Exhibit 10.33

 

 

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* CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

 

 

COLLABORATION AND LICENSE AGREEMENT

 

 

By and Between

 

 

PHARMACOPEIA, INC.

 

 

and

 

 

SCHERING CORPORATION

 

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Table of Contents

 

 

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COLLABORATION AND LICENSE AGREEMENT

 

This COLLABORATION AND LICENSE AGREEMENT (the “Agreement”), dated as of the
latest date of signature appearing below (the “Execution Date”) and to be
effective as of the Effective Date (as defined below), is made by and among:
Pharmacopeia, Inc., a Delaware corporation having its principal place of
business at 3000 Eastpark Boulevard, Cranbury, New Jersey 08512, (hereinafter
referred to as “Pharmacopeia”); and Schering Corporation, a New Jersey
corporation having its principal place of business at 2000 Galloping Hill Road,
Kenilworth, New Jersey 07033, U.S.A., (hereinafter referred to as “Schering”). 
Pharmacopeia and Schering are sometimes referred to herein individually as a
Party and collectively as the Parties.  References to “Schering” and
“Pharmacopeia” shall include their respective Affiliates (as hereinafter
defined).

 

WHEREAS, Schering and Pharmacopeia desire to collaborate to design and conduct
medicinal chemistry optimization programs against Schering’s biological targets
based upon lead compounds selected by Schering; and

 

WHEREAS, Schering and Pharmacopeia also desire for Pharmacopeia to conduct a
separate program to identify new lead compounds by screening certain of its
internal compound libraries for activity against biological targets selected by
Schering; and

 

WHEREAS, Pharmacopeia and Schering’s Affiliate Schering-Plough Ltd. have entered
into a collaboration and license agreement relating to countries and territories
outside of the United States of even date herewith; and

 

WHEREAS, Schering and Pharmacopeia wish to modify and amend certain terms of the
existing 1998 Agreements (as defined below) between the Parties related to
Optimization Libraries (as defined in the 1998 Agreements);

 

NOW, THEREFORE, in consideration of the covenants, conditions, and undertakings
herein contained, Schering and Pharmacopeia hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

As used in this Agreement, the following capitalized terms, whether used in the
singular or plural, shall have the respective meanings set forth below:

 

1.1                                 “ACCEPTANCE” SHALL MEAN, WITH RESPECT TO AN
IND, NDA OR HRD SUBMITTED BY OR ON BEHALF OF SCHERING OR ITS AFFILIATE OR
SUBLICENSEE, NOTICE BY THE FDA (OR AN ANALOGOUS REGULATORY AUTHORITY IN ANOTHER
COUNTRY) THAT THE IND, NDA OR HRD HAS BEEN ACCEPTED FOR REVIEW BY THE FDA (OR
ANALOGOUS REGULATORY AUTHORITY).  IN THE EVENT THAT THE FDA (OR ANALOGOUS
REGULATORY AUTHORITY) IS NOT REQUIRED TO PROVIDE SUCH A NOTICE OF ACCEPTANCE OF
AN IND, NDA OR HRD, THEN “ACCEPTANCE” SHALL BE DEEMED TO OCCUR: (I) IN THE CASE
OF AN IND, THIRTY (30) DAYS FOLLOWING THE DATE OF SUBMISSION, OR IF PREVIOUSLY
REJECTED ANY RESUBMISSION, OF SUCH IND; OR (II) IN THE CASE OF AN NDA OR HRD,
SIXTY (60) DAYS FOLLOWING THE DATE OF SUBMISSION, OR IF PREVIOUSLY REJECTED ANY
RESUBMISSION, OF SUCH NDA OR HRD, UNLESS IN EACH CASE SCHERING OR ITS AFFILIATES
OR SUBLICENSEE RECEIVES NOTICE FROM THE FDA (OR ANALOGOUS REGULATORY AUTHORITY),
DURING THE APPLICABLE THIRTY (30) OR SIXTY (60) DAY PERIOD, THAT THE NDA OR HRD
IS NOT ACCEPTABLE FOR REVIEW.

 

1.2                                 “ACTIVITY CRITERIA” SHALL MEAN THE THRESHOLD
CRITERIA TO BE AGREED UPON BY THE PARTIES FOR IDENTIFYING COMPOUNDS HAVING
ACTIVITY AGAINST THE RELEVANT SCREENING TARGET.

