Document:

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                                                                    EXHIBIT 10.1

                                   INTER BANK

                             1996 STOCK OPTION PLAN

1.       PURPOSE

         1.1 The purpose of the Inter Bank ("the Bank") Stock Option Plan ("the
Plan") is to encourage the long-term success of the Bank or any subsidiary or
parent of the Bank now existing, hereinafter formed, or acquired by: (1)
providing a means through which the Bank can attract, motivate and retain
officers and other key employees who can contribute materially to that success;
(2) encouraging stock ownership by these employees so that they have a
proprietary interest in the Bank's growth and success.

         1.2 This purpose shall be accomplished under the grant of Incentive
Stock Options ("ISO's") within the meaning of The Internal Revenue Code of 1986
("the Code"), Non-Qualified Stock Grants ("NQG's") or a combination thereof. The
Bank makes no warranty as to the qualifications of any option granted hereunder
as an ISO.

         1.3 The stock Options ("the Options") offered pursuant to this Plan are
a matter of separate inducement and are not in lieu of any salary or other
compensation for services of any key employee.

2.       STOCK SUBJECT TO THE PLAN

         2.1 The total number of Shares of stock of the Bank which may be
purchased pursuant to the exercise of Options granted under the Plan shall not
exceed in the aggregate of three per cent (3%) of the authorized stock of the
Bank, $1.00 par value per Share ("the Shares").

         2.2 Shares which may be acquired under the Plan may be either
authorized but unissued Shares, Shares of issued stock held in the Bank's
treasury, or both, at the discretion of the Bank. If, and to the extent that,
Options granted under the Plan expire or terminate without having been
exercised, new Options may be granted with respect to the Shares covered by such
expired or terminated Options, provided that the grant and the terms of such new
Options shall in all respects comply with the provisions of the Plan.

         2.3 Except as provided in paragraph 14, the Bank may from time to time
during the period beginning February 15,

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1996 ("The Effective Date") and ending February 15, 2006 ("The Termination
Date") grant Options to certain key employees of the Bank or any other
subsidiary or parent of the Bank now existing or hereinafter formed or acquired
under the terms hereinafter set forth. The terms subsidiary of the Bank and
parent of the Bank as used herein shall have the same meaning as the terms
subsidiary corporation and parent corporation as defined in Sections 425(f) and
(e) of the code.

3.       ADMINISTRATION

         3.1 The Board of directors of the Bank ("the Board") may designate from
among it's members a committee ("the Committee") who shall consist of no fewer
than three members of the Board each of whom shall be a disinterested person
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 as amended (the "Exchange Act") to administer the Plan. A majority of
the members of the Committee shall constitute a quorum and the act of the
majority of the members shall be the act of the Committee. Any member of the
Committee may be removed at any time, either with or without cause, by
resolution adopted by the Board and any vacancy on the Committee may at any time
be filled by resolution adopted by the Board.

         3.2 Any or all powers and functions of the Committee may at any time,
and from time to time, be exercised by the Board; provided, however, that with
respect to the participation in the Plan by employees who are members of the
Board, as the case may be, such powers and functions of the Committee may be
exercised by the Board only if, at the time of such exercise, a majority of the
directors of the Board and a majority of directors acting in the particular
matter are disinterested persons within the meaning of Rule 16b-3 under the
Exchange Act.

         3.3 Subject to the express provisions of the Plan, the Board of
directors or the Committee shall have authority in it's discretion to determine
the employees to whom Options will be granted, the time when such Options shall
be granted to the employee, number of Shares which shall be subject to each
Option, the purchase price for each Share which shall be subject to each Option,
the period during which such option shall be exercisable (whether in whole or in
part) and the other terms and provisions thereof.

         3.4 Subject to the express provisions of the Plan, the Board or the
Committee also shall have authority to construe the Options granted thereunder,
to amend the Plan and the

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Options granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective Options (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan.

         3.5 The determination of the Board or the Committee on matters referred
to in this paragraph 3 shall be conclusive.

         3.6 The Board or the Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from such counsel or consultant and
any computation received from any such consultant or agent. Expenses incurred by
the Board or the Committee in the engagement of such counsel, consultant or
agent shall be paid by the Bank. No member or former member of the Committee or
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Option granted hereunder.

4.       ELIGIBILITY

         4.1 Participants in the Plan shall be those salaried key employees and
officers of the Bank or of any subsidiary or parent of the Bank including
officers/employees who are also directors of the Bank or any subsidiary or
parent of the Bank who are selected by the Committee from time to time. A
director of the Bank who is not also a regular salaried employee of the Bank
will not be eligible to receive an Option. Any person who shall have retired
from active employment by the Bank, although such person shall have entered into
a consulting contract with the Bank, shall also not be eligible to receive an
Option.

         4.2 No ISO's shall be granted to an employee who, at the time the
Option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Bank or any subsidiary or
parent of the Bank; provided however, that an ISO may be granted to such
employee if, at the time such ISO is granted, the Option price is no less than
the greater of either the par value of the stock, or 110% of the fair market
value of the stock subject to the Option at the time the Option is granted and
provided further that such Option is, by it's terms, not exercisable after an
expiration of 5 years from the date such Option is granted.

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5.       MAXIMUM ALLOTMENT

         5.1 No employee shall be granted an ISO to purchase Shares of stock of
the Bank or of any subsidiary of the Bank or parent of the Bank or any
combination thereof, if the aggregate fair market value of the stock with
respect to which ISO's are exercisable for the first time by such employee
during any calendar year (under all stock Option Plans of the Bank and any
subsidiary or parent of the Bank) exceeds $100,000. For purposes of this
limitation, the fair market value of the stock is determined as of the time the
Option is granted.

6.       OPTION PRICE AND PAYMENT

         6.1 The price for each Share purchasable under any Option granted
hereunder shall be such amount as the Board or Committee shall in it's best
judgement determine on the basis of the facts and circumstances to be not less
than the greater of either the par value of the stock or 100% of the fair market
value of the stock at the date the Option is granted (or 110% of the fair market
value of the stock if required for issuance of an ISO to a 10% Shareholder). For
purposes of this Plan the determination of the Board or the Committee of the
fair market value of the Shares shall be conclusive.

         6.2 Upon the exercise of an Option granted hereunder, the Bank shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash; provided however, that in lieu of
cash and within the limitations of Rule 16b-3 under the Exchange Act, the holder
of an Option may, if and to the extent that such Options so provide, and to the
extent permitted by applicable law, exercise an Option, in whole or in part, by
delivering to the Bank Shares of stock of the Bank owned by such holder, having
a fair market value equal to the cash exercise price applicable to that portion
of the Option being exercised by the delivery of such Shares. The fair market
value of the stock so delivered shall be determined as of the date immediately
preceding the date on which the Option is exercised or as may be required in
order to comply or to conform to the requirements of any applicable law or
regulation.

7.       TERM OF OPTION AND EXERCISE RIGHTS

         7.1 Unless the Board or the Committee shall determine otherwise, any
ISO granted hereunder shall be exercisable during a period of not less than 6
months nor more than 10

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years from the date of grant of such Option (5 years in the case of a more than
10% Shareholder) at such times and in such amounts as the Board or the Committee
shall determine at such date of grant.

         7.2 Any NQG granted hereunder shall be exercisable at such time in such
amounts and during such period or periods as the Board or the Committee shall
determine at the date of the grant of such Option.

         7.3 To the extent an option is not exercised within the period
specified therein, it shall expire as to any unexercised part. If any Option
granted hereunder shall terminate prior to the Termination Date, the Board or
the Committee, as the case may be, shall have the right to use the Shares as to
which such Options shall not have been exercised to grant one or more additional
Options to any eligible employee, but any such grant of an additional Option
shall be made prior to the close of business on Termination Date. In no event
shall an Option granted hereunder be exercised for a fraction of the Share.

8.       EXERCISE OF OPTIONS

         8.1 Options granted under the Plan shall be exercised by the Optionee
as to all or part of the Shares covered thereby by the giving of written notice
of the exercise thereof to the corporate secretary of the Bank, at the principal
business office of the Bank, specifying the number of Shares to be purchased and
specifying a business day, not more than 15 days from the date such notice is
given, for the payment of the purchase price against delivery of the Shares
being purchased.

9.       NON-TRANSFERABILITY OF OPTIONS

         9.1 No Option granted hereunder shall be transferrable whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution and any Option granted hereunder shall be exercisable during the
lifetime the holder only by such holder.

10.      TERMINATION OF EMPLOYMENTS

         10.1 Upon the termination of employment of any employee with the Bank
and any subsidiary or parent of the Bank, any Option previously granted to the
employee, unless otherwise specified by the Board or the Committee, in the
Option, shall, to the extent not theretofore exercised, terminate and become

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null and void, provided that:
         a) if the employee shall die while in employ of the Bank or during the
one year period specified in clause (b) below, all Options granted to such
employee and outstanding on the date of the employee's death shall become
immediately exercisable by the estate, or the personal representative of such
employee, or such person who acquired such Option by bequest or inheritance or
by reason of the death of the employee, at any time prior to the expiration date
of any such Option; and
         b) if the employment of any employee to whom such Option shall have
been granted shall Terminate by reason of the employee's retirement, disability
(as described in section 22(e)(3) of the Code), voluntary Termination or
dismissal by the Bank, and while such employee is entitled to exercise such
Option as herein provided, such employee shall have the right to exercise such
Option so granted in respect of any or all of such number of Shares as specified
by the Board or the Committee in such Options at any time up to and including 3
months after the date of such Termination of employment in the case of
Termination by reason of retirement, voluntary termination, or dismissal or 1
year after the date of Termination of employment in the case of Termination of
employment by reason of disability.

         In no event however, shall any such person be entitle to exercise any
such Option after the Expiration of the period of exercisability of such Option
as specified therein.

         10.2 If an Option granted hereunder shall be exercised by the estate or
by the legal representative of a deceased employee or former employee, or by a
person who acquired an Option granted hereunder by bequest or inheritance or by
reason of the death of any employee or former employee, written notice of such
exercise shall be accompanied by certified copies of letters testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Option.

         10.3 For purposes of the Plan an employment relationship shall be
deemed to exist between an individual and the Bank if, at the time of the
determination, the individual was an "employee" of the Bank for purposes of
section 422(a) of the Code. If an individual is on military sick leave or other
bona fide leave of absence such individual shall be considered an employee for
purposes of the exercise of an option and shall be entitled to exercise such
Option daring such leave or if the period of such leave does not exceed 90 days,
or if longer, so long as the individual's right to re-employment

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with the Bank granting the Option is guaranteed either by statute or by
contract. If the period of leave exceeds 90 days, the employment relationship
shall be deemed to have Terminated on the 91st day of such leave unless the
individual's right to a re-employment is guaranteed by statute or contract.

11.      ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS

         11.1 In the event of any change in the outstanding Shares through
merger, consolidation, reorganization, recapitalization, stock dividends, stock
split, split up, split off, spin off, combination of Shares, exchange of Shares
or other like change in capital structure of the Bank, an adjustment shall be
made to each outstanding Option such that each such Option shall thereafter be
exercisable for such securities, cash and/or other properties as would have been
received in respect of the Shares subject to such Option had such Option been
exercised in full immediately prior to such change, and such an adjustment shall
be made successfully each time any such change shall occur. The term Shares
shall after any such change refer to the securities, cash and/or property then
receivable upon exercise of an option. In addition, in the event of any such
change, the Board or the Committee shall make any further adjustment as may be
appropriate to the maximum number of Shares subject to the Plan, the maximum
number of Shares for which options may be granted to any one employee, and the
number of Shares and price per Share subject to outstanding Options as shall be
equitable to prevent dilution or enlargement of rights under such Options, and
the determination of the Board or the Committee as to these matters shall be
conclusive. Not withstanding the foregoing, each such adjustment with respect to
an ISO shall comply with the rules of Section 425(a) of the Code, and in no
event shall any adjustment be made which would render any ISO granted hereunder
other than an ISO for purposes of Section 422A of the Code.

         11.2 In the event that the Board approves a proposal for a merger or
consolidation in which the Bank is not the resulting or surviving Bank, but
becomes a subsidiary of another Bank, (or in which the Bank is the resulting or
surviving Bank, but becomes a subsidiary of another corporation) or for the
transfer of substantially all of the assets of the Bank, the Committee shall
notify, in writing, each employee holding an ISO of the proposed transaction.
Such proposal notice shall be sent to each employee at least 30 days prior to
the Effective Date of the proposed transaction and shall advise the employee
that he or she has the right to exercise any

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theretofore unexercised ISO awarded to the employee including those, if any,
which pursuant to the terms of the Plan or the relevant ISO agreement have not
been otherwise become exercisable. Each employee, by written notice to the Bank,
may exercise such ISO and in so exercising may condition such exercise upon and
provide that such exercise shall become effective immediately prior to the
consummation of the proposed transaction, in which event such employee need not
make payment for the stock to be purchase until 5 days after written notice by
the Bank to the employee that the transaction has been consummated. If the
transaction is consummated each ISO to the extent not previously exercised prior
to the consummation of the transaction shall terminate and cease being
exercisable as of the effective date of the transaction. If the transaction is
abandoned then any ISO not exercised shall continue to be exercisable to the
extent such ISO was exercisable prior to the date of the notice of the proposed
transaction in accordance with the other provisions of the Plan and the relevant
ISO agreement, and to the extent that any ISO not exercised prior to such
abandonment shall have become exercisable solely by operation of this section
such exercisability shall be deemed annulled and the exercisability provisions
set forth in the Plan and the relevant ISO agreement shall be reinstated as of
the date of such abandonment. Any NQG agreement in effect immediately prior to
the transaction shall carry forward as an obligation of the surviving Bank to
the same extent as if the transaction had not taken place.

12.      RIGHT TO TERMINATE EMPLOYMENT

         12.1 The Plan shall not impose any obligation on the Bank or any
subsidiary or parent of the Bank to continue the employment of any holder of an
Option; and it shall not impose any obligation on the part of any holder of any
Option to remain in the employ of the Bank or any subsidiary or parent of the
Bank.

13.      AMENDMENT OF THE PLAN

         The Board may from time to time amend the Plan, provided that no
amendment shall be made without the approval of the Shareholders of the Bank
that will increase the number of Shares reserved for Options under the Plan
(other than an increase resulting from an adjustment provided for in paragraph
11), or reduce the exercise price of any ISO granted hereunder below the price
required by Article 6, or modify the provisions of the Plan relating to
eligibility, or materially increase the benefits accruing to participants under
the Plan.

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The Board or the Committee shall be authorized to amend the Plan and the Options
granted thereunder to permit the ISO's granted thereunder to qualify as ISO's
within the meaning of Section 422A of the Code. The rights and obligations under
any Option granted before amendment of the Plan or any unexercised portion of
such Options shall not be adversely affected by an amendment to the Plan or the
Option without the consent of the holder of the Option.

14.      TERMINATION OR SUSPENSION OF THE PLAN

         14.1 The Board may at any time suspend or Terminate the Plan. The Plan,
unless Terminated under Article 17, or by action of the Board, shall Terminate
at the close of business on the Termination Date. An Option may not be granted
while the Plan is suspended or after it is Terminated. Rights and obligations
under any Option granted while the Plan is in effect shall not be altered or
impaired by suspension or Termination of the Plan, except upon the consent of
the person to whom the Option was granted. The power of the Board or the
Committee to construe and administer any Options granted prior to the
Termination or suspension of the Plan nevertheless shall continue after such
Termination or during such suspension.

15.      GOVERNING LAW

         15.1 The Plan, such Options as may be granted thereunder and all
related matters shall be governed by and construed and enforced in accordance
with the laws of the State of Washington.

16.      PARTIAL INVALIDITY

         16.1 The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.

17.      EFFECTIVE DATE

         17.1 The Effective Date of the Plan shall be February 15, 1996 the date
on which the Plan was adopted by the Board; provided however that if the Plan is
not approved by a vote of the Shareholders of the Bank at an annual meeting or
any special meeting within 12 months before or after the Effective Date the Plan
and any Options granted thereunder shall Terminate.

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Adopted by the Board of Directors                             February 15, 1996.
Approved by the Shareholders                                     March 26, 1996.

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                                                                    EXHIBIT 10.1

                                   INTER BANK
                             1996 STOCK OPTION PLAN
                             NON-EMPLOYEE DIRECTORS

1.       PURPOSE

         1.1 The purpose of the Inter Bank ("the Bank") Non-employee Directors
Stock Option Plan ("the Plan") is to encourage the long-term success of the Bank
or any subsidiary or parent of the Bank now existing, herein after formed or
acquired by: (1) providing a means through which the Bank can attract, motivate
and retain directors who can contribute materially to that success; (2)
encouraging stock ownership by these directors so that they have a proprietary
interest in the Bank's growth and success.

         1.2 This purpose shall be accomplished under the grant of Nonqualified
Stock Options ("NSO's"). These Options are not intended to qualify as incentive
stock options within the meaning of The Internal Revenue Code of 1986 ("the
Code").

2.       STOCK SUBJECT TO THE PLAN, AWARD OF GRANTS AND DISPOSITION OF BALANCE
         OF SHARES

         2.1 The total number of Shares of stock of the Bank which may be
purchased pursuant to the exercise of Options granted under the Plan shall not
exceed in the aggregate 52,000 Shares of the authorized stock $1 par value per
Share ("the Shares").

         2.2 Each of the ten non-employees holding a directorship as of the date
of the adoption of the plan by the Board of Directors (the Board) is hereby
granted an option to purchase 4,000 shares of the Bank's stock as of January
1,1997 on the following terms and conditions:

         (a) Except as provided by the grant, the right to purchase the Option.
         Shares, under this Option, shall vest in annual increments of 10% of
         the total options granted.

         (b) The exercise price of the Option Shares shall be equal to the fair
         market value of the shares as of January 1,1997 as determined by
         paragraph 2.4 below.

         2.3 The balance of 12,000 shares shall be reserved for future
directors. When an individual is either appointed or elected as a non-employee
director of the Bank, he or she shall be granted an option to purchase 4,000
shares, provided that there are sufficient shares subject to the plan available
for such a grant. In the event that the full 4,000 shares are not available to
grant to such individual, such individual shall be granted whatever amount of
shares as is then available and should additional shares become available during
such individual's tenure as a director, he or she shall be granted an option to
purchase those additional shares up to the maximum of 4,000 shares.

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         Such grant shall be on the same terms and conditions as described in
paragraph 2.2 above, except that the exercise price shall be determined in
accordance with paragraph 2.4 below.

         2.4 The fair market value of the shares at the time of the grant shall
be equal to an amount equal to the amount of the average of the 5 most recent
arms-length stock transactions, provided that at least 5 such stock transactions
occurred within a period of 6 months preceding the grant.

         2.5 In the event that 5 arms-length stock transactions did not occur
within a period of 6 months preceding the grant, the Board shall designate from
among the shareholders a committee who shall consist of no fewer than three
members each of whom shall be a disinterested person within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 as amended (the
"Exchange Act") to administer the Plan. A majority of the members of the
committee shall constitute a quorum and the act of the majority of the members
shall be the act of the committee. Any member of the committee may be removed at
any time, either with or without cause, by resolution adopted by the Board and
any vacancy on the committee may at any time be filled by resolution adopted by
the Board.

         2.6 The price for each Share purchasable under any Option granted
hereunder shall be such amount as the shareholder's committee shall in it's best
judgement determine on the basis of the facts and circumstances to be not less
than the greater of either the par value of the stock or 100% of the fair market
value of the stock at the date the Option is granted (or 110% of the fair market
value of the stock if required for issuance of a NSO to a 10% Shareholder). For
purposes of this Plan the determination of the committee of the fair market
value of the Shares shall be conclusive.

         2.7 Shares which may be acquired under the Plan may be either
authorized but unissued Shares, Shares of issued stock held in the Bank's
treasury, or both, at the discretion of the Bank. If, and to the extent that,
Options granted under the Plan expire or terminate without having been
exercised, new Options may be granted with respect to the Shares covered by such
expired or terminated Options, provided that the grant and the terms of such new
Options shall in all respects comply with the provisions of the Plan.

         2.8 Except as provided in paragraph 12, the Bank may from time to time
during the period beginning December 19, 1996 ("The Effective Date") and ending
December 18, 2006 ("The Termination Date") grant Options to certain directors of
the Bank or any other subsidiary or parent of the Bank now existing or herein
after formed or acquired under the terms hereinafter set forth. The terms
subsidiary of the Bank and parent of the Bank as used herein shall have the same
meaning as the terms subsidiary corporation and parent corporation as defined in
Sections 425(f) and (e) of the code.

3.       ADMINISTRATION

         3.1 The Board will administer the plan or the Board may designate from
among it's members a committee ("the Board Committee") who shall consist of no
fewer than three members of the Board. A majority of the members of the Board
Committee shall constitute a quorum and the act of the majority of the members
shall be the act of

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the committee. Any member of the Board Committee may be removed at any time,
either with or without cause, by resolution adopted by the Board and any vacancy
on the Board Committee may at any time be filled by resolution adopted by the
Board.

         3.3 Subject to the express provisions of the Plan, the Board Committee
also shall have authority to construe the Options granted thereunder, to amend
the Plan and the Options granted thereunder, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective Options (which need not be identical) and to make
all other determinations necessary or advisable for administering the Plan. Any
or all powers and functions of the Board Committee may at any time, and from
time to time, be exercised by the Board; provided, however, that decisions with
respect to the grant or the Plan, such powers and functions of the Committee may
be exercised by the Board only if, at the time of such exercise, a majority of
the directors of the Board and a majority of directors acting in the particular
matter are disinterested persons within the meaning of Rule 16b-3 under the
Exchange Act.

         3.4 The determination of the Board Committee on matters referred to in
this paragraph 3 shall be conclusive.

         3.5 The Board Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Board
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Bank. No member or former member of the Board Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted hereunder.

         3.6 The Board may designate from among the shareholder's a committee
("the Shareholder Committee") who shall consist of no fewer than three members
each of whom shall be a disinterested person within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 as amended (the "Exchange
Act") to construe the Options granted thereunder, to amend the Plan and the
Options granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective Options (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan. A majority of
the members of the Shareholder Committee shall constitute a quorum and the act
of the majority of the members shall be the act of the committee. Any member of
the committee may be removed at any time, either with or without cause, by
resolution adopted by the Board and any vacancy on the committee may at any time
be filled by resolution adopted by the Board.

         3.7 The determination of the Shareholder Committee on matters referred
to in this paragraph 3 shall be conclusive. The committee may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the committee in the engagement of such counsel, consultant
or agent shall be paid by the Bank. No member or former member of the committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted hereunder.

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4.       ELIGIBILITY

         4.1 Participants in the Plan shall be those non-salaried directors of
the Bank or of any subsidiary or parent of the Bank.

         4.2 No NSO's shall be granted to an director who, at the time the
Option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Bank or any subsidiary or
parent of the Bank; provided however, that a NSO may be granted to such
director if, at the time such NSO is granted, the Option price is no less than
the greater of either the par value of the stock, or 110% of the fair market
value of the stock subject to the Option at the time the Option is granted and
provided further that such Option is, by it's terms, not exercisable after an
expiration of 5 years from the date such Option is granted.

5.       PAYMENT AND ISSUANCE OF STOCK

         5.1 Upon the exercise of an Option granted hereunder, the Bank shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash; provided however, that in lieu of
cash and within the limitations of Rule 16b-3 under the Exchange Act, the holder
of an Option may, if and to the extent that such Options so provide, and to the
extent permitted by applicable law, exercise an Option, in whole or in part, by
delivering to the Bank Shares of stock of the Bank owned by such holder, having
a fair market value equal to the cash exercise price applicable to that portion
of the Option being exercised by the delivery of such Shares. The fair market
value of the stock so delivered shall be determined as of the date immediately
preceding the date on which the Option is exercised or as may be required in
order to comply or to conform to the requirements of any applicable law or
regulation.

6.       TERM OF OPTION AND EXERCISE RIGHTS

         6.1 Except as provided by the terms of the grant, any NSO granted
hereunder shall be exercisable during a period of not less than 6 months or more
than 10 years from the date of grant of such Option (5 years in the case of a
more than 10% Shareholder) at such times and in such amounts as shall be
determined at such date of grant.

         6.2 To the extent an Option is not exercised within the period
specified therein, it shall expire as to any unexercised part. If any Option
granted hereunder shall terminate prior to the Termination Date, the Bank shall
have the right to use the Shares as to which such Options shall not have been
exercised to grant one or more additional Options to any eligible director, but
any such grant of an additional Option shall be made prior to the close of
business on Termination Date. In no event shall an Option granted hereunder be
exercised for a fraction of the Share.

7.       EXERCISE OF OPTIONS

         7.1 Options granted under the Plan shall be exercised by the Optionee
as to all or part of the Shares covered thereby by the giving of written notice
of the exercise

                                       4
<PAGE>   15

thereof to the corporate secretary of the Bank, at the principal business office
of the Bank, specifying the number of Shares to be purchased and specifying a
business day, not more than 15 days from the date such notice is given, for the
payment of the purchase price against delivery of the Shares being purchased.

8.       NON-TRANSFERABILITY OF OPTIONS

         8.1 No Option granted hereunder shall be transferrable whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution and any Option granted hereunder shall be exercisable during the
lifetime the holder only by such holder.

9.       TERMINATION OF EMPLOYMENT

         9.1 Upon the termination of employment of any director with the Bank
and any subsidiary or parent of the Bank, any Option previously granted to the
director, unless otherwise specified by the grant, shall, to the extent not
theretofore exercised, terminate and become null and void, provided that:

         a) if the director shall die while in employ of the Bank or during the
one year period specified in clause (b) below, all Options granted to such
director and outstanding on the date of the director's death shall become
immediately exercisable by the estate, or the personal representative of such
director, or such person who acquired such Option by bequest or inheritance or
by reason of the death of the director, at any time prior to the expiration date
of any such Option; and

         b) if the employment of any director to whom such Option shall have
been granted shall Terminate by reason of the director's retirement, disability
(as described in section 22(e)(3) of the Code), voluntary Termination or
dismissal by the Bank, and while such director is entitled to exercise such
Option as herein provided, such director shall have the right to exercise such
Options so granted in respect of any or all of such number of Shares that have
vested as specified in the grant of such Options at any time up to and including
3 months after the date of such Termination of employment in the case of
Termination by reason of retirement, voluntary termination, or dismissal or 1
year after the date of Termination of employment in the case of Termination of
employment by reason of disability.

         In no event however, shall any such person be entitled to exercise any
such Option after the Expiration of the period of exercisability of such Option
as specified therein.

         9.2 If an Option granted hereunder shall be exercised by the estate or
by the legal representative of a deceased director of former director, or by a
person who acquired an Option granted hereunder by bequest or inheritance or by
reason of the death of any director or former director, written notice of such
exercise shall be accompanied by certified copies of letters testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Option.

10.      ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS

         10.1 In the event of any change in the outstanding Shares through
merger, consolidation, reorganization, recapitalization, stock dividends, stock
split, split up, split

                                       5
<PAGE>   16

off, spin off, combination of Shares, exchange of Shares or other like change in
capital structure of the Bank, an adjustment shall be made to each outstanding
Option such that each such Option shall thereafter be exercisable for such
securities, cash and/or other properties as would have been received in respect
of the Shares subject to such Option had such Option been exercised in full
immediately prior to such change, and such an adjustment shall be made
successfully each time any such change shall occur. The term Shares shall after
any such change refer to the securities, cash and/or property then receivable
upon exercise of an option. In addition, in the event of any such change, the
Board shall make any further adjustment as may be appropriate to the maximum
number of Shares subject to the Plan, the maximum number of Shares for which
options may be granted to any one director, and the number of Shares and price
per Share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the determination of
the Board as to these matters shall be conclusive.

