Elan trademarks shall
terminate forthwith; 

 

	 	2.2.6.	 	with effect from the Effective Date, neither JVP nor Newco shall have any rights in or to the Elan Patents, the Elan Know-How, the Elan Improvements and/or any other
patents, know-how or any other intellectual property rights whatsoever of Elan; 

 

	 	2.2.7.	 	with effect from the Effective Date, Elan shall not have any rights in or to the JVP Patents, the JVP Know-How, the JVP Improvements, the [...***...] and/or
any other patents, know-how or any other intellectual property rights whatsoever of JVP and/or [...***...]; 

 

	 	2.2.8.	 	Elan shall terminate or shall cause to be terminated any and all research and development work being conducted in connection with or pursuant to any Research and
Development Program of Newco, the Newco Agreements, or otherwise on behalf of Newco; 

 

	 	2.2.9.	 	Elan shall terminate or cause to be terminated any and all technical services and assistance being conducted in connection with the Newco Agreements;

 

	 	2.2.10.	 	for the avoidance of doubt, none of the Parties shall have any obligation to provide working capital, research or development funding, or other funding or financing
of any nature to Newco; and 

 

	 	2.2.11.	 	Elan shall not have any obligation to pay any milestone payment or make any milestone investment to or in Newco or JVP whether relating to the Project, the
achievement of any objectives set forth therein or otherwise. 

 

	 	2.3.	 	Each of the Parties acknowledges and agrees with the other Parties that, as of the Effective Date, no monies are owed or are refundable by any of the Parties to the
others pursuant to the Newco Agreements, other than such sums owed to JVP and/or EIS by Newco pursuant to the JDOA as are set forth on Schedule 2.3, to be paid prior to the Effective Date. 

 

	 	    	 	For the avoidance of doubt, the Parties acknowledge that Newco is liable to pay any fees due and owing to Codan Corporate Administrative Services upon the Effective
Date, and thereafter. 

 

9 

 

	 	    	 	For the avoidance of doubt, this Clause 2.3 does not in any way negate or affect the provisions of Clause 6.4 (which relates to the Deferred Consideration).

 

	3.	 	REPRESENTATIONS, WARRANTIES, CONFIRMATIONS AND INDEMNITIES 

 

	 	3.1.	 	Sub-licenses: 

 

	 	    	 	Newco represents and warrants to the other Parties that it has not granted any sub-licenses or any other rights of any nature to any third parties pursuant to the
Elan License Agreement or the JVP License Agreement. 

 

	 	3.2.	 	JVP Shares: 

 

	 	    	 	JVP confirms to the other Parties that it is the legal and beneficial owner of the following: 

 

	 	3.2.1	 	6,000 shares of Newco Common Shares (as defined in the Securities Purchase Agreement); and 

 

	 	3.2.2	 	3,612 shares of Newco Preference Shares (as defined in the Securities Purchase Agreement). 

 

	 	3.3.	 	EIS Shares: 

 

	 	    	 	EIS confirms to the other Parties that it is the legal and beneficial owner of 2,388 shares of Newco Preference Shares (the “EIS Shares”).

 

	 	3.4.	 	Balance Sheet: 

 

	 	    	 	JVP represents and warrants to the other Parties that the Balance Sheet is accurate in all material respects and that, since the Balance Sheet Date, there has been
no material adverse change in the financial position or prospects of Newco. 

 

	 	    	 	JVP represents and warrants to the other Parties that there are no other creditors of Newco other than JVP as described in the Balance Sheet.

 

	 	3.5.	 	Third party agreements / Orders / Claims: 

 

	 	3.5.1.	 	[...***...], as of the Effective Date, to its actual knowledge, Newco is not a party to, or bound by, any judgment, order, decree or other directive of or
stipulation with any court or any governmental or regulatory authority. 

 

	 	3.5.2.	 	[...***...], to its actual knowledge, Newco is not a party to, or 

 

10 

	 	    	 	bound by, or is a third party beneficiary of any agreement with any third party, except for the Newco Agreements. 

 

	 	    	 	JVP further represents and warrants to the Parties that (a) JVP entered into third party agreements in connection with the Project in the name of Curis, Inc., (b)
neither Newco nor any other Party nor any Elan Affiliate is named as party to, or bound by, or is a third party beneficiary of any such agreement with any third party. JVP acknowledges and agrees that it is solely liable for any expenses or
undertakings, relating to such third party agreements. 

 

	 	    	 	In addition to the foregoing, the Parties agree that the indemnity in Clause 3.8.1 shall extend to any claims, losses, liabilities and/or damages arising from any
third party agreements. 

 

	 	3.5.3	 	[...***...], as of the Effective Date, to its actual knowledge, there are no claims, suits or proceedings pending or threatened against Newco.

 

	 	3.6	 	Regulatory Applications: 

 

	 	    	 	Each of the Parties confirms to the other Parties that, prior to and as of the Effective Date, [...***...] no regulatory applications have been filed by Newco
or by any Party with any government authority in any part of the world for any product, including without limitation, a DCEC Product, DCNC Product, and/or Newco Intellectual Property or otherwise howsoever in relation to the Project.

 

	 	3.7	 	Exclusion of warranties / liability: 

 

	 	    	 	WITH REFERENCE TO THE TRANSFER BY EIS TO JVP OF THE EIS SHARES AS PROVIDED BY CLAUSE 6 ON THE EFFECTIVE DATE (BUT WITHOUT PREJUDICE TO EIS’S OBLIGATION UNDER
CLAUSE 6.1.1 HEREOF TO TRANSFER THE EIS SHARES TO JVP FREE FROM ALL LIENS, CHARGES AND ENCUMBRANCES), THE PARTIES ACKNOWLEDGE AND AGREE THAT EIS AND ITS AFFILIATES MAKE NO REPRESENTATION OR WARRANTY OF ANY NATURE TO JVP OR ANY OTHER PERSON IN
RELATION TO NEWCO OR ANY OF ITS AFFAIRS PAST, PRESENT OR FUTURE. 

 

	 	    	 	JVP ACKNOWLEDGES THAT IT IS ENTERING INTO THIS AGREEMENT IN RELIANCE EXCLUSIVELY ON ITS OWN BUSINESS JUDGMENT, THE INFORMATION WHICH HAS BEEN AVAILABLE TO IT AS A
SHAREHOLDER OF NEWCO AND OTHERWISE AND ON THE DUE DILIGENCE IT HAS CARRIED OUT IN RELATION TO NEWCO. 

 

11 

 

	 	    	 	EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, ALL OTHER WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, ARE HEREBY
EXPRESSLY EXCLUDED BY THE PARTIES. 

 

	 	    	 	NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY BY REASON OF ANY REPRESENTATION OR WARRANTY, CONDITION OR
OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL SPECIAL OR INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND
WHETHER OCCASSIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR AGENTS OR OTHERWISE. 

 

	 	3.8	 	Indemnity by JVP and Newco: 

 

	 	3.8.1	 	JVP and Newco, jointly and severally, hereby agree to indemnify and hold harmless Elan Corp, EPIL Shannon, EIS, and their respective Affiliates, officers, directors,
agents, representatives, employees and shareholders, and any person holding office on or prior to the Effective Date as an EIS Director (as defined in the JDOA) (or any alternate director of the EIS Director) or as a member of the Management
Committee or the R&D Committee (each such person or entity referred to as an “Indemnified Party”) against any claims, losses, liabilities or damages and expenses (including reasonable attorneys’ fees and expenses) incurred
or sustained by such Indemnified Party arising in relation to any claim or proceedings made against Newco or an Indemnified Party which relate in any way to the activities of Newco, past present or future, including without limitation, claims
arising with respect to the conduct of clinical trials (if any) by Newco, or by JVP or any other person or entity on behalf of Newco whether in connection with the Project or otherwise. 