 

1.3                                 “AFFILIATE” SHALL MEAN ANY INDIVIDUAL OR
ENTITY DIRECTLY OR INDIRECTLY CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL
WITH, A PARTY TO THIS AGREEMENT.  FOR PURPOSES OF THIS AGREEMENT, THE DIRECT OR
INDIRECT OWNERSHIP OF FIFTY PERCENT (50%) OR MORE OF THE OUTSTANDING VOTING
SECURITIES OF AN ENTITY, OR THE RIGHT TO RECEIVE FIFTY PERCENT (50%) OR MORE OF
THE PROFITS OR EARNINGS OF AN ENTITY SHALL BE DEEMED TO CONSTITUTE CONTROL, OR
IF NOT MEETING THE PRECEDING REQUIREMENTS, ANY COMPANY OWNED OR CONTROLLED BY OR
OWNING OR CONTROLLING PHARMACOPEIA OR SCHERING AT THE MAXIMUM

 

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CONTROL OR OWNERSHIP RIGHT PERMITTED IN A COUNTRY WHERE SUCH COMPANY EXISTS. 
SUCH OTHER RELATIONSHIP AS IN FACT RESULTS IN ACTUAL CONTROL OVER THE
MANAGEMENT, BUSINESS AND AFFAIRS OF AN ENTITY SHALL ALSO BE DEEMED TO CONSTITUTE
CONTROL.  *

 

1.4                                 “AGREEMENT COMPOUND” SHALL MEAN ANY LEAD
COMPOUND OR DERIVATIVE COMPOUND, AS WELL AS *

 

1.5                                 “AGREEMENT PRODUCT” SHALL MEAN ANY PRODUCT
CONTAINING AN AGREEMENT COMPOUND, INCLUDING, WITHOUT LIMITATION, PRODUCTS FOR
THE THERAPEUTIC OR PROPHYLACTIC TREATMENT OR PREVENTION OF DISEASES AND
CONDITIONS IN HUMAN BEINGS OR ANIMALS.

 

1.6                                 “CARRYOVER PROGRAMS” SHALL HAVE THE MEANING
SET FORTH IN SECTION 2.02.

 

1.7                                 “COLLABORATION” SHALL MEAN THE OPTIMIZATION
PROGRAMS AND SCREENING PROGRAMS TO BE PERFORMED AT PHARMACOPEIA’S FACILITIES BY
SCHERING OR PHARMACOPEIA UNDER THIS AGREEMENT TO DISCOVER AGREEMENT COMPOUNDS
FOR FURTHER DEVELOPMENT BY SCHERING.

 

1.8                                 “COLLABORATION COMMITTEE” SHALL HAVE THE
MEANING SET FORTH IN SECTION 3.1.

 

1.9                                 “COLLABORATION RESEARCH PLAN” SHALL HAVE THE
MEANING SET FORTH IN SECTION 2.1.

 

1.10                           “COLLABORATION TARGET-SPECIFIC TECHNOLOGY” SHALL
MEAN COLLABORATION TECHNOLOGY RELATING TO ASSAYS, COMPOUND SCREENING METHODS AND
BIOLOGICAL RESEARCH TOOLS, IN EACH CASE WHICH ARE DISCOVERED AND DEVELOPED
THROUGH COLLABORATION RESEARCH DIRECTED TO A SPECIFIC TARGET, OR A SMALL NUMBER
OF CLOSELY RELATED TARGETS (E.G. A FAMILY OF BIOLOGICAL RECEPTOR SUBTYPES), AND
ARE NOT READILY APPLICABLE TO OTHER TYPES OF TARGETS; PROVIDED, HOWEVER, THAT
COLLABORATION TARGET-SPECIFIC TECHNOLOGY SHALL NOT INCLUDE ANY RIGHTS IN OR TO
ANY SCHERING TECHNOLOGY (INCLUDING, WITHOUT LIMITATION, SCHERING’S PROPRIETARY
TARGETS) OR ANY AGREEMENT COMPOUNDS.

 

1.11                           “COLLABORATION TECHNOLOGY” SHALL MEAN
COLLABORATION PATENT RIGHTS AND COLLABORATION KNOW-HOW.

 

1.11.1                  “COLLABORATION PATENT RIGHTS” SHALL MEAN: (I) ALL
PATENTS AND PATENT APPLICATIONS CLAIMING ANY INVENTION OR DISCOVERY MADE BY OR
ON BEHALF OF PHARMACOPEIA IN PERFORMANCE OF THE COLLABORATION (INCLUDING,
WITHOUT LIMITATION, THE SYNTHESIS AND COMPOSITION OF MATTER OF ANY AGREEMENT
COMPOUND, OR METHOD OF USE THEREOF); AND (II) ANY DIVISIONS, CONTINUATIONS,
CONTINUATIONS-IN-PART, REISSUES, REEXAMINATIONS, EXTENSIONS OR OTHER
GOVERNMENTAL ACTIONS WHICH EXTEND ANY OF THE SUBJECT MATTER OF THE PATENT
APPLICATIONS OR PATENTS IN (I) ABOVE, AND ANY SUBSTITUTIONS, CONFIRMATIONS,
REGISTRATIONS, REVALIDATIONS, OR ADDITIONS OF ANY OF THE FOREGOING, IN EACH
CASE, WHICH IS OWNED OR CONTROLLED, IN WHOLE OR PART, BY LICENSE, ASSIGNMENT OR
OTHERWISE BY PHARMACOPEIA DURING THE TERM OF THIS AGREEMENT; PROVIDED, HOWEVER,
THAT COLLABORATION PATENT RIGHTS SHALL NOT INCLUDE ANY PATENTS OR PATENT
APPLICATIONS WHICH ARE SCHERING TECHNOLOGY OR PHARMACOPEIA TECHNOLOGY.

 

1.11.2                  “COLLABORATION KNOW-HOW” SHALL MEAN ALL PROPRIETARY
IDEAS, INVENTIONS, DATA, KNOW-HOW, INSTRUCTIONS, PROCESSES, FORMULAS, MATERIALS,
EXPERT OPINION AND INFORMATION (INCLUDING, WITHOUT LIMITATION, (I) BIOLOGICAL,
CHEMICAL, PHYSICAL AND ANALYTICAL DATA AND INFORMATION RELATING TO AGREEMENT
COMPOUNDS, AND (II) ANY STRUCTURE-FUNCTION DATA RELATED TO LEAD COMPOUNDS OR
DERIVATIVE COMPOUNDS), IN EACH CASE WHICH IS DEVELOPED BY PHARMACOPEIA IN
PERFORMANCE OF THE COLLABORATION; PROVIDED, HOWEVER, THAT COLLABORATION KNOW-HOW
SHALL NOT INCLUDE COLLABORATION PATENT RIGHTS, SCHERING TECHNOLOGY OR
PHARMACOPEIA TECHNOLOGY.

 

1.12                           “COMBINATION PRODUCT” SHALL MEAN AN AGREEMENT
PRODUCT WHICH COMPRISES TWO (2) OR MORE ACTIVE THERAPEUTIC INGREDIENTS AT LEAST
ONE (1) OF WHICH IS AN AGREEMENT COMPOUND.

 

1.13                           “DERIVATIVE COMPOUND” SHALL MEAN ANY COMPOUND
DERIVED BY PHARMACOPEIA IN THE PERFORMANCE OF THE COLLABORATION, IN EACH CASE
FROM ONE OR MORE LEAD COMPOUNDS, AND HAVING ACTIVITY AGAINST THE SAME TARGET AS
SUCH LEAD COMPOUND(S).  AS USED HEREIN, A COMPOUND SHALL BE DEEMED TO HAVE BEEN
“DERIVED FROM” A LEAD COMPOUND IF IT *

 

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1.14                           “DEVELOPMENT CANDIDATE” SHALL MEAN A LEAD
COMPOUND, DERIVATIVE COMPOUND OR SCHERING DERIVATIVE WHICH POSSESSES THE
DESIRABLE PROPERTIES OF A THERAPEUTIC AGENT FOR THE PREVENTION OR TREATMENT OF A
CLINICAL CONDITION, IN THE ABSENCE OF REQUIRED SAFETY TRIALS NECESSARY TO BEGIN
HUMAN TESTING.

 

1.15                           “EFFECTIVE DATE” SHALL HAVE THE MEANING SET FORTH
IN SECTION 2.01.

 

1.16                           “EXCLUDED COMPOUND” SHALL HAVE THE MEANING SET
FORTH IN SECTION 2.9.3.

 

1.17                           “FDA” SHALL MEAN THE UNITED STATES FOOD AND DRUG
ADMINISTRATION OR ANY CORRESPONDING FOREIGN REGISTRATION OR REGULATORY
AUTHORITY.

 

1.18                           “FIRST COMMERCIAL SALE” SHALL MEAN, WITH RESPECT
TO ANY AGREEMENT PRODUCT, THE FIRST SALE FOR END USE OF SUCH AGREEMENT PRODUCT
IN THE TERRITORY AFTER RECEIPT OF THE REQUISITE REGULATORY APPROVAL.

 

1.19                           “FTE” SHALL MEAN A FULL-TIME EMPLOYEE DEDICATED
TO THE CONDUCT OF THE COLLABORATION OR, IN THE CASE OF LESS THAN FULL-TIME
DEDICATION, A FULL-TIME EQUIVALENT PERSON-YEAR, BASED ON A TOTAL OF FORTY-SIX
AND ONE-FOURTH (46.25) WEEKS OR ONE THOUSAND EIGHT HUNDRED FIFTY (1,850) HOURS
PER YEAR, OF WORK ON OR DIRECTLY RELATED TO THE COLLABORATION.

 

1.20                           “HIT” SHALL MEAN A PHARMACOPEIA COMPOUND
IDENTIFIED BY PHARMACOPEIA DURING THE TERM AND IN PERFORMANCE OF THE
COLLABORATION AS MEETING THE ACTIVITY CRITERIA WITH RESPECT TO THE GIVEN
SCREENING TARGET.

 

1.21                           “HRD” SHALL MEAN A HEALTH REGISTRATION DOSSIER OR
ITS EQUIVALENT COVERING AN AGREEMENT PRODUCT FILED IN ANY COUNTRY OUTSIDE THE
UNITED STATES AND WHICH IS ANALOGOUS TO AN NDA AND INCLUDING, WHERE APPLICABLE,
APPLICATIONS FOR PRICING, PRICING REIMBURSEMENT APPROVAL, LABELING AND
REGULATORY APPROVAL.

 

1.22                           “IND” SHALL MEAN AN INVESTIGATIONAL NEW DRUG
APPLICATION, AS DEFINED IN THE U.S. FOOD, DRUG AND COSMETIC ACT AND THE
REGULATIONS PROMULGATED THEREUNDER FOR INITIATING CLINICAL TRIALS IN THE UNITED
STATES, OR ANY CORRESPONDING FOREIGN APPLICATION, REGISTRATION OR CERTIFICATION.

 

1.23                           “INTERNATIONAL AGREEMENT” SHALL MEAN THAT CERTAIN
COLLABORATION AND LICENSE AGREEMENT ENTERED INTO BY AND BETWEEN PHARMACOPEIA AND
SCHERING-PLOUGH, LTD. OF EVEN DATE HEREWITH.

 

1.24                           “LEAD COMPOUND” SHALL MEAN ANY HIT OR SCHERING
COMPOUND WITH RESPECT TO WHICH THE PARTIES AGREE TO INITIATE A PROGRAM OF
MEDICINAL CHEMISTRY TO IDENTIFY A DEVELOPMENT CANDIDATE BASED UPON THE STRUCTURE
OF SUCH HIT OR SCHERING COMPOUND.

 

1.23                           “MAJOR MARKET” SHALL MEAN JAPAN OR ANY THREE (3)
OF THE FOLLOWING COUNTRIES; FRANCE, GERMANY, ITALY, SPAIN OR THE UNITED KINGDOM.

 

1.26                           “NDA” SHALL MEAN A NEW DRUG APPLICATION, PRODUCT
LICENSE APPLICATION, OR BIOLOGIC LICENSE APPLICATION, AS DEFINED IN THE U.S.
FOOD, DRUG AND COSMETICS ACT AND REGULATIONS PROMULGATED THEREUNDER, OR THE
EQUIVALENT FILED WITH THE FDA SEEKING APPROVAL TO MARKET AND SELL AN AGREEMENT
PRODUCT IN THE UNITED STATES.

 

1.27                           “NET SALES” SHALL MEAN, WITH RESPECT TO EACH
COUNTRY IN THE TERRITORY, THE INVOICE PRICE BILLED BY SCHERING OR ITS
AFFILIATES, OR THEIR RESPECTIVE SUBLICENSEES, TO THIRD PARTIES (WHETHER AN
END-USER, A DISTRIBUTOR OR OTHERWISE) FOR THE SALE OF AGREEMENT PRODUCTS, AND
EXCLUSIVE OF INTERCOMPANY TRANSFERS OR SALES AMONG SCHERING, ITS AFFILIATES
AND/OR SUBLICENSEES IN THE TERRITORY, LESS THE REASONABLE AND CUSTOMARY
DEDUCTIONS FROM SUCH GROSS AMOUNTS INCLUDING:  (I) NORMAL AND CUSTOMARY TRADE,
CASH AND QUANTITY DISCOUNTS, ALLOWANCES AND CREDITS;  (II) CREDITS OR ALLOWANCES
ACTUALLY GRANTED FOR DAMAGED GOODS, RETURNS OR REJECTIONS OF AGREEMENT PRODUCT
AND RETROACTIVE PRICE REDUCTIONS;  (III) SALES OR SIMILAR TAXES (INCLUDING
DUTIES OR OTHER GOVERNMENTAL CHARGES LEVIED ON, ABSORBED OR OTHERWISE IMPOSED ON
THE SALE OF AGREEMENT PRODUCT INCLUDING, WITHOUT LIMITATION, VALUE ADDED TAXES
OR OTHER GOVERNMENTAL CHARGES OTHERWISE MEASURED BY THE BILLING AMOUNT, WHEN
INCLUDED IN BILLING);  (IV) FREIGHT, POSTAGE, SHIPPING, CUSTOMS DUTIES AND
INSURANCE CHARGES, WHEN INCLUDED IN BILLING; (V) CHARGE BACK PAYMENTS AND
REBATES GRANTED TO MANAGED HEALTH

 

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CARE ORGANIZATIONS OR THEIR AGENCIES, AND PURCHASERS AND REIMBURSERS OR TO TRADE
CUSTOMERS, INCLUDING BUT NOT LIMITED TO, WHOLESALERS AND CHAIN AND PHARMACY
BUYING GROUPS;  (VI) COMMISSIONS PAID TO THIRD PARTIES OTHER THAN SALES
PERSONNEL AND SALE REPRESENTATIVES OR SALES AGENTS; AND  (VII) REBATES (OR
EQUIVALENTS THEREOF) GRANTED TO OR CHARGED BY NATIONAL, STATE OR LOCAL
GOVERNMENTAL AUTHORITIES IN A COUNTRY IN THE TERRITORY.  IN DETERMINING NET
SALES OF AN AGREEMENT PRODUCT ANY OF THE ABOVE DISCOUNTS SHALL BE ACCOUNTED FOR
AND APPORTIONED BASED ON THE LIST PRICE OF EACH SUCH AGREEMENT PRODUCT.

 

In the event that an Agreement Product is sold in the form of a Combination
Product, Net Sales for such Combination Product will be calculated by
multiplying actual Net Sales of such Combination Product by the fraction A/(A+B)
where: A is the invoice price of the Agreement Product contained in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee;
and B is the invoice price of any other active therapeutic ingredients in the
Combination Product if sold separately by Schering, an Affiliate or
Sublicensee.  In the event that the Agreement Product is sold in the form of a
Combination Product containing one or more active therapeutic ingredients other
than an Agreement Product and one or more such active therapeutic ingredients of
the Combination Product are not sold separately, then the above formula shall be
modified such that A shall be the fully allocated manufacturing cost to
Schering, its Affiliates or Sublicensee of the Agreement Product and B shall be
the fully allocated manufacturing cost to Schering, its Affiliate or Sublicensee
of any other active therapeutic ingredients in the combination, in each case,
determined in accordance with the schedule of fully allocated manufacturing
costs set forth in Exhibit C.

 

1.28                           “OPTIMIZATION PROGRAM” SHALL MEAN A MEDICINAL
CHEMISTRY RESEARCH PROGRAM TO DISCOVER ONE OR MORE DEVELOPMENT CANDIDATES WITH
RESPECT TO A GIVEN TARGET BASED UPON ONE OR MORE LEAD COMPOUNDS.

 

1.29                           “PHARMACOPEIA CHANGE IN CONTROL” SHALL MEAN ANY
OF THE FOLLOWING:  (I) A REORGANIZATION, MERGER OR CONSOLIDATION OF PHARMACOPEIA
WITH A MAJOR PHARMACEUTICAL COMPANY IF THE SHAREHOLDERS OF PHARMACOPEIA
(DETERMINED IMMEDIATELY PRIOR TO THE REORGANIZATION, MERGER OR CONSOLIDATION
TAKING EFFECT) HOLD, DIRECTLY OR INDIRECTLY, LESS THAN FIFTY PERCENT (50%) OF
THE SURVIVING CORPORATION (DETERMINED IMMEDIATELY AFTER SUCH REORGANIZATION,
MERGER OR CONSOLIDATION TAKES EFFECT); (II) AN ACQUISITION BY A MAJOR
PHARMACEUTICAL COMPANY OF DIRECT OR INDIRECT BENEFICIAL OWNERSHIP OF VOTING
STOCK OF PHARMACOPEIA REPRESENTING MORE THAN FIFTY PERCENT (50%) OF THE TOTAL
CURRENT VOTING POWER OF PHARMACOPEIA THEN ISSUED AND OUTSTANDING; (III) A SALE
OF ALL OR SUBSTANTIALLY ALL THE ASSETS OF PHARMACOPEIA’S DRUG DISCOVERY DIVISION
TO A MAJOR PHARMACEUTICAL COMPANY; OR (IV) A LIQUIDATION OR DISSOLUTION OF
PHARMACOPEIA.  AS USED IN THIS SECTION 1.29, THE TERM “MAJOR PHARMACEUTICAL
COMPANY” SHALL MEAN ANY ENTITY (INCLUDING ANY CORPORATION, JOINT VENTURE,
PARTNERSHIP OR UNINCORPORATED ENTITY), AS WELL AS ANY AFFILIATES OR DIVISION(S)
OF SUCH ENTITY, THAT IS ENGAGED IN THE RESEARCH, DEVELOPMENT, MANUFACTURING,
REGISTRATION AND/OR MARKETING OF DRUG PRODUCTS THAT ARE APPROVED UNDER NDAS,
HRDS, ANDAS OR BIOLOGICS LICENSE APPLICATIONS, HAVING TOTAL ANNUAL SALES OF
PHARMACEUTICAL PRODUCTS OF AT LEAST *

 

1.30                           “PHARMACOPEIA COMPOUND” SHALL MEAN A COMPOUND
SYNTHESIZED AND CHARACTERIZED BY PHARMACOPEIA AND WHICH IS CONTAINED IN ONE OF
PHARMACOPEIA’S PROPRIETARY INTERNAL COMPOUND LIBRARIES.

 

1.31                           “PHARMACOPEIA TECHNOLOGY” SHALL MEAN EXISTING
PHARMACOPEIA PATENT RIGHTS, EXISTING PHARMACOPEIA KNOW-HOW, AND PHARMACOPEIA
IMPROVEMENTS.

 

1.31.1                  “EXISTING PHARMACOPEIA PATENT RIGHTS” SHALL MEAN (I) ALL
PATENTS AND PATENT APPLICATIONS EXISTING AS OF THE EFFECTIVE DATE THAT CLAIM THE
SYNTHESIS OR COMPOSITION OF MATTER OF A LEAD COMPOUND WHICH IS A HIT (AND/OR ANY
OTHER HITS FROM THE SAME SCREENING PROGRAM AS SUCH LEAD COMPOUND) OR A
CORRESPONDING DERIVATIVE COMPOUND, OR THE METHOD OF USE THEREOF, AND (II) ANY
DIVISIONS, CONTINUATIONS, CONTINUATIONS-IN-PART, REISSUES, REEXAMINATIONS,
EXTENSIONS OR OTHER GOVERNMENTAL ACTIONS WHICH EXTEND ANY OF THE SUBJECT MATTER
OF THE PATENT APPLICATIONS OR PATENTS IN (I) ABOVE, AND ANY SUBSTITUTIONS,
CONFIRMATIONS, REGISTRATIONS, REVALIDATIONS, OR ADDITIONS OF ANY OF THE
FOREGOING, IN EACH CASE, WHICH IS OWNED OR CONTROLLED, IN WHOLE OR PART, BY
LICENSE, ASSIGNMENT OR OTHERWISE BY PHARMACOPEIA DURING THE TERM OF THIS
AGREEMENT, AND SUBJECT TO ANY LIMITATIONS AND PROHIBITIONS OF SUCH LICENSE OR
SUBLICENSE.

 

1.31.2                  “EXISTING PHARMACOPEIA KNOW-HOW” SHALL MEAN ALL IDEAS,
INVENTIONS, DATA, KNOW-HOW, INSTRUCTIONS, PROCESSES, FORMULAS, EXPERT OPINION
AND INFORMATION, INCLUDING, WITHOUT LIMITATION, BIOLOGICAL, CHEMICAL, PHYSICAL
AND ANALYTICAL DATA AND INFORMATION, EXISTING AS OF THE EFFECTIVE DATE, OWNED OR
CONTROLLED IN WHOLE OR PART BY

 

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PHARMACOPEIA BY LICENSE, ASSIGNMENT OR OTHERWISE, WHICH IS NECESSