CONVERTIBLE PROMISSORY NOTE



U.S.$8,010,000 (excluding capitalized interest)                    July 18, 2001



The undersigned, Curis, Inc., a Delaware corporation with offices at 61 Moulton

Street, Cambridge, Massachusetts 02138-1118 (the "Company"), unconditionally

promises to pay to Elan Pharma International Limited, an Irish private limited

liability company ("EPIL"), or its permitted assigns, transferees and successors

as provided herein (collectively with EPIL, the "Holder"), on July 18, 2007 (the

"Maturity Date"), at such place as may be designated by the Holder to the

Company, the principal amount outstanding hereunder (not to exceed

U.S.$8,010,000 (excluding capitalized interest)), or such lesser amount as shall

then be payable pursuant to the terms of Section 3 hereof, together with

interest thereon accrued at a rate per annum set forth in Section 2 hereof from

and after the date of the initial disbursement of funds hereunder (the "Original

Issue Date"), compounded on a semi-annual basis, the initial such compounding to

commence on the date that is the 180th day from and after the Original Issue

Date and thereafter on each one-year anniversary of the Original Issue Date and

180 days thereafter (each such date, a "Compounding Date").

{PAGE}



                                      -2-





      SECTION 1. SECURITIES PURCHASE AGREEMENT.



            (a) This Note is issued pursuant to a Securities Purchase Agreement

dated as of the date hereof, by and among the Company, Elan International

Services, Ltd., a Bermuda exempted limited liability company and an affiliate of

EPIL ("EIS"), and EPIL (as amended at any time, the "Securities Purchase

Agreement"), and the Holder hereof is intended to be afforded the benefits

thereof, including the representations and warranties set forth therein. The

Company shall use the proceeds of the issuance and sale of this Note solely in

accordance with the provisions set forth therein and as required therein.

Capitalized terms used but not otherwise defined herein shall, unless otherwise

indicated, have the meanings given such terms in the Securities Purchase

Agreement.



            (b) Certain terms and conditions of the disbursements by EPIL to the

Company hereunder are set forth in Section 1(e) of the Securities Purchase

Agreement.



      SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST.



            (a) Unless earlier (i) converted in accordance with the terms of

Section 4 below, (ii) repaid in accordance with the terms hereof or (iii)

reduced pursuant to Section 3 below, the entire outstanding principal amount of

this Note (including capitalized interest, if any), together with any accrued

interest thereon (the "Outstanding Amount"), shall be due and payable on the

Maturity Date, at the option of the Company, in cash or, subject to applicable

regulatory approvals, by the issuance of such number of shares of Common Stock

equal to the Outstanding Amount divided by the Fair Market Value per share of

Common Stock.



            The "Fair Market Value" of one share of Common Stock shall be deemed

to be the average of the closing sale prices for the Common Stock over the 30

trading day period ending one trading day prior to the date of conversion or the

Maturity Date, as the case may be.



            (b) Accrued interest hereon shall not be paid in cash, but shall be

capitalized and added to the principal amount outstanding hereunder on each

Compounding Date. Accrued interest hereon shall be due and payable in arrears on

each Compounding Date. Interest shall accrue on this Note at a rate per annum of

(i) 8%, from and after the Original Issue Date through the fourth anniversary of

the Initial Closing Date, and (ii) 6%, thereafter.



      SECTION 3. REDUCTION OF AMOUNTS PAYABLE HEREUNDER.



            If EIS shall have exercised its Exchange Right (as such term is

defined in the Certificate of Designations relating to the Series A Preferred

Stock), then, (a) unless EIS, pursuant to Section 5(b) of the Securities

Purchase Agreement, shall have paid to the Company within 30 days of such

exercise an amount equal to: (x) 30.1% of the aggregate amount of the

{PAGE}



                                      -3-





Development Funding (but not including any capitalized or accrued and unpaid

interest on this Note) provided to Newco (by or on behalf of the Company and EIS

and their respective affiliates and subsidiaries), (y) plus such amount, if any,

of the Development Funding contributed to Newco by the Company as a result of a

failure by EIS to provide its pro rata share of the Development Funding and (z)

less such amount, if any, of the Development Funding contributed to Newco by EIS

as a result of a failure by the Company to provide its pro rata share of the

Development Funding (the sum of (x), (y) and (z) as a percentage of the

Development Funding contributed to Newco, the "Make-Whole Percentage"), in each

case, from and after the Initial Closing Date and immediately prior to such

exercise (the "Make-Whole Amount"), (b) the Holder shall surrender to the

Company for cancellation all or a portion of this Note and/or, as appropriate,

all or a portion of the shares of the Common Stock into which all or a portion

of this Note may have been converted, with an aggregate principal amount equal

to the Make-Whole Percentage of the aggregate amount of Development Funding (but

not including any capitalized or accrued and unpaid interest on this Note)

provided to Newco (by or on behalf of the Company and EIS and their respective

affiliates and subsidiaries) from and after the Initial Closing Date and

immediately prior to such exercise, less such amount, if any EIS shall have paid

to the Company pursuant to clause (a) above.



            If the payment of the Make-Whole Amount, or any portion of the

Make-Whole Amount, is effected or offset against this Note, such reduction shall

be evidenced in writing by an appropriate notation hereon or such other

documentation as shall be agreed to in writing by the Company and the holder

hereof, which agreement shall not be unreasonably withheld or delayed.



      SECTION 4. CONVERSION.



            (a) Conversion Right.



            (i) Until this Note is repaid in full, the Holder shall have the

right, at any time after the second anniversary of the Initial Closing Date, in

its sole discretion, to convert all or any portion of the Outstanding Amount

(the "Conversion Right") into such number of shares of Common Stock that shall

be obtained by dividing the Outstanding Amount by U.S.$8.63 per share (subject

to adjustment as provided below in this Section 4, the "Conversion Price").

Notwithstanding the above, in the event that there shall occur any

consolidation, merger or reorganization of the Company with or into any other

corporation or other entity or person, or any other corporate reorganization, in

which the holders of the outstanding voting securities of the Company

immediately prior to such consolidation, merger or reorganization, own 50% or

less of the outstanding voting securities of the survivor corporation (or the

parent company of the survivor corporation) or resulting entity immediately

after such consolidation, merger or reorganization, then the Outstanding Amount

shall, immediately prior to the consummation thereof, at the option of the

Holder and subject to applicable regulatory approvals, be converted into the

{PAGE}



                                      -4-





same number of shares of Common Stock into which such shares are convertible

pursuant to the immediately preceding sentence (a "Significant Transaction

Conversion").



           (ii) The Holder shall be entitled to exercise the Conversion Right

from time to time as to the unconverted portion of this Note upon at least 10

days' prior written notice to the Company, such notice to be in the form

attached hereto as Annex I. Within 10 days of the conversion date specified in

such notice, or within 10 days of the election by the Holder to compel a

Significant Transaction Conversion, the Company shall issue appropriate stock

certificates to the Holder (or such affiliate designated by the Holder)

representing the aggregate number of shares of Common Stock due to the Holder as

Home        Intelligence        Services        Subscriptions        News        About Us

Contact Us       Terms of Use       Resend Documents       Shopping Cart

Copyright © 2008 The Consus Group LLC