 

	 	3.8.2	 	For the avoidance of doubt and without prejudice to the generality of Clause 3.8.1, JVP and Newco, jointly and severally, shall indemnify and hold harmless Elan
against any claims, losses, liabilities or damages and expenses (including reasonable attorneys’ fees and expenses) which may arise in relation to any claim or proceedings made against Elan Corp or any of its Affiliates alleging infringement or
other unauthorized use of the proprietary rights of a third party arising from the manufacture, importation, use, 

 

12 

	 	    	 	offer for sale, sale or other commercialization of the DCEC Product, DCNC Product, and/or the Newco Intellectual Property or any technology related thereto.

 

	 	3.8.3	 	Notwithstanding any provision contained in this Clause 3.8 to the contrary, the indemnification obligations of JVP and Newco in Clause 3.8 shall not be applicable to
the extent that any claims or proceedings of any third party arise from or relate to: 

 

	 	    	 	3.8.3.1 [...***...]; 

 

	 	    	 	3.8.3.2 [...***...]; or 

 

	 	    	 	3.8.3.3 [...***...]. 

 

	 	3.9	 	Organization and authority: 

 

	 	    	 	Each of the Parties represents and warrants to the other Parties that it is a corporation duly organized and validly existing under the laws of its jurisdiction of
organization and has all the requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 

 

	 	3.10	 	Approvals: 

 

	 	    	 	Each of the Parties represents and warrants to the other Parties that no permit, authorization, consent or approval of or by (“Approval”), or any
notification of or filing with (“Filing”), any person or entity (governmental or otherwise) is required in connection with the execution, delivery or performance of this Agreement by such Party, or if any such Approval or Filing is
so required, that same has been obtained or filed prior to the Effective Date. 

 

	 	3.11	 	Investment Representations: 

 

	 	    	 	JVP hereby represents and warrants to the other Parties that, as of the Effective Date, (i) it is sophisticated in transactions of this type and capable of
evaluating the merits and risks of its investment in Newco, (ii) it has not been formed solely for the purpose of making this investment and is acquiring the EIS Shares for investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution of any part thereof, and no other person has a direct or indirect interest, beneficial or otherwise in the EIS Shares, (iii) it understands that the EIS Shares have not been registered
under the Securities Act of 1933, as amended (the “Securities Act”), or applicable state and foreign securities laws by reason of a specific exemption from the registration provisions of the Securities Act and applicable state and
foreign securities laws, the availability of which depends upon, among other things, the bona fide nature of the investment intent and 

 

13 

	 	    	 	the accuracy of its representations as expressed herein and (iv) it understands that no public market now exists for any of the EIS Shares and that there is no
assurance that a public market will ever exist for such shares. 

 

	 	3.12	 	Trademark Applications: 

 

	 	    	 	JVP represents and warrants to the other Parties that Newco and JVP have not filed for any trademark protection and has not adopted any trademark in connection with
Newco’s business or any product or service provided thereunder. 

 

	 	3.13	 	Representation and Warranties as of the Effective Date: 

 

	 	    	 	Except where expressly stated otherwise, each of the representations and warranties in this Agreement are made as of the Effective Date. 

 

	4	 	INTELLECTUAL PROPERTY 

 

	 	4.1	 	Ownership: 

 

	 	    	 	On and following the Effective Date: 

 

	 	4.1.1	 	For the avoidance of doubt, the Elan Patents, the Elan Know-How, the Elan Improvements and/or the Elan Trademarks shall remain the sole and exclusive property of
Elan. 

 

	 	    	 	Elan confirms that no Elan Improvements were developed pursuant to the Project, or otherwise pursuant to the Newco Agreements. 

 

	 	4.1.2	 	For the avoidance of doubt, the JVP Patents, the JVP Know-How, the JVP Improvements and/or the JVP Trademarks shall remain the sole and exclusive property of JVP.

 

	 	    	 	A full list of the JVP Improvements developed pursuant to the Project, or otherwise pursuant to the Newco Agreements is set forth in Schedule 4.1.2.

 

	 	    	 	JVP represents and warrants to the other Parties that Exhibit A represents a complete, true and accurate list of all DCEC Compounds Controlled by JVP as of the
Effective Date. 

 

	 	4.1.3	 	All Newco Intellectual Property shall remain the sole and exclusive property of Newco.  

 

	 	    	 	A full list of the Newco Intellectual Property developed pursuant to the Project, or otherwise pursuant to the Newco Agreements, is set forth in Schedule 4.1.3.

 

14 

 

	5	 	RIGHTS RELATED TO SECURITIES 

 

	 	5.1	 	Nothing contained herein shall constitute a waiver of any right of EPIL Shannon or EIS or any of their respective successors and assigns with respect to their
respective ownership of securities in JVP under any agreements of any kind in existence with JVP with respect thereto, which agreements shall remain unmodified and in full force and effect, except as set forth in Schedule 5.1 hereof or provided in
Section 5.2. 

 

	 	5.2	 	Effective immediately prior to the Effective Date, EIS hereby waives the Exchange Right and acknowledges that such right is of no further force and effect.

 

	6	 	SALE OF SHARES AND COMPLETION 

 

	 	6.1	 	Subject to the terms of this Agreement: 

 

	 	6.1.1	 	EIS shall sell as legal and beneficial owner and JVP shall purchase, free from all liens, charges and encumbrances and together with all rights now or hereafter
attaching to them, the EIS Shares; and 

 

	 	6.1.2	 	the EIS Shares will be sold by EIS to JVP for a total initial consideration of $10 (the “Initial Consideration”) and the Deferred Consideration.

 

	 	6.2	 	On the Effective Date, Elan and JVP shall take or (to the extent that the same is within its powers) cause to be taken the following steps prior to or at directors
and shareholders meetings of Newco, or such other meetings, as appropriate: 

 

	 	6.2.1	 	the delivery by EIS to JVP of a stock transfer form in respect of the EIS Shares duly executed by EIS in favor of JVP or as it may direct together with the related
share certificates; 

 

	 	6.2.2	 	the payment by JVP to EIS of the Initial Consideration; 

 

	 	6.2.3	 	the transfer to JVP (or as it may direct) of the share register, and all books and records of Newco in the possession of Elan (including any minute books and any
company seal(s)); 

 

	 	6.2.4	 	the change of the registered office of Newco from Clarendon House, 2 Church St., Hamilton, Bermuda to Appleby Spurling & Kempe, Cumberland House, Victoria
Street, PO Box HM 1179, Hamilton HM EX, Bermuda; 

 

15 

 

	 	6.2.5	 	the resignation of the EIS Director on Newco’s Board of Directors and any alternate director of the EIS Director; 

 

	 	6.2.6	 	the adoption of new Bye-Laws of Newco; 

 

	 	6.2.7	 	the modification, as appropriate, by board resolutions of Newco of matters such as the removal of EIS as book keeper for Newco, the removal of EIS representatives as
authorized signatories of Newco’s bank account, the resignation of the Company Secretary and any other related matters whatsoever; 

 

	 	6.2.8	 	notifying the Bermuda Monetary Authority of the transfer of the EIS Shares; and 

 

	 	6.2.9	 	any other steps required by this Agreement. 

 

	 	6.3	 	On the Effective Date, the Parties shall consummate the transactions contemplated by Sections 1 and 2 of Schedule 5.1. In connection therewith, JVP shall deliver to
EIS an opinion of counsel satisfactory to EIS with respect to the issuance by JVP to EIS of the Exchange Shares (as defined in Section 1 of Schedule 5.1). 

 

	 	6.4	 	Deferred Consideration 

 

	 	6.4.1	 	In consideration of the sale by EIS to JVP of the EIS Shares under Clause 6.1, JVP and its Affiliates (except for Newco) shall be jointly and severally liable to pay
to EIS deferred consideration (“Deferred Consideration”), which shall be calculated as follows: 

 

	 	(1)	 	If Newco and/or JVP, and/or an Affiliate of Newco and/or JVP, sells the Deferred Consideration New Compounds Product In Market, then [...***...]% of Net Sales
[...***...] in the Territory shall be payable to EIS during the Deferred Consideration Period; 

 

	 	(2)	 	If Newco and/or JVP, and/or an Affiliate of Newco and/or JVP, sells the Deferred Consideration Existing Compounds Product In Market, then [...***...]% of Net
Sales [...***...] in the Territory shall be payable to EIS during the Deferred Consideration Period; and 

 

	 	(3)	 	If Newco and/or JVP, and/or an Affiliate of Newco and/or JVP, enters into a Commercialization Agreement with any third party then [...***...]% of Net Revenues
in the Territory shall be payable to EIS during the Deferred Consideration Period; provided, however, that [...***...] 

 

16 

	 	    	 	shall not be included in the calculation of Deferred Consideration. 

 

	7	 	CONFIDENTIALITY 

 

	 	7.1	 	Confidentiality: 

 

	 	7.1.1	 	For purposes of this Clause 7.1 only, “Parties” shall mean the Elan Parties on the one hand and the Curis Parties on the other hand. “Elan
Parties” shall mean Elan Corp., EPIL Shannon, and EIS; and the “Curis Parties” shall mean JVP and Newco. The Parties agree that it may be necessary pursuant to this Agreement, from time to time, to disclose to each other
confidential and proprietary information, including without limitation, inventions, trade secrets, specifications, designs, data, know-how and other proprietary information, processes, services and business of the disclosing Party.

 

	 	    	 	The foregoing together with the terms of this Agreement shall be referred to collectively as “Additional Confidential Information”.

 

	 	    	 	The Parties also agree that it may have been necessary to disclose to each other Confidential Information (as defined in the JDOA) pursuant to the Newco Agreements
[...***...]. 

 

	 	    	 	Together Additional Confidential Information and Confidential Information shall be referred to collectively as “Proprietary Information”.

 

	 	7.1.2	 	Save as otherwise specifically provided herein, and subject to Clause 7.2 and 7.3, each Party shall disclose Proprietary Information of another Party only to those
employees, representatives and agents requiring knowledge thereof in connection with fulfilling the Party’s obligations under this Agreement, and not to any other third party. 

 

	 	    	 	Each Party further agrees to inform all such employees, representatives and agents of the terms and provisions of this Agreement relating to Proprietary Information
and their duties hereunder and to obtain their agreement hereto as a condition of receiving Proprietary Information. 

 

	 	    	 	Each Party shall exercise the same standard of care as it would itself exercise in relation to its own confidential information (but in no event less than a
reasonable standard of care) to protect and preserve the proprietary and confidential nature of the Proprietary 

 

17 

 

	 	    	 	Information disclosed to it by another Party. 

 

	 	    	 	Each Party shall promptly, upon request of another Party, return all documents and any copies thereof containing Proprietary Information belonging to, or disclosed
by, such Party, save that it may retain one copy of the same solely for the purposes of ensuring compliance with this Clause 7. 

 

	 	7.1.3	 	Any breach of this Clause 7 by any person informed by one of the Parties is considered a breach by the Party itself. 

 

	 	7.1.4	 	Proprietary Information shall be deemed not to include: 

 

	 	(1)	 	information which is in the public domain; 

 

	 	(2)	 	information which is made public through no breach of this Agreement; 

 

	 	(3)	 	information which is independently developed by a Party, as evidenced by such Party’s records; 

 

	 	(4)	 	information that becomes available to a receiving Party on a non-confidential basis, whether directly or indirectly, from a source other than another Party, which
source did not acquire this information on a confidential basis. 

 

	 	7.1.5	 	The provisions relating to confidentiality in this Clause 7 shall [...***...] remain in effect during the term of this Agreement, and for a period of 10 years
following the Effective Date of this Agreement. 

 

	 	7.1.6	 	The Parties agree that the obligations of this Clause 7 are necessary and reasonable in order to protect the Parties’ respective businesses, and each Party
agrees that monetary damages may be inadequate to compensate a Party for any breach by another Party of its covenants and agreements set forth herein. 

 

	 	    	 	The Parties agree that any such violation or threatened violation may cause irreparable injury to a Party and that, in addition to any other remedies that may be
available, in law and equity or otherwise, each Party shall be entitled to seek injunctive relief against the threatened breach of the provisions of this Clause 7, or a continuation of any such breach by another Party, specific performance and other
equitable relief to redress such breach together with damages and reasonable counsel fees and expenses to enforce its rights hereunder. 

 

18 

 

	 	7.2	 	Announcements: 

 

	 	    	 	Subject to Clause 7.3, no announcement or public statement concerning the existence, subject matter or any term of this Agreement shall be made by or on behalf of
any Party without the prior written approval of the other Parties. 

 

	 	    	 	The terms of any such announcement shall be agreed in good faith by the Parties. 

 

	 	7.3	 	Required Disclosures: 

 

	 	7.3.1	 	A Party (the “Disclosing Party”) will be entitled to make an announcement or public statement concerning the existence, subject matter or any term
of this Agreement, or to disclose Proprietary Information that the Disclosing Party is required to make or disclose pursuant to: 

 

	 	(1)	 	a valid order of a court or governmental authority; or 

 

	 	(2)	 	any other requirement of law or any securities or stock exchange; 

 

	 	    	 	provided that if the Disclosing Party becomes legally required to make such announcement, public statement or disclosure hereunder, the Disclosing Party shall give
the other Parties prompt notice of such fact to enable the other Parties to seek a protective order or other appropriate remedy concerning any such announcement, public statement or disclosure. 

 

	 	    	 	The Disclosing Party shall fully co-operate with the other Parties in connection with that other Party’s or Parties’ efforts to obtain any such order or
other remedy. 

 

	 	    	 	If any such order or other remedy does not fully preclude announcement, public statement or disclosure, the Disclosing Party shall make such announcement, public
statement or disclosure only to the extent that the same is legally required. 

 

	 	7.4	 	Each of the Parties shall be entitled to provide a copy of this Agreement (and any subsequent amendments hereto) when fully executed and delivered by the Parties,
and the Newco Agreements, to a potential investor (and legal and financial advisors thereof) in connection with financing activities, to a potential third party purchaser in connection with Clause 10.2.1(2) and, in the case of EIS (and/or any
Affiliate of EIS), in connection with Clause 10.2.2; provided, however, that the relevant third party or assignee has entered into a confidentiality agreement on terms no 

 

19 

	 	    	 	less protective than the terms of this Clause 7. 

 

	8	 	WAIVER OF ACCRUED RIGHTS/MUTUAL RELEASES 

 

	 	8.1	 	With effect from the Effective Date, each Party and each of its Affiliates (“Releasor”): 

 

	 	8.1.1	 	waives any accrued rights that Releasor may have accrued against the other Parties and each of its Affiliates, officers, directors, representative, agents and
employees and the assigns and successors in interest of any of the foregoing entities (“Releasees”), whether known or unknown, foreseen or unforeseen, fixed or contingent, of any nature whatsoever from the beginning of time to the
Effective Date under the Newco Agreements; and 

 

	 	8.1.2	 	fully and finally releases and discharges the Releasees from any and all manner of actions, claims, promises, debts, sums of money, demands, obligations, in law or
in equity, directly or indirectly, whether known or unknown, foreseen or unforeseen, fixed or contingent, of any nature whatsoever that Releasor may have by reason of any act, omission, matter, provision, cause or thing whatsoever from the beginning
of time to the Effective Date under the Newco Agreements. 

 

	 	8.2	 	For the avoidance of doubt the provisions of this Clause 8 shall not in any way act as a waiver by any of the Parties in respect of any of the provisions set forth
in this Agreement (including, for the avoidance of doubt, Clause 3.8.1). 

 

	9	 	PAYMENTS, REPORTS AND AUDITS 

 

	 	9.1	 	With reference to Clause 6.4, JVP and/or Newco, and/or any Affiliate of JVP and/or Newco, shall [...***...] following the execution of any Commercialization
Agreement (and any subsequent amendment thereto), provide Elan with a copy of the financial provisions and any other relevant terms of such Commercialization Agreement. 

 

	 	9.2	 	JVP and Newco shall keep true and accurate records of Net Revenues and Net Sales and any deductions made in calculating same. Where JVP and/or Newco have Net
Revenues and/or Net Sales, JVP and/or Newco, as the case may be, shall deliver to EIS a written statement (the “Statement”) thereof within [...***...] days following the end of each calendar quarter (or any part thereof). The
financial officers of EIS and JVP shall agree upon the precise format of the Statement. 

 

	 	9.3	 	Payments due on Net Revenues and Net Sales on amounts in a currency 

 

20 

	 	    	 	other than US Dollars shall first be calculated in the foreign currency and then converted to US Dollars on the basis of the exchange rate in effect for the purchase
of US Dollars with such foreign currency quoted in the Wall Street Journal (or comparable publication if not quoted in the Wall Street Journal). 

 

	 	9.4	 	Any income or other taxes which JVP and/or its Affiliates (excluding Newco) are required by law to pay or withhold on behalf of EIS with respect to such Deferred
Consideration payments under this Agreement shall be deducted from the amount of such Deferred Consideration payments. JVP and/or its Affiliates (excluding Newco), as the case may be, shall furnish EIS with proof of such payments. JVP and/or its
Affiliates (excluding Newco), as the case may be, shall promptly provide EIS with a certificate or other documentary evidence to enable EIS to support a claim for a refund or a foreign tax credit with respect to any such tax so withheld or deducted
by JVP and/or its Affiliates (excluding Newco), as the case may be. The Parties will reasonably cooperate in completing and filing documents required under the provisions of any applicable tax treaty or under any other applicable law, in order to
enable JVP and/or its Affiliates (excluding Newco), as the case may be, to make such payments to EIS without any deduction or withholding. 

 

	 	9.5	 	Payment of monies hereunder shall be made by JVP and/or its Affiliates (excluding Newco), as the case may be to EIS within [...***...] days of the Statement.

 

	 	    	 	All payments due hereunder shall be made in U.S. Dollars. 

 

	 	9.6	 	All payments due hereunder shall be made to the designated bank account of EIS in accordance with such timely written instructions as EIS shall from time to time
provide. 

 

	 	9.7	 	Without prejudice to EIS’s other remedies hereunder, JVP and/or its Affiliates (excluding Newco), as the case may be, shall pay interest to EIS on sums not paid
to EIS on the date on which payment should have been made pursuant to the applicable provisions of this Agreement (“Due Date”) over the period from the Due Date until the date of actual payment (both before and after judgment) at
the Prime Rate publicly announced by Morgan Guaranty Trust Company of New York at its principal office on the Due Date (or next to occur business day, if such date is not a business day) plus [...***...] %, such interest payable on demand from
time to time and compounded monthly. 

 

	 	9.8	 	For the [...***...] day period following the close of each calendar year of the Agreement, JVP and/or its Affiliates (excluding Newco), as the case may be,
will, in the event that EIS reasonably requests such access, provide EIS’ independent certified accountants (reasonably acceptable to 

 

21 

	 	    	 	JVP) with access, during regular business hours and subject to the confidentiality provisions as contained in this Agreement, to JVP’s and/or its Affiliates
(excluding Newco), as the case may be, books and records solely for the purpose of verifying the accuracy and reasonable composition of the calculations hereunder for the calendar year then ended. 

 

	 	9.9	 	In the event that JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, shall sell the DCEC Product or DCNC Product to any third party, or enter into any
Commercialization Agreement with respect thereto with any third party, together with other products of JVP and/or Newco, and/or an Affiliate of JVP and/or Newco, by the method commonly known in the pharmaceutical industry as “bundling” and
the price attributable to the DCEC Product or DCNC Product is less than the average price which would have been attributable thereto on an “arms length” basis, the Net Sales or Net Revenues attributable thereto hereunder shall be adjusted
by the Parties to reflect an average price on an “arms length” basis. 

 

	10	 	GENERAL 

 

	 	10.1	 	Governing law and jurisdiction: 

 

	 	10.1.1	 	This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles under the laws
of the State of New York. 

 

	 	10.1.2	 	For the purposes of this Agreement, the Parties submit to the nonexclusive jurisdiction of the State and Federal Courts of New York. 

 

	 	10.2	 	Assignment: 

 

	 	10.2.1	 	Subject to Clause 10.2.2 and Clause 10.2.3, this Agreement shall not be assigned by any Party without the prior written consent of the others, save that any Party:

 

	 	(1)	 	may assign this Agreement in whole or in part and delegate its duties hereunder to its Affiliate or Affiliates without such consent; and 

 

	 	(2)	 	may assign its rights and obligations to a successor (whether by merger, consolidation, reorganization or other similar event) or purchaser of all or substantially
all of its assets relating to such Party’s technology related to this Agreement, provided that such successor or purchaser has agreed in writing to assume all of such Party’s rights and obligations hereunder and a copy of such assumption
is 

 

22 

	 	    	 	provided to the other Parties. 

 

	 	10.2.2	 	EIS (and/or any Affiliate) shall be entitled to assign the rights of EIS (or any Affiliate) to the Deferred Consideration under Clause 6.4 without the consent of any
other Party hereto. EIS (and/or any Affiliate) shall notify the other Parties hereto of any such assignment within a reasonable time following any such assignment. 

 

	 	10.2.3	 	For the avoidance of doubt, nothing in this Clause 10.2 shall affect the provisions governing assignment of securities in Schedule 5.1 hereof.

 

	 	10.3	 	Notices: 

 

	 	10.3.1	 	Any notice to be given under this Agreement shall be sent in writing in English by registered airmail, internationally recognized courier or telefaxed to the
following addresses: 

 
If to Curis at: 
 
61 Moulton Street 
Cambridge, MA 02138-1118 
USA 
Attention:        President 
Telephone:
617-503-6500 
Fax: 617-503-6501 
 
with a copy to: 
 
61 Moulton Street 
Cambridge, MA 02138-1118 
USA 
Attention:        General Counsel 
Telephone:
617-503-6500 
Fax: 617-503-6501 
 
If to Newco at: 
 
Curis Newco Ltd. 
Appleby Spurling & Kempe 
Cumberland House 
Victoria Street 
PO Box HM 1179 
Hamilton HM EX 
Bermuda 
Attention: Ned Jackson 
 

23 

Telephone: 441-298-3558 
Fax: 441-298-3498 
 
If to Elan Corp, EIS and/or EPIL Shannon at:  
 
Elan Corporation, plc 
Elan Pharma International Limited 
Elan International Services, Ltd. 
c/o Elan International Services, Ltd. 
102 St. James Court 
Flatts, 
Smiths FL04 
Bermuda 
Attention:        Secretary 
Telephone:      441 292 9169 
Fax:                 441 292 2224 
 
with a copy to Neuralab at: 
 
Neuralab Limited 
Clarendon House, 
2 Church St. 
Hamilton, 
Bermuda 
Attention:        Secretary 
Telephone:

Fax: 
 

24 

 
If to Neuralab at: 
 
Neuralab Limited 
Clarendon House, 
2 Church St. 
Hamilton, 
Bermuda 
Attention:        Secretary 
Telephone: 
Fax: 
 

	 	    	 	or to such other address (es) and telefax numbers as may from time to time be notified by any Party to the others hereunder. 

 

	 	10.3.2	 	Any notice sent by mail shall be deemed to have been delivered within [...***...] days after dispatch or delivery to the relevant courier and notice sent by
fax shall be deemed to have been delivered upon confirmation receipt. Notice of change of address shall be effective upon receipt. 

 

	 	10.4	 	Waiver: 

 

	 	    	 	No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver, and no
waiver of any breach or failure to perform shall be deemed to be a waiver of any future breach or failure to perform or of any other right arising under this Agreement. 

 

	 	10.5	 	Severability: 

 

	 	    	 	If any provision in this Agreement is agreed by the Parties to be, or is deemed to be, or becomes invalid, illegal, void or unenforceable under any law that is
applicable hereto: 

 

	 	10.5.1	 	such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable; or 

 

	 	10.5.2	 	if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, with effect from the date of this Agreement or such earlier
date as the Parties may agree, and the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way. 

 

	 	10.6	 	Further Assurances: 

 

	 	    	 	At the request of any of the Parties, the other Party or Parties shall (and shall use reasonable efforts to procure that any other necessary parties

 

25 

	 	    	 	shall) execute and perform all such documents, acts and things as may reasonably be required subsequent to the signing of this Agreement for assuring to or vesting
in the requesting Party the full benefit of the terms hereof. 

 

	 	10.7	 	Successors: 

 

	 	    	 	This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

 

	 	10.8	 	Amendments: 

 

	 	    	 	No amendment, modification or addition hereto shall be effective or binding on any Party unless set forth in writing and executed by a duly authorized representative
of each Party. Notwithstanding anything contained herein to the contrary, Elan and its Affiliates may, at Elan and its Affiliates sole discretion and without requiring the prior consent or any other act or document whatsoever of JVP or Newco, amend
this Agreement to delete Clause 6.4, Clause 9 and any other applicable definitions and Clauses relating to the payment and receipt of Deferred Consideration. 

 

	 	10.9	 	Counterparts: 

 
 

	 	    	 	This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together
shall constitute this Agreement. 

 

	 	10.10	 	Costs: 

 

	 	    	 	Each Party shall bear its own costs and expenses in connection with the transactions contemplated by this Agreement. 

 

	 	10.11	 	Force Majeure: 

 

	 	    	 	No Party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder if such failure or delay results from Force
Majeure, but any such failure or delay shall be remedied by such Party as soon as practicable; provided, however, that, no Party to this Agreement shall be excused for a failure or delay in the performance of any of its payment obligations
hereunder, even if such failure or delay results from Force Majeure. 

 

	 	10.12	 	Relationship of the Parties:  

 

	 	    	 	The Parties are independent contractors under this Agreement. Nothing herein contained shall be deemed to create or establish an employment,

 

26 

	 	    	 	agency, joint venture, or partnership relationship between the Parties or any of their agents or employees, or any other legal arrangement that would impose
liability upon one Party for the act or failure to act of another Party. No Party shall have any express or implied power to enter into any contracts, commitments or negotiations or to incur any liabilities in the name of, or on behalf of, another
Party, or to bind another Party in any respect whatsoever.  

 

	 	10.13	 	Entire agreement: 

 

	 	10.13.1	 	        This Agreement sets forth all of the agreements and understandings between the Parties with respect to the subject
matter hereof. There are no agreements or understandings with respect to the subject matter hereof, either oral or written, between the Parties other than as set forth in this Agreement. 

 

	 	10.13.2	 	        No provision of this Agreement shall be construed so as to negate, modify or affect in any way the provisions of any
other agreement between the Parties unless specifically provided herein and only to the extent so specified. 

 
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 
 
SIGNATURE PAGE TO FOLLOW 
 

27 

IN WITNESS WHEREOF the Parties have executed this Agreement. 
 
SIGNED 
 
BY:    /s/ Debbie
Buryj                 
for and on behalf of 
Elan Corporation, plc 
 
SIGNED 
 
BY:    /s/ Debbie Buryj                

for and on behalf of 
Neuralab Limited 
 
SIGNED 
 
BY:    /s/ Kevin
Insley                 
for and on behalf of

Elan International Services, Ltd. 
 
SIGNED 
 
BY:    /s/ Kevin
Insley                 
for and on behalf of 
Elan Pharma International Limited 
 
SIGNED 
 
BY:    /s/ Daniel Passeri             
for and on behalf of 
Curis Newco, Ltd

 
SIGNED 
 
BY:    /s/ Daniel
Passeri             
for and on behalf of 
Curis, Inc. 
 

28 

 
EXHIBIT
A 
 
DCEC COMPOUNDS 
 

	I	 	Hedgehog Small Molecule Agonist Compounds: 

 
[...***...] 
 
II.  Hedgehog Protein Compounds: 
 
[...***...] 

 
SCHEDULE
1 
 
BALANCE SHEET 
 
[...***...] 
 

 
SCHEDULE 2.3

 
Payments 
 
[...***...] 
 

3 

 
SCHEDULE
4.1.2 
 
JVP IMPROVEMENTS

 
[...***...] 
 

4 

 
SCHEDULE
4.1.3 
 
NEWCO INTELLECTUAL PROPERTY

 
[...***...] 
 

5 

 
SCHEDULE
5.1 
 
RIGHTS RELATED TO THE SECURITIES;
 
AMENDMENTS TO THE FINANCE DOCUMENTS 
 

	1.	 	Exchange and Cancellation of Series A Preferred Stock; Issuance of Common Stock 

 
On the Effective Date: 
 

	 	(a)	 	EIS hereby (i) surrenders to Curis for cancellation (the “Series A Exchange”) all 1,000 shares of Series A Preferred Stock, par value $.01 per share, of
Curis (“Series A Preferred Stock) owned of record by EIS, and (ii) waives its right to receive payment of all mandatory paid-in–kind dividends payable to EIS with respect to such Series A Preferred Stock through the Effective Date, and not
heretofore paid under Section 2(c) of Article I of Curis’s Certificate of Designations, in consideration for the issuance by Curis to EIS of an aggregate of 2,878,782 shares (the “Exchange Shares”) of common stock, par value $.01 per
share, of Curis (“Common Stock”), as evidenced by certificate no.             , dated the Effective Date, issued to EIS, for the Exchange Shares, receipt of which is hereby
acknowledged by EIS. 

 

	 	(b)	 	Upon cancellation, such shares of Series A Preferred Stock shall cease to be outstanding and all rights, preferences and privileges theretofore represented by such
shares shall terminate in full. 

 
After giving
effect to the foregoing, on the Effective Date, EIS shall be the holder of record of 3,425,230 shares of Common Stock. 
 
Curis represents and warrants to EIS that: (a) when issued and sold against payment therefor as provided herein, the Exchange Shares shall be validly
issued and fully paid and non-assessable, (b) the Exchange Shares have not been issued in violation of any preemptive rights, and are free of any liens or encumbrances, other than (i) liens or encumbrances created by EIS and (ii) restrictions on
transfer under applicable securities laws; (b) the issuance and sale of the Exchange Shares have been duly authorized by all requisite corporate action on the part of Curis, and (c) the issuance and sale of the Exchange Shares do not violate,
conflict with or constitute or result in a breach or default under (or an event which with notice or passage of time or both would constitute a default) or give rise to any right of termination, cancellation or acceleration under (i) the Certificate
of Incorporation or bylaws of Curis, (ii) any applicable law, statute, rule or regulation, or any ruling, writ, injunction, order, 
 

6 

judgment or decree of any court, arbitrator, administrative agency or other governmental body applicable
to Curis or any of its properties or assets or (iii) any contract, indenture, mortgage, deed of trust, lease, agreement or other instrument to which Curis is a party or by which Curis or any of its properties is bound. 
 

	2.	 	Partial Prepayment of Convertible Promissory Note; Amendment and Restatement of Convertible Promissory Note 

 
On the Effective Date, the following actions are being taken with respect to
the Convertible Promissory Note, with respect to which the parties acknowledge and agree that $4,864,372 of principal (including capitalized interest) and accrued and unpaid interest was outstanding as of December 31, 2002: 
 
(a)        One Million Five Hundred
Thousand Dollars ($1,500,000), consisting of principal (including capitalized interest) and accrued and unpaid interest, is being prepaid in cash to EPIL Shannon or its designee, receipt of which prepayment is hereby acknowledged by EPIL Shannon.

 
(b)        Four Hundred
Thousand Dollars ($400,000) of principal (including capitalized interest) and accrued and unpaid interest is hereby forgiven by EPIL Shannon. 
 
(c)        Curis hereby issues and delivers to EPIL Shannon or its designee an amended and restated Convertible
Promissory Note (the “Amended and Restated Note”) in the principal amount of Three Million Dollars ($3,000,000), due and payable on July 18, 2007, bearing interest at the annual rate of 6%, convertible into Common Stock at a Conversion
Price of $10.00 per share, and containing such other terms as are set forth in the form of Amended and Restated Note attached hereto as Exhibit 1, which supersedes and replaces the Convertible Promissory Note in its entirety. Receipt of the
Amended and Restated Note is hereby acknowledged by EPIL Shannon. 
 
No further advances shall be made under the Amended and Restated Note. 
 
Curis represents and warrants to EPIL Shannon that (a) the execution and delivery of the Amended and Restated Note have been duly authorized by all requisite corporate action on the part of Curis, and (b) the execution and
delivery of the Amended and Restated Note do not violate, conflict with or constitute or result in a breach or default under (or an event which with notice or passage of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the Certificate of Incorporation or bylaws of Curis, (ii) any applicable law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to Curis or any of its properties or assets or (iii) any contract, indenture, mortgage, 
 

7 

deed of trust, lease, agreement or other instrument to which Curis is a party or by which Curis or any of
its properties is bound. 
 

	3.	 	Development Funding 

 
Section 1(e) (“Advances under the Note”) of the Securities Purchase Agreement is hereby deleted in its entirety and is of no further
force or effect whatsoever as of the Effective Date. 
 

	4.	 	Transfer Restrictions 

 
The following provisions are hereby amended as follows, effective as of the Effective Date: 
 
Section 1(f) (“Exemption from Registration; Legend”) of the Securities Purchase Agreement (as to second
legend only) is hereby deleted in its entirety and is of no further force and effect. 
 
Section 16 (“Assignments”) of the Securities Purchase Agreement is hereby amended by (i) deleting the word “permitted” in the first sentence thereof, (ii) deleting the second and third sentences
thereof in their entirety, and (iii) adding a new second sentence to read as follows: “Notwithstanding the foregoing, the Company shall not assign all or any part of this Agreement without the prior written consent of the other parties”.

 
Section 10 (“Transfer of Registration Rights”)
of the JVP Registration Rights Agreement is hereby amended by deleting subsections (b) and (d) thereof. 
 
Section 14(d) (“Successors and Assigns”) of the JVP Registration Rights Agreement is hereby amended by deleting the word “permitted” in the first and second sentences
thereof. 
 
Section 5(a)(i) of the Warrant is hereby deleted in its
entirety and replaced by the following: “This Warrant may be transferred or assigned by the Holder, in whole or in part. This Warrant and all of the provisions hereof shall be binding upon and inure to the benefit of the Holders and their
respective successors and assigns. The Company shall not assign any of its rights or obligations hereunder.” 
 
In addition to the foregoing, any and all other provisions, legends or requirements for legends in any way, directly or indirectly, limiting or
conditioning the free transfer, alienation or assignment of the securities of JVP and associated rights issued by JVP to any of EIS or EPIL Shannon or their respective subsidiaries or Affiliates are hereby deleted in their entirety and are of no
further force and effect (other than any holdback agreements contemplated by the JVP Registration Rights Agreement). The Parties hereby agree that the transfer of such securities of JVP are thus no longer subject to contractual restrictions on
transfer of any kind 
 

8 

(other than any holdback agreements contemplated by the JVP Registration Rights Agreement). The Parties
recognize that such securities remain subject to restrictions imposed under applicable securities laws. JVP will use commercially reasonable efforts to inform its transfer agent, and co-operate with the holder of such securities to confirm with
prospective third party transferees from time to time, of the elimination of such restrictions and, if the certificate representing such securities is legended to reflect a contractual restriction, JVP shall, if requested by the holder of such
securities, shall re-issue such securities without such restrictive legend. 
 

	5.	 	Board Seat 

 
Effective as of the Effective Date, the Board Seat Letter Agreement is hereby superseded and replaced in its entirety by the following: 
 
(1) Subject to the requirements of the General Corporation
Law of the State of Delaware, upon the request of EIS, (a) the Company will elect a representative of EIS to the vacancy on Curis’s Board of Directors (the “Curis Board”), which representative shall be reasonably acceptable to Curis
(such approval by Curis not to be unreasonably withheld or delayed) (provided that if no vacancy shall exist on the Curis Board at the time of such request, the Curis Board shall create a new directorship on the Curis Board) and (b) if EIS
shall not have designated such an individual at the time of any meeting of the Curis Board or such person was not elected or is otherwise not currently serving on the Curis Board, Curis shall give notice to EIS of each meeting of the Curis Board and
in such event, an individual selected by EIS shall be permitted to attend all meetings of the Curis Board and to receive all notices and other correspondence and communications sent to members of the Curis Board; and 
 
(2) commencing on the date that EIS, directly or indirectly,
owns less than five percent (5 %) of the shares of Curis’s Common Stock and/or common stock equivalents, collectively, on a fully-diluted basis, the rights of EIS set forth in paragraph (1) above shall terminate. 
 
The rights of EIS set forth in paragraph (1) above shall be assignable by EIS
or its assignees or transferees upon a transfer of such holder’s shares of Common Stock and/or common stock equivalents. 
 
Curis will take all necessary or appropriate steps to effect the nomination of the EIS representative or any replacement for such representative.

 

	6.	 	Covenants/Exchange Right/Pledge of Exchange Shares 

 

9 

Section 4(a) (“Certain Covenants”) of the Securities Purchase Agreement is hereby deleted
it in its entirety, effective as of the Effective Date. 
 
Section
5(c) (“Conversion and Exchange Rights.”) of the Securities Purchase Agreement is hereby deleted it in its entirety, effective as of the Effective Date. 
 
Section 6 (“Pledge of Exchange Shares”) of the Securities Purchase Agreement is hereby deleted it in its
entirety, effective as of the Effective Date. 
 

	7.	 	Registration Rights Agreement 

 
Section 2(a) of the JVP Registration Rights Agreement is hereby amended, effective as of the Effective Date, by inserting the following sentence at the
end thereof: 
 
“Notwithstanding the foregoing, so long as the
Company is entitled to use Form S-3 under the Securities Act, the Holders, collectively, shall be permitted unlimited Demand Registrations hereunder on Form S-3, or any similar short-form registration (a “Short-Form Registration”),
if available; provided that the Holders, collectively, will be entitled to request only one Short-Form Registration in any 12-month period.” 
 
The definition of “Registrable Securities” is hereby amended, effective as of the Effective Date, to include the Exchange Shares. 
 

10 

 
EXHIBIT
1 
 
FORM OF AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE 
 
THIS AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND NO INTEREST
THEREIN MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES SHALL BE EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) SUCH SECURITIES ARE TRANSFERRED PURSUANT
TO RULE 144 PROMULGATED UNDER THE ACT (OR ANY SUCCESSOR RULE) OR (3) CURIS, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL FOR THE HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE SATISFACTORY TO CURIS, INC. THAT NO VIOLATION OF THE ACT OR SIMILAR STATE
SECURITIES LAWS WILL BE INVOLVED IN SUCH TRANSFER. 
 
CURIS, INC. 
 
AMENDED AND
RESTATED CONVERTIBLE PROMISSORY NOTE 
 

	 U.S.$3,000,000 (excluding capitalized interest)
	  	 Originally issued: July 18, 2001

	
	 	  	 Amended and Restated: May __, 2003

 
The undersigned,
Curis, Inc., a Delaware corporation with offices at 61 Moulton Street, Cambridge, Massachusetts 02138-1118 (the “Company”), unconditionally promises to pay to Elan Pharma International Limited, an Irish private limited
liability company (“EPIL”), or its assigns, transferees and successors (collectively with EPIL, the “Holder”), on July 18, 2007 (the “Maturity Date”), at such place as may be designated by the
Holder to the Company, the principal amount of U.S.$3,000,000 (excluding capitalized interest), together with interest thereon accrued at a rate per annum set forth in Section 2 hereof from and after May _, 2003, compounded on a
semi-annual basis, the initial such compounding to commence on July 18, 2003 and thereafter on each one-year anniversary of July 18, 2003 and 180 days thereafter (each such date, a “Compounding Date”). 
 
SECTION 1.  SECURITIES PURCHASE AGREEMENT. 
 

11 

 
This Note was
originally issued pursuant to a Securities Purchase Agreement dated as of July 18, 2001, as amended, by and among the Company, Elan International Services, Ltd., a Bermuda exempted limited liability company and an affiliate of EPIL
(“EIS”), and EPIL (as amended at any time, the “Securities Purchase Agreement”), and the Holder hereof is intended to be afforded the benefits thereof, including the representations and warranties set forth therein.
Capitalized terms used but not otherwise defined herein shall, unless otherwise indicated, have the meanings given such terms in the Securities Purchase Agreement. 
 
SECTION 2.  PAYMENTS OF PRINCIPAL AND INTEREST. 
 
(a)        Unless
earlier (i) converted in accordance with the terms of Section 4 below or (ii) repaid in accordance with the terms hereof, the entire outstanding principal amount of this Note (including capitalized interest, if any), together with any accrued
interest thereon (the “Outstanding Amount”), shall be due and payable on the Maturity Date, at the option of the Company, in cash or, subject to applicable regulatory approvals, by the issuance of such number of shares of Common
Stock equal to the Outstanding Amount divided by the Fair Market Value per share of Common Stock. 
 
The “Fair Market Value” of one share of Common Stock shall be deemed to be the average of the closing sale prices for the Common
Stock over the 30 trading day period ending one trading day prior to the date of conversion or the Maturity Date, as the case may be. 
 
(b)        Accrued interest hereon shall not be paid in cash, but shall be capitalized and added
to the principal amount outstanding hereunder on each Compounding Date. Accrued interest hereon shall be due and payable in arrears on each Compounding Date. Interest shall accrue on this Note at a rate per annum of 6%. 
 
SECTION 3.  [INTENTIONALLY OMITTED]. 
 
SECTION 4.  CONVERSION. 
 
(a)        Conversion Right. 
 
(i)        Until this Note is repaid in full, the Holder shall have the right, at any time after the second anniversary of the Initial Closing Date, in its sole
discretion, to convert all or any portion of the Outstanding Amount (the “Conversion Right”) into such number of shares of Common Stock that shall be obtained by dividing the Outstanding Amount by U.S.$10.00 per share (subject to
adjustment as provided below in this Section 4, the “Conversion Price”). Notwithstanding the above, in the event that there shall occur any consolidation, merger or 
 

12 

reorganization of the Company with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the holders of the outstanding voting securities of the Company immediately prior to such consolidation, merger or reorganization, own 50% or less of the outstanding voting securities of the survivor corporation
(or the parent company of the survivor corporation) or resulting entity immediately after such consolidation, merger or reorganization, then the Outstanding Amount shall, immediately prior to the consummation thereof, at the option of the Holder and
subject to applicable regulatory approvals, be converted into the same number of shares of Common Stock into which such shares are convertible pursuant to the immediately preceding sentence (a “Significant Transaction Conversion”).

 
(ii)        The Holder shall be entitled to exercise the Conversion Right from time to time as to the unconverted portion of this Note upon at least 10 days’ prior written notice to the
Company, such notice to be in the form attached hereto as Annex I. Within 10 days of the conversion date specified in such notice, or within 10 days of the election by the Holder to compel a Significant Transaction Conversion, the Company
shall issue appropriate stock certificates to the Holder (or such affiliate designated by the Holder) representing the aggregate number of shares of Common Stock due to the Holder as a result of such conversion. The Holder and the Company shall take
all other necessary or appropriate actions in connection with or to effect such conversion. 
 
(b)        Certain Adjustments. 
 
(i) Adjustment for Common Stock Dividends and Distributions. If, at any time after the Initial Closing Date, the Company makes, or
fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock or Common Stock Equivalents, in each such event the Conversion Price that is then
in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which is
the total number of shares of Common Stock and Common Stock Equivalents issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of
shares of Common Stock and Common Stock Equivalents issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock or Common Stock Equivalents issuable in
payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 4(b)(i) to reflect the actual payment of such dividend or distribution. 
 

13 

A “Common Stock Equivalent” shall mean each share of Common Stock into
which securities or property or rights are convertible, exchangeable or exercisable for or into shares of Common Stock, or otherwise entitle the holder thereof to receive directly or indirectly, any of the foregoing. 
 
(ii)        Adjustments for Stock Splits, Stock Subdivisions and Combinations. If, at any time after the Initial Closing Date, the Company subdivides or combines the Common Stock, (A) in
the case of a subdivision (including a stock split), the Conversion Price in effect immediately prior to such event shall be proportionately decreased and the number of shares of Common Stock purchasable thereunder shall be proportionately
increased, and (B) in the case of a combination (including a reverse stock split), the Conversion Price in effect immediately prior to such event shall be proportionately increased and the number of shares of Common Stock purchasable thereunder
shall be proportionately decreased. Any adjustment under this Section 4(b)(ii) shall become effective at the close of business on the date the subdivision or combination becomes effective. 
 
(iii)        Adjustments for Reclassification, Reorganization and Consolidation. In case of (A) any reclassification, reorganization, change or conversion of securities of the Common
Stock (other than a change in par value, or from par value to no par value) into other shares or securities of the Company, or (B) any merger or consolidation of the Company with or into another entity (other than a merger or consolidation with
another entity in which the Company is the acquiring and the surviving entity and that does not result in any reclassification or change of the Common Stock), or (C) any sale of all or substantially all the assets of the Company, the Holder shall
have the right to receive, in lieu of the shares of Common Stock into which this Note is convertible, the kind and amount of shares of stock and other securities, money and property receivable upon such reclassification, reorganization, change,
merger or consolidation upon conversion by the Holder of the maximum number of shares of Common Stock into which this Note could have been converted immediately prior to such reclassification, reorganization, change, merger or consolidation, all
subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. The provisions of this clause (iii) shall similarly attach to successive reclassifications, reorganizations, changes, mergers
or consolidations. 
 
(c)        Other Distributions.    In the event the Company provides the holders of its Common Stock with consideration that is not otherwise addressed in this
Section 4 (including, without limitation, declaring a distribution payable in securities, assets, cash or evidences of indebtedness issued by other persons or the Company (excluding cash dividends declared and paid by the Company out of retained
earnings), then, in each such case, the Holder shall be entitled to a pro rata share of any such distribution as though the Holder was a holder of the number of shares of Common Stock of the Company as though this Note had been
converted in whole as of the record date fixed for the 
 

14 

determination of the holders of Common Stock of the Company entitled to receive such
distribution. 
 
(d)        Recapitalizations.  If at any time there occurs a recapitalization of the Common Stock (other than a subdivision, combination, or merger or sale of assets provided
for in Section 4), the Holder shall be entitled to receive upon conversion of this Note the number of shares of capital stock or other securities or property of the Company or otherwise, to which a holder of the Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the Holder after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of this Note) shall be applicable after that event as nearly equivalent as may be
practicable. 
 
(e)        No Impairment.  The Company shall not, by amendment of its Certificate of Incorporation or bylaws or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Holder against impairment. 
 
(f)        Notice
of Adjustments.  Whenever the consideration issuable upon a conversion hereunder shall be changed pursuant to this Section 4, the Company shall prepare a certificate setting forth, in reasonable detail, the event requiring the change
and the kind and amount of shares of stock and other securities, money and property subsequently issuable upon a conversion hereof. Such certificate shall be signed by its chief financial officer and shall be delivered to the Holder or such other
person as the Holder or any successor notice recipient may designate. 
 
(g)        Fractional Shares; Rounding.  No fractional shares of Common Stock will be issued in connection with any conversion hereunder. All shares of Common Stock
(including fractions thereof) issuable upon conversion of this Note shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the closing price of the Company’s
Common Stock on the Nasdaq National Market (or any other national securities exchange on which the Common Stock is then 
 

15 

traded) on the day immediately preceding the conversion. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest share, as the case may be. 
 
SECTION 5.  EVENTS OF DEFAULT. 
 
The occurrence of any of the following events shall constitute an event of default (an “Event of Default”): 
 
(a)        a default in the payment of the principal amount of this Note, when and
as the same shall become due and payable; 
 
(b)        a default in the payment of any accrued and unpaid interest on this Note, when and as the same shall become due and payable; 
 
(c)        a breach by the Company of its obligations under any of the Joint Venture Termination Agreement, dated of even date herewith, among the Company, Curis Newco, Ltd., EPIL, Elan
Corporation, plc and Elan International Services, Ltd., this Note, the Securities Purchase Agreement, the Warrant (as defined in the Securities Purchase Agreement) and the Company Registration Rights Agreement (as defined in the Securities Purchase
Agreement) (collectively, the “Transaction Documents”), which breach remains uncured at the conclusion of the cure period specified within the relevant Transaction Documents (provided that, for the purposes of this clause (c), to
the extent such relevant Transaction Document does not specify a cure period, the Company shall have a 45-day cure period), after written notice thereof by the Holder; provided that such breach has had or could reasonably be expected to have
a material adverse effects on the rights of EIS or its affiliates or their respective transferees under the Transaction Documents; provided, further, that (i) if the Company has proposed a course of action to rectify the breach and (x)
the Company is acting in good faith to rectify the breach by the end of the applicable cure period (or the 45-day period set forth above) and (y) the party whose rights were breached under the applicable Transaction Document has acknowledged its
consent in writing to such proposed course of action, then such period shall be extended as is reasonably necessary to permit such breach to be rectified, and (ii) if such default involves a good faith dispute regarding the amount of any required
payment, provided that any undisputed amount is paid and any disputed amount in excess of U.S.$1,000,000 is placed in an escrow account pending resolution of the determination of such disputed amount, such default shall be stayed for a
reasonable period during which a good faith resolution of the amount owed is being pursued; 
 
(d)        a distress, execution, sequestration or other process is levied or
enforced upon the Company or sued out against, in each case, a material part of its property which is not discharged or challenged within 60 days; 
 

16 

 
(e)        the Company is unable to generally pay its debts and continue its day-to-day operations in the normal course of business; 
 
(f)        the Company ceases wholly or substantially to carry on its business (other than (x) as a result of the merger or consolidation of the Company with another entity or (y) changes in
the nature of its business to a related business), without the prior written consent of the Holder (such consent not to be unreasonably withheld); 
 
(g)        the Company shall make a general assignment for the benefit of
creditors, or admit in writing its general inability to pay or generally fail to pay its debts as they mature or become due and such failure continues or shall have been uncured for a period of 60 days, or shall petition or apply for the appointment
of a trustee or other custodian, liquidator or receiver of the Company or of any substantial part of the assets of the Company or shall commence any case or other proceeding relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application
shall be filed or any such case or other proceeding shall be commenced against the Company and any such person shall indicate in writing its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have
been dismissed or stayed within sixty (60) days following the filing thereof; 
 
(h)        a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Company bankrupt or insolvent, or
approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Company in an involuntary case under federal bankruptcy laws as now or hereafter constituted; or 
 
(i)        there shall remain in force, undischarged, unsatisfied and unstayed, for more than sixty (60) days, whether or not consecutive, any final judgment against the Company that, with
other outstanding final judgments, undischarged, against the Company exceeds in the aggregate U.S.$1,000,000. 
 
SECTION 6.  REMEDIES IN THE EVENT OF DEFAULT. 
 
(a)        In the case of any Event of Default by the Company, the Holder may in its sole
discretion demand that the Outstanding Amount shall, in addition to all other rights and remedies of the Holder hereunder and under applicable law, be and become immediately due and payable in cash upon written notice delivered by the Holder to the
Company; provided that, in the event of any Event of Default specified in Section 5(g) or 5(h), all such amounts shall become immediately due and payable automatically and without any requirement of demand from or by the Holder.
Notwithstanding the preceding sentence, 
 

17 

the rights of the Holder as set forth in Sections 4 and 5 hereunder shall survive any such
acceleration and payment. 
 
(b)        The Company hereby waives demand and presentment for payment, notice of nonpayment, protest and notice of protest, diligence, filing suit, and all other notice and promises to pay
the Holder its costs of collection of all amounts due hereunder, including reasonable attorneys’ fees. 
 
(c)        In the case of any Event of Default under this Note by the Company, this Note shall
continue to bear interest after such default at the interest rate otherwise in effect hereunder plus 3 % per annum (but in any event not in excess of the maximum rate of interest permitted by applicable law). 
 
SECTION 7.  VOTING RIGHTS. 
 
This Note shall not entitle the Holder to any voting rights or other rights
as a stockholder of the Company prior to its conversion. 
 
SECTION 8.  COVENANTS OF THE COMPANY. 
 
The Company shall not incur any indebtedness for money borrowed which shall rank senior to this Note as to priority of payment (provided that the foregoing shall not restrict the Company’s ability to incur
indebtedness for money borrowed which shall (x) rank pari passu or subordinated to this Note as to priority of payment and/or (y) be secured). 
 
SECTION 9.  MISCELLANEOUS. 
 
(a)        This Note may be transferred or assigned by the Holder, in whole or in part. This Note
and all of the provisions hereof shall be binding upon and inure to the benefit of the Holders and their respective successors and assigns. The Company shall not assign any of its rights or obligations hereunder. 
 
(b)        All
notices, demands and requests of any kind to be delivered to any party in connection with this Note shall be in writing and shall be deemed to have been duly given if personally or hand delivered or if sent by an internationally-recognized overnight
delivery courier or by registered or certified mail, return receipt requested and postage prepaid, or by facsimile transmission, in each case, addressed as follows: 
 

18 

	 	(i)	 	if to the Company, to: 

 
Curis, Inc. 
61 Moulton Street 
Cambridge, Massachusetts 02138-1118

Attention: Daniel Passeri, President and Chief Executive Officer 
Facsimile: (617) 503-6501 
 
with a copy to: 
 
Curis, Inc. 
61 Moulton Street Cambridge, MA 02138-1118 
Attention:
General Counsel 
Facsimile: (617) 503-6501 
 

	 	(ii)	 	if to the Holder, to: 

 
Elan Pharma International Limited 
Wil House 
Shannon Business Park 
Shannon 
Co. Clare, Ireland 
Attention: Secretary 
Facsimile: 011-353-61-362097

 
with a copy to: 
 
Cahill Gordon & Reindel 
80 Pine Street 
New York, New York 10005 
Attention: William M. Hartnett,
Esq. 
Facsimile: (212) 269-5420 
 
or to such other address as the party to whom notice is to be given may have furnished to the other party
hereto in writing in accordance with provisions of this Section 9. Any such notice or communication shall be deemed to have been effectively given (i) in the case of personal or hand delivery, on the date of such delivery, (ii) in the case of an
internationally-recognized overnight delivery courier, on the second business day after the date when sent, (iii) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted
and (iv) in the case of facsimile transmission, the date of telephone confirmation of receipt. 
 

19 

 
(c)        This Note may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Company and the Holder dated after the date hereof. 
 
(d)        This Note
shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws. Any dispute under this Note that is not settled by mutual consent shall be finally
adjudicated by any federal or state court sitting in the City, County and State of New York, and the Company consents to the exclusive jurisdiction of such courts (or any appellate court therefrom) over any such dispute. 
 
[Signature page follows] 
 

20 

 
IN WITNESS WHEREOF, the
Company has executed and delivered this Note on the date first above written. 
 
 

	 CURIS, INC.

	
	 By:
	 	 /s/Daniel Passeri         

	 	 	 Name: Daniel Passeri

	 	 	 Title:   President and Chief Executive Officer

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