         10.2 In the event that the Board approves a proposal for a merger or
consolidation in which the Bank is not the resulting or surviving Bank, but
becomes a subsidiary of another Bank, (or in which the Bank is the resulting or
surviving Bank, but becomes a subsidiary of another corporation) or for the
transfer of substantially all of the assets of the Bank, the Bank shall notify,
in writing, each director holding an NSO of the proposed transaction. Such
proposal notice shall be sent to each director at least 30 days prior to the
Effective Date of the proposed transaction and shall advise the director that he
or she has the right to exercise any theretofore unexercised NSO awarded to the
director including those, if any, which pursuant to the terms of the Plan or the
relevant NSO agreement have not been otherwise become exercisable. Each
director, by written notice to the Bank, may exercise such NSO and in so
exercising may condition such exercise upon and provide that such exercise shall
become effective immediately prior to the consummation of the proposed
transaction, in which event such director need not make payment for the stock to
be purchase until 5 days after written notice by the Bank to the director that
the transaction has been consummated. If the transaction is consummated each NSO
to the extent not previously exercised prior to the consummation of the
transaction shall terminate and cease being exercisable as of the effective date
of the transaction. If the transaction is abandoned then any NSO not exercised
shall continue to be exercisable to the extent such NSO was exercisable prior to
the date of the notice of the proposed transaction in accordance with the other
provisions of the Plan and the relevant NSO agreement, and to the extent that
any NSO not exercised prior to such abandonment shall have become exercisable
solely by operation of this section such exercisability shall be deemed annulled
and the exercisability provisions set forth in the Plan and the relevant NSO
agreement shall be reinstated as of the date of such abandonment.

11.      AMENDMENT OF THE PLAN

         11.1 The Board may from time to time amend the Plan, provided that no
amendment shall be made without the approval of the Shareholders of the Bank
that will increase the number of Shares reserved for Options under the Plan
(other than an increase resulting from an adjustment provided for in paragraph
10), or reduce the exercise price of any NSO granted hereunder below the price
required by Article 6, or modify the provisions of the Plan relating to
eligibility, or materially increase the benefits accruing to participants under
the Plan. The rights and obligations under any Option granted before amendment
of the Plan or any unexercised portion of such Options shall not be adversely
affected by an amendment to the Plan or the Option without the consent of the
holder of the Option.

                                       6
<PAGE>   17
12.      TERMINATION OR SUSPENSION OF THE PLAN

         12.1 The Board may at any time suspend or Terminate the Plan. The Plan,
unless Terminated under Article 17, or by action of the Board, shall Terminate
at the close of business on the Termination Date. An Option may not be granted
while the Plan is suspended or after it is Terminated. Rights and obligations
under any Option granted while the Plan is in effect shall not be altered or
impaired by suspension or Termination of the Plan, except upon the consent of
the person to whom the Option was granted. The power of the Board to construe
and administer any Options granted prior to the Termination or suspension of the
Plan nevertheless shall continue after such Termination or during such
suspension.

13.      GOVERNING LAW

         13.1 The Plan, such Options as may be granted thereunder and all
related matters shall be governed by and construed and enforced in accordance
with the laws of the State of Washington.

14.      PARTIAL INVALIDITY

         14.1 The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.

15.      EFFECTIVE DATE

         15.1 The Effective Date of the Plan shall be December 19, 1996 the date
on which the Plan was adopted by the Board; provided however that if the Plan is
not approved by a vote of the Shareholders of the Bank at an annual meeting or
any special meeting within 12 months before or after the Effective Date the Plan
and any Options granted thereunder shall Terminate.

Adopted by the Board of Directors     December 19, 1996
                                  ----------------------------------------

Approved by the Shareholders          March 25, 1997
                             ---------------------------------------------

                                       7
<PAGE>   18

                                                                    EXHIBIT 10.1

                                AMENDMENT NO. 1
                                       TO
                       INTERBANCORP 1996 STOCK OPTION PLAN
                           FOR NON-EMPLOYEE DIRECTORS

       The Interbancorp 1996 Stock Option Plan for Non-Employee Directors (the
"Plan") is hereby amended as follows:

       1)     Section 10.2 of the Plan is deleted in its entirety and, in lieu
              thereof, the following new Section 10.2 is added:

                     "10.2 Upon the Effective Date of the Merger of Interbancorp
                     with and into Frontier Financial Corporation, all
                     unexercised options then issued and outstanding under the
                     Plan shall immediately and automatically be fully vested
                     and shall not be terminated by virtue of the Merger and
                     each said option shall be exercisable for a period of
                     ninety (90) days following the Effective Date."

       2)     If the Merger of Interbancorp with and into Frontier Financial
              Corporation is abandoned and does not become effective, this
              Amendment shall be null and void and Section 10.2 as it existed
              prior to the Amendment shall be reinstated verbatim.

       3)     All other terms and provisions of the Plan shall continue in full
              force and effect and shall be unaffected by this Amendment.

       This Amendment was adopted by the Board of Directors of Interbancorp on
November 16, 2000, and is now in full force and effect.

                                             //S//Tana Weisenbach
                                        ----------------------------------------
                                                  Secretary

                                        Date:  November 16, 2000
                                             -----------------------------------<PAGE>   1

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                                                   EXHIBIT 10.43

                                    AGREEMENT

                                     BETWEEN

                                  AVIGEN, INC.

                                       AND

                                BAYER CORPORATION

                                       1
<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
ARTICLE 1.      DEFINITIONS .................................................  2

    1.1      "AAV" ..........................................................  2

    1.2      "AAV-FIX" ......................................................  2

    1.3      "AE" ...........................................................  2

    1.4      "Affiliate" ....................................................  2

    1.5      "Agreement" ....................................................  2

    1.6      "Avigen Core Technology" .......................................  2

    1.7      "Avigen Core Technology Rights" ................................  3

    1.8      "Avigen Improvement Rights" ....................................  3

    1.9      "Avigen Improvements" ..........................................  3

    1.10     "Avigen Indemnitee" ............................................  3

    1.11     "Avigen Know-How" ..............................................  3

    1.12     "Avigen Trademark" .............................................  3

    1.13     "Bayer Improvement Rights" .....................................  3

    1.14     "Bayer Improvements" ...........................................  3

    1.15     "Bayer Indemnitee" .............................................  3

    1.16     "Bayer Know-How" ...............................................  3

    1.17     "Bayer Trademark" ..............................................  4

    1.18     "BLA" ..........................................................  4

    1.19     "Business Day" .................................................  4

    1.20     "Certificate of Analysis" ......................................  4

    1.21     "Claim" ........................................................  4

    1.22     "Clinical Development" .........................................  4

    1.23     "Commercial Launch" ............................................  5

    1.24     "Commercialize" ................................................  5

    1.25     "Commercially Reasonable Efforts" ..............................  5

    1.26     "Competing Product" ............................................  5

    1.27     "Competitor" ...................................................  5

    1.28     "Confidential Information" .....................................  5

    1.29     "Damages" ......................................................  5
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       i
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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
    1.30     "Dollar" ......................................................   5

    1.31     "Dominated" ...................................................   5

    1.32     "Dose" ........................................................   5

    1.33     "Effective Date" ..............................................   5

    1.34     "EMEA" ........................................................   5

    1.35     "Existing Licenses" ...........................................   5

    1.36     "Facility" ....................................................   6

    1.37     "Fair Market Value" ...........................................   6

ARTICLE 2.      PATENTS, IMPROVEMENTS AND KNOW-HOW .........................  13

    2.1      Grant of Licenses; Negotiation of Licenses ....................  13

             (a)      Grant by Avigen ......................................  13

             (b)      Grant by Bayer .......................................  13

             (c)      [...*...] Licenses ...................................  13

    2.2      Notice of Improvements and Joint Inventions; Election with
             Respect to Avigen and Bayer Improvements ......................  13

             (a)      Notice ...............................................  13

             (b)      Election .............................................  13

                      (i)      Avigen Improvement Rights ...................  13

                      (ii)     Bayer Improvement Rights ....................  14

    2.3      Disclosure of Know-How ........................................  14

             (a)      Disclosure of Avigen Know-How ........................  14

             (b)      Disclosure of Bayer Know-How .........................  14

    2.4      Sublicensing ..................................................  14

    2.5      Correction of Patent Assignments ..............................  15

    2.6      Patent License Registration ...................................  15

    2.7      Acknowledgment of Ownership ...................................  16

    2.9      Use of Joint Invention Rights .................................  16

ARTICLE 3       DEVELOPMENT; GOVERNANCE ....................................  17

    3.1      Clinical Development Trials for Hemophilia Type B .............  17

             (a)      Clinical Development Activities ......................  17
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      ii.
<PAGE>   4

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>

                      (i)      Avigen ......................................  17

                      (ii)     Bayer .......................................  17

             (b)      Election Regarding [...*...] .........................  17

             (c)      Regular Review of Clinical Data and the Project
                      Plan .................................................  18

    3.2      IND and BLA Ownership and Maintenance .........................  18

    3.3      Orphan Drug Filings ...........................................  18

    3.4      Regulatory Responsibility .....................................  18

    3.5      Project Team ..................................................  19

             (a)      Formation ............................................  19

             (b)      Membership ...........................................  19

             (c)      Meetings .............................................  19

             (d)      Functions ............................................  19

             (e)      Expenses .............................................  19

    3.6      Governance Committee ..........................................  20

             (a)      Formation ............................................  20

             (b)      Membership ...........................................  20

             (c)      Voting Powers ........................................  20

             (d)      Meetings .............................................  20

             (e)      Function .............................................  20

             (f)      Expenses .............................................  21

             (g)      Dispute Resolution ...................................  21

    3.7      Cooperation ...................................................  21

    3.8      Escrow of Plasmids ............................................  21

             (a)      Avigen's Obligations .................................  21

             (b)      Bayer's Obligations ..................................  22

ARTICLE 4.            REPORTING OF EVENTS ..................................  22

    4.1      Reporting Obligations .........................................  22

             (a)      Exchange of Drug Safety Information ..................  22

             (b)      Reporting of Adverse Events and Serious Adverse
                      Events ...............................................  22
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      iii.
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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>

             (c)      Periodic Safety Update Reports ("PSURs") and Safety
                      Requests from Health Authorities .....................  23

             (d)      Reports on Recombinant DNA Molecular Research ........  23

             (e)      Exchange of Drug Safety Requests .....................  23

             (f)      Regulatory Actions ...................................  23

             (g)      Safety Data Base; Medical Inquiries ..................  23

             (h)      Events Affecting Integrity or Reputation .............  23

             (i)      Governmental Inspection ..............................  24

             (j)      Summary of Safety Information ........................  24

    4.2      Technical Support Regarding Adverse Events and Product
             Complaints ....................................................  24

             (a)      Product Complaints ...................................  24

             (b)      Retention of Product Samples .........................  24

             (c)      Quality Assurance Investigations .....................  24

             (d)      Stability Data .......................................  24

ARTICLE 5.            MILESTONE PAYMENTS ...................................  24

    5.1      Milestone Payments ............................................  24

             (a)      Initiation of Phase II/III Clinical Trials by
                      Bayer, its Affiliates or Sublicensees ................  25

             (b)      BLA Submission for the Product .......................  25

             (c)      Approval of a BLA ....................................  25

             (d)      [...*...] ............................................  25

    5.2      Royalty Payments ..............................................  25

             (a)      Patent Rights, Improvement Rights, and Know-How
                      Royalty ..............................................  25

ARTICLE 6.            PROTECTION OF INTELLECTUAL PROPERTY ..................  25

     6.1      Prosecution and Maintenance of Patent Rights, Improvement
              Rights, and Joint Invention Rights ...........................  25

              (a)      Patent Rights and Avigen Improvement Rights .........  25

              (b)      Bayer Improvement Rights ............................  25

              (c)      Joint Invention Rights ..............................  25

              (d)      Abandonment .........................................  26

              (e)      Notice ..............................................  26
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      iv.
<PAGE>   6

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
     6.2      Registration and Maintenance of Avigen Trademark .............  26

     6.3      Patent Term Restoration ......................................  26

     6.4      Infringement of Patent Rights and Improvement Rights .........  27

              (a)      Protection in General ...............................  27

              (b)      Notice ..............................................  27

              (c)      Action Against Infringement in the Field ............  27

              (d)      Recovery ............................................  27

              (e)      Damages .............................................  27

              (f)      Election Not to Prosecute ...........................  28

              (g)      Indispensable Party .................................  28

              (h)      Settlement ..........................................  28

     6.5      Third Party Intellectual Property ............................  28

              (a)      Notice ..............................................  28

              (b)      Action ..............................................  28

              (c)      Trade Secret Misappropriation .......................  28

              (d)      Settlement ..........................................  28

              (e)      Damages .............................................  28

              (f)      Recoveries ..........................................  29

     6.6      Infringement of Trademark ....................................  29

              (a)      Protection of Trademark .............................  29

              (b)      Action by Bayer to Defend the Bayer Trademark .......  29

              (c)      Action by Bayer with Respect to Infringement of
                       Avigen Trademark and Trademarks .....................  29

     6.7      Recovery .....................................................  29

     6.8      Notice .......................................................  29

     6.9      Exclusivity ..................................................  29

              (a)      Competing Products ..................................  29

              (b)      Restoring Exclusivity by Obtaining a Continuation
                       Right ...............................................  30

ARTICLE 7.            GENERAL SCOPE OF SERVICES & GRANT OF LICENSE .........  30

    7.1      Scope of Services .............................................  30
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       v.
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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>

    7.2      Grant of License ..............................................  30

    7.3      Sublicensing ..................................................  30

ARTICLE 8.            FORECASTS AND PURCHASE ORDERS ........................  31

    8.1      Clinical Supply ...............................................  31

    8.2      Quarterly Product Forecast For Commercial Supply ..............  31

             (a)      Product Forecasts ....................................  31

             (b)      Initial Product Forecast .............................  31

             (c)      Delivery of Purchase Order; Contents .................  31

             (d)      Amending Forecasts ...................................  31

             (e)      Production Capacity ..................................  31

    8.3      Governing Terms ...............................................  31

    8.4      Non-commercial Supply .........................................  32

    8.5      Fulfillment of Purchase Orders ................................  32

    8.6      Inventory .....................................................  32

    8.7      Failure to Supply .............................................  32

ARTICLE 9.            PRODUCTION ...........................................  33

    9.1      Processing ....................................................  33

    9.2      Procurement of Ingredients and Materials; Inventory ...........  33

    9.3      Quality Assurance .............................................  33

             (a)      Testing by Avigen ....................................  33

             (b)      Notice of Non-Conforming Products ....................  33

             (c)      Testing by Bayer .....................................  33

                      (i)      Quality Testing .............................  33

                      (ii)     Release-Testing for Europe ..................  33

             (d)      Notice of Delivery of Non-Conforming Products ........  34

             (e)      Observation by Bayer .................................  34

             (f)      Recalls and Voluntary Withdrawals ....................  34

    9.4      Final Label Products ..........................................  35

ARTICLE 10.           DELIVERY; INVOICES ...................................  35

    10.1     Delivery ......................................................  35
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      vi.
<PAGE>   8

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
    10.2     Certificates of Analysis ......................................  35

    10.3     Method of Invoicing and Payment ...............................  35

ARTICLE 11.           MARKETING BY BAYER ...................................  35

    11.1     Marketing .....................................................  35

    11.2     Promotional Materials .........................................  35

    11.3     Compliance with Laws ..........................................  35

    11.4     Compassionate Use .............................................  36

    11.5     Bayer Acquisition or Merger ...................................  36

ARTICLE 12.           PACKAGE PRICE PAYMENT ................................  36

    12.1     Package Price .................................................  36

             (a)      Products .............................................  36

                      (i)      Aggregate Net Sales of Less than [...*...] ..  36

                      (ii)     Aggregate Net Sales of [...*...] ............  36

                      (iii)    [...*...] ...................................  36

             (b)      Clinical Supplies ....................................  37

             (c)      Non-Commercial Product ...............................  37

    12.2     Remittance of Payments ........................................  37

             (a)      Products .............................................  37

                      (i)      Initial Payment .............................  37

                      (ii)     Payment of the Balance of the Package
                               Price Plus Avigen Royalty ...................  37

             (b)      Clinical Supplies and Non-Commercial Products ........  37

             (c)      Wire Transfer ........................................  37

    12.3     Foreign Currency ..............................................  37

ARTICLE 13.           MANUFACTURING ISSUES AND CONSULTING SERVICES .........  38

    13.1     Manufacturing Issue ...........................................  38

    13.2     Consulting Services ...........................................  38

             (a)      By Bayer .............................................  38

             (b)      By Avigen ............................................  38

ARTICLE 14.           GENERAL PAYMENT PROVISIONS ...........................  39
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      vii.
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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
    14.1     Deductions ....................................................  39

    14.2     Reports .......................................................  39

    14.3     Records .......................................................  39

    14.4     Interest on Late Payments .....................................  39

    14.5     Audit .........................................................  39

             (a)      Avigen Audit .........................................  39

             (b)      Bayer Audit ..........................................  40

ARTICLE 15.           REPRESENTATIONS AND WARRANTIES .......................  40

    15.1     Avigen's Representations and Warranties .......................  40

             (a)      Due Organization .....................................  40

             (b)      Execution, Delivery and Performance ..................  41

             (c)      Legal, Valid and Binding Obligation ..................  41

             (d)      Ownership of Patent Rights and Avigen Know-How .......  41

             (e)      Validity and Enforceability of Patents ...............  41

             (f)      Validity and Use of Avigen Trademark .................  41

             (g)      Investigation of Prior Art ...........................  41

             (h)      No Infringement or Misappropriation of Third Party
                      Rights ...............................................  42

             (i)      No Infringement of Avigen Intellectual Property ......  42

             (j)      Work-For-Hire ........................................  42

             (k)      No Claims or Suits Regarding Avigen Intellectual
                      Property .............................................  42

             (l)      Protection of Confidential Information ...............  42

             (m)      No Material Omissions ................................  42

    15.2     Bayer's Representations and Warranties ........................  42

             (a)      Due Organization .....................................  42

             (b)      Execution, Delivery and Performance ..................  43

             (c)      Legal, Valid and Binding Obligation ..................  43

             (d)      Protection of Confidential Information ...............  43

    15.3     Compliance with Law ...........................................  43

    15.4     Warranty by Avigen with Respect to the Product ................  43

    15.5     Avigen Disclaimer of Warranties ...............................  44
</TABLE>

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                     viii.
<PAGE>   10

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
ARTICLE 16.           REMEDIES, INDEMNIFICATION AND LIABILITY ..............  44

    16.1     Remedies for Delivery of Non-Conforming Products ..............  44

    16.2     Indemnification in Favor of Avigen ............................  44

    16.3     Indemnification In Favor of Bayer .............................  44

    16.4     Shared Liability and Indemnification ..........................  45

    16.5     Limitations ...................................................  45

    16.6     Notice ........................................................  45

    16.7     Defense .......................................................  45

             (a)      Defense Pursuant to Section 16.2 or Section 16.3 .....  45

             (b)      Defense Pursuant to Section 16.4 .....................  45

ARTICLE 17.           CONFIDENTIAL INFORMATION .............................  46

    17.1     Confidentiality Requirement ...................................  46

    17.2     Permitted Disclosure of Confidential Information ..............  46

    17.3     Permitted Disclosure of Know-How ..............................  46

ARTICLE 18.           TERM AND TERMINATION .................................  47

    18.1     Term and Exclusivity ..........................................  47

             (a)      Term .................................................  47

             (b)      Exclusivity ..........................................  47

                      (i)      In the European Economic Area ...............  47

                      (ii)     In Those Countries with Patent Protection
                               other than in the European Economic Area ....  47

                      (iii)    In Those Countries Without Patent
                               Protection ..................................  47

             (c)      Noncompete ...........................................  48

    18.2     Termination ...................................................  48

             (a)      Elective Termination .................................  48

             (b)      By Bayer in the Event of a Supply Breach .............  48

             (c)      By Avigen in the Event of a Material Breach by
                      Bayer ................................................  48

             (d)      Insolvency ...........................................  48

             (e)      Force Majeure ........................................  48

             (f)      Termination by Bayer .................................  48
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      ix.
<PAGE>   11

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
                      (i)      In the event of Patent Expiration ...........  48

                      (ii)     During Development ..........................  49

                      (iii)    During Marketing ............................  49

    18.3     Avigen's Rights Upon Termination in Certain Circumstances .....  49

    18.4     Bayer's Rights Upon Termination For Supply Breach and Avigen
             Insolvency ....................................................  49

    18.5     Bayer's Rights Upon Avigen Material Breach other than Supply
             Breach); Avigen Force Majeure .................................  50

    18.6     Effect of Termination .........................................  50

    18.7     Survival ......................................................  50

    18.8     Termination of Exclusive Distributorship ......................  51

ARTICLE 19.           DISPUTE RESOLUTION AND ARBITRATION ...................  51

    19.1     Initial Dispute Resolution Efforts ............................  51

    19.2     Arbitration ...................................................  51

             (a)      Arbitration Rules ....................................  51

             (b)      Number and Selection of Arbitrators ..................  51

             (c)      Place and Language of Arbitration ....................  52

             (d)      Binding Decision .....................................  52

             (e)      Allocation of Costs ..................................  52

             (f)      Interest .............................................  52

             (g)      Limitation of Damages ................................  52

             (h)      Currency .............................................  52

             (i)      Speed of Arbitration .................................  52

                      (i)      Generally ...................................  52

                      (ii)     Clinical or Manufacturing Issues ............  52

             (j)      Enforcement of Judgment ..............................  52

             (k)      Confidentiality ......................................  53

             (l)      Interim Measures .....................................  53

ARTICLE 20.           GENERAL PROVISIONS ...................................  53

    20.1     Notice ........................................................  53

    20.2     Governing Law .................................................  55
</TABLE>

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       x.
<PAGE>   12

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                             PAGE

<S>          <C>                                                             <C>
20.3     Registration and Filing of this Agreement .........................  55

20.4     Relationship ......................................................  55

20.5     Force Majeure .....................................................  56

20.6     Publicity .........................................................  56

20.7     Headings ..........................................................  56

20.8     Assignment ........................................................  56

20.9     Covenant of Further Assurances ....................................  56

20.10    Entire Agreement ..................................................  56

20.11    Severability ......................................................  57

20.12    Waivers; Amendment ................................................  57

20.13    Counterparts ......................................................  57
</TABLE>

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      xi.
<PAGE>   13

                                    AGREEMENT

        This Agreement (the "Agreement") is made and entered into on November
17, 2000 by and between Avigen, Inc., a Delaware corporation having its
principal place of business at 1201 Harbor Bay Parkway, Suite 1000, Alameda,
California 94502 ("Avigen"), and Bayer Corporation, an Indiana corporation
having offices at 79 T.W. Alexander Drive, 4101 Research Commons, P.O. Box
13887, Research Triangle Park, North Carolina 27709 ("Bayer") (hereinafter, each
of Avigen and Bayer a "Party" and, collectively, the "Parties").

PART I: INTRODUCTION

                              W I T N E S S E T H :

        WHEREAS Avigen has developed and/or controls certain patented methods of
using and patented processes for producing gene therapy products based on
adeno-associated virus vectors, some of which products may be used for the
treatment of inherited diseases such as hemophilia;

        WHEREAS Avigen is conducting Phase I/II Clinical Trials on a gene
therapy product for the treatment of hemophilia type B using an adeno-associated
virus vector containing the human Factor IX gene;

        WHEREAS Bayer has experience in the treatment of hemophilia type B, and
wishes to conduct the Phase II/III Clinical Trials on such gene therapy product
for the treatment of hemophilia type B using an adeno-associated virus vector
containing the human Factor IX gene, within the context of a collaborative
relationship between the Parties as laid out in this Agreement;

        WHEREAS Bayer wishes to obtain license rights from Avigen to practice
under Avigen's patent, know-how (including trade secret) and trademark rights
relating to such product for the purpose of pursuing the further clinical
development and commercialization of such product;

        WHEREAS Avigen already has the knowledge, expertise and personnel, and
possesses [...*...] the licenses, equipment and facilities, to develop large
scale production of and manufacture at a commercial scale adeno-associated viral
products in a manner which complies with all legal requirements;

        WHEREAS the Parties wish, therefore, that Avigen perform the actual
manufacture of such gene therapy product for the treatment of hemophilia type B,
and that Bayer market such product, both as part of such collaborative
relationship between the Parties; and

        WHEREAS the Parties expect additional patents or extensions of existing
patents to be filed and to issue such that patent protection licensed hereunder
would extend through 2021 and recognize the value in particular of the
manufacturing know-how and expertise that Avigen will provide to the
collaboration throughout the term of this Agreement;

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>   14

        NOW THEREFORE, in consideration of the above stated premises and of the
mutual covenants and agreements set forth below, and intending to be legally
bound by the provisions of this Agreement, the Parties hereby agree as follows:

                                   ARTICLE 1.

                                   DEFINITIONS

        As used in this Agreement, the following terms shall have the meanings
indicated:

1.1 "AAV" shall mean an adeno-associated virus vector.

1.2 "AAV-FIX" shall mean AAV containing a human Factor IX gene or a derivative
of such a gene.

1.3 "AE" shall mean, with respect to use of the Product, any adverse event
(within the meaning of applicable FDA regulations, and including, without
limitation, any unfavorable and unintended sign (including, without limitation,
an abnormal laboratory finding), exacerbation of a pre-existing condition,
intercurrent illness, drug interaction, significant worsening of a disease under
investigation or treatment, significant failure of expected pharmacological or
biological action, or symptom or disease temporally associated with the use of
the Product, whether or not considered to be related to the Product), which
event is associated with the use of the Product (i) in clinical investigation;
or (ii) by a patient once the Product has been approved, whether or not such
event is considered to be drug-related. AE(s) shall include such events (i)
occurring in the course of the use of the Product in professional practice; (ii)
occurring from drug overdose whether accidental or intentional; (iii) occurring
from drug abuse; (iv) occurring from drug withdrawal; and (v) any significant
and consistent failure of expected pharmacological action. Notwithstanding the
foregoing, with respect to the Territory in which the Product is marketed, AEs
shall include any experience required to be reported to a relevant authority in
any such country.

1.4 "Affiliate" shall mean any business entity which directly or indirectly
controls, is controlled by, or is under common control with either Party to this
Agreement. A business entity shall be deemed to "control" another business
entity if (i) it owns, directly or indirectly, at least [...*...] of the issued
and outstanding voting securities, capital stock, or other comparable equity or
ownership interest of such business entity, or (ii) it has the de facto ability
to control or direct the management of such business entity. If the laws of the
jurisdiction in which such entity operates prohibit ownership by a Party of
[...*...] or more, "control" shall be deemed to exist at the maximum level of
ownership allowed by such jurisdiction, provided, however, that there is a de
facto ability to direct or control its management.

1.5 "Agreement" shall mean this Agreement, including any Schedules attached
hereto, as such may be amended from time to time, in writing, by mutual
agreement of the Parties.

1.6 "Avigen Core Technology" shall mean the ability to make and use AAV gene
therapy products including, but not limited to, their construction, manufacture,
formulation, development and clinical use and the practice of gene therapy
methods that are, in each case, applicable both inside and outside the field.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       2.
<PAGE>   15

1.7 "Avigen Core Technology Rights" shall mean the (i) Patent Rights; (ii)
License Rights; (iii) Avigen Improvement Rights; (iv) Avigen Know-How; and (v)
Joint Invention Rights (but only to the extent directed to Avigen Core
Technology) related to Avigen Core Technology.

1.8 "Avigen Improvement Rights" shall mean Avigen's entire right, title and
interest in and to, (including without limitation any Claims claiming,) the
Avigen Improvements, subject in any event to Section 2.2(b)(i).

1.9 "Avigen Improvements" shall mean all patented inventions, trade secrets and
Know-How solely made, created, developed, conceived or reduced to practice by
Avigen and/or its Affiliates, during the Term, that (i) (A) have application to
the manufacture, use, development, import, export and/or sale of the Product,
and (B) are Dominated by the Patent Rights or the License Rights, or (ii) are
actually used to manufacture, use or sell the Product. Avigen Improvements shall
exclude Joint Inventions.

1.10 "Avigen Indemnitee" shall mean Avigen, its Affiliates, its Sublicensees and
each of their respective directors, officers, employees, and agents.

1.11 "Avigen Know-How" shall mean all Know-How Avigen or any of its Affiliates
owns as of the Effective Date or develops during the Term relating directly to
or arising directly from: (i) the Product, or (ii) its manufacture or
pharmaceutical utility, and shall include, without limitation, all data relating
to formulation, analytical methods, pre-clinical and clinical trials,
pharmacology, toxicology, regulatory information, and data relating to the
manufacture and use of such Products. Notwithstanding the foregoing, "Avigen
Know-How" shall not include Know-How Avigen is prohibited from disclosing to
Bayer pursuant to (a) a confidentiality, non-disclosure or similarly restrictive
provision of a contract with a Third Party, or (b) Legal Requirements. With
respect to clause (a) of the preceding sentence, Avigen shall use [...*...] when
[...*...] with Third Parties to [...*...] its [...*...] such information and
data that would be considered Avigen Know-How pursuant to the first sentence of
this Section.

1.12 "Avigen Trademark" shall mean the trademark "COAGULIN-B" for the use of
which in connection with the Product Avigen has filed and owns an intent to use
application.

1.13 "Bayer Improvement Rights" shall mean Bayer's entire right, title and
interest in and to (including without limitation Claims claiming) the Bayer
Improvements, subject in any event to Section 2.2(b)(ii).

1.14 "Bayer Improvements" shall mean all inventions and Know-How solely made,
created, developed, conceived or reduced to practice, by Bayer and/or its
Affiliates or Sublicensees during the Term and that (i) (A) have application to
Avigen Core Technology, and (B) are Dominated by the Patent Rights or the
License Rights, or (ii) are actually used to manufacture, use or sell the
Product. Bayer Improvements shall exclude Joint Inventions.

1.15 "Bayer Indemnitee" shall mean Bayer, its Affiliates, its Sublicensees, and
each of their respective directors, officers, employees, and agents.

1.16 "Bayer Know-How" shall mean all Know-How Bayer or any of its Affiliates
develops during the Term relating directly to or arising directly from: (i) the
Product; or (ii) its

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       3.
<PAGE>   16

manufacture or pharmaceutical utility, and shall include without limitation, all
data relating to formulation, analytical methods, pre-clinical and clinical
trials, pharmacology, toxicology, regulatory information, and data relating to
the manufacture and use of such Product. Notwithstanding the foregoing, "Bayer
Know-How" shall not include any Know-How that Bayer is prohibited from
disclosing to Avigen pursuant to (a) a confidentiality, non-disclosure or
similarly restrictive provision of a contract with a Third Party, or (b) Legal
Requirements. With respect to clause (a) of the preceding sentence, Bayer shall
use [...*...] when [...*...] with Third Parties to [...*...] its [...*...] to
[...*...] such information and data as would be considered Bayer Know-How
pursuant to the first sentence of this Section.

1.17 "Bayer Trademark" shall mean any trademark registered and owned by Bayer
(other than any trademark including the name "Bayer", "Bay-", or the Bayer logo)
for use in connection with the Product.

1.18 "BLA" means a Biologics License Application filed with the FDA and/or any
other application required to be filed with an appropriate Regulatory Agency in
a country or group of countries other than the United States, (including,
without limitation, a Product License Application or Marketing Authorization in
the European Union) in order to manufacture, market, sell or use the Product in
such country or group of countries.

1.19 "Business Day" means Monday, Tuesday, Wednesday, Thursday or Friday of any
week, other than such a day on which a United States federal government holiday
falls.

1.20 "Certificate of Analysis" means a certificate provided by Avigen to Bayer
for a Product Lot certifying that the Product Lot meets the relevant Product
Specifications, which certificate shall identify each test performed on the
Product Lot in accordance with the Product Specifications (including the
acceptance limits and the numerical results obtained, as applicable) and shall
be dated and signed by an authorized person within Avigen's quality division.

1.21 "Claim" shall mean either:

        (a) a claim of an issued and unexpired patent which has not been held
permanently revoked, unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise; or

        (b) a claim of a pending patent application which claim was filed and is
being prosecuted in good faith and has not been abandoned or finally disallowed
without the possibility of appeal or refiling of the application; provided,
however, that such claim shall not have been pending for more than [...*...]
years unless it is the subject of an interference or its prosecution has been
stayed or suspended for reasons that are beyond the control of the owner of the
patent application containing such claim.

1.22 "Clinical Development" shall mean those aspects of developing the Product
that take place following the completion of Ongoing Phase I/II Clinical Trials,
including development of the clinical plan, preparation for and execution of
Phase II/III and Phase IV Clinical Trials, and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       4.
<PAGE>   17

which do not include pre-clinical work or development work associated primarily
with physical production of the Product (e.g., development of assays for QA and
QC).

1.23 "Commercial Launch" shall mean, with respect to a country in the Territory
where a BLA has been approved, the first Sale of Product in such country for
commercial purposes, which shall not, in any country where Price Approval is
required, precede receipt of such Price Approval.

1.24 "Commercialize" shall have the meaning given in Section 11.1.

1.25 "Commercially Reasonable Efforts" shall mean that degree of skill, effort,
expertise, and resources which a person or other entity of ordinary skill,
ability, and experience, under similar circumstances, in the matters addressed
herein would reasonably utilize and otherwise apply with respect to fulfilling a
particular obligation.

1.26 "Competing Product" shall mean any pharmaceutical product containing
AAV-FIX as an active ingredient, in any formulation, which is commercially
available for use within the Field.

1.27 "Competitor" shall mean any Person, other than Avigen, that makes or sells
products made using or containing any Factor IX gene or derivative thereof.

1.28 "Confidential Information" shall mean, with respect to a Party, all
confidential and all proprietary business information and Know-How it discloses
to the other Party in connection with this Agreement prior to the expiration or
termination of the Term, including but not limited to, the financial terms of
this Agreement, including but not limited to the financial terms of this
Agreement.

1.29 "Damages" shall mean damages, losses, liabilities, costs and expenses,
including reasonable legal fees.

1.30 "Dollar" shall mean the United States dollar.

1.31 "Dominated" shall mean, with respect to a given first Claim and a given
second Claim, that the subject matter claimed by such first Claim cannot be
practiced without infringing such second Claim.

1.32 "Dose" shall mean the single use dose, as approved by the FDA or other
Regulatory Agency, that must be administered to a patient in order to meet the
Product Target Profile.

1.33 "Effective Date" shall have the same meaning as "Closing Date" as set forth
in the Subscription Agreement.

1.34 "EMEA" means The European Agency for the Evaluation of Medicinal Products.

1.35 "Existing Licenses" shall mean the license and other agreements set forth
on Schedule 1.35.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       5.
<PAGE>   18

1.36 "Facility" means (i) Avigen's GMP manufacturing facility located at 1201
Harbor Bay Parkway in Alameda, California as of the Effective Date, and (ii) any
manufacturing facility built in the future, where such manufacturing facility
has achieved mechanical completion, Validation, and is used to manufacture
Product by either Avigen or Avigen's authorized subcontractors, as well as the
real property underlying any such manufacturing facilities.

1.37 "Fair Market Value" shall mean, with respect to a particular asset, the
fair market value of such asset as determined in accordance with Schedule 1.37.

1.38 "FDA" shall mean the United States Food and Drug Administration.

1.39 "Field" shall mean the use of Product for the treatment, prophylaxis or
therapy of hemophilia type B in humans, and the clinical development and
manufacture of products for sale to be used to such ends.

1.40 "Force Majeure" shall have the meaning set forth in Section 20.5.

1.41 "Foreign Currency Sales" shall mean Sales which are invoiced by Bayer, its
Affiliates or Sublicensees in a currency other than the Dollar.

1.42 "Governance Committee" shall mean the committee constituted by the Parties
pursuant to Section 3.6.

1.43 "Gross Price" shall mean, with respect to a Dose of Product, the unit price
actually invoiced, by Bayer, its Affiliates and Sublicensees without deduction,
for current payment for the Sale of such Dose of Product.

1.44 "Gross Sales" shall mean, with respect to a particular time period, the sum
of the Gross Price of all Sales by Bayer, its Affiliates and Sublicensees of
Product during such period (in final form for end use) to an unaffiliated Third
Party (whether an end-user, a distributor or otherwise, and exclusive of
intercompany transfers or sales).

1.45 [...*...] shall mean [...*...] of the Product [...*...] to the [...*...]
the [...*...]or other [...*...].

1.46 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

1.47 "Improvement" shall mean a Bayer Improvement or an Avigen Improvement, as
the case may be.

1.48 "Improvement Right" shall mean a Bayer Improvement Right or an Avigen
Improvement Right, as the case may be.

1.49 "IND" shall mean an investigational new drug application filed with the FDA
and/or any other similar application filed with an appropriate Regulatory Agency
in a country or group of countries other than the United States.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       6.
<PAGE>   19

1.50 "Initiation of Phase II/III Clinical Trials" shall mean the first
administration of the Product to the first patient in Phase II/III Clinical
Trials.

1.51 "Insolvency Event" shall mean any of the following: (i) a court or
governmental agency having jurisdiction shall have entered a decree or order for
relief in respect of a Party or any of its Affiliates in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall have appointed a receiver, liquidator, trustee (or
similar official) for a Party or any of its Affiliates or for any substantial
part of its or their property or ordered the winding up or liquidation of its or
their affairs, or (ii) there shall have been commenced against a Party or any of
its Affiliates an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, trustee (or similar
official) for a Party or any of its Affiliates or for any substantial part of
its or their property or for the winding up or liquidation of its or their
affairs, and such involuntary case or other case, proceeding or other action
shall remain undismissed or undischarged for a period of twenty (20) consecutive
calendar days or (iii) a Party or any of its Affiliates shall have commenced a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consented to the entry of an order for relief in
an involuntary case under any such law, or consented to the appointment or
taking possession by a receiver, liquidator, trustee (or similar official) for a
Party or any of its Affiliates or for any substantial part of its or their
property or make any general assignment for the benefit of creditors.

1.52 "Joint Invention" shall mean (A) all patentable inventions (i) jointly
invented (as determined in accordance with United States patent law) by Bayer
(or its Affiliates) and Avigen (or its Affiliates) pursuant to their activities
relating to this Agreement during the Term, and (ii) covered by any Claim; and
(B) all Know-How that Bayer (or its Affiliates) and Avigen (or its Affiliates)
jointly make, create, develop, discover, conceive or reduce to practice pursuant
to their activities relating to this Agreement during the Term other than those
in inventions described in (A).

1.53 "Joint Invention Rights" shall mean, with respect to each Party, such
Party's entire right, title and interest in and to Joint Inventions, including
without limitation Claims claiming any Joint Invention.

1.54 "Know-How" shall mean all technical information, data (including, without
limitation, regulatory data), patentable and unpatentable inventions,
developments, discoveries, methods and processes that are, in each case, not
disclosed in a published patent application or patent or otherwise publicly
available.

1.55 "Legal Label Text" means the package label and package inserts.

1.56 "Legal Requirements" means any present and future national, state, local or
similar laws (whether under statute, rule, regulation or otherwise);
requirements under permits, orders, decrees, judgments or directives, and
requirements of applicable Regulatory Agencies (including, without limitation,
current Good Manufacturing Practices as specified in 21 CFR Parts 210 and 211,
and 21 CFR Part 312); and regulations pertaining to Investigational New Drug
Applications (as amended or revised from time to time).

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       7.
<PAGE>   20

1.57 "License Rights" shall mean Avigen's rights under the Existing Licenses and
any additional licenses covering the Product or methods of manufacture or use
thereof that Avigen may obtain during the Term in each case to the full extent
sublicensable by Avigen to Bayer.

1.58 "Manufacturing Cost" shall mean Avigen's cost of manufacturing the Product,
determined in accordance with generally accepted accounting principles applied
in a consistent manner across all products and includes the cost of [...*...]
and [...*...], as such terms are defined below. The total will be expressed as
Manufacturing Cost per unit of Product manufactured.

        (a) "[...*...]" includes those items which [...*...] of the Product, or
are [...*...] for its [...*...], as well as [...*...] and [...*...].

        (b) "[...*...]" includes [...*...] and [...*...] and [...*...] in the
actual [...*...] of the Product. It is that portion [...*...] and [...*...],
which can be [...*...] or [...*...] product.

        (c) "[...*...]" includes all [...*...] expenses incurred [...*...] in
[...*...] all manufacturing [...*...] and [...*...]. Cost elements included are:

        -       [...*...], related [...*...] and [...*...]

        -       [...*...], related [...*...] and [...*...]

        -       [...*...]

        -       [...*...] other than [...*...] and [...*...] related [...*...]

        -       [...*...]

        -       [...*...]

        -       [...*...] and [...*...]

        -       [...*...] and [...*...]

        -       [...*...]

        -       [...*...] expenses

        -       Other similar cost elements of [...*...]

        -       Allocation of [...*...] which is directly and specifically
                [...*...] Product [...*...] and [...*...]

1.59 "Master Production and Control Records" shall mean the master production
and control records (which shall include, without limitation, instructions as
referenced in the "Good Manufacturing Practice Guide for Active Pharmaceutical
Ingredients" and as required in Legal Requirements) for manufacturing,
packaging, and in-process testing and release testing for the

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       8.
<PAGE>   21

Products, which may be amended by the Governance Committee from time to time
during the Term.

1.60 "Net Sales" shall mean, with respect to a given period of time, Gross Sales
in such period, less the following deductions from such gross amounts which are
actually incurred, allowed, accrued or specifically allocated:

        (a) credits or allowances actually granted for damaged Products, returns
or rejections of Product and retroactive price reductions;

        (b) normal and customary trade, cash and quantity discounts, allowances
and credits actually allowed;

        (c) sales, value added or similar taxes measured by the billing amount,
when included in the Gross Price in billing;

        (d) chargeback payments and rebates (or equivalents thereof) granted to
managed health care organizations or to federal, state/provincial, local and
other governments, their agencies and purchasers and reimbursers or to trade
customers;

        (e) commissions paid to third parties other than sales personnel, sales
representatives and sales agents;

        (f) a lump sum of [...*...] of Gross Sales to cover for freight,
postage, shipping, and insurance charges related to delivery of the Product;

        (g) import and export duties paid;

        (h) a refund for Product where treatment of a patient [...*...] the
[...*...] of [...*...] in [...*...]; and

        (i) an amount equal to accounts receivable for the Sale of Product which
are not collectible by Bayer in the ordinary course of business; provided,
however, that Bayer shall detail collection efforts undertaken and shall, upon
request by Avigen, assign such uncollectible accounts receivable to Avigen or
its designee.

1.61 "Non-Conforming" shall mean any Product that does not meet the Product
Specifications at time of delivery in accordance with Section 10.1 to Bayer.

1.62 "Notice" shall have the meaning set forth in Section 20.1 of this
Agreement, and "Notify" shall mean to give Notice to.

1.63 "Ongoing Phase I/II Clinical Trials" shall mean that (i) Phase I/II
Clinical Trial that Avigen is conducting as of the Effective Date entitled "A
Phase I study in patients with severe hemophilia B (Factor IX deficiency) using
adeno-associated viral vector to deliver the gene for human FIX to skeletal
muscle" and identified as #BB IND-[...*...]; and (ii) that Phase I/II Clinical
Trial that Avigen is conducting as of the Effective Date entitled
"Adeno-Associated Virus Vector (AAV-hIX16, Avigen) Expressing Human Factor IX
Gene; [...*...].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       9.
<PAGE>   22

1.64 "Packaging" means the vial, bottle or similar container for the Product and
any box or other packaging required for commercial release of the Product.

1.65 "Patent Rights" shall mean all Claims contained in (i) the patent(s) and
patent applications listed on Schedule 1.65; (ii) all converted provisionals,
divisions, continuations, [...*...] reissues, reexaminations or extensions
thereof; and (iii) any corresponding counterparts and equivalents of (i) and
(ii) outside of the United States.

1.66 "Person" shall mean any individual, partnership, corporation, limited
liability company, unincorporated organization or association, any trust or any
other business entity.

1.67 "Phase I/II Clinical Trials" shall mean that portion of the clinical
development program that provides for controlled trials of the Product in a
pilot study on a group of patients for the primary purposes of (i) evaluating
safety, dose escalation and pharmacokinetic studies, (ii) determining initial
efficacy, and (iii) obtaining data to support conducting Phase II/III Clinical
Trials.

1.68 "Phase II/III Clinical Trials" shall mean that portion of the clinical
development program which provides for trials of the Product on a larger group
of patients than utilized in Phase I/II Clinical Trials for the primary purposes
of (i) evaluating safety and efficacy within the Field; (ii) obtaining data to
support an approvable BLA, and (iii) all additional clinical trials, other than
Phase I/II Clinical Trials, required to obtain approval to market Product from
any Regulatory Agency in the Territory.

1.69 "Phase IV Clinical Trial" means a product support clinical trial of the
Product commenced after receipt of Regulatory Approval in the country where such
trial is being conducted.

1.70 "Plasmids" shall mean plasmids identical to those plasmids which Avigen
uses to transfect cells in order to produce Product for the Ongoing Phase I/II
Clinical Trials, or such other plasmids as Avigen may later adopt (subject to
this Agreement) for use in the Process.

1.71 "Package Price" shall have the meaning specified in Article 12.

1.72 "Price Approval" shall mean, with respect to any country in which the price
at which Bayer sells Product must be approved by a governmental authority for
reimbursement or payment purposes, the receipt of approval by the applicable
governmental authority with respect to such price.

1.73 "Process" or "Processing" means the acts of purification, preparation,
filling, testing and any other pharmaceutical manufacturing procedures involved
in manufacturing the Product.

1.74 "Product" shall mean any pharmaceutical product: (i) that [...*...] in any
formulation, for use within the Field; and (ii) that itself, the method of use
of which or the method of manufacture of which: (a) would be covered, as of the
Effective Date, by at least one (1) Claim of the Patent Rights or Existing
License Rights; or (b) is produced pursuant to, incorporates or uses the Avigen
Know-How disclosed hereunder.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      10.
<PAGE>   23

1.75 "Product Forecast" shall have the meaning specified in Section 8.

1.76 "Product Lot" shall mean one production lot of Product based on starting
inputs, as stated in the Master Production and Control Records.

1.77 "Product Specifications" shall mean the manufacturing and quality
specifications agreed by the Parties via their participation in the Governance
Committee, including, without limitation, a list of tests, references to
analytical procedures, and appropriate acceptance criteria that are numerical
limits, ranges or other criteria for the tests described. The initial Product
Specifications are as set forth on Schedule 1.77. The Governance Committee may
amend the Product Specifications from time to time during the Term in accordance
with Section 3.6(e) to arrive at the specification that the Product must meet in
order to be released for distribution, as approved by the applicable Regulatory
Agencies.

1.78 "Product Target Profile" shall mean the standards for the Product set forth
on Schedule 1.78.

1.79 "Project Plan" shall mean a plan and time schedule, as approved and amended
from time to time by the Governance Committee, detailing (i) the protocol and
completion dates for Bayer's conduct of the Phase II/III Clinical Trials, (ii)
the agenda for compilation and submission of BLAs and INDs throughout the
Territory, (iii) the establishment of Processes (including QA and QC protocols)
for manufacturing the Product, together with completion dates for the
implementation of such Processes; (iv) the marketing plan for the Product
throughout the Territory, and (v) such other matters as the Parties deem
pertinent to ensure the successful commercialization of the Product.

1.80 "Project Team" shall have the meaning set forth in Section 3.5.

1.81 "Purchase Order" shall have the meaning specified in Section 8.2(c).

1.82 "Regulatory Agency" means, with respect to the United States, the United
States Food and Drug Administration, and, in the case of a country in the
Territory other than the United States, such other appropriate regulatory agency
with similar responsibilities, including, without limitation, the EMEA.

1.83 "Regulatory Approval" shall mean, with respect to a particular country in
the Territory and the Product, the receipt of all regulatory approvals
(including, without limitation, through mutual recognition of Regulatory
Approval by another country), other than any Price Approval, necessary for Sale
of the Product in that country.

1.84 "SAE(s)" (Serious Adverse Event(s)) shall mean (with respect to the
Product) reference to any adverse experience (within the meaning of the then
current versions of ICH E6: Good Clinical Practice: Consolidated guideline,
CPMP/ICH/135/95 and ICH E2A: Clinical Safety Data Management: Definitions and
Standards for Expedited Reporting CPMP/ICH/377/95), occurring during clinical
trials of the drug or thereafter, in connection with the administration of the
Product to a patient at any dose that results in any of the following outcomes:
death, a life-threatening adverse drug experience, inpatient hospitalization or
prolongation of existing hospitalization, a persistent or significant
disability/incapacity, or a congenital anomaly/birth

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      11.
<PAGE>   24

defect. Important medical events that may not result in death, be
life-threatening or require hospitalization may be considered a adverse
experience for purposes of the foregoing sentence when, based upon appropriate
medical judgment, they may jeopardize the patient or subject and may require
medical or surgical intervention to prevent one of the outcomes listed in this
definition.

1.85 "Sale," "Sold" or "Sell" shall mean the sale, transfer or disposition of a
Product for commercial purposes for value to a Third Party (whether an end user,
wholesaler or otherwise), whether by Bayer, its Affiliates or Sublicensees, but
shall not include sales, transfers or dispositions between Bayer and its
Affiliates or Sublicensees.

1.86 "Sublicensee" shall mean any third party (including Affiliates) to whom a
sublicense has been validly granted pursuant to this Agreement.

1.87 "Subscription Agreement" shall mean the subscription agreement entered into
by Bayer AG and Avigen on even date herewith.

1.88 "Term" means the period of time as set forth in Section 18.1.

1.89 "Territory" shall mean, collectively, each country in the world.

1.90 "Third Party" shall mean any Person who is not a Party, an Affiliate or a
Sublicensee under this Agreement.

1.91 "Trademark" shall mean any registered trademark under which the Product is
marketed (other than such part of any trademark containing the name "Bayer",
"Bay-", or the Bayer logo); provided, however, that if [...*...] under Section
[...*...], the trademark [...*...] for [...*...] shall not be a "Trademark" for
purposes of this Agreement.

1.92 "Validation" shall mean, respectively with respect to a Facility, Process
or analytical methods relating to the Process and/or Product: (i) Facility
validation, i.e., the successful completion of all IQ, OQ and PQ validation
protocols established by Avigen in a validation master plan, (ii) Process
validation, i.e., the successful production and testing, according to Product
Specifications proposed in the BLA, of such number of qualification batches of
the Product as are required under the Legal Requirements for the United States,
the European Union and Japan, and (iii) Analytical Methods Validation, i.e., the
demonstration that an analytical method is suitable for its intended purpose as
referenced in the then current version of ICH Q2A on Validations of Analytical
procedures and ICH Q2B Methodology. Bayer has the right to review the Facility
and Processes on an annual basis, or as request by the development of the
Project Plan. Bayer will give reasonable advance notice of such audit.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      12.
<PAGE>   25

PART II: LICENSE & DEVELOPMENT

                                   ARTICLE 2.

                       PATENTS, IMPROVEMENTS AND KNOW-HOW

2.1 GRANT OF LICENSES; NEGOTIATION OF LICENSES.

        (a) GRANT BY AVIGEN. Avigen hereby grants to Bayer, and, if applicable,
shall cause its Affiliates to grant to Bayer, an exclusive license (to the
exclusion of all Persons including Avigen) in the Territory to [...*...]
Products under the Patent Rights, the License Rights, the Avigen Know-How, the
Avigen Improvement Rights and the Avigen Trademark.

        (b) GRANT BY BAYER. Bayer hereby grants to Avigen, and, if applicable,
shall cause its Affiliates to grant to Avigen, a fully paid-up, non-exclusive
license in the Territory to [...*...] Products under the Bayer Improvement
Rights and the Bayer Know-How; provided, however, that during the Term, and
subject to Avigen's rights pursuant to Section 11.5, Avigen shall not use such
license in order to manufacture, have manufactured, produce, have produced,
develop, have developed, use, have used, offer for sale, have offered for sale,
sell, have sold, import, have imported, export or have exported Products to or
for any Person except Bayer, its Affiliates and Sublicensees.

        (c) [...*...] LICENSES. Bayer hereby grants to Avigen [...*...], with
[...*...] to be [...*...], under the Bayer Improvement Rights to [...*...];
provided, however, that any such license shall not entitle Avigen to practice
the Bayer Improvements in the Field during the Term other than to perform under
this Agreement.

2.2 NOTICE OF IMPROVEMENTS AND JOINT INVENTIONS; ELECTION WITH RESPECT TO AVIGEN
AND BAYER IMPROVEMENTS.

        (a) NOTICE. Avigen shall give Notice to Bayer of all Avigen Improvements
and Joint Inventions promptly within due course of the discovery or creation
thereof, but in any event at least [...*...] days prior to any proposed
publication thereof by Avigen, its Affiliates or Sublicensees. Bayer shall give
Notice to Avigen of all Bayer Improvements and Joint Inventions promptly within
due course of the discovery or creation thereof, but in any event at least
[...*...] days prior to any proposed publication thereof by Bayer, its
Affiliates or Sublicensees. The Parties shall, in any event, Notify each other
no less than [...*...] of whether or not they have made any Avigen Improvements,
Bayer Improvements or Joint Inventions, as the case may be.

        (b) ELECTION.

                (i) AVIGEN IMPROVEMENT RIGHTS. Within [...*...] days after
filing a patent application covering an Avigen Improvement, Avigen shall Notify
Bayer of such filing (an "Avigen Improvement Notice"). For purposes of this
Agreement, each Avigen Improvement Notice shall be deemed an offer by Avigen to
Bayer of a license under Section 2.1(a) to practice under the Claims in such
patent application and any patent rights issued or granted therefrom in order to
carry out its activities pursuant to this Agreement. Bayer shall have [...*...]
days (the "Bayer Election Period") from the date of each Avigen Improvement
Notice to accept or reject

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      13.
<PAGE>   26

the Avigen Improvement. If, during the Bayer Election Period, Bayer notifies
Avigen in writing that Bayer accepts the Avigen Improvement (or if Bayer fails
to respond to Avigen during the Bayer Election Period with respect to the Avigen
Improvement Notice), the Claims in such patent application continue to be
included within the term "Avigen Improvement Rights," and as a result, Bayer
shall automatically have a license (in accordance with Section 2.1(a))
thereunder. If, however, during the Bayer Election Period, Bayer notifies Avigen
that Bayer rejects the Avigen Improvement, the Claims in the patent application
covering such Avigen Improvement shall be excluded from the term "Avigen
Improvement Rights," and as a result, Bayer shall not have any rights under this
Agreement to such Claims.

                (ii) BAYER IMPROVEMENT RIGHTS. Within [...*...] days after
filing a patent application covering a Bayer Improvement, Bayer shall Notify
Avigen of such filing (a "Bayer Improvement Notice"). For purposes of this
Agreement, each Bayer Improvement Notice shall be deemed an offer by Bayer to
Avigen of a license under Section 2.1(b) to practice under the Claims in such
patent application and any patent rights issued or granted therefrom in order to
carry out its activities pursuant to this Agreement. Avigen shall have [...*...]
days (the "Avigen Election Period") from the date of each Bayer Improvement
Notice to accept or reject the Bayer Improvement. If, during the Avigen Election
Period, Avigen notifies Bayer in writing that Avigen accepts the Bayer
Improvement (or if Avigen fails to respond to Bayer during the Avigen Election
Period with respect to the Bayer Improvement Notice), the Claims in such patent
application shall continue to be included within the "Bayer Improvement Rights,"
and as a result, Avigen shall automatically have a royalty-free license (in
accordance with Section 2.1(b)) thereunder. If, during the Avigen Election
Period, Avigen notifies Bayer that Avigen rejects the Bayer Improvement, the
Claims in the patent application covering such Bayer Improvement shall be
excluded from the term "Bayer Improvement Rights," and as a result, Avigen shall
not have any rights under this Agreement to such Claims.

2.3 DISCLOSURE OF KNOW-HOW.

        (a) DISCLOSURE OF AVIGEN KNOW-HOW. To the extent Avigen has not
previously disclosed all Avigen Know-How existing as of the date hereof to
Bayer, Avigen shall disclose, and shall cause its Affiliates to disclose, all
Avigen Know-How existing as of the date hereof to Bayer as soon as reasonably
practicable, (and upon reasonable request by Bayer, shall make such disclosures
in writing). Avigen shall disclose, and shall cause its Affiliates to disclose,
as soon as practicable, to Bayer all Avigen Know-How acquired, developed or
which comes to be possessed by Avigen or any of its Affiliates after the date
hereof (and upon reasonable request by Bayer, shall make such disclosure in
writing).

        (b) DISCLOSURE OF BAYER KNOW-HOW. Bayer shall disclose, and shall cause
its Affiliates to disclose, as soon as practicable, to Avigen all Bayer Know-How
acquired, developed or which comes to be possessed by Bayer or any of its
Affiliates after the date hereof [...*...] such information [...*...] in a
[...*...] for the Product (and upon reasonable request by Avigen, shall make
such disclosure in writing).

2.4 SUBLICENSING. Each Party shall have the right to grant sublicenses of
licenses granted to it in Section 2.1 of this Agreement to its Affiliates and to
any Third Party; provided, however, that the sublicensing Party shall ensure
that each such Sublicensee shall consent to be bound by the terms

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      14.
<PAGE>   27

of this Agreement as a Sublicensee and to the same extent as the sublicensing
Party; and provided, further, that other than sublicenses to a Party's
Affiliate, no such sublicense shall include the rights to [...*...] Products, or
the right to sublicense. Each Party agrees to inform the other Party, in
confidence, of each sublicense granted, and any modification or termination
thereof, within sixty (60) days after the modification, or termination of a
sublicense. Upon termination of this Agreement, any and all existing sublicenses
granted by a Party pursuant to this Agreement shall automatically terminate.
Notwithstanding any provision of this Agreement to the contrary, neither Party
shall: (a) exercise the licenses granted to it in Section 2.1 or grant any
sublicense thereunder to any of its Affiliates or to any Third Party other than
in order to fulfill an obligation of such Party to perform hereunder; or (b)
contract with any Third Party to perform any of such Party's material
obligations hereunder without the other Party's advance written consent (or
modify any such contractual relationship in a way that would be material to such
other Party's decision as to whether to grant such consent, without obtaining
such other Party's consent to such modification), any such consent (whether to
such a contract or such a modification) not to be unreasonably delayed, withheld
or conditioned. For purposes of clause (b) of the foregoing sentence, (i)
contracts entered into by a Party's Affiliate with a Third Party shall be deemed
to be contracts entered into by such Party; and (ii) the Party entering into a
contract with a Third Party described by such clause shall ensure that such
Third Party agrees to be bound by the terms of this Agreement to the extent
applicable to such Third Party's activities under such contract.

2.5 CORRECTION OF PATENT ASSIGNMENTS. Bayer shall ensure, or enter into
appropriate contracts providing, that, if Bayer or any employee, agent,
contractor, Sublicensee or Affiliate of Bayer or of any of its Affiliates
becomes a record owner or holder of any rights to all or any portion of any
Patent Rights or Avigen Improvement Rights (other than the licenses set forth in
this Article), such party will immediately assist Avigen in correcting such
error and shall assign or cause to be assigned to Avigen, for no additional
consideration, such right, title, and interest therein. Avigen shall ensure, or
enter into appropriate contracts providing, that, if any of Avigen or any
employee, agent, contractor, Sublicensee of Avigen becomes a record owner or
holder of any rights to all or any portion of the Bayer Improvement Right (other
than the licenses set forth in this Article), such party will immediately assist
Bayer in correcting such error and shall assign or cause to be assigned to
Bayer, for no additional consideration, such right, title, and interest therein.
Each of Avigen and Bayer agrees to cooperate with the other in effecting the
foregoing and to take all reasonable additional actions and execute such
agreements, instruments, and documents as may be reasonably required to perfect
the appropriate Party's ownership interest in accordance with this Section 2.5
including, without limitation, the execution of necessary and appropriate
instruments of assignment.

2.6 PATENT LICENSE REGISTRATION. Each Party shall have the right to obtain all
registrations of its patent and other licenses granted in Section 2.1 of this
Agreement to the extent required (i) by Legal Requirements or (ii) in order to
enforce the rights licensed thereunder against Third Parties. The Party owning
the relevant Patent Right, License Right, Avigen Know-How or Bayer Know-How or
Improvement Rights shall reasonably cooperate with the registering Party, at the
registering Party's expense, in connection with all applications for such
registrations.

2.7 ACKNOWLEDGMENT OF OWNERSHIP. Bayer acknowledges and agrees that Avigen is
and shall remain the sole owner of the Patent Rights, the Avigen Know-How and
the Avigen Trademark

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      15.
<PAGE>   28

and that Avigen shall be and remain the sole owner of the Avigen Improvements
and the Avigen Improvement Rights. Bayer further acknowledges and agrees that
neither Bayer nor any of its Affiliates shall have any rights in or to the
Patent Rights, the Avigen Know-How, the Avigen Improvements, the Avigen
Improvement Rights or the Avigen Trademark, other than the rights specifically
granted herein. Avigen acknowledges and agrees that Bayer shall be and remain
the sole owner of the Bayer Improvements, the Bayer Improvement Rights, the
Bayer Know-How and the Bayer Trademark, and that Avigen shall have no rights in
or to the Bayer Improvements, the Bayer Improvement Rights, the Bayer Know-How
or the Bayer Trademark, other than the rights specifically granted herein. Each
Party acknowledges the other Party's rights with respect to Joint Inventions and
Joint Invention Rights pursuant to Section 2.9.

2.8 [...*...] REGARDING [...*...]. [...*...] shall [...*...] to [...*...],
before [...*...] of the [...*...] for [...*...] and [...*...] and [...*...] its
[...*...] and its [...*...] the [...*...] the Product in the Territory for the
Term of this Agreement to the [...*...] Third Parties with respect to [...*...]
or [...*...] prior to [...*...] of the [...*...]. With respect to any [...*...]
arising thereafter, [...*...] shall promptly [...*...] to [...*...] for
[...*...] and [...*...] and [...*...] its [...*...] and its [...*...] the
[...*...] the Product in the Territory for the Term of this Agreement [...*...]
Third Parties. Such [...*...] may include, but are not limited to, [...*...]
directed to [...*...] or [...*...] to achieve the [...*...] as well as [...*...]
to [...*...] or [...*...] Third Party [...*...].[...*...] shall [...*...] all
[...*...][...*...] with such [...*...], including but not limited to the
[...*...] of any [...*...]

2.9 USE OF JOINT INVENTION RIGHTS.

        (a) Each Party shall have the right to practice under the Joint
Invention Rights without any duty of accounting to the other Party.

        (b) Each Party agrees that it shall not (and shall, if applicable,
ensure that its Affiliates shall not) grant any license under the Joint
Invention Rights to any other Person to [...*...] or [...*...] any product in
the Field during the Term, except as otherwise agreed by the Parties in writing.

        (c) Each Party agrees that it shall (and shall, if applicable, ensure
that its Affiliates shall) [...*...] granting any license to any other Person to
[...*...] any product outside the Field under the Joint Invention Rights;
provided, however, that neither Party shall grant or purport to grant any
license under the Joint Invention Rights that is exclusive as to the other Party
or its assignees or sublicensees without the prior written consent of such other
Party.

                                   ARTICLE 3.

                             DEVELOPMENT; GOVERNANCE

3.1 CLINICAL DEVELOPMENT TRIALS FOR HEMOPHILIA TYPE B.

        (a) CLINICAL DEVELOPMENT ACTIVITIES.

                (i) AVIGEN. Avigen shall, at [...*...] and [...*...] with the
Legal Requirements, use [...*...] in compliance with the recommendation of any
Regulatory Agency

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      16.
<PAGE>   29

relating to safety, to conduct, direct and manage the Phase I/II Clinical Trials
for the Product (including without limitation the Ongoing Phase I/II Clinical
Trials) until the [...*...] Phase I/II Clinical Trials [...*...], in a [...*...]
patients [...*...] in the Phase I/II Clinical Trials, that a Dose can [...*...]
which can reasonably be expected [...*...] the [...*...] and [...*...] in the
Product Target Profile; provided, however, that Avigen may at its own
discretion, [...*...] the [...*...] of [...*...] The issue of whether [...*...]
pursuant to this Section 3.1(a)(i) ("Phase I/II Completion Issue") shall be
determined by the Governance Committee and, in the event of a dispute within the
Governance Committee shall be referable by either Party directly into
arbitration pursuant to Section 19.2 (and notwithstanding Section 19.1) at any
time after the [...*...] Business Day following the Governance Committee's first
consideration of the issue. Such arbitration shall be completed within a period
of [...*...] from the referral to arbitration by either Party.

                (ii) BAYER. Within [...*...] days after the determination that
Avigen has fulfilled its obligation pursuant to Section 3.1(a)(i), Bayer shall
either: (i) terminate this Agreement pursuant to Section 18.2(e)(i)(2); (ii)
take action in preparation for the Phase II/III Clinical Trials; or (iii) amend
the Product Target Profile with respect to the [...*...] and/or the [...*...] in
accordance with the [...*...] in the Phase I/II Clinical Trials (to the extent
such [...*...] than those established for the Product Target Profile as of the
Effective Date) and take action in preparation for the Phase II/III Clinical
Trials of the Product. Unless Bayer so terminates this Agreement, Bayer shall,
at [...*...] and [...*...] with the Legal Requirements and the Project Plan, use
[...*...] to conduct, direct and manage all Phase II/III Clinical Trials and
carry out all other Clinical Development required to file a BLA in all countries
in the Territory as mutually agreed by the Governance Committee and to make the
necessary submissions to obtain governmental Pricing Approval and reimbursement
by third party payers, in order to use, market and sell the Product in the
Territory. In addition, Bayer shall, at its sole expense and in accordance with
the Legal Requirements (including, without limitation, the requirements of the
FDA) and the Project Plan, use [...*...] to conduct, direct and manage
post-Phase II/III Clinical Trials and Phase IV Clinical Trials of the Product as
mutually agreed to be necessary by the Governance Committee.

        (b) ELECTION REGARDING [...*...]. The [...*...] shall consider the
results of Avigen's Ongoing Phase I/II Clinical Trials, and all other relevant
information available to the Parties, and [...*...] on whether the Parties
should [...*...] clinical development of a [...*...] to [...*...] shall have the
authority to [...*...], and to accept or reject it. If the [...*...] elects to
pursue clinical development of a [...*...] to [...*...], the [...*...] shall be
adjusted accordingly. If the [...*...] to agree, the [...*...] will [...*...] on
[...*...].

        (c) REGULAR REVIEW OF CLINICAL DATA AND THE PROJECT PLAN. The Parties
shall cooperate in regularly reviewing the Project Plan and in reviewing data
from, and general conduct of, the Phase II/III Clinical Trials via their
participation in the Project Team. In addition, the Project Team will review the
data and results of the Ongoing Phase I/II Clinical trials as required for the
development of the Project Plan, notwithstanding Avigen's obligations pursuant
to Section 3.1(a)(i). If [...*...] determines that the [...*...] are not or will
not comply with the Project Plan or the Legal Requirements (a "Clinical Issue"),
it shall Notify [...*...] and the Governance Committee shall meet promptly in an
effort to agree upon a resolution of the Clinical Issue. If the Governance
Committee is unable to resolve the matter within [...*...] Business Days,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      17.
<PAGE>   30

notwithstanding Section 19.1, the dispute may be referred by [...*...] directly
to arbitration under Section 19.2.

3.2 IND AND BLA OWNERSHIP AND MAINTENANCE. The Parties agree that, in each
country in the Territory which they have mutually agreed to file for regulatory
approval, Avigen shall own and hold in its own name (or in the name of one of
its Affiliates) all INDs and BLAs relating to the Product and shall maintain, at
its sole expense, such BLAs and INDs during the Term. Avigen hereby grants Bayer
a right of reference to each BLA and IND for the Product or the equivalent in
that country. Each Party, on behalf of itself and its Affiliates, acknowledges
and agrees that Avigen shall be and shall remain the sole holder, and shall have
all ownership interest in, the BLAs and INDs in all countries in the Territory,
and that Bayer shall have no rights in or to, or obligations under, such BLAs
and INDs, other than the rights and obligations specifically set forth herein
(or as otherwise required by Legal Requirements).

3.3 ORPHAN DRUG FILINGS. The Parties agree that Avigen shall, [...*...] and
where [...*...] to [...*...], file applications for orphan drug designation (or
similar status or designation) for the Product. Bayer shall not make, and shall
ensure that none of its Affiliates make, any submissions or filings, or
communicate with any Regulatory Agency, with respect to orphan drug designation
(or similar status or designation) for the Product without the prior written
approval of Avigen; provided, however, that Bayer will (or will cause one of its
Affiliates to) file [...*...] for orphan drug designation (or similar status or
designation) for the Product in any country in which Avigen is not entitled to
file for such designation but Bayer is so entitled.

3.4 REGULATORY RESPONSIBILITY. Bayer shall be [...*...] for all [...*...] IND
and BLA filings in all countries in the Territory as mutually agreed by the
Governance Committee. Bayer shall, in consultation with Avigen, prepare and
compile [...*...] and [...*...] all submissions to the FDA and Regulatory
Agencies with respect (i) to the BLA, (ii) clinical trials conducted by or on
behalf of the Parties and (iii) the IND for the Product throughout the
Territory. Bayer shall not make any submissions, filings or communications with
any Regulatory Agency, with respect to the Product [...*...] first [...*...]
written [...*...] to be [...*...] or [...*...] such submission, filings or
communication, unless the timing imposed by Legal Requirements for making a
given submission, filing or communication makes it not reasonably practicable to
[...*...]. Notwithstanding the foregoing, Bayer shall be entitled to make all
submissions and filings to the applicable Regulatory Agencies, and have
communications with applicable Regulatory Agencies as required by any Legal
Requirement. If Bayer is (i) permitted to make a submission to or filing with,
or to communicate with, a Regulatory Agency pursuant to the preceding sentence
or (ii) required pursuant to Legal Requirements to make a given submission or
filing, or to communicate with, a Regulatory Agency, Bayer shall, if not legally
prohibited and if reasonably practicable, Notify Avigen in advance and consult
with Avigen with respect to such submission, filing and communication to the
extent that it is material to the clinical development or regulatory status of
the Product. In any event, each Party shall promptly Notify the other Party of
all material filings and submissions such first Party has made with respect to
the Product, and shall include a summary of the contents of any such filing or
submission. Bayer shall reasonably cooperate with Avigen regarding submissions
to and filings with Regulatory Authorities with respect to the Product, and
Bayer shall have the right to be present during and/or monitor all
communications with Regulatory Authorities throughout the Territory.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      18.
<PAGE>   31

3.5 PROJECT TEAM.

        (a) FORMATION. Promptly after the Effective Date, the Parties shall form
a project team (the "Project Team").

        (b) MEMBERSHIP. The Project Team shall be comprised of such
representatives as each Party may appoint, with the initial appointments as set
forth on Schedule 3.5(b). Each Party may, from time to time, replace its
representatives on the Project Team with employees having qualifications to
match the clinical or commercialization status of the Project; provided,
however, that each Party shall have sole discretion to determine the
qualifications of its representatives. Each Party shall designate one (1) of its
representatives on the Project Team as co-manager of the Project Team. Members
of the Project Team shall be employees of the Party they represent. The Bayer
co-manager shall take the lead within the Project Team on all matters involving
Clinical Development, preparation and submission of BLAs and INDs, and marketing
of the Product. The Avigen co-manager shall take the lead within the Project
Team on all matters involving Processing.

        (c) MEETINGS. The Project Team shall meet once each calendar quarter at
times, places and in a manner (e.g., teleconferencing or videoconferencing)
mutually agreeable to the Parties, and may meet more frequently as warranted by
the progress of the implementation of the Project Plan and agreed by the
Parties.

        (d) FUNCTIONS. The functions of the Project Team shall be (i) to
facilitate the exchange and discussion of scientific and other information
relating to the clinical trials, production, manufacturing, process development
and marketing of the Product (including reports from Bayer with respect to its
efforts to collect payment for the Product), (ii) to develop and recommend to
the Governance Committee a Project Plan by [...*...]; (iii) to [...*...] to the
Governance Committee regarding clinical development of [...*...] to [...*...] in
accordance with Section 3.1(b); and (iv) to make consensus decisions regarding
implementation of the Project Plan which are not otherwise reserved for the
Governance Committee or a particular Party. The Project Team shall have no
authority to amend the terms of this Agreement, or to [...*...] with respect to
[...*...] issues.

        (e) EXPENSES. Each Party shall be responsible for the expenses of its
own representatives to the Project Team.

3.6 GOVERNANCE COMMITTEE.

        (a) FORMATION. Promptly after the Effective Date, the Parties shall form
the Governance Committee.

        (b) MEMBERSHIP. The Governance Committee shall be composed of four (4)
representatives of Avigen and four (4) representatives of Bayer, collectively
having expertise in business matters, patent matters, medicine and regulatory
affairs. One (1) of each Party's four (4) representatives shall serve as
co-chair of the Governance Committee. Each co-chair shall be authorized by her
or his company to make decisions with respect to matters within the scope of the
Governance Committee's functions and power as described in Section 3.6(e). The
initial members of the Governance Committee shall be as set forth on Schedule
3.6. Each Party may,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      19.
<PAGE>   32

from time to time, replace its representatives to the Governance Committee with
representatives having qualifications to match the development status of the
Product. Neither Party shall appoint to the Governance Committee an officer to
whom a matter would be referred pursuant to a Dispute Escalation Notice in
accordance with Section 19.1. Members of the Governance Committee shall be
employees of the Party they represent.

        (c) VOTING POWERS. Bayer shall have one (1) vote and Avigen shall have
one (1) vote regarding any action to be taken by the Governance Committee. Each
Party's vote shall be given by such Party's respective co-chair. Any action
authorized by the Governance Committee must be authorized by unanimous vote of
both co-chairs and shall be recorded in the meeting minutes following the
authorization.

        (d) MEETINGS. The Governance Committee shall meet not less than once per
calendar quarter from the Effective Date through Term of the Agreement, on such
dates and at such times and places as are agreed to by the co-chairs of the
Governance Committee. Responsibility for arranging the meetings, including,
without limitation, providing notice and an agenda and providing minutes of the
meeting, shall alternate between the Parties. The Party preparing minutes for a
given meeting of the Governance Committee shall submit a draft of such minutes
in writing to the other Party's co-chair within thirty (30) days after such
meeting and such minutes shall become final upon written re-confirmation by such
other Party's co-chair that such minutes are accurate (or upon correction and
confirmation, as appropriate). The first meeting shall take place as soon as
practicable after the Effective Date, but in no event later than forty-five (45)
days after the Effective Date, and will be organized by Bayer. Meetings of the
Governance Committee may be conducted in person, by telephonic or video
conference or in any other manner approved by the Governance Committee. The
Governance Committee may act without a meeting if, prior to such action, a
written consent thereto is signed by each co-chair. Except for Section 3.6(c),
the Governance Committee may amend or expand upon the foregoing procedures for
its internal operation by co-chair agreement.

        (e) FUNCTION. The Governance Committee shall oversee the Project Team's
implementation of the Project Plan. At each meeting of the Governance Committee,
each Party shall, as appropriate, present a report of its progress with respect
to the fulfillment of its obligations under this Agreement, including, without
limitation, an update of the conduct of any clinical trials, an update on the
preparation of a BLA for the Product, an update on the status of the Facility
and the Process, an update on manufacturing and supply of Product, an update on
any intellectual property matters relating in any way to the Product, and an
update on marketing efforts throughout the Territory. The Governance Committee
shall have the authority (i) to [...*...] the Project Plan; (ii) to [...*...]
the Product Specifications; (iii) [...*...] any changes to the [...*...] prior
to implementation if such changes would [...*...] to [...*...] a Regulatory
Agency; (iv) to [...*...] any issue regarding implementation of the Project Plan
on which [...*...] to reach a consensus; (v) to [...*...] the [...*...] of the
[...*...] regarding the [...*...] development of [...*...] to [...*...]; and
(vi) to [...*...] and [...*...]. To be authorized, any action of the Governance
Committee must be in writing, signed and dated by each co-chair (which signed,
dated writing may be in the form of meeting minutes prepared and confirmed
pursuant to Section 3.6(d)). The Governance Committee shall retain copies of all
such signed actions approved during the Term. The Governance Committee shall
have no authority to amend the terms of this Agreement.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      20.
<PAGE>   33

        (f) EXPENSES. Each Party shall be responsible for the expenses of its
own representatives to the Governance Committee.

        (g) DISPUTE RESOLUTION. In the event of a deadlock regarding any issue
set forth in clauses (i) through (iv) of Section 3.6(e), such issue shall be
handled in accordance with Article 19.

3.7 COOPERATION. Each Party agrees to, and shall cause its Affiliates to,
reasonably cooperate fully with, and to take all reasonable actions requested
by, the other Party in connection with the development of, the approval process
for, the production of and the marketing of the Product; provided, however, that
this Section shall not be construed to alter the Parties' respective
responsibilities with respect to the clinical development of Product as laid out
in the rest of this Agreement.

3.8 ESCROW OF PLASMIDS.

        (a) AVIGEN'S OBLIGATIONS. Avigen shall:

                (i) as soon as reasonably practicable following the Effective
Date, deliver to Bayer a sufficient amount of the Plasmids to enable Bayer to
create one (1) master plasmid bank;

                (ii) as soon as reasonably practicable following the Effective
Date, inform Bayer of the correct storage method and conditions for the Plasmids
and, from time to time, inform Bayer of any changes to the storage methods used
by Avigen in maintaining the Plasmids in its possession as such changes are
instituted by Avigen;

                (iii) as and when Avigen decides to store any additional
Plasmids that it had not stored as of the date it supplies Plasmid to Bayer
pursuant to Section 3.8(a)(i) in its own master plasmid bank, also supply such
new types of Plasmids to Bayer such as to mirror Avigen's own arrangements;

                (iv) upon request by Bayer and at Bayer's expense, lend Bayer
such assistance as it may reasonably require in order to allow Bayer to put in
place arrangements for storing the Plasmids that mirror the arrangements for the
master plasmid bank(s) of Plasmids kept by Avigen; and

                (v) replenish and/or replace Plasmids in accordance with the
arrangements that Avigen operates in relation to its own master virus vector
bank(s).

        (b) BAYER'S OBLIGATIONS. Bayer shall:

                (i) keep the Plasmids in accordance with the storage methods
specified by Avigen pursuant to this Section;

                (ii) not transfer, sell or otherwise dispose of the Plasmids;

                (iii) not disclose the Plasmids to any Third Party including,
without limitation, any other Affiliate or Sublicensee of Bayer; and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      21.
<PAGE>   34

                (iv) not charge, grant any interest in or over or otherwise
encumber the Plasmids;

                (v) not use the Plasmids or extract the Plasmids from the
containers in which they are provided to Bayer by Avigen, except to test the
Plasmids for their ability to transfect.

Bayer may fulfill the foregoing obligations by engaging an escrow agent to
escrow the Plasmids on the terms and conditions set forth herein, which escrow
agent shall be reasonably acceptable to Avigen.

                                   ARTICLE 4.

                               REPORTING OF EVENTS

4.1 REPORTING OBLIGATIONS.

        (a) EXCHANGE OF DRUG SAFETY INFORMATION. Each Party shall promptly
inform the other Party of any AEs and SAEs of which such first Party, or any of
its Affiliates or Sublicensees becomes aware. Via their participation in the
Project Team, the Parties shall decide which Party shall record, investigate,
summarize and review any AEs and SAEs. Each Party shall, and shall require that
its Sublicensees and Affiliates, (i) adhere to all requirements of applicable
laws and regulations which relate to the reporting and investigation of AEs and
SAEs, and (ii) keep the other Party informed of such experiences.

        (b) REPORTING OF ADVERSE EVENTS AND SERIOUS ADVERSE EVENTS. In order
that each Party may be fully informed, Bayer shall Notify Avigen in accordance
with Section 4.1 of all AEs and SAEs anywhere in the world in accordance with
the timelines defined in "Rules and Schedules for Expedited Reporting in License
Agreements" (including schedules attached thereto) attached to this Agreement as
Schedule 4.1(b), or such other timeline as the Project Team may designate.
Notwithstanding the foregoing, Bayer shall report all SAEs to Avigen within such
shorter time frame as may be necessary as to allow Avigen sufficient time to
evaluate, process and comply with worldwide regulatory reporting relating to
Product as required by Legal Requirements.

        (c) PERIODIC SAFETY UPDATE REPORTS ("PSURS") AND SAFETY REQUESTS FROM
HEALTH AUTHORITIES. Each Party shall use the ICH-E2C format as standard for the
compilation of PSURs for which it is responsible under Legal Requirements, or as
determined by the Project Team in accordance with Legal Requirements. A Party
preparing a PSUR for which it is responsible pursuant to the foregoing sentence
shall provide the other Party with copies of any such PSUR at the time of its
submission or such earlier time as the Project Team may agree. During the
preparation of the report, if significant safety issues arise, the Project Team
shall discuss and address such issues. The agreed reporting intervals for PSURs
shall be every [...*...] for the [...*...] following the international birth
date of the Product in the Territory (i.e., the first BLA approval in the
Territory), and thereafter at least annually, unless applicable laws and
regulations governing PSURs require more frequent or different reporting and
unless otherwise agreed by the Project Team.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      22.
<PAGE>   35

        (d) REPORTS ON RECOMBINANT DNA MOLECULAR RESEARCH. In accordance with
U.S. National Institute of Health Guidelines for Research Involving Recombinant
DNA Molecules, Section IV-B-1-j, a Party having knowledge of any significant
problems, violations of such NIH Guidelines or significant research-related
accidents and illnesses, in each case arising in clinical trials of the Product,
shall report the same to the other Party and the Project Team shall determine
which of the Parties shall report such circumstance to the U.S. National
Institute of Health OBA and within what time frame, or whether a report has
already been filed by the Principal Investigator or Institutional Biosafety
Committee of the clinical trial of Product at issue.

        (e) EXCHANGE OF DRUG SAFETY REQUESTS. The Parties shall immediately
provide each other with copies of all drug safety requests from all governmental
and other regulatory health authorities. Proposed answers affecting the Product
will be exchanged between the Parties before submission and the Parties shall
cooperate with respect to such answers; provided, however, that [...*...] shall
have ultimate decision-making authority with respect to answers relating to the
Product, unless Legal Requirements require otherwise. The Parties shall exchange
decisions received from applicable health authorities reasonably promptly after
a Party receives notice of such decision.

        (f) REGULATORY ACTIONS. Each Party shall advise the other Party of any
regulatory action of which it is aware, which would affect the Product in any
country in the Territory.

        (g) SAFETY DATA BASE; MEDICAL INQUIRIES. The Project Team shall
determine which of the Parties shall be responsible for:

                (i) the creation of a master safety database which shall include
any AE relating to the Products occurring anywhere in the Territory; and

                (ii) responding to all medical inquiries.

Each Party shall carry out the responsibility referred to it by the Project Team
in connection with such safety data-base or medical inquiries.

        (h) EVENTS AFFECTING INTEGRITY OR REPUTATION. During the Term, the
Parties shall Notify each other immediately of any circumstances of which they
are aware which arise whereby the integrity and reputation of the Products or of
the Parties are threatened by the unlawful activity of any third party in
relation to the Products, which circumstances shall include, by way of
illustration, deliberate tampering with or contamination of the Products by any
third party as a means of extorting payment from the Parties or another third
party. In any such circumstances, the Parties shall, to a reasonable extent,
cooperate fully to limit any damage to the Parties and/or to the Products.

        (i) GOVERNMENTAL INSPECTION. Each Party shall advise the other of any
governmental communication, inspection or report of which it is aware and which
affects the Product or Legal Requirements relating to the Product. Any response
to a regulatory notice relating to the Product or such Legal Requirement shall
be prepared jointly by the Parties, with the lead role taken by the Party to
whom such notice is addressed (or, if addressed to both Parties, with the lead
role taken by [...*...]); provided, however, that each Party shall be entitled
to take all such actions

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      23.
<PAGE>   36

with respect to such notice as are required of it by Legal Requirements. Both
Parties shall have the right to be present during any such inspection.

        (j) SUMMARY OF SAFETY INFORMATION. The Project Team shall coordinate the
preparation of the investigators brochure and summary of safety information.
During the preparation of the documents, if significant safety issues arise, the
Project Team shall discuss the safety issues reasonably promptly.

4.2 TECHNICAL SUPPORT REGARDING ADVERSE EVENTS AND PRODUCT COMPLAINTS.

        (a) PRODUCT COMPLAINTS. Each Party shall promptly Notify the other Party
of any complaints received regarding the Product (other than those relating to
safety or efficacy) in sufficient detail to allow such Party to comply with any
and all applicable laws and regulations imposed upon it in any country in the
Territory.

        (b) RETENTION OF PRODUCT SAMPLES. Avigen shall, or shall cause one of
its Affiliates or Sublicensees to, retain samples of each Product Lot in
accordance with applicable Legal Requirements.

        (c) QUALITY ASSURANCE INVESTIGATIONS. Each Party shall take the actions
in relation to AEs and SAEs that the Project Team determines shall be undertaken
by such Party.

        (d) STABILITY DATA. Avigen shall Notify Bayer of any stability failures
in routine stability testing of the Product in accordance with the Product
Specifications within [...*...] of Avigen confirming such failure if such
failure could require notification of a regulatory authority, could prevent
release of Product or could warrant recall of Product.

                                   ARTICLE 5.

                               MILESTONE PAYMENTS

5.1 MILESTONE PAYMENTS. In partial consideration (together with the payments
pursuant to Section 5.2) for the license granted to Bayer for the Patent Rights,
Avigen Improvement Rights and the Avigen Know-How, Bayer shall pay to Avigen the
following amounts in Dollars:

        (a) INITIATION OF PHASE II/III CLINICAL TRIALS BY BAYER, ITS AFFILIATES
OR SUBLICENSEES. [...*...] within [...*...] of the Initiation of Phase II/III
Clinical Trials for the Product;

        (b) BLA SUBMISSION FOR THE PRODUCT. [...*...] within [...*...] of the
first submission by a Party of a mutually agreed upon BLA in the United States,
the European Union or Japan for the Product; provided, however, that such
submission is accepted for evaluation by the FDA or other Regulatory Agency in
such country.

        (c) APPROVAL OF A BLA. [...*...] within [...*...] of the first approval
of a BLA in a major country (i.e., U.S., Canada, UK, Germany, Italy, France,
Spain, and/or Japan) by the FDA or other applicable Regulatory Agency; provided,
however, that if Price Approval is required in a major country, no payment shall
be due with respect to BLA approval in that major country (but

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      24.
<PAGE>   37

may separately become due with respect to BLA approval in another major country)
until [...*...] from receipt of such Price Approval;

        (d) [...*...]. If the [...*...] a product for [...*...] to patients
[...*...] within [...*...] of the date the [...*...] the [...*...] and/or
[...*...].

5.2 ROYALTY PAYMENTS.

        (a) PATENT RIGHTS, IMPROVEMENT RIGHTS, AND KNOW-HOW ROYALTY. In partial
consideration (together with the payments pursuant to Section 5.1) for the
license granted to Bayer for the Patent Rights, Avigen Improvement Rights and
the Avigen Know-How in Article 2, Bayer shall pay to Avigen, a royalty equal to
[...*...] of Net Sales in each country in the Territory, on a country-by-country
basis, from the Commercial Launch in such country until termination of this
Agreement, [...*...].

                                   ARTICLE 6.

                       PROTECTION OF INTELLECTUAL PROPERTY

6.1 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS, IMPROVEMENT RIGHTS, AND JOINT
INVENTION RIGHTS.

        (a) PATENT RIGHTS AND AVIGEN IMPROVEMENT RIGHTS. Avigen shall have the
exclusive right to and shall file (as applicable), prosecute (including without
limitation conducting interferences and oppositions) with reasonable diligence
and maintain, [...*...] the patent applications and patents within the Patent
Rights and Avigen Improvement Rights.

        (b) BAYER IMPROVEMENT RIGHTS. Bayer shall have the exclusive right to
and shall file (as applicable), prosecute (including without limitation by
conducting interferences and oppositions) with reasonable diligence and
maintain, [...*...] the patent applications and patents within the Bayer
Improvement Rights.

        (c) JOINT INVENTION RIGHTS. The Parties shall consult with each other
with respect to each Joint Invention. If the Parties determine to file a patent
application covering such Joint Invention, [...*...] agrees to prosecute with
reasonable diligence such Joint Invention Right in the name of both Bayer (or
its Affiliate) and Avigen (or its Affiliate), with the expenses of such
prosecution and maintenance to be borne [...*...]. Each Party agrees to execute
such documents and perform such acts as the other Party may reasonably request
in connection with such other Party's filing and prosecution of any Joint
Invention Right. If either Party prefers not to file a patent application
covering a Joint Invention or determines not to join in funding the filing of a
patent application covering a Joint Invention, it shall assign to the other
Party its entire right, title and interest in such Joint Invention and, for
purposes of this Agreement, such invention shall cease to be considered a Joint
Invention and the ensuing patents shall not be considered Joint Invention Rights
and shall be owned solely by such other Party. [...*...] shall provide [...*...]
with drafts of any proposed filing or communication with patent authorities
within a reasonable period before such document is due or proposed to be filed,
and shall reasonably consider [...*...] comments on such documents.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      25.
<PAGE>   38

        (d) ABANDONMENT. Each Party shall have the right to file, prosecute and
maintain any applications or patents the other Party elects to abandon.
Accordingly, each Party shall provide the other with notice of any such intent
to abandon within a reasonable amount of time to allow the other to continue or
begin the necessary efforts. A Party electing to perfect the intellectual
property rights under this Section 6.1(d) shall bear all costs associated with
such efforts and shall have assigned to it all rights, title and interest
therein by the other Party. Each Party agrees to execute such documents and
perform such acts as the other Party may reasonably request in connection with
such other Party's filing and prosecution of any intellectual property rights.

        (e) NOTICE. Avigen shall promptly give Notice to Bayer of the grant,
lapse, revocation, surrender, invalidation or abandonment of any [...*...]
prosecuted or maintained by Avigen and of the initiation of any proceedings,
interferences, oppositions and/or actions and any decisions or determinations
relating to the validity, enforceability or scope thereof. Bayer shall promptly
give Notice to Avigen of the grant, lapse, revocation, surrender, invalidation
or abandonment of any [...*...] prosecuted or maintained by Bayer and of any
proceedings, interferences, oppositions and/or actions and any decisions or
determinations relating to the validity, enforceability or scope thereof.

6.2 REGISTRATION AND MAINTENANCE OF AVIGEN TRADEMARK. Avigen agrees to register,
upon Bayer's request, and maintain [...*...] the Avigen Trademark in all
mutually agreed-upon countries within the Territory in which Avigen has not, as
of the Effective Date, registered an intent to use such trademark (to the extent
it is possible to register the intent to use such trademark). Avigen shall give
Notice to Bayer of any decision to cease maintenance of any registration for the
Avigen Trademark. If Avigen fails to maintain the registration of the Avigen
Trademark, Bayer may, but is not required to, maintain on Avigen's behalf the
Avigen Trademark. If Avigen elects not to maintain the registration for the
Avigen Trademark, Avigen agrees to execute such documents and perform such acts
as may be reasonably necessary for Bayer to continue such maintenance and Bayer
[...*...] the [...*...] (including, without limitation, [...*...] and [...*...]
and [...*...]) from any [...*...] under this Agreement.

6.3 PATENT TERM RESTORATION. [...*...] will, [...*...] in each country of the
world, determine which, if any, of the patents within the [...*...] the Parties
will apply to extend the term of as provided for by the Patent Term Restoration
Act (35 U.S.C. 156) and other similar patent term extension provisions in
countries other than the United States; provided, however, that any
determination to extend a patent within the Bayer Improvement Rights or Joint
Invention Rights shall be subject to Bayer's prior written consent. [...*...]
agrees not to make, and shall ensure that its Affiliates do not make, any
submissions, filings or other communications with any governmental agency with
respect to patent term restoration (or other similar grant of a monopoly right
with respect to the Product) for any patents within the [...*...] without
[...*...] consent. [...*...] will, [...*...] in each country of the world,
determine if it is necessary to dispute any patent term adjustment or lack
thereof provided for by 35 U.S.C. 154(b) and other similar provisions in
countries other than the United States, calculated by the applicable patent
office, with respect to the patents within the [...*...].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      26.
<PAGE>   39

6.4 INFRINGEMENT OF PATENT RIGHTS AND IMPROVEMENT RIGHTS.

        (a) PROTECTION IN GENERAL. Avigen and Bayer agree to take the actions,
specified below in this Section 6.4, in the name of Avigen or Bayer or both of
them to protect the Patent Rights and Improvement Rights licensed or to be
licensed under this Agreement, and the Joint Invention Rights, against any Third
Party who infringes the Patent Rights, Improvement Rights or the Joint Invention
Rights.

        (b) NOTICE. Each Party shall give Notice to the other of any suspected
infringement of or claims, notices, challenges, actions or proceedings relating
to the validity or enforceability of any Patent Rights, License Rights,
Improvement Rights, Joint Invention Rights, or Know-How promptly after learning
of such infringement or challenge.

        (c) ACTION AGAINST INFRINGEMENT IN THE FIELD. As between the Parties,
[...*...] shall have the first right to prosecute and shall bear all expenses
associated with all claims against Third Parties for infringement during the
Term within the Field of the Patent Rights, [...*...] Improvement Rights and for
misappropriation of the [...*...] shall have the first right to prosecute and
shall bear all expenses associated with all claims against Third Parties for
infringement of the [...*...] Improvement Rights and misappropriation of
[...*...] Know-How. In any action pursuant to this Section 6.4, each Party shall
have the right to join the action and be represented by counsel of its own
choice and shall bear its own costs associated with such representation. In the
event elects not to join such an action, it shall reimburse of costs associated
with the representation, and in the event [...*...] elects not to join such an
action, it shall reimburse [...*...] of [...*...] costs associated with the
representation (such costs to include reasonable attorney's fees). In the event
both Parties are participating in such an action, [...*...] shall not [...*...]
any [...*...] issue that is [...*...] with [...*...] on [...*...].

        (d) RECOVERY. Any recovery, awarded either Party or the Parties in
connection with an action pursuant to Section 6.4(c) shall be distributed as
follows: (i) first, to pay the litigation expenses (including attorney's fees)
borne by the Parties in connection with the claim of infringement, and (ii)
second, with any additional amounts being allocated between the Parties
[...*...] to Avigen and [...*...] to Bayer.

        (e) DAMAGES. Any damages that either Party is or the Parties are ordered
to pay to a Third Party in connection with such action shall be born [...*...]
by Avigen and [...*...], and the Parties shall indemnify each other as necessary
to achieve such allocation.

        (f) ELECTION NOT TO PROSECUTE. If either Party notifies the other in
writing that it elects not to prosecute a potential claim under this Section
6.4(c), then the other Party shall have the right to prosecute such claims at
its sole expense, and shall be solely entitled to any recovery thereof. Avigen's
prosecution of claims against Persons for infringement of the Patent Rights,
License Rights and Avigen Improvement Rights outside the Field shall be in
Avigen's sole discretion and not subject to the sharing of any legal expenses
therefore or recovery thereon with Bayer. Bayer shall enjoy no right to pursue
the prosecution of any infringer of the Patent Rights, License Rights or Avigen
Improvement Rights outside the Field.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      27.
<PAGE>   40

        (g) INDISPENSABLE PARTY. If either Party reasonably determines that the
other Party is an indispensable party to any action pursuant to this Section
6.4, the other Party hereby consents to be joined and shall bear its own costs
in the event that party elects to be represented by separate counsel.

        (h) SETTLEMENT. Neither Party shall settle any action pursuant to this
Section 6.4 without the other Party's consent, such consent not to be
unreasonable withheld, delayed or conditioned.

6.5 THIRD PARTY INTELLECTUAL PROPERTY.

        (a) NOTICE. If the development, manufacture, use, import, export, offer
for sale or sale of the Product results in a claim for patent infringement or
other violation of intellectual property rights of any Third Person, the Party
to this Agreement first having notice shall promptly Notify the other Party.

        (b) ACTION. [...*...] shall [...*...] the Parties against any claim by a
Third Person that the development, manufacture, use, sale, offer for sale,
export or import by either Party, the Parties or any of their agents of the
Product for supply hereunder or supplied hereunder infringes Third Party
intellectual property; provided, however, that in the event [...*...] elects not
to join such an action, it shall reimburse [...*...] of [...*...] costs
associated with the representation (such costs to include reasonable attorney's
fees). If both Parties are participating in such an action, each Party shall
bear its own costs in connection with such action and [...*...] shall not
[...*...] on any [...*...] or [...*...] that is [...*...] with [...*...] on such
[...*...]. In the event [...*...] is not named a defendant in such a suit,
[...*...] hereby consents to its being joined to the suit.

        (c) TRADE SECRET MISAPPROPRIATION. If the claim involves an allegation
of a violation of the trade secret rights of a Third Person, the Party accused
of such violation shall have the obligation to defend against such claim at its
own expense.

        (d) SETTLEMENT. Neither Party shall settle any action pursuant to this
Section 6.5 without the other Party's consent, such consent not to be
unreasonable withheld, delayed or conditioned.

        (e) DAMAGES. Any damages that either Party is or the Parties are ordered
to pay to a Third Party in connection with an action pursuant to Section 6.5(b)
shall be borne [...*...] by Avigen and [...*...] by Bayer, and the Parties shall
indemnify each other as necessary to achieve such allocation.

        (f) RECOVERIES. Any recoveries on an action pursuant to Section 6.5(b)
shall go first to reimburse the expenses of the Parties in connection with such
action and next [...*...] to Avigen and [...*...] to Bayer.

6.6 INFRINGEMENT OF TRADEMARK.

        (a) PROTECTION OF TRADEMARK. Avigen and Bayer agree to take the actions,
specified below in this Section 6.6, in the name of Avigen or Bayer or both of
them to protect the Trademark against any Third Party who either infringes the
Trademark or brings any claims or proceedings against Avigen or against Bayer or
any of their Affiliates or Sublicensees for

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      28.
<PAGE>   41

infringement of the Third Party's trademark in relation to the use and
exploitation of the Trademark.

        (b) ACTION BY BAYER TO DEFEND THE BAYER TRADEMARK. Bayer shall have sole
responsibility for and bear the cost of defending the Bayer Trademark against
claims that Bayer's use of Bayer Trademark pursuant to this Agreement infringes
the rights of a Third Party.

        (c) ACTION BY BAYER WITH RESPECT TO INFRINGEMENT OF AVIGEN TRADEMARK AND
TRADEMARKS. [...*...] shall have the first right to institute infringement suits
or take other action with respect to the Trademark where Bayer determines that a
Third Party is marketing a product in the Territory during the Term which
infringes [...*...]. Bayer shall have the right to institute such suit or take
other appropriate action at its own expense in the name of [...*...] or of
[...*...] or of any of them. [...*...] shall, and shall cause its Affiliates to,
cooperate with [...*...] in its efforts to protect such Trademark and shall
agree to be a party in any suit, if required. [...*...] shall have the right to
be represented in that action by counsel of its own choice. Avigen shall bear
[...*...] of [...*...] costs (including reasonable attorney's fees) to litigate
such claims and [...*...] shall bear [...*...] of [...*...] cost (including
reasonable attorney's fees); provided, however, that [...*...] elects to be
represented separately, each Party shall bear its own expenses.

6.7 RECOVERY. Any recovery obtained by [...*...] as a result of Section 6.6
shall be distributed as follows: (i) first, to pay the expenses (including
reasonable attorney's fees) incurred by the Parties in connection with such
infringement; and (ii) second, [...*...] to Avigen and [...*...] to Bayer.

6.8 NOTICE. Each Party shall give Notice to the other of any suspected
infringement of or claims, notices, challenges, actions or proceedings relating
to the validity or enforceability of any Patent Rights, License Rights,
Improvement Rights, Joint Invention Rights, Avigen Trademark or Bayer Trademark
promptly after learning of such infringement or challenge.

6.9 EXCLUSIVITY.

        (a) COMPETING PRODUCTS. In the event that a Third Party sells a
Competing Product in a country in the Territory, then, unless and until such
Competing Product is removed from the Market, the Package Price under Section
12.1 shall[...*...] be [...*...] of [...*...] for such Product in such country
for all Net Sales of Product in such country or the Package Price set forth in
Section 12.1(a)(iii), whichever is greater.

        (b) RESTORING EXCLUSIVITY BY OBTAINING A CONTINUATION RIGHT. If
[...*...] acquires for itself and for [...*...] a Continuation Right in a
country in order to restore Product exclusivity in such country, [...*...] shall
be fully responsible for all [...*...] associated with such Continuation Right,
including, without limitation, any [...*...] payable to Third Parties. For
purposes of this Section, "Continuation Right" shall mean the right secured from
Third Parties to continue to [...*...] and [...*...] on an exclusive basis in a
country described by the first sentence of Section 6.9(a).

        (c) In any country in which Avigen secures a Continuation Right, the
Package Price shall be as set forth in Article 12, notwithstanding Section
6.9(a).

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      29.
<PAGE>   42

PART III: MANUFACTURING & MARKETING

                                   ARTICLE 7.

                  GENERAL SCOPE OF SERVICES & GRANT OF LICENSE

7.1 SCOPE OF SERVICES. Avigen shall, in accordance with this Agreement:

        (a) perform Processing services at a Facility or at the plant of
Avigen's authorized subcontractors, in accordance with the Product
Specifications;

        (b) perform quality assurance and control testing of the Product, the
Processing and each Facility pursuant to the terms hereof and in accordance with
the Product Specifications and provide a Certificate of Analysis and Certificate
of Validation; and

        (c) permit Bayer to perform quality assurance review of the Product and
of the Processing in accordance with the terms hereof.

7.2 GRANT OF LICENSE. Bayer hereby grants to Avigen during the Term (i) the
right and exclusive (as to all Persons including Bayer) license under the Patent
Rights, License Rights, Improvement Rights and Avigen Know-How to [...*...]
Products for supply exclusively to Bayer, its Affiliates and Sublicensees
pursuant to this Agreement (subject to Avigen's rights pursuant to Section
[...*...]); and (ii) a nonexclusive license under all such rights to conduct its
activities with respect to Product pursuant to this Agreement. During the Term,
Bayer agrees not to [...*...] the Product nor license or authorize any Third
Party, Bayer Affiliate or Sublicensee to do so. During the Term, Bayer shall
obtain [...*...] requirements for Product from Avigen pursuant to this
Agreement.

7.3 SUBLICENSING. Avigen shall have the right to grant sublicenses of the
licenses granted to it in Section 7.2 subject to the same restrictions as
provided in Section 2.4 under the licenses of Section 2.1.

                                   ARTICLE 8.

                          FORECASTS AND PURCHASE ORDERS

8.1 CLINICAL SUPPLY. Bayer shall place its orders for Product for the Phase
II/III Clinical Trials quarterly and no less than [...*...] in advance of the
quarter in which Bayer requests delivery. Avigen shall use [...*...] to fill
Bayer's orders for such Products.

8.2 QUARTERLY PRODUCT FORECAST FOR COMMERCIAL SUPPLY.

        (a) PRODUCT FORECASTS. Bayer shall submit to Avigen on a calendar
quarter basis on or before the first Business Day of each calendar quarter a
rolling forecast for the next [...*...] setting forth the total quantity of
Product that Bayer either has ordered or expects to order from Avigen ("Product
Forecast"). The [...*...] of a Product Forecast shall not vary from the
[...*...] of the prior Product Forecast by more than [...*...]. In the Product
Forecast, Bayer shall include a breakdown of the total quantity of Products by
calendar quarter, and, in respect of the quarterly

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      30.
<PAGE>   43

breakdown, identify the applicable set of Product Specifications (which shall
include identifying the applicable Legal Label Text and Packaging for the
quantities of Product being forecast).

        (b) INITIAL PRODUCT FORECAST. Bayer may submit its initial Product
Forecast for Products at any time on or after the Effective Date.

        (c) DELIVERY OF PURCHASE ORDER; CONTENTS. Together with each quarterly
Product Forecast, Bayer shall deliver to Avigen, in writing, a binding purchase
order ("Purchase Order") for Product for the next calendar quarter. This
Purchase Order shall equal the Product Forecast for the first calendar quarter
of the accompanying forecast. Each Purchase Order shall specify the Product
ordered, the quantities of Product ordered with respect to each of the Product
Specifications (which shall include identifying the applicable Legal Label Text
and Packaging), and the requested time of delivery, manner of shipment,
insurance and address to which the carrier to which Avigen delivers Product
should deliver the shipment to Bayer. Schedule 8.2 is incorporated herein by
reference to illustrate the workings of this Purchase Order and Product Forecast
system.

        (d) AMENDING FORECASTS. Each Product Forecast may vary from prior
Product Forecasts subject only to the limits previously set forth in this
Section 8.2.

        (e) PRODUCTION CAPACITY. Avigen shall Notify Bayer of the production
capacity of the Facility existing as of the Effective Date (the "Production
Capacity"), and shall promptly Notify Bayer of material changes in Production
Capacity. Avigen shall not [...*...] the Production Capacity without the
approval of the Governance Committee, except as may be required by or result
from a change to the Process otherwise permitted under this Agreement.
Notwithstanding any other provision of this Agreement, Bayer shall limit its
Purchase Orders for each calendar quarter to the then-current Production
Capacity.

8.3 GOVERNING TERMS. All orders under this Article 8 shall be subject to the
provisions of this Agreement and shall not be subject to any inconsistent terms
and conditions contained on any Purchase Order or shipping request of Bayer,
except insofar as any such document or request establishes: (a) the quantity of
any Bayer Product to be shipped (subject to the limitations of this Article 8);
(b) the delivery date (subject to the limitations of this Article 8); (c) the
shipment route and destination; or (d) the carrier.

8.4 NON-COMMERCIAL SUPPLY. Bayer shall include in its quarterly Product
Forecasts and its quarterly Product Orders quantities of Product for
non-commercial purposes.

8.5 FULFILLMENT OF PURCHASE ORDERS. Avigen shall fill Bayer's Purchase Orders in
accordance with their terms (provided that such Purchase Orders fall within the
limits described in Section 8.2. Within five (5) Business Days of receipt of a
Purchase Order, Avigen shall promptly Notify Bayer if it will not be able to
satisfy a particular Purchase Order on time, in full or at all, which Notice
shall include an explanation in reasonable detail of the reason for Avigen's
failure to comply with a particular Purchase Order and its proposed course of
action for remedying such failure. Bayer shall be entitled to require Avigen to
produce evidence to support its Notice. Avigen shall use [...*...] to deliver to
Bayer within [...*...] of the first date specified

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      31.
<PAGE>   44

for delivery in a Purchase Order all quantities of Products validly ordered by
Bayer but which Avigen was unable to deliver by the date specified in the
Purchase Order.

8.6 INVENTORY. Each Party shall, at all times following first Commercial Launch
in the Territory, maintain an inventory of Product in accordance with customary
and reasonable pharmaceutical industry practice, and, in any event shall
maintain an inventory (i) from first Commercial Launch in the Territory through
the first anniversary thereof, equal to the quantity of Product Bayer has
forecast (or ordered, as the case may be) for the [...*...], and (ii)
thereafter, equal to a [...*...] based on the quantity of Product ordered by
Bayer unless the Project Team establishes a different level.

8.7 FAILURE TO SUPPLY. In the event Avigen fails, after Commercial Launch of the
Product in any country, to supply in a timely manner [...*...] of Product
ordered by Bayer pursuant to [...*...], and [...*...] of such [...*...] Bayer's
inventory of Product drops below [...*...] of the [...*...] under [...*...], a
"Supply Breach" shall be deemed to have occurred, and Bayer shall have the right
to terminate this Agreement pursuant to Section 18.4; provided, however, that if
such failure to supply was the result of a Force Majeure, a "Supply Breach"
shall not be deemed to have occurred until [...*...] (or [...*...] as may be
reasonable under the circumstances) have elapsed since Notice of the Force
Majeure was given pursuant to Section 20.5 and Avigen (i) has [...*...]
quantities of product ordered by Bayer pursuant to Purchase Orders; and (ii) has
not [...*...] within a reasonably prompt period of time after the occurrence of
the failure to supply due to Force Majeure a [...*...] to reestablish supply by
Avigen within [...*...]. If the Governance Committee and the Parties' CEOs have
not, within [...*...] after the date Avigen present such plan, reached agreement
on the issue of whether such plan will reestablish supply [...*...] (or if
Avigen has failed to submit such plan [...*...], either Party may refer the
issue (a "Reestablishment Issue") of whether a Supply Breach has occurred
directly into arbitration pursuant to Section 19.2 (notwithstanding Section
19.1). Any failure to deliver attributable to mishandling or other fault of a
carrier shall not be counted against Avigen for purposes of this Section 8.7.

                                   ARTICLE 9.

                                   PRODUCTION

9.1 PROCESSING. Avigen shall perform the Process in order to produce the
quantities of Product ordered pursuant to valid Purchase Orders by Bayer. Avigen
shall not make any changes in the Process or in a Facility (other than routine
maintenance, reconditioning and/or replacement of the equipment used in the
Process) which would require submissions to or approvals from any Regulatory
Agencies regarding the Product, except with the [...*...] of the [...*...].
Avigen shall comply, in each aspect of its Processing, with all applicable Legal
Requirements.

9.2 PROCUREMENT OF INGREDIENTS AND MATERIALS; INVENTORY. If Avigen uses Third
Party suppliers, it shall use suppliers in accordance with the requirements set
forth in the BLA.

9.3 QUALITY ASSURANCE. The Parties agree that quality assurance for the Product
shall be allocated between the Parties as follows:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      32.
<PAGE>   45

        (a) TESTING BY AVIGEN. Avigen shall perform quality testing using assays
in accordance with the applicable Product Specifications in order to assure that
the Product complies with the Product Specifications, and shall retain samples
of each Product Lot produced and records of the tests made on each such lot. In
addition, Avigen shall deliver no Product to Bayer until such Product has been
processed in accordance with the tests, inspections and controls required under
the Product Specifications; provided, however, that the foregoing shall not
relieve Avigen of its obligation under Section 8.5 to deliver Product. Avigen
shall maintain records with respect to all quality testing of Product. Bayer
shall have the right to conduct an annual inspection in accordance with Schedule
9.3(a) and (c) and [...*...] Avigen's premises during normal business hours,
upon reasonable notice by prior written request, provided, however, that Bayer
shall have the right to [...*...] under this Section in order to [...*...] by
Bayer in the [...*...] have been appropriately [...*...]. Avigen shall run,
complete and record such number of validation batches of the Product as required
under the Legal Requirements in the United States, pursuant to the BLA
submission[...*...].

        (b) NOTICE OF NON-CONFORMING PRODUCTS. Avigen shall promptly Notify
Bayer of any Non-Conforming Product of which it becomes aware specifying the
Product's release testing and Master Production and Control Records.

        (c) TESTING BY BAYER.

                (i) QUALITY TESTING. At Bayer's election, Bayer may subject the
Product to testing at Bayer's facilities in accordance with Schedule 9.3(c)(i)
and [...*...] in order to verify conformance of the Product with the Product
Specifications.

                (ii) RELEASE-TESTING FOR EUROPE. Avigen shall supply such
necessary quantities [...*...] and Bayer shall run, complete and record,
[...*...] such number of release-test batches of the Product as are required by
Legal Requirements on Product for sale in the European Union.

        (d) NOTICE OF DELIVERY OF NON-CONFORMING PRODUCTS. Bayer shall Notify
Avigen of any Non-Conforming Product within (i) [...*...] of Bayer's receipt of
such Non-Conforming Product in the event of a defect discovered by Bayer through
the use of reasonable testing methods and procedures mutually agreed to by the
Parties or (ii) [...*...] of Bayer's confirmation of the Non-Conforming status
of the Product in the event of a defect (hidden or otherwise) which was not
discovered through the use of such testing methods and procedures. Avigen shall
have the right to examine and test any Product in Bayer's possession that Bayer
claims is Non-Conforming. The Parties shall cooperate to determine the point at
which the Product became Non-Conforming. In the event that the Parties cannot
agree as to whether any Product is Non-Conforming, the Parties shall promptly
appoint an independent specialist (appointed by mutual agreement between the
Parties or, in default of agreement, by [...*...] or such other Person as the
Project Team may designate within [...*...] of the Effective Date), who shall
determine whether such Product is Non-Conforming; provided, however, that if the
product is determined to be conforming, Bayer (w) may elect not to sell or
otherwise use such Product, (x) may dispose of such Product as provided in
Section 16.1, (y) shall instead pay to Avigen, as full payment for such amount
of Product (notwithstanding Article 12) [...*...], and (z) shall Notify Avigen
of such election promptly after such specialist renders her or his findings. If
Bayer elects pursuant

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      33.
<PAGE>   46

to the foregoing sentence not to sell Product from different production lots
delivered in [...*...], such action shall be deemed to be an incurable material
breach by Bayer. In the absence of manifest error, the independent specialist's
decision shall be conclusive and binding on the Parties. The independent
specialist shall be paid by the Party found to be in error. This Section shall
not relieve Avigen of its obligations to deliver Products in accordance with
Section 8.5.

        (e) OBSERVATION BY BAYER. During the Term, Bayer shall have the right,
[...*...] (or more [...*...] as necessary to [...*...] during the [...*...])
during normal business hours and upon reasonable notice, to audit the Facility
where the Product is manufactured in order to ensure that the Processing
complies with the Product Specifications and Legal Requirements. Such audits
shall not interfere with Avigen's operations. Bayer shall have the right to
[...*...] of the documentation relating to Processing at the Facility and shall
be accompanied at all times by an Avigen representative.

        (f) RECALLS AND VOLUNTARY WITHDRAWALS. If either Party becomes aware of
information about distributed Product indicating that it may be Non-Conforming
or that there is potential adulteration, misbranding and/or any potential issues
regarding safety or effectiveness, it shall promptly serve Notice to that effect
on the other Party. [...*...] will initiate an investigation and assessment of
such circumstances and shall promptly Notify [...*...] of its findings and any
proposed course of action. The Parties shall meet to discuss such circumstances
and to consider appropriate courses of action. [...*...] shall have the right to
control and shall bear all costs associated with a recall of the Product, unless
such recall is caused by a [...*...] or [...*...] to the [...*...] to Product
[...*...] in accordance with the [...*...] specified in Section [...*...] of the
Product [...*...] to the [...*...] at the [...*...] in which case [...*...]
shall [...*...] (or [...*...]) all reasonable costs associated with the recall.
[...*...] shall maintain complete and accurate records of any recall for such
periods as may be required by Legal Requirements, but in no event for less than
three (3) years for all Product Sold by it, including distribution data related
to Sales of the Product to end users by Product Lot number.

9.4 FINAL LABEL PRODUCTS. Avigen shall be responsible for preparing and
delivering Product with the proper Packaging and, upon request by Bayer, the
Legal Label Text.

                                   ARTICLE 10.

                               DELIVERY; INVOICES

10.1 DELIVERY. All shipments shall be made by Avigen pursuant to Bayer's
reasonable instructions. Delivery shall be made [...*...] (INCOTERMS 2000)
(subject to the following sentence as to [...*...]) by Avigen to Bayer's
designated [...*...], with title of such Product to pass from Avigen to Bayer
upon [...*...]. Avigen and Bayer shall mutually select a carrier and shall
mutually agree to insurance coverage and charges to insure the Product for its
replacement value, which freight and insurance costs [...*...] shall be
[...*...].

10.2 CERTIFICATES OF ANALYSIS. Each Product Lot delivered to Bayer shall be
accompanied by an appropriate Certificate of Analysis. Avigen shall, for customs
purposes, upon delivery of the Product, provide Bayer with a valid declaration
of origin, in a form reasonably acceptable to

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      34.
<PAGE>   47

Bayer, in respect of all Product supplied to Bayer under this Agreement,
together with such other supporting documents relating to the origin of such
Product as Bayer may reasonably require.

10.3 METHOD OF INVOICING AND PAYMENT. All orders of Product for Sale under this
Agreement shall be invoiced at the rate of [...*...], plus an amount equal to
the [...*...] by [...*...]. All other orders of Product shall be invoiced at the
rates set forth in Section 12.1(b) and (c), plus an amount equal to the
[...*...] by [...*...].

                                   ARTICLE 11.

                               MARKETING BY BAYER

11.1 MARKETING. Bayer shall use [...*...], giving due consideration to [...*...]
and [...*...], to promote (including without limitation pre-marketing,
advertising, education and detailing), market, distribute, sell and provide
product support (collectively, "Commercialize", and "Commercializing" and
"Commercialization" shall be interpreted accordingly) for the Product in each
country of the Territory where the Parties obtain Regulatory Approval for the
Product (or, if a Regulatory Approval covers a group of countries; in such group
as a whole), and in any event, shall [...*...] to Commercializing the Product
that is [...*...] than [...*...] in Commercializing its other [...*...] of
[...*...].

11.2 PROMOTIONAL MATERIALS. Bayer shall deliver samples of all written materials
to be used to promote the Product to Avigen via the Project Team. Bayer shall
not use any written materials to promote the Product that Avigen has not
[...*...] and [...*...], such [...*...] not to [...*...] or (and, in any event,
such to be has not within of delivery of such materials to the Project Team).

11.3 COMPLIANCE WITH LAWS. Bayer shall comply, in each aspect of its
Commercialization of the Product, with all applicable Legal Requirements.

11.4 COMPASSIONATE USE. Bayer may make Product available non-commercially to
patients on compassionate use grounds; provided, however, the quantity of Doses
of Product per calendar year available on such grounds shall be determined by
[...*...].

11.5 BAYER ACQUISITION OR MERGER. In the event that Bayer acquires or merges
with, or all or substantially all of Bayer's assets are acquired by, a
Competitor, and in a particular country in the Territory (i) Bayer or the
Competitor, as the case may be, [...*...] or [...*...] within [...*...] of such
acquisition or merger, (ii) Bayer or the Competitor, as the case may be, is not
[...*...] by a [...*...] to [...*...] the [...*...] (iii) Sales of the Product
[...*...] the [...*...] that [...*...] in [...*...] during the [...*...] such
acquisition or merger, then with respect to such country, Bayer's license to
[...*...] Product under Section 2.1(a) shall [...*...] the fulfillment of
[...*...] the foregoing conditions [...*...] from being [...*...] to being
[...*...] and [...*...] Parties shall have the [...*...] Third Parties,
[...*...] in order to [...*...] the Product within [...*...]; provided, however,
that Avigen shall [...*...] all [...*...] before [...*...] for its [...*...]
activities; and, provided, further, that [...*...] shall be entitled to continue
using the [...*...] in any country in which [...*...]; and, provided, further,
that the Parties shall [...*...]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      35.
<PAGE>   48

any [...*...] and/or [...*...] as necessary in order to comply with the Legal
Requirements in light of [...*...].[...*...] shall [...*...] Bayer [...*...] in
respect of [...*...] of Product in such country.

                                   ARTICLE 12.

                              PACKAGE PRICE PAYMENT

12.1 PACKAGE PRICE. In consideration for the supply of Product, the Parties
agree that the "Package Price" of the Product to be charged by Avigen to Bayer
shall be determined based on the following:

        (a) PRODUCTS.

                (i) AGGREGATE NET SALES OF LESS THAN [...*...]. Until cumulative
Net Sales of Product in the Territory total [...*...], Bayer shall pay Avigen a
Package Price equal to [...*...] of Net Sales for such Product.

                (ii) AGGREGATE NET SALES OF [...*...]. From the time cumulative
Net Sales of Product in the Territory total [...*...], Bayer shall pay Avigen a
Package Price equal to [...*...] of Net Sales for such Product.

                (iii) [...*...]. At a time mutually agreeable to the Parties
prior to first Commercial Launch and thereafter on or before August 1 of each
year, Avigen shall submit to Bayer the calculation of its [...*...], which shall
be stated on a per Dose basis and shall be equal to the [...*...] for the
Product during the [...*...] having ended on June 30th of such year, [...*...]
of [...*...] over [...*...] the [...*...] under the [...*...]. Notwithstanding
Sections [...*...], Bayer shall pay Avigen a [...*...] for each [...*...] in the
subsequent calendar year [...*...] to the [...*...] specified on or before
[...*...] such subsequent calendar year in which [...*...]. (E.g., if Avigen's
[...*...] for fiscal year beginning [...*...] and ending [...*...] is [...*...],
Bayer shall pay [...*...] Avigen for [...*...] by Bayer from [...*...])

        An example of calculations of Package Price pursuant to this 12.1(a) is
included as example 3 in Schedule 12.2(a).

        (b) CLINICAL SUPPLIES. The Package Price for Doses of clinical supply of
Product purchased by Bayer shall be at a rate [...*...] Product.

        (c) NON-COMMERCIAL PRODUCT. The Package Price for Doses of Product
purchased by Bayer for any use described in Section 11.4 shall be at a rate
[...*...] the Product.

12.2 REMITTANCE OF PAYMENTS.

        (a) PRODUCTS.

                (i) INITIAL PAYMENT. Within [...*...] after the invoice date for
Product delivered to Bayer pursuant to Section 10.1(a), Bayer shall pay to
Avigen (i) [...*...] in accordance with Section 10.3 and as pre-payment against
the Package Price, and (ii) the [...*...]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      36.
<PAGE>   49

Avigen [...*...] and invoiced to [...*...] of Product; provided, however, that
the Product associated with such payment was actually delivered pursuant to
Section 10.1.

                 (ii) PAYMENT OF THE BALANCE OF THE PACKAGE PRICE PLUS AVIGEN
ROYALTY. Within [...*...] of the close of each calendar quarter, Bayer shall
provide to Avigen, a schedule of Net Sales invoiced by Bayer for Product Sold,
for such quarter which has just closed. Bayer shall pay to Avigen (i) (A) the
Package Price associated with such Sales under Sections [...*...]; or [...*...]
under Section [...*...] associated with Sales, [...*...]; plus (ii) amounts due
under Section 5.2; provided, however, that Bayer shall deduct from such payment
any pre-payments made by Bayer to Avigen under Section 12.2(a)(i) for Doses
Bayer has Sold during such calendar quarter.

        An example of the pre-payment for Product pursuant to Section 12.2(a)(i)
and the payment of the balance of the Package Price pursuant to Section
12.2(a)(ii) is attached hereto as Schedule 12.2(a).

        (b) CLINICAL SUPPLIES AND NON-COMMERCIAL PRODUCTS. Payments due to
Avigen under Sections 12.1(b) and 12.1(c) shall be payable by Bayer no later
than [...*...]; provided, however, that the Product associated with such payment
was actually delivered pursuant to Section 10.1.

        (c) WIRE TRANSFER. Bayer shall make payment by wire transfer of Dollars
or by such other payment method as the Parties may agree upon from time to time.

12.3 FOREIGN CURRENCY. Payments made under this Agreement shall be payable in US
Dollars. Net Sales calculated under this Agreement shall be computed for each
quarter with foreign Net Sales converted into Dollars using the exchange rate
reported in The Wall Street Journal, East Coast Edition, for the last Business
Day of such quarter.

                                   ARTICLE 13.

                  MANUFACTURING ISSUES AND CONSULTING SERVICES

13.1 MANUFACTURING ISSUE. If Bayer determines (i) that any aspect of a Facility
or the Process does not comply with the Legal Requirements, or (ii) that Avigen
is not complying with the manufacturing aspects of the Project Plan in a
material way (and does not remedy such non-compliance [...*...] of written
notice from Bayer of such non-compliance), it shall Notify Avigen and
appropriate personnel and/or executives of the Parties shall meet promptly in an
effort to agree upon a resolution of the matter (a "Manufacturing Issue"). If
the Parties are unable to resolve any Manufacturing Issue within [...*...],
notwithstanding Section 19.1, the dispute may be referred by either Party to
arbitration under Section 19.2

13.2 CONSULTING SERVICES.

        (a) BY BAYER. At Avigen's written request and upon reasonable advance
notice, Bayer shall use its [...*...] to make appropriate Bayer personnel
available to Avigen on a consulting basis with respect to the manufacturing
facility and the Processing of the Product. Bayer shall provide up to [...*...]
of such consulting services at [...*...]. Avigen shall reimburse Bayer for

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      37.
<PAGE>   50

all consulting services in excess of [...*...] at [...*...], which Bayer may
prospectively amend from time to time by giving Notice to Avigen.

        (b) BY AVIGEN. At Bayer's written request and upon reasonable advance
notice, Avigen shall use its [...*...] to make appropriate Avigen personnel
available to Bayer on a consulting basis with respect to clinical development of
the Product. Avigen shall provide up to [...*...] of such consulting services at
[...*...]. Bayer shall reimburse Avigen for all consulting services in excess of
[...*...] at [...*...], which Avigen may prospectively amend from time to time
by giving Notice to Bayer.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      38.
<PAGE>   51

PART IV: GENERAL

                                   ARTICLE 14.

                           GENERAL PAYMENT PROVISIONS

14.1 DEDUCTIONS. Any income or other taxes which Bayer is required by Legal
Requirements to pay or withhold on behalf of Avigen with respect to monies
payable to Avigen under this Agreement shall be deducted from the amount of such
payments and paid to the relevant competent taxing authority. Bayer shall
promptly provide Avigen with a certificate or other documentary evidence to
enable Avigen to support a claim for a refund or a foreign tax credit with
respect to any such tax so withheld or deducted by Bayer. Bayer and Avigen 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 Bayer to make such payments to Avigen without any deduction or
withholding, if possible.

14.2 REPORTS. Each payment made to Avigen under Article 12 shall be accompanied
by a written report, showing Gross Price and Net Sales and the calculation of
the same together with the calculation of the payment that is being made. The
calculation shall detail the amount of Product Sold, identified on a
country-by-country basis. The report shall also detail the use by Bayer of any
Products under Section 12.1(b) or (c).

14.3 RECORDS. Bayer shall, and shall cause its Affiliates and Sublicensees to
keep and maintain for [...*...] after payment pursuant to Article 12 complete
and accurate books and records in sufficient detail so that Net Sales and
payments made hereunder can be properly calculated.

14.4 INTEREST ON LATE PAYMENTS. Interest shall accrue on late payments by Bayer
at a rate of [...*...] or the maximum amount permitted by law, whichever is
less.

14.5 AUDIT.

        (a) AVIGEN AUDIT. No more frequently than once during each calendar year
during the Term and for [...*...] thereafter, Bayer shall permit Avigen's
independent auditors, to whom Bayer has no reasonable objection and with
reasonable notice at any time during normal business hours, accompanied at all
times, to inspect, audit and copy reasonable amounts of relevant accounts and
records of Bayer, its Affiliates and Sublicensees, for the sole purpose of
verifying the accuracy of the calculation of payments to Avigen pursuant to
Section 12.2(a)(ii) and the reports which accompanied them. Avigen's independent
auditors shall not disclose to Avigen any information other than information
relating solely to the accuracy of the accounting and payments made by Bayer
pursuant to Section 12.2(a)(ii). If such audit determines that payments are due
to Avigen, Bayer shall pay to Avigen any such additional amounts within
[...*...] of the date on which such auditor's written report is delivered to
Bayer and Avigen, unless such audit report is disputed by Bayer, in which case
the dispute shall be resolved in accordance with Article 19. If the auditor
determines that Bayer's payments are in excess of those required under this
Agreement, Avigen shall remit the difference to Bayer of such amount within
thirty (30) days of the date on which such auditor's report is delivered to
Avigen and Bayer, unless such

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      39.
<PAGE>   52

audit report is disputed by Avigen, in which case the dispute shall be resolved
in accordance with Article 19. Any such inspection of records shall be at
Avigen's expense unless such audit discloses a deficiency in the payments made
by Bayer (whether for itself or on behalf of its Affiliates and Sublicensees) of
more than [...*...] of the actual amount of Net Sales, in which case Bayer shall
bear the cost of such audit.

        (b) BAYER AUDIT. No more frequently than once during each calendar year
during the Term and for [...*...] thereafter, Avigen shall permit Bayer's
independent auditors, to whom Avigen has no reasonable objection and with
reasonable notice at any time during normal business hours to inspect, audit and
copy reasonable amounts of relevant accounts and records of Avigen, its
Affiliates and Sublicensees, for the sole purpose of verifying the accuracy of
(i) the Manufacturing Cost of the Product as reported to Bayer by Avigen, (ii)
the [...*...], and (iii) the [...*...] under [...*...]. Bayer's independent
auditors shall not disclose to Bayer any information other than information
relating solely to the accuracy of the actual cost determinations provided to
Bayer. If such audit determines that the actual cost determinations were
overstated by Avigen, Avigen shall pay to Bayer the amount of such overstatement
within [...*...] of the date on which such auditor's written report is delivered
to Bayer and Avigen, unless such audit report is disputed by Avigen, in which
case the dispute shall be resolved in accordance with Article 19. If the auditor
determines that that actual cost determinations were understated by Avigen,
Bayer shall remit the understated amount within [...*...] of the date on which
such auditor's report is delivered to Bayer and Avigen, unless such audit report
is disputed by Bayer, in which case the dispute shall be resolved in accordance
with Article 19. Any such inspection of records shall be at Bayer's expense
unless such audit discloses an overstatement of the actual cost determination of
more than [...*...], in which case Avigen shall bear the cost of such audit.

                                   ARTICLE 15.

                         REPRESENTATIONS AND WARRANTIES

15.1 AVIGEN'S REPRESENTATIONS AND WARRANTIES. Avigen hereby represents and
warrants the following to Bayer:

        (a) DUE ORGANIZATION. Avigen (i) is a company duly organized, validly
existing, and in good standing under the laws of Delaware, with its principal
place of business as indicated in the first paragraph of this Agreement; (ii) is
duly qualified as a corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, where the failure to be so qualified would
have a material adverse effect on the financial condition of Avigen or the
ability of Avigen to perform its obligations hereunder; (iii) has the requisite
corporate power and authority and the legal right to conduct its business as now
conducted and hereafter contemplated to be conducted; (iv) has all necessary
licenses, permits, consents, or approvals from or by, and has made all necessary
notices to, all governmental authorities having jurisdiction, to the extent
required for such ownership and operation; and (v) is in compliance with its
certificate of incorporation and by-laws.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      40.
<PAGE>   53

        (b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance of this Agreement by Avigen and all instruments and documents to be
delivered by Avigen hereunder (i) are within the corporate power of Avigen; (ii)
have been duly authorized by all necessary or proper corporate action; (iii) are
not in contravention of any provision of the certificate of incorporation or
by-laws of Avigen; (iv) will not violate any law or regulation or any order or
decree of any court of governmental instrumentality; (v) will not violate any
terms of any indenture, mortgage, deed of trust, lease, agreement, or other
instrument to which Avigen is a party or by which Avigen or any of its property
is bound, which violation would have a material adverse effect on the financial
condition of Avigen or on the ability of Avigen to perform its obligations
hereunder; and (vi) do not require any filing or registration with or the
consent or approval of any governmental body, agency, authority or any other
Person, which has not been made or obtained previously, other than to the U.S.
Department of Justice with respect to the HSR Act, to the FDA or equivalent
Regulatory Agency in a country or group of countries other than the United
States and as contemplated under Section 3.1.

        (c) LEGAL, VALID AND BINDING OBLIGATION. This Agreement has been duly
executed and delivered by Avigen and constitutes a legal, valid and binding
obligation of Avigen, enforceable against Avigen in accordance with its terms,
except as such enforceability may be limited by applicable insolvency and other
laws affecting creditors' rights generally or by the availability of equitable
remedies.

        (d) OWNERSHIP OF PATENT RIGHTS AND AVIGEN KNOW-HOW. Avigen is the sole
owner of the entire right, title and interest in and to the Patent Rights and
the Avigen Know-How, and to the best of Avigen's actual knowledge ("Knowledge"),
no other Person (including any government) has any license, claim or other right
or interest in or to the Patent Rights or the Avigen Know-How. To the best of
Avigen's Knowledge, the Patent Rights, the Avigen Know-How and the License
Rights may be exclusively licensed (or, in the case of the License Rights,
sublicensed) in the Field as hereunder provided, in the case of the Patent
Rights and Avigen Know-How without payment of any royalty or fee, or incurring
any other obligation to any other Person (except with respect to any statutory
march-in rights).

        (e) VALIDITY AND ENFORCEABILITY OF PATENTS. The issued patents included
in the Patent Rights are valid and enforceable to the best of Avigen's
Knowledge.

        (f) VALIDITY AND USE OF AVIGEN TRADEMARK. Avigen has filed an intent to
use application in the United States for the Avigen Trademark and owns such
application. To the best of Avigen's Knowledge, and after reasonable inquiry,
such application is valid and the use of the Avigen Trademark in connection with
the marketing and sale of the Product will not infringe the rights of any Third
Party.

        (g) INVESTIGATION OF PRIOR ART. Avigen has [...*...] and has [...*...]
conducted a [...*...] and [...*...] and [...*...] preparation and prosecution of
the Patent Rights and [...*...] in connection with entering into this Agreement
and [...*...], and has reviewed all [...*...] or [...*...] and [...*...]. Avigen
has disclosed [...*...] of which [...*...] and other [...*...] or [...*...] and
[...*...] as of the date hereof, in each case [...*...].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      41.
<PAGE>   54

        (h) NO INFRINGEMENT OR MISAPPROPRIATION OF THIRD PARTY RIGHTS. Based on
[...*...], the [...*...] of the Product will not infringe or misappropriate any
valid intellectual property or other rights of any Third Party of which
[...*...].

        (i) NO INFRINGEMENT OF AVIGEN INTELLECTUAL PROPERTY. [...*...] no
[...*...] of any [...*...], or any [...*...] by any Third Party.

        (j) WORK-FOR-HIRE. [...*...] all of the research and development work
performed in connection with any of the [...*...] prior to the Effective Date
was performed solely [...*...] or one of its [...*...], and was performed in
accordance with applicable law and in compliance with all applicable regulatory
requirements, and all such rights [...*...], including any and all rights of
Avigen's employees and the employees of Avigen's Affiliates.

        (k) NO CLAIMS OR SUITS REGARDING AVIGEN INTELLECTUAL PROPERTY. [...*...]
there are no judicial, arbitral, regulatory or administrative proceedings or
investigations, claims, actions or suits relating to the Patent Rights, the
License Rights, the Avigen Know-How or the Product pending against Avigen or its
Affiliates in any court or by or before any governmental body or agency,
including relating to product liability or compliance with good manufacturing
practices or state or federal food and drug laws, and [...*...] no such
judicial, arbitral, regulatory or administrative proceedings or investigations,
actions or suits [...*...] against Avigen or its Affiliates inside the
Territory.

        (l) PROTECTION OF CONFIDENTIAL INFORMATION. Avigen shall use [...*...]
to protect its proprietary and confidential information, including requiring its
employees, consultants and agents to be bound in writing by obligations of
confidentiality and nondisclosure, and requiring its employees, consultants and
agents to Notify Avigen of, and to assign to it, any and all inventions and
discoveries discovered by such employees, consultants and/or agents made within
the scope of and during their employment.

        (m) NO MATERIAL OMISSIONS. Avigen has not, up through and including the
Effective Date, omitted to furnish Bayer with any information [...*...] or
[...*...] concerning (a) the Patent Rights, (b) the License Rights, (c) the
Avigen Know-How, (d) the Product, or (e) the activities contemplated by this
Agreement, including the clinical development and commercialization of the
Product, which [...*...] to Bayer's decision to enter into this Agreement and to
undertake the commitments and obligations set forth herein.

15.2 BAYER'S REPRESENTATIONS AND WARRANTIES. Bayer hereby represents and
warrants the following to Avigen:

        (a) DUE ORGANIZATION. Bayer (i) is a corporation duly organized, validly
existing, and in good standing under the laws of Indiana, with a place of
business as indicated in the first paragraph of this Agreement; (ii) is duly
qualified as a corporation and in good standing under the laws of each
jurisdiction where ownership or lease of property or the conduct of its business
requires such qualification, where the failure to be so qualified would have a
material adverse effect on the financial condition of Bayer or the ability of
Bayer to perform its obligations hereunder; (iii) has the requisite corporate
power and authority and the legal right to conduct its business as now conducted
and hereafter contemplated to be conducted; (iv) has all necessary

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      42.
<PAGE>   55

licenses, permits, consents, or approvals from or by, and has made all necessary
notices to, all governmental authorities having jurisdiction, to the extent
required for such ownership and operation; and (v) is in compliance with its
certificate of incorporation and bylaws.

        (b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance of this Agreement by Bayer and all instruments and documents to be
delivered by Bayer hereunder: (i) are within the corporate power of Bayer; (ii)
have been duly authorized by all necessary or proper corporate action; (iii) are
not in contravention of any provision of the certificate of incorporation or
bylaws of Bayer; (iv) will not violate any law or regulation or any order or
decree of any court of governmental instrumentality; (v) will not violate the
terms of any indenture, mortgage, deed of trust, lease, agreement, or other
instrument to which Bayer is a party or by which Bayer or any of its property is
bound, which violation would have an adverse effect on the financial condition
of Bayer or on the ability of Bayer to perform its obligations hereunder; and
(vi) do not require any filing or registration with, or the consent or approval
of, any governmental body, agency, authority or any other Person, which has not
been made or obtained previously other than to the U.S. Department of Justice
with respect to the HSR Act, to the FDA or equivalent Regulatory Agency in a
country or group of countries other than the United States.

        (c) LEGAL, VALID AND BINDING OBLIGATION. This Agreement has been duly
executed and delivered by Bayer and constitutes a legal, valid and binding
obligation of Bayer, enforceable against Bayer in accordance with its terms,
except as such enforceability may be limited by applicable insolvency and other
laws affecting creditors' rights generally or by the availability of equitable
remedies.

        (d) PROTECTION OF CONFIDENTIAL INFORMATION. Bayer shall use [...*...] to
protect its proprietary and confidential information, including requiring its
employees, consultants and agents to be bound in writing by obligations of
confidentiality and nondisclosure and requiring its employees, consultants and
agents to Notify Bayer of, and to assign to it, any and all inventions and
discoveries discovered by such employees, consultants and/or agents made within
the scope of and during their employment.

15.3 COMPLIANCE WITH LAW. Both parties and their respective Affiliates and
Sublicensees will comply with applicable Legal Requirements and other laws,
regulations and governmental rules applicable to their activities in connection
with this Agreement.

15.4 WARRANTY BY AVIGEN WITH RESPECT TO THE PRODUCT. Avigen hereby represents
and warrants to Bayer that the quality (purity, stability, physical and chemical
properties) of the Product supplied by it to Bayer shall be in accordance with
the Product Specifications, [...*...] within the [...*...] of any [...*...], and
shall comply with all Legal Requirements (including current Good Laboratory
Practices and current Good Manufacturing Practices and those applicable laws,
rules and regulations governing the formulation, manufacture, testing prior to
delivery, packaging, labeling according to the Product Specifications and
storage and delivery of the Product), all at the time of delivery to Bayer's
warehouse(s). This warranty is exclusive and is in lieu of all other warranties,
whether written or oral express, implied or statutory.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      43.
<PAGE>   56

15.5 AVIGEN DISCLAIMER OF WARRANTIES. EXCEPT AS EXPLICITLY PROVIDED IN THIS
ARTICLE 15, AVIGEN PROVIDES THE PRODUCT TO BAYER ON AN "AS IS" BASIS, AND MAKES
NO WARRANTIES WITH RESPECT TO THE PRODUCT EXPRESS, IMPLIED, OR STATUTORY,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE, NONINFRINGEMENT OR NON-MISAPPROPRIATION OF THIRD
PARTY INTELLECTUAL PROPERTY RIGHTS, CUSTOM, TRADE, QUIET ENJOYMENT,
INFORMATIONAL CONTENT, OR SYSTEM INTEGRATION.

                                   ARTICLE 16.

                     REMEDIES, INDEMNIFICATION AND LIABILITY

16.1 REMEDIES FOR DELIVERY OF NON-CONFORMING PRODUCTS. Should Avigen deliver
Non-Conforming Products, Bayer shall be entitled, at its option, to: (i) a
[...*...] with the [...*...] or (ii) the [...*...] to Bayer of the [...*...]
with [...*...] meeting the appropriate Product Specifications ([...*...] Avigen
shall use [...*...] to [...*...] as soon as possible). In addition, Bayer shall
[...*...] either return or destroy any Non-Conforming Products. Any
Non-Conforming Products returned by Bayer pursuant to this Section shall be
delivered to Avigen at the Facility from which such Products originated. Except
as set forth in this Section and in Sections 16.3 and 16.4, Avigen shall have no
liability for delivery of Non-Conforming Products, and as set forth in this
Section and Sections 16.3 and 16.4.

16.2 INDEMNIFICATION IN FAVOR OF AVIGEN. Bayer agrees to indemnify and hold
harmless each Avigen Indemnitee from and against any and all Damages incurred by
it, her or him arising from any claim, lawsuit or other action (collectively
"Action") made, brought or threatened against any of the Avigen Indemnitees by a
Person other than an Affiliate or Sublicensee of Avigen as a result of (a) any
negligent or willful act or omission of any Bayer Indemnitee in relation to its,
her or his obligations under this Agreement, (b) the breach of any provision of
this Agreement by a Bayer Indemnitee, and (c) for all damage or injury to
persons or property arising, on or after the Effective Date, out of [...*...]
the [...*...] and [...*...] failure of any Product to [...*...] (or, in the case
of non-commercial Product, [...*...], provided that such Product [...*...]
Avigen to Bayer.

16.3 INDEMNIFICATION IN FAVOR OF BAYER. Avigen hereby agrees to indemnify and
hold harmless each Bayer Indemnitee from and against all Damages incurred by it,
her or him arising from any Action made, brought or threatened against any of
the Bayer Indemnitees by a Person other than an Affiliate or Sublicensee of
Bayer as a result of (a) any negligent or willful act or omission of an Avigen
Indemnitee in relation to its, her or his obligations under this Agreement, (b)
the breach of any provision of this Agreement by an Avigen Indemnitee (c) for
all damage or injury to persons or property arising out of (i) the Phase I/II
Clinical Trials, (and including, without limitation, the Ongoing Phase I/II
Clinical Trials), and (ii) any failure of any Product to meet the applicable
Product Specifications at the time such Product was delivered by Avigen to
Bayer.

16.4 [...*...] LIABILITY AND INDEMNIFICATION. The Parties agree that Avigen
shall bear [...*...] and Bayer shall bear [...*...] of all Damages incurred by
or arising from an Action made

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      44.
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brought or threatened against any of the Avigen Indemnitees and any of the Bayer
Indemnitees [...*...] as a result of (a) [...*...] and [...*...] any [...*...]
and/or [...*...] for the [...*...], and [...*...] not otherwise covered by
[...*...] (collectively [...*...]). Avigen agrees to indemnify and hold harmless
each Bayer Indemnitee from and against [...*...] of all [...*...]. Bayer agrees
to indemnify and hold harmless each Avigen Indemnitee from and against [...*...]
of all [...*...].

16.5 LIMITATIONS. Notwithstanding anything to the contrary set forth in this
Agreement, in no event shall either Party be required to indemnify, defend or
hold harmless any person as a result and to the extent of the negligence,
intentional misconduct or default of the other Party or the other Party's
Affiliates or Sublicensees. Except as set forth in this Article 16, in no event
shall either Party be liable to the other Party for, and each Party shall
procure that none of its Affiliates or Sublicensees shall make any claim against
the other Party (or its Affiliates and Sublicensees) for, any lost profits, loss
of business, loss of contracts, diminished goodwill, diminished reputation, or
consequential, indirect, incidental or special damages arising under or in
connection with this Agreement, the Product.

16.6 NOTICE. Should any claim arise which could reasonably be expected to lead
to a claim for indemnification, the party seeking indemnification (the
"Indemnified Party") shall promptly Notify the other Party (the "Indemnifying
Party") of the claim and the facts constituting the basis for such claim.

16.7 DEFENSE.

        (a) DEFENSE PURSUANT TO SECTION 16.2 OR SECTION 16.3. With respect to
Section 16.2 and 16.3, the Indemnifying Party may, upon Notice to the
Indemnified Party, assume the defense of any claim at its sole cost and expense.
The Indemnified Party shall provide reasonable assistance in the defense of such
claim in the event the Indemnifying Party assumes the defense as set forth
above. The Indemnifying Party shall not settle or compromise any such claim
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, conditioned or delayed; provided, however, that no
consent shall be required to be obtained if the Indemnified Party is fully
released of all liability without admission of liability or wrongdoing.

        (b) DEFENSE PURSUANT TO SECTION 16.4. With respect to Section 16.4, each
Party shall have the right to participate in the defense of the Action and
[...*...]. If Avigen elects not to participate in the defense of any such
Action, it shall pay [...*...] of the costs incurred by Bayer in defending such
Action. If Bayer elects not to participate in the defense of any such Action, it
shall pay [...*...] of the costs incurred by Avigen in defending such Action.
Each Party shall provide reasonable assistance in the defense of any such
Action. Neither Party shall settle or compromise any such Action without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned or delayed; provided, however, that no
consent shall be required to be obtained if the other Party is fully released of
all liability without admission of liability or wrongdoing.

                                   ARTICLE 17.

                            CONFIDENTIAL INFORMATION

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      45.
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17.1 CONFIDENTIALITY REQUIREMENT. From the Effective Date through the [...*...]
of the termination or expiration of this Agreement, each Party shall keep
confidential, and shall cause its respective Affiliates, Sublicensees and their
respective officers, directors, employees and agents to keep confidential, and
not to use for any purpose other than to perform under this Agreement, the other
Party's Confidential Information, provided that the foregoing restriction shall
not apply to information that (i) is or hereafter becomes generally available to
the public other than by reason of any default with respect to confidentiality
under this Agreement, (ii) is hereafter disclosed to such Party by a Third Party
who is not, to the knowledge of such Party, in default of any confidentiality
obligation to the other Party, (iii) is hereafter developed by or on behalf of
such Party, without reliance on the other Party's Confidential Information, or
(iv) is provided by such Party under appropriate terms and conditions, including
confidentiality provisions equivalent to those in this Agreement, to Third
Parties for consulting, accounting, legal and similar purposes, or to the
Parties' permitted assigns under this Agreement. Each Party recognizes that any
violation of this confidentiality provision may cause the other Party
irreparable harm and agrees that the other Party may be entitled, in addition to
any other right or remedy it may have, at law or in equity, to an injunction
without the posting of any bond or other security, enjoining the disclosing
Party, its Affiliates, Sublicensees and their respective officers, directors,
employees and agents from any violation or potential violation of this Article.

17.2 PERMITTED DISCLOSURE OF CONFIDENTIAL INFORMATION. Either Party shall be
entitled to disclose the other Party's Confidential Information to the extent
required to comply with law, regulation or court order; provided, however, that
such first Party provides such other Party, if possible, advance written notice
of the required disclosure (and, in any event promptly notices the other of the
required disclosure) and provides such other Party with reasonable assistance to
attempt to obtain a protective order for the Confidential Information required
to be disclosed.

17.3 PERMITTED DISCLOSURE OF KNOW-HOW. Notwithstanding Section 17.1, either
Party shall be entitled to disclose to Third Parties the other Party's Avigen
Know-How or Bayer Know-How, as the case may be, solely for purposes of:

        (a) demonstrating the efficacy, safety or quality of any Products as
reasonably required to obtain a BLA in any country; and

        (b) in the case of Bayer, marketing the Product in the Territory,
provided that Bayer first obtains Avigen's prior written consent for the use of
its Confidential Information for such purposes, which consent shall not be
unreasonably withheld, conditioned or delayed.

                                   ARTICLE 18.

                              TERM AND TERMINATION

18.1 TERM AND EXCLUSIVITY.

        (a) TERM. The term of this Agreement ("Term") shall commence on the
Effective Date and shall continue until terminated in accordance with Section
18.2.

        (b) EXCLUSIVITY. The exclusivity of the license granted to Bayer under
Section 2.1(a) shall expire as follows:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      46.
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                (i) IN THE EUROPEAN ECONOMIC AREA. Subject to earlier
termination of the Agreement pursuant to Section 18.2, the exclusive licenses
granted to Bayer under Section 2.1(a) shall automatically become non-exclusive,
in each member state of the European Economic Area, on the later to occur of:

                        (A) the [...*...] anniversary of the Commercial Launch
anywhere in the European Economic Area, or

                        (B) the expiration of the last to expire of the Patent
Rights, License Rights and Avigen Improvement Rights in such member state;

provided, however, that if in a particular member state of the European Economic
Area, (x) the expiration of the last to expire of the Patent Rights, License
Rights and Avigen Improvement Rights occurs prior to the [...*...] anniversary
of the first Commercial Launch in the European Economic Area, and (y) the Avigen
Know-How has become generally known or insubstantial, then the exclusive license
granted to Bayer under Section 2.1(a) shall become non-exclusive with respect to
such member state upon the expiration of the last to expire of the Patents
Rights, License Rights and Avigen Improvement Rights.

                (ii) IN THOSE COUNTRIES WITH PATENT PROTECTION OTHER THAN IN THE
EUROPEAN ECONOMIC AREA. Subject to earlier termination of the Agreement pursuant
to Section 18.2, the exclusive license granted to Bayer under Section 2.1(a)
shall automatically become non-exclusive, in each country in the Territory
(other than the member states of the European Economic Area) in which the
Product may not be used or sold without a license from Avigen under the Patent
Rights, License Rights and/or the Avigen Improvement Rights, on the later to
occur of (i) the date of expiration of the last to expire of the Patent Rights,
License Rights and the Avigen Improvement Rights in such country; and (ii) the
[...*...] anniversary of the Commercial Launch of the Product in such country.

                (iii) IN THOSE COUNTRIES WITHOUT PATENT PROTECTION. Subject to
earlier termination of the Agreement pursuant to Section 18.2, the exclusive
license granted to Bayer under Section 2.1(a) shall automatically become
non-exclusive, in each country in the Territory not covered under Sections
18.1(b)(i) or (ii) on [...*...] anniversary of the Commercial Launch of the
Product in such country.

        (c) NONCOMPETE. In consideration for Bayer's efforts with respect to the
Phase II/III Clinical Trials, regulatory work and marketing, Avigen agrees that
it will [...*...] any Person, (including itself, but excluding Bayer, its
Affiliates and Sublicensees) from [...*...] outside the [...*...], or assist any
Person in doing so, during the Term, except as [...*...]. In consideration for
Avigen's efforts with respect to the Phase I/II Clinical Trials, Bayer agrees
that it will [...*...] during the [...*...] from any Person [...*...], except as
[...*...].

18.2 TERMINATION. This Agreement may be terminated:

        (a) ELECTIVE TERMINATION. By either Party following the [...*...]
anniversary of the first [...*...] in any country; provided, however, that the
terminating Party has given Notice to the other Party at least [...*...] prior
to the effectiveness of the termination.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      47.
<PAGE>   60

        (b) BY BAYER IN THE EVENT OF A SUPPLY BREACH. By Bayer in the event of a
Supply Breach by Avigen.

        (c) BY AVIGEN IN THE EVENT OF A MATERIAL BREACH BY BAYER. By Avigen, in
the event that Bayer commits a material breach of this Agreement and (i) the
breach is incurable, or (ii) Bayer fails to cure such breach within [...*...] of
receiving a Notice of default from Avigen (or such longer period as Avigen may
reasonably agree if said breach is incapable of cure within such [...*...])
("Bayer's Cure Period"), by giving a Notice of termination to Bayer within
[...*...] of first becoming aware of such breach (if such breach is incurable)
or within [...*...] of the end of Bayer's Cure Period, such termination to take
effect upon delivery of the Notice of termination by Avigen. Any breach by Bayer
of its Commercialization diligence obligations pursuant to Section 11.1 shall be
deemed to be a material breach of this Agreement on the part of Bayer.

        (d) INSOLVENCY. By either Party, in the event the other Party
("Insolvent Party") experiences an Insolvency Event, by giving Notice to the
Insolvent Party, with termination of this Agreement to become effective upon
delivery of the Notice.

        (e) FORCE MAJEURE. By Avigen, in the event Bayer continues to experience
a Force Majeure condition for a period of at least [...*...] after Notice of the
Force Majeure was given pursuant to Section 20.5 of this Agreement, by giving
Notice ("Force Majeure Termination Notice") to Bayer, with termination of this
Agreement to become effective upon delivery of the Force Majeure Termination
Notice.

        (f) TERMINATION BY BAYER.

                (i) IN THE EVENT OF PATENT EXPIRATION. On a country-by-country
basis in countries where there have been, during the Term, issued patents within
the Patent Rights, License Rights or Improvement Rights, Bayer shall have the
right to terminate this Agreement after expiration of the last to expire of the
issued patents within the Patent Rights, License Rights and Avigen Improvement
Rights in such country. In the event Bayer terminates this Agreement in any, but
not all of, the countries in the Territory, (i) Bayer shall not [...*...] of
Product supplied [...*...] in countries [...*...] this Agreement; and (ii) if,
notwithstanding [...*...] in [...*...],[...*...] does [...*...] supplied
[...*...] in such country, [...*...] shall [...*...] both a [...*...] to Section
[...*...] and the [...*...] pursuant to [...*...].

                (ii) DURING DEVELOPMENT. By Bayer, by giving Notice to Avigen,
at any time, without further payment to Avigen,

                        (A) if the [...*...] and the [...*...] do not [...*...]
for Phase II/III clinical trials that include, as determined by in its
reasonable judgment, [...*...] that enable Bayer, through [...*...], to
[...*...] and [...*...];

                        (B) if the results of the Phase I/II Clinical Trials do
not enable Avigen to establish a Product dose which meets the phenotypic
conversion and spontaneous bleeding criteria set forth in the Product Target
Profile;

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      48.
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                        (C) if the results of the Phase II/III Clinical Trials
do not fall within the Product Target Profile as determined by Bayer in its
reasonable judgment; or

                        (D) if any SAEs or AEs that are found to be drug-related
emerge during the course of clinical testing that would materially limit Bayer's
ability to market the Product, as determined by Bayer in its reasonable
judgment,

which Notice of termination shall take effect immediately.

                (iii) DURING MARKETING. By Bayer, by giving Notice to Avigen
[...*...] between [...*...] of the [...*...] in the [...*...] and the [...*...]
of such [...*...], with termination of this Agreement to become effective upon a
date mutually agreeable to the Parties (and failing any agreement, on the
[...*...] following the date of such Notice). In the event Bayer terminates the
Agreement under this Section 18.2(f)(ii), Avigen [...*...] buy back all of
Bayer's rights with respect to the Product, Patent Rights, Avigen Improvement
Rights and Avigen Know-How by paying to Bayer [...*...] within [...*...] after
the effective date of the termination.

18.3 AVIGEN'S RIGHTS UPON TERMINATION IN CERTAIN CIRCUMSTANCES. In the event
that this Agreement is validly terminated by Bayer pursuant to Section 18.2(a)
(Elective Termination by Bayer), 18.2(f)(ii)(During Marketing), or Section
18.2(f)(i)(During Development), or is validly terminated by Avigen pursuant to
Section 18.2(c)(Material Breach by Bayer), Section 18.2(d)(Bayer Insolvency) or
Section 18.2(e)(Bayer Force Majeure), Bayer and Avigen agree as follows:

Bayer shall promptly and for no additional consideration (i) disclose to Avigen
any Bayer Know-How that has not been previously disclosed to Avigen, and (ii)
assign and transfer to Avigen upon Avigen's written request all of Bayer's
right, title and interest in the Trademark(s); provided, however, that in the
event Avigen has validly terminated this Agreement pursuant to Section
18.2(d)(Bayer Insolvency) or Section 18.2(e)(Bayer Force Majeure), Avigen shall
pay to Bayer, in consideration of such assignment and transfer, an amount equal
to the Fair Market Value of (i) the Bayer Know-How, and (ii) the Trademark.

18.4 BAYER'S RIGHTS UPON TERMINATION FOR SUPPLY BREACH AND AVIGEN INSOLVENCY. In
the event Bayer validly terminates this Agreement pursuant to Section
18.2(b)(Supply Breach) or 18.2(d)(Avigen Insolvency), the Parties agree as
follows:

        (a) Avigen shall promptly disclose to Bayer any Avigen Know-How that has
not been previously disclosed to Bayer for no additional consideration;

        (b) All rights granted under Sections 2.1(a) and 2.2 shall continue in
all respects;

        (c) The license of Section 7.2 shall terminate;

        (d) Notwithstanding Section 3.8(b) of this Agreement, Bayer shall be
entitled to release the Plasmids from escrow and to use the Plasmids in
practicing the license rights granted to Bayer under this Agreement (including,
without limitation, to use the Plasmids to establish one or more master plasmid
banks to be owned by Bayer);

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      49.
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        (e) Bayer shall no longer be required to purchase its and its
Affiliates' and Sublicensees' requirements for Product from Avigen;

        (f) The royalties payable under Section 5.2 shall continue in all
respects, provided, however, that in the event Avigen was capable of supplying
Product to Bayer but willfully did not supply Product to Bayer, Bayer shall have
the right to offset against such royalties the expenses of procuring an
alternative supply (whether from a Third Party or by Bayer establishing its own
supply facility) to the extent those costs and expenses exceed those which would
have been payable to Avigen for supply of Product.

        (g) Bayer shall, if it Sells Product, assume the obligation to pay all
Third Party royalties or other amounts due under the Licenses in connection with
the manufacture, use sale, offer for sale, importation and exportation of the
Product by Bayer.

18.5 BAYER'S RIGHTS UPON AVIGEN MATERIAL BREACH OTHER THAN SUPPLY BREACH);
AVIGEN FORCE MAJEURE. In the event (A) Avigen commits a material breach other
than a Supply Breach and (i) the breach is incurable, or (ii) Avigen fails to
cure such breach within [...*...] of receiving a Notice of default from Bayer
(or such longer period as Bayer may reasonably agree if said breach is incapable
of cure within such [...*...]) ("Avigen's Cure Period"), upon the end of the
Avigen Cure Period or Notice of an incurable material breach other than a Supply
Breach, or (B) Avigen continues to experience a Force Majeure condition for a
period of at least [...*...] after Notice of the Force Majeure was given
pursuant to Section 20.5 of this Agreement, upon Notice to Avigen, Bayer shall:
(i) have the right to [...*...], of which the obligation to perform Avigen has
breached or been unable to perform, and (ii) be entitled to [...*...] to
[...*...] by [...*...] against the payments due under this Agreement. This
Agreement shall otherwise continue in full force and effect. For purposes of
this Section 18.5, any failure by Avigen to fulfill its obligations under
Section 2.8 shall be deemed a material breach.

18.6 EFFECT OF TERMINATION. Expiration or termination of this Agreement for any
reason shall not be construed to release any Party of any obligation matured
prior to the effective date of such expiration or termination. Bayer may, for
[...*...] after the effective date of expiration or termination, Sell all
Products [...*...] and shall be liable for payment of the Package Price on such
Sales and any royalties due under Section 5.2.

18.7 SURVIVAL. Articles 16, 17, 18, 19 and 20 and Sections 2.1(c), 2.9, 6.4,
6.5, 6.6 and 6.7 shall survive any termination of this Agreement.

18.8 TERMINATION OF EXCLUSIVE DISTRIBUTORSHIP. Bayer hereby expressly and
irrevocably [...*...]. Nothing in this Section 18.8 shall be construed to
[...*...] by Avigen otherwise available under this Agreement.

                                   ARTICLE 19.

                       DISPUTE RESOLUTION AND ARBITRATION

19.1 INITIAL DISPUTE RESOLUTION EFFORTS. Except for the determination of Fair
Market Value, the Parties shall attempt to resolve any dispute, controversy, or
claim arising out of, or in connection with, this Agreement amicably and
promptly by negotiations between executives who

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      50.
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have authority to settle the controversy. Either Party may give the other Party
written Notice of any dispute not resolved in the normal course of business.
Within seven (7) days after delivery of such Notice, executives of the Parties
shall agree to meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to attempt to resolve the dispute. If
the matter has not been resolved within sixty (60) days of the first meeting of
such executives (or, if the Parties are unable to mutually agree upon an
acceptable time and place to meet, within sixty (60) days of the disputing
Party's Notice), either Party may, by Notice to the other Party ("Dispute
Escalation Notice"), refer the matter to the respective officers of the Parties
designated below.

        For Bayer:  General Manager, Senior Vice President of Bayer Corporation,
                    Biological Business Unit

        For Avigen: Chief Executive Officer of Avigen

Such officers shall negotiate in good faith to resolve the matter in an amicable
manner within sixty (60) days of the Dispute Escalation Notice. In the event the
matter is not resolved within such sixty (60) days, either Party may initiate
arbitration of the dispute as provided for in this Section 19.1.

19.2 ARBITRATION.

        (a) ARBITRATION RULES. Subject to Section 19.1 having been complied
with, any and all disputes, controversies, claims, or differences arising out
of, relating to, or having any connection with this Agreement (including any
question relating to its existence, validity, interpretation, performance, or
termination) shall be referred to and finally resolved by arbitration in
accordance with the then current rules of the American Arbitration Association
("AAA Rules"), conducted in accordance with the remainder of this Section 19.2,
unless an alternative dispute resolution process is approved by the Governance
Committee within ninety (90) days of the Effective Date, in which case the
alternative process shall be used.

        (b) NUMBER AND SELECTION OF ARBITRATORS. The number of arbitrators shall
be three (3), who shall be selected as follows: each of the Parties shall chose
one (1) arbitrator within ten (10) Business Days of initiating or receiving
notice of the reference to arbitration (as the case may be), and those
Party-appointed arbitrators shall unanimously select one (1) chairman arbitrator
within ten (10) Business Days of the appointment of the last of the
Party-appointed arbitrators, who shall be a lawyer familiar with disputes in the
pharmaceutical industry. If the Party-appointed arbitrators are unable to agree
upon the selection of the third arbitrator, such chairman arbitrator shall be
selected by the AAA.

        (c) PLACE AND LANGUAGE OF ARBITRATION. The place of arbitration shall be
New York, New York, at a suitable venue to be agreed by the arbitrators within
twenty (20) Business Days of the appointment of the chairman arbitrator. The
proceedings shall be conducted in the English language.

        (d) BINDING DECISION. The decision and award of the arbitral tribunal
shall be made by majority decision and shall be final, nonappealable and binding
on both Parties and their successors and assigns.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      51.
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        (e) ALLOCATION OF COSTS. The decision and award of the arbitral tribunal
shall include a decision regarding the allocation of costs relating to any such
arbitration. In making their decision regarding costs, the arbitrators shall
have due regard (inter alia) to any delay on the part of either Party.

        (f) INTEREST. The arbitral award may include both pre- and post-award
interest, at a rate to be determined by the arbitral tribunal.

        (g) LIMITATION OF DAMAGES. The arbitral tribunal shall not be empowered
to award Damages in excess of actual damages and each Party irrevocably waives
any right to recover such excess damages with respect to any dispute resolved by
arbitration.

        (h) CURRENCY. The award of the arbitral tribunal shall be rendered in
Dollars.

        (i) SPEED OF ARBITRATION.

                (i) GENERALLY. Each Party shall use reasonable efforts to
expedite the arbitration process.

                (ii) CLINICAL OR MANUFACTURING ISSUES. To the extent that a
dispute, controversy, claim or difference is a Phase I/II Completion Issue
pursuant to Section 3.1(a)(i), a Clinical Issue arising under Section 3.1(c), a
Manufacturing Issue arising under Section 13.1, or a Reestablishment Issue
pursuant to Section 8.7, the goal of the Parties is to conduct the arbitration
on an expedited basis and, in any event, the arbitral tribunal shall render its
decision within ninety (90) days of the selection of the chairman arbitrator.
Each Party agrees to use its [...*...] to cause the arbitration to be held in as
efficient and expeditious manner as practicable so that a decision may be
reached in a timely manner. Notwithstanding Section 19.2(b), the arbitrators
selected by the Parties (i.e., the first two (2) arbitrators) for any
arbitration of a Clinical Issue or a Manufacturing Issue, shall each have no
less than ten (10) years experience in the area of expertise implicated by the
subject matter of the arbitration.

        (j) ENFORCEMENT OF JUDGMENT. The decision and award of the arbitral
tribunal shall be final and binding upon the Parties. Once rendered, the award
shall be enforceable in any court of competent jurisdiction. Judgment on the
arbitral award may be entered in any court having jurisdiction thereof.

        (k) CONFIDENTIALITY. The Parties shall keep confidential (i) the
existence of the arbitration proceedings, (ii) documents prepared for the
proceedings, and (iii) other documents made available during the proceedings,
except as required by Legal Requirements or as required for recognition and
enforcement of the arbitral decision and award.

        (l) INTERIM MEASURES. Notwithstanding this Article 19, either Party may
apply to any court having jurisdiction (i) to enforce the arbitration provisions
of this Agreement, and (ii) to seek provisional injunctive relief so as to
maintain the status quo (including, but not limited to, maintaining the
confidentiality of any arbitration proceedings and the Confidential Information)
until the arbitration award is rendered or the dispute is otherwise resolved.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      52.
<PAGE>   65

                                   ARTICLE 20.

                               GENERAL PROVISIONS

20.1 NOTICE. Notices provided for herein (each, a "Notice") shall be in writing
and shall be delivered by hand or overnight courier service, or mailed
(certified or registered) as follows:

              If to Bayer, to:

              Bayer Corporation
              Biological Products Business Unit
              79 T.W. Alexander Drive
              4101 Research Commons
              P.O. Box 13887
              Research Triangle Park, North Carolina  27709
              U.S.A.
              Attn:  General Manager

              with copies, which shall not constitute notice hereunder, sent to:

              Bayer Corporation
              Law & Patents
              79 T.W. Alexander Drive
              4101 Research Commons
              P.O. Box 13887
              Research Triangle Park, North Carolina  27709
              U.S.A.
              Attn:  Senior Counsel

              and

              Bayer Aktiengesellschaft
              Patents and Licensing/Pharma
              D-51368 Leverkusen
              Germany
              Attn:  General Counsel

              If to Avigen, to:

              Avigen, Inc.
              1201 Harbor Bay Parkway, #1000
              Alameda, CA  94502
              Attn:  Vice President of Business Development

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      53.
<PAGE>   66

              with a copy, which shall not constitute notice hereunder, sent to:

Notwithstanding the foregoing, all Notices which are required to be given under
Sections 4.2 and 4.3 of this Agreement shall be in writing and shall be
delivered by hand or overnight courier service or mailed (certified or
registered) as follows:

              If to Bayer, to:

              Bayer Corporation
              Global Drug Safety - Biologicals
              800 Dwight Way
              Berkeley, California  94710
              U.S.A.
              Telephone:  510-705-4947
              Facsimile:  510-705-4714
              E-mail:  gds.biologicals@bayer.com

              with copies, which shall not constitute notice hereunder, sent to:

              Bayer Corporation
              Biological Product Business Unit
              79 T.W. Alexander Drive
              4101 Research Commons
              P.O. Box 13887
              Research Triangle Park, North Carolina  27709
              U.S.A.
              Attn:  General Manager

              Bayer Corporation
              Law & Patents
              79 T.W. Alexander Drive
              4101 Research Commons
              P.O. Box 13887
              Research Triangle Park, North Carolina  27709
              U.S.A.
              Attn:  Senior Counsel

              If to Avigen, to:

              Avigen, Inc.

              Avigen, Inc.
              1201 Harbor Bay Parkway, #1000
              Alameda, CA  94502
              Attn:  Vice President of Business Development

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      54.
<PAGE>   67

              with a copy, which shall not constitute notice hereunder, sent to:

All Notices and other communications given to any Party in accordance with the
provisions of this Agreement shall be deemed to have been given on the date of
receipt if delivered by hand or overnight courier service, or on the date ten
(10) Business Days after dispatch by certified or registered mail (postage
prepaid) if mailed, in each case delivered, sent or mailed (properly addressed)
to such Party to its address as set forth in this Section, or to such other
address that such Party may have notified to the other Party from time to time.

20.2 GOVERNING LAW. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of New York, other than its conflict of
laws principles directing the application of any law other than that of the
State of New York.

20.3 REGISTRATION AND FILING OF THIS AGREEMENT. To the extent, if any, that a
Party concludes in good faith that it is required to file or register this
Agreement or a notification thereof with any governmental authority, including,
without limitation, the U.S. Securities and Exchange Commission, the Competition
Directorate of the Commission of the European Communities, the U.S. Department
of Justice or the U.S. Federal Trade Commission, in accordance with Legal
Requirements, such Party shall inform the other Party thereof and both Parties
shall cooperate each at its own expense in such filing or notification and shall
execute all documents reasonably required in connection therewith. In such
filing or registration, the Parties shall request confidential treatment of
sensitive provisions of the Agreement, to the extent permitted by law. The
Parties shall promptly inform each other as to the activities or inquiries of
any such governmental authority relating to this Agreement, and shall cooperate
to respond to any request for further information therefrom on a timely basis.

20.4 RELATIONSHIP. This Agreement shall not constitute any Party as the legal
representative or agent of the other, nor shall any Party have the right or
authority to assume, create or incur any liability or any obligation of any
kind, express or implied, against, or in the name of or on behalf of, the other
Party. This Agreement shall not constitute, create or in any way be interpreted
as a joint venture, partnership or formal business organization of any kind.

20.5 FORCE MAJEURE. If any of the Parties is impeded in fulfilling its
undertakings in accordance with this Agreement by circumstances beyond its
reasonable control, such as, but not limited to, labor conflict, lightening
striking, acts of God, earthquake, fire, war, mobilization or unforeseen
military call-up of a large magnitude, requisition, confiscation, commandeering,
public decrees, riots, insurrections, changes in Legal Requirements, and
technical events beyond Avigen's reasonable control, the impediment shall be
considered a Force Majeure condition and the Party shall be exempted from
liability for delays due to such reasons; provided, however, that it notifies
the other Party thereof without undue delay after such a circumstance has
occurred. Upon such notification, the Parties shall agree upon a reasonable
extension of the time for performance, not to exceed an extension equal to the
period the Force Majeure condition continues to exist. For purposes of this
Agreement, the Parties agree that general shortages of transport, goods or
energy and faults or delays in deliveries from subcontractors or suppliers shall
not constitute a Force Majeure.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      55.
<PAGE>   68

20.6 PUBLICITY. Except as otherwise required by Legal Requirements, no Party
shall use the other's name or refer to it directly or indirectly in an
advertisement or news release or otherwise disseminate to any third party or
issue any news release relating to this Agreement, without prior written
approval from such Party for such use or release. The Parties agree that a news
release with respect to the consummation of this transaction and the details
thereof will be made, the content and form of which shall be as set forth on
Schedule 20.6.

20.7 HEADINGS. The headings used in this Agreement are included for convenience
only and are not to be used in construing or interpreting this Agreement.

20.8 ASSIGNMENT. This Agreement may not be assigned by Avigen without the prior
written consent of Bayer except in connection with a merger or acquisition of
Avigen or the sale or merger of all or substantially all of its assets;
provided, however, that Avigen may assign its right to receive payment hereunder
without prior consent of Bayer, but provided it notifies Bayer of such
assignment within three (3) Business Days. Bayer may assign this Agreement only
to any Bayer Affiliate or in connection with an acquisition of Bayer or the sale
or merger of all or substantially all of the business to which this Agreement
pertains.

20.9 COVENANT OF FURTHER ASSURANCES. The Parties covenant and agree that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the Parties shall execute and deliver any
further legal instruments and perform such acts which are or may become
necessary to effectuate the purposes of this Agreement.

20.10 ENTIRE AGREEMENT. Together with the Subscription Agreement and the
Confidential Disclosure Agreement dated March 30, 2000, this Agreement and all
attachments, including exhibits and schedules hereto, constitute the entire
agreement among the Parties with respect to the matters set forth herein, and
supersedes all prior agreements and understandings, both written and oral, among
the Parties with respect thereto.

20.11 SEVERABILITY. If any term of other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic and legal substance of the
underlying transaction, taken as a whole, is not affected in any manner
materially adverse to either Party. Upon such determination that (i) any term of
other provision is invalid, illegal or incapable of being enforced and (ii) the
economic or legal substance of the underlying transaction, taken as a whole, is
affected in a manner materially adverse to either Party, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in a mutually acceptable manner to
the fullest extent permitted by Legal Requirements in order that the underlying
transaction be completed as originally contemplated to the fullest extent
possible.

20.12 WAIVERS; AMENDMENT. The failure of either Party to insist, in any one or
more instances, upon the performance of any of the terms, covenants or
conditions of this Agreement or to exercise any right hereunder, shall not be
construed as a waiver or relinquishment of the future performance of any such
term, covenant or conditions or the future exercise of such right, and the
obligation of the other Party with respect to such future performance shall
continue in

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      56.
<PAGE>   69

full force and effect. No item or provision of this Agreement may be altered or
amended except by a writing signed by both Parties.

20.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and same instrument.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      57.
<PAGE>   70

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

BAYER CORPORATION

By: /s/ Jan P. Turek
    -----------------------------------
    Name: Jan P. Turek
    Title: Senior Vice President and General Manager, Biological Products
           Business Unit

AVIGEN, INC.

By: /s/ John Monahan
    -----------------------------------
    Name: John Monahan, Ph.D.
    Title: Chief Executive Officer

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

<PAGE>   71

                                 SCHEDULE 1.37

                               FAIR MARKET VALUE

1. The Fair Market Value shall be the fair market value of the property
(tangible or intangible) to be sold by one Party and purchased by the other,
determined as at the date on which the purchasing Party notifies its intention
to purchase the property in question ("Purchase Notice"). Such fair market value
may be mutually agreed between the Parties within twenty (20) Business Days of
the Purchase Notice ("Negotiation Period").

2. If the Parties do not agree the amount of the fair market value within the
Notification Period, either Party shall be entitled by Notice to the other
("Valuation Notice") to request that the fair market value be determined by an
independent accountant ("Independent Accountant").

3. The Independent Accountant shall

        (a) belong to a reputable, national firm of accountants;

        (b) be a member of the American Institute of CPAs;

        (c) be generally knowledgeable about the pharmaceutical industry; and

        (d) be appointed by agreement between the Parties within ten (10)
Business Days of the Valuation Notice, failing which his appointment shall be
referred to the American Institute of CPAs (whose costs shall be borne equally
among the Parties or, if the selling Party objects to such cost arrangement, by
the purchasing Party) and who shall appoint the Independent Accountant who
fulfils the foregoing criteria of this paragraph 3.

4. The Independent Accountant shall be requested to determine the fair market
value as it was at the date of the Purchase Notice. For the purpose of
determining such fair market value and unless both Parties agree otherwise in
writing, the Independent Accountant shall determine the fair market value:

        (a) in accordance with generally accepted accounting principles and
practices in the United States consistently applied;

        (b) assuming a sale on an arm's length basis between a willing seller
and purchaser;

        (c) assuming that the selling Party will continue to do business as a
going concern; and

        (d) as soon as reasonably practicable and in any event within sixty (60)
Business Days of his appointment.

        Each Party shall be entitled to submit in writing to the Independent
        Accountant within twenty (20) Business Days of his appointment its
        suggestions and comments regarding the fair market valuation in
        question, which the Independent Accountant shall be entitled to take
        into account as he sees fit.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       2.
<PAGE>   72

5. Each Party shall promptly provide the Independent Accountant with any
information in their possession which the Independent Accountant requests
because he deems it relevant to his valuation.

6. The Independent Accountant shall be requested to summarise the basis for, and
to state the result of, his valuation in a written statement issued
simultaneously to both Parties. Except in the case of manifest error, such
valuation shall be conclusive and binding on both Parties.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       3.
<PAGE>   73

                                  SCHEDULE 1.35

                             EXISTING LICENSE RIGHTS

<TABLE>
<CAPTION>
                                                                      EFFECTIVE
LICENSOR    SUBLICENSING    SUBJECT MATTER              EXPIRES         DATE
<S>         <C>             <C>                         <C>           <C>
[...*...]        Yes          [...*...]                 [...*...]     [...*...]

[...*...]        Yes          [...*...]                 [...*...]     [...*...]

[...*...]

[...*...]        Yes          [...*...]                 [...*...]     [...*...]

[...*...]        Yes          [...*...]                 [...*...]     [...*...]

                              [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       4.
<PAGE>   74

                                  SCHEDULE 1.65

                                  PATENT RIGHTS

<TABLE>
<CAPTION>
                                                                           ISSUED/EXPIRATION
 PATENT NUMBERS                            TITLE                           DATE                SCOPE
------------------ ------------------------------------------------------ -------------------- ------------------
<S>                <C>                                                    <C>                  <C>
[...*...]          [...*...]                                              [...*...]            [...*...]

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

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

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

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

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

APPLICATION
NUMBERS                                                                   DATE FILED

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

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

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

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

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

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

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

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

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

[...*...]          [...*...]                                              [...*...]            [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       5.
<PAGE>   75

                                  SCHEDULE 1.77

                             PRODUCT SPECIFICATIONS

                 AAV-hFIX9 (MUSCLE) BULK DRUG SUBSTANCE TESTING

<TABLE>
<CAPTION>
       TEST              STAGE            METHOD           SPECIFICATION
-------------------- ------------- -------------------- -------------------
<S>                  <C>           <C>                  <C>
[...*...]              [...*...]        [...*...]           [...*...]
</TABLE>

FINAL PRODUCT TESTING

<TABLE>
<CAPTION>
       TEST                     METHOD                     SPECIFICATION
--------------------  ---------------------------  -----------------------------
<S>                   <C>                          <C>
[...*...]                      [...*...]                      [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       6.
<PAGE>   76

                                  SCHEDULE 1.78

                             PRODUCT TARGET PROFILE

<TABLE>
<CAPTION>
           PRODUCT PROFILE                            MINIMUM BASE
--------------------------------------  ----------------------------------------
<S>                                     <C>
              [...*...]                                 [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       7.
<PAGE>   77

                                  SCHEDULE 3.5

                                  PROJECT TEAM

AVIGEN REPRESENTATIVES:
-----------------------

Co-Manager:
Clinical:
Scientific:
Regulatory:
QA/QC:
Manufacturing/Technical Operation:
Marketing:

BAYER REPRESENTATIVES:
----------------------

Co-Manager:  Project Manager [...*...]
Clinical:  Clinical Director, International Clinical Projects [...*...]
Scientific:  Biotechnology Principal Research Scientist [...*...]
Regulatory:  Director, Regulatory Affairs [...*...]
QA/QC:  Director, QA [...*...]
Manufacturing/Technical Operation:  Director, Biological Operations [...*...]
Marketing:  Marketing Manager [...*...]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       8.
<PAGE>   78

                                  SCHEDULE 3.6

                         MEMBERS OF GOVERNANCE COMMITTEE

AVIGEN REPRESENTATIVES

        Business:   [...*...] Vice President of Business Development and Chief
                    Patent Counsel
        Patents:
        Science:    [...*...] Vice President of Research and Development
        Finance:    [...*...] Chief Financial Officer

BAYER REPRESENTATIVES

        Business:   [...*...] Vice President, L.C.M - Kogenate
        Patents:    [...*...] Senior Patent Counsel
        Science:    [...*...] Vice President, Research and Technology
        Finance:    [...*...][...*...]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                       9.
<PAGE>   79

                                 SCHEDULE 4.1(b)

        RULES AND SCHEDULES FOR EXPEDITED REPORTING IN LICENSE AGREEMENTS

<TABLE>
<CAPTION>
                                         TIMELINES FOR ADVERSE EVENT REPORTING
----------------------------------------------------------------------------------------------------------------------
                                                                                Timelines
                                                    ------------------------------------------------------------------
                                                                             15-Day Expedited
                                                                               All serious
                                                      7-Day Expedited       marketed reports,        Non-Expedited
                                                     (Outcome of death     serious, unexpected     (Not Serious, or
                                                    or life threatening       and unrelated          not related
        Responsible                 Action          in a clinical study)    clinical reports)      clinical report)
---------------------------- ---------------------- --------------------- ---------------------- ---------------------
<S>                          <C>                    <C>                   <C>                    <C>
Bayer Medical/Affiliate,     Distribution of
Avigen                       Report to Bayer
                             Global Drug Safety
                             -- Biologicals              [...*...]              [...*...]             [...*...]

Bayer Global Drug Safety     Date entry,
-- Biologicals               evaluation                  [...*...]              [...*...]             [...*...]

Bayer Global Drug Safety     Distribution to
-- Biologicals               Bayer Affiliates and
                             Avigen                      [...*...]              [...*...]             [...*...]

Bayer Global Drug Safety     Notification to
-- Biologicals/ Affiliate    authorities                 [...*...]              [...*...]             [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      10.
<PAGE>   80

                                  SCHEDULE 8.2

                EXAMPLE OF PRODUCT FORECASTS AND PURCHASE ORDERS

The following addresses issues for:

-     Article 8.2      Quarterly Product Forecast for Commercial Supply.

-     Article 8.2(a)   Product Forecasts.

-     Article 8.2(c)   Delivery of Purchase Order: Contents.

-     Article 8.2(d)   Amending Orders and Forecasts.

The following Schedule is an example of how the above mentioned sections are to
be applied:

Each quarter, Bayer will submit to Avigen a rolling Forecast for the next
[...*...] quarters.

Assume point in time is December 2006 and the Product is being sold
commercially. Forecast is submitted to Avigen as follows:

        [...*...]

        Included with the Forecast is a Purchase Order for [...*...] Doses and
        [...*...] is locked into the [...*...] cannot vary, up or down, more
        than [...*...] versus this Forecast.

Before the end of [...*...] a new rolling forecast is issued as follows:

        [...*...]

        Included with the Forecast is a Purchase Order for [...*...] Doses,
        which is within the [...*...] from the prior Forecast. [...*...] now
        becomes locked into the [...*...] The Purchase Order for [...*...] must
        be between [...*...] doses.

        The intent is that the Forecast and Purchase Order for the [...*...] is
binding and the Purchase Order for [...*...] can vary only [...*...] up or down,
versus the prior forecast. The Forecast for subsequent [...*...] (per this
example, [...*...] may vary, versus the prior Forecast (Forecast submitted
[...*...] based on changing market conditions and inventory levels.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      11.
<PAGE>   81

                               SCHEDULE 9.3(c)(i)

                                 BAYER QA RIGHTS

<TABLE>
<CAPTION>
                TASK                        BAYER REVIEW
------------------------------------------ --------------
<S>                                        <C>
[...*...]                                     [...*...]
</TABLE>

        Note: Q designates Quality Assurance, T designates Technical
Development, A designates Analytical Development, RA designates Regulatory
Affairs.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      12.
<PAGE>   82

                                SCHEDULE 12.2(a)

EXAMPLE OF PREPAYMENT AND PAYMENT OF BALANCE OF PACKAGE PRICE AND AVIGEN ROYALTY

EXAMPLES 1 AND 2:
Assumptions:

-       Bayer orders and receives 10 doses from Avigen

-       Within [...*...] after the invoice date for Product, Bayer will remit to
        Avigen [...*...] per dose

-       Bayer Net selling price is [...*...] per dose

-       Bayer sells 8 doses during a quarter

-       Bayer provides a sales schedule to Avigen, [...*...] after close of
        quarter reflecting Net Sales, related prepayments and Balance of Package
        Price due to Avigen

-       Cumulative Net Sales are less than [...*...] dollars

-       Amount due Avigen, [...*...] of Net Sales, includes a royalty of
        [...*...] plus a Package Price of [...*...] of Net Sales

EXAMPLE 1
<TABLE>
<S>                                                                                           <C>
Bayer invoices full sales price for 8 doses

         Bayer Invoice, 8 doses at [...*...], per dose                                        [...*...]

         Amount due Avigen at [...*...] of Net Sales                                          [...*...]
         Less Prepayment, 8 doses sold                                                        [...*...]

         Balance due Avigen                                                                   [...*...]
</TABLE>

EXAMPLE 2
<TABLE>
<S>                                                                                           <C>
Payments to Bayer [...*...]
 Bayer invoices 8 doses at [...*...] in the [...*...] of the [...*...]

         [...*...]

         Bayer Invoice, 8 doses at [...*...] per dose                                         [...*...]
         Amount due Avigen at [...*...] of Net Sales                                          [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      13.
<PAGE>   83

<TABLE>
<S>                                                                              <C>
Less Prepayment, 8 doses sold                                                                 [...*...]
         Balance due Avigen with report of Net Sales for first calendar                       [...*...]
         quarter of first year

     [...*...]

         Bayer Invoice, 8 doses at [...*...] per dose                                           [...*...]
         Amount due Avigen at [...*...] of Net Sales                                            [...*...]
         Balance due Avigen with report of Net Sales for first calendar               [...*...]
         quarter in each year                                                    (plus Package Price and
                                                                                 Avigen Royalty on any
                                                                                 additional Sales in such
                                                                                 reporting period, less
                                                                                 prepayment on any
                                                                                 additional doses sold by
                                                                                 Bayer in such reporting
                                                                                 period)

     [...*...]
</TABLE>

EXAMPLE 3 -- AVERAGE MINIMUM PACKAGE PRICE

Assumptions:
-     Avigen Manufacturing Cost is [...*...] per Dose

-     [...*...] on Manufacturing Cost is [...*...] (per Section 12.1(a)(iii))

-     [...*...]

-     Bayer invoices 8 Doses at [...*...] each on Bayer Invoice

-     Cumulative Net Sales are less than [...*...]

-     Avigen delivers 10 doses of Product during the reporting period

-     Bayer sells 8 doses of Product in the reporting period

<TABLE>
<CAPTION>
<S>                                                                                             <C>
A
8 Doses at [...*...] per dose                                                                   [...*...]
Package Price due Avigen at of [...*...] of Net Sales                                           [...*...]

B
Average Minimum Package Price Calculation
Avigen Manufacturing Cost for 8 doses                                                           [...*...]
[...*...]                                                                                       [...*...]
[...*...] of Net Sales                                                                          [...*...]
Package Price due Avigen, calculated per 12.1(a)(iii)                                           [...*...]

The Package Price for the doses sold in the reporting period is
[...*...] because this is [...*...]

Additional calculations to arrive at amount due under 12.2(a):
Package Price calculated above                                                                  [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      14.
<PAGE>   84

<TABLE>
<S>                                                                                             <C>

Avigen Royalty at [...*...] Net Sales                                                           [...*...]
Less Prepayment, 8 doses sold                                                                   [...*...]
Balance due Avigen                                                                              [...*...]

     [...*...]
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      15.
<PAGE>   85

                                  SCHEDULE 20.6

                                  PRESS RELEASE

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      16.
<PAGE>   86

Press Release

SOURCE: Avigen, Inc.

Avigen Signs Hemophilia Gene Therapy Deal With Bayer

Leaders in Gene Therapy and Hemophilia Join Forces

ALAMEDA, Calif. and LEVERKUSEN, Germany, Nov. 17 /PRNewswire/ -- Bayer
Corporation, a worldwide health care and life sciences company and leader in the
development, manufacture, and distribution of hemophilia treatments, and Avigen,
Inc. (Nasdaq: AVGN - news), a biotechnology company at the forefront of new gene
transfer therapies, announced today that they have taken an important step in
the treatment of hemophilia B. The two companies signed an agreement that grants
exclusive worldwide marketing and distribution rights to Bayer for Avigen's
Coagulin-B(TM) gene therapy treatment for hemophilia B.

Under the terms of the agreement, Bayer, in collaboration with Avigen, will
conduct the planned Phase II/III clinical trials for Coagulin-B(TM). In
collaboration with Bayer, Avigen will file for regulatory approvals and will be
the holder of regulatory licenses worldwide, including the United States,
European Union, Canada, and Japan.

The partnership, valued up to $60 million, includes a $15 million up-front
purchase of Avigen stock, at a premium to market, milestone payments, and
payment of the clinical trial and AAV vector manufacturing costs by Bayer.
Additionally, Avigen will receive a royalty on net sales for its intellectual
property, as well as a substantial share of revenue from future Coagulin-B(TM)
sales. Avigen will manufacture the product for worldwide distribution at its new
manufacturing facility in Alameda, Calif. The product's label will bear the
names of both companies, Avigen as the manufacturer and Bayer as the
distributor.

Hemophilia B is a sex-linked bleeding disorder caused by the absence or
deficiency of the blood clotting protein factor IX. According to the World
Hemophilia Foundation, one in 10,000 males born worldwide has hemophilia. The
two major forms of the disease are hemophilia A and hemophilia B. The more
common, hemophilia A, is caused by a lack of blood clotting protein factor VIII.
Hemophilia B, the target of the current research, is about one-fifth as common
as hemophilia A. Worldwide, the estimate of people suffering from hemophilia is
400,000.

"We are pleased to partner with Avigen in this effort because it represents an
exciting leap forward for people with hemophilia," said Jan Turek, Senior Vice
President and General Manager of Bayer Corporation's Biological Products
Business Unit Worldwide. "We are confident that Coagulin-B(TM) will be the first
gene therapy application for the treatment of hemophilia. This is the kind of
significant discovery the hemophilia community has been anxiously awaiting."

"Avigen is pleased with the agreement on two levels," said John Monahan, Ph.D.,
Avigen President and CEO. "First, in Bayer we have found a prestigious worldwide
pharmaceutical

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      17.
<PAGE>   87

company that is a leader in the hemophilia market, having worked to treat this
disease for decades. Second, Bayer has the resources to conduct and finance
worldwide clinical testing for Coagulin-B(TM) and has a strong worldwide
marketing and distribution presence in hemophilia treatment. The Bayer-Avigen
combination of expertise and resources will enhance our capability to deliver
this product to market quickly so that patients can benefit from it. At the same
time, the partnership will enable Avigen to focus its resources on other
products in the development pipeline for the treatment of hemophilia A and other
genetic disorders."

"Gene transfer therapy shows promise in the treatment of hemophilia, and is an
important medical breakthrough offering the potential for a cure," continued
Turek. "Avigen is on the cutting edge of technology for gene therapy products
derived from adeno-associated virus (AAV), and we are excited about bringing our
expertise in clinical development to this partnership in order to move
Coagulin-B(TM) to market as quickly as possible. This alliance reinforces our
ongoing commitment to bleeding disorders, and serves as an example of how our
substantial investments in research and development are making pioneering
therapies a reality for the bleeding disorders community."

Coagulin-B(TM) is Avigen's proprietary AAV vector, which carries the gene for
factor IX, the missing or deficient protein that causes hemophilia B.
Coagulin-B(TM) is designed to deliver the factor IX gene into the patient's
muscle cells where it will continuously produce factor IX. Sustained levels of
factor IX in the bloodstream are expected to substantially reduce spontaneous
bleeding episodes and the need for factor IX protein infusion. Avigen officials
are optimistic that the continuing research will demonstrate promising results.

"The agreement advances our tradition of offering innovative, safe and effective
therapies to individuals with hemophilia. Bayer has more than two decades of
proven success in the hemophilia market including the recent launch of
Kogenate(R) FS/KOGENATE(R) Bayer for the treatment of hemophilia A," added
Turek. "At Bayer, it has been our mission, since the introduction of the first
factor IX replacement product in 1969, to quickly make available new, safer and
more technologically advanced products to patients with bleeding disorders.
Bayer will continue to explore new treatment options that can dramatically
improve the quality of life of patients with hemophilia including gene therapy
research in hemophilia A."

This AAV vector-based product builds on the foundation of pioneering research
conducted at the Children's Hospital of Philadelphia (CHOP) and Stanford
University by Dr. Katherine High and Dr. Mark Kay, respectively. Numerous
experiments in animals have shown the product to be extremely safe and capable
of producing therapeutic levels of the missing Factor IX in animals. Phase I
clinical studies are underway, being led by Dr. Catherine Manno at CHOP and Dr.
Bertil Glader at Stanford. If the results observed in the animal studies are
borne out in clinical trials, such levels in humans would result in significant
reduction in bleeding episodes.

Based in the San Francisco Bay area, Avigen, Inc., is a biotechnology company
involved in the development of gene therapy products derived from AAV for the
treatment of inherited and acquired diseases. Avigen's proposed gene therapy
products are designed for direct administration to patients in order to achieve
production of therapeutic proteins within the body. Additional information on
Avigen's proprietary gene therapies can be found at www.avigen.com.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      18.
<PAGE>   88

Bayer Corporation is a research-based company with major businesses in health
care, life sciences, and chemicals, with 1999 sales of $8.9 billion. The Bayer
Biological Products Business Unit, headquartered in Research Triangle Park,
N.C., is responsible for the global development and marketing of Bayer's
recombinant antihemophilic factor replacement products. Bayer currently provides
nearly 50 percent of the world's supply of recombinant factor VIII for
hemophilia A patients. Bayer recently made a significant advancement in the
treatment of the hemophilia A with the launch of Kogenate(R)FS/KOGENATE(R)
Bayer, a next generation formulation recombinant factor VIII, which is
formulated without human proteins. Recent and planned investments in research
and development and manufacturing technology are expected to result in
additional new products, enhanced safety profiles, and increased production
capacity for products in chronically short supply.

This news release contains forward-looking statements regarding Bayer's and
Avigen's beliefs as to the future of gene therapy for the treatment of
hemophilia, and benefits that will result to Avigen from its agreement with
Bayer, which involve risks and uncertainties that may cause actual results to
differ materially. In particular: the agreement is subject to regulatory
approval before it comes into effect, which approval may not be obtained;
Coagulin-B(TM) is in the early stages of clinical trials, and only a small
sample of patients have been treated, in which case the results obtained to date
could be a statistical anomaly and not indicative of future results; further
studies may return different results, which could delay or prevent
Coagulin-B(TM) from progressing to later stage clinical trials or being approved
for commercial sale; other companies may develop products that compete favorably
against Coagulin-B(TM) at the time, if ever, that Coagulin-B(TM) receives
regulatory approval; and other risks detailed from time to time in documents
filed by Avigen with the SEC, including the report on Form 10-K for the year
ended June 30, 2000.

SOURCE: Avigen, Inc.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                      19.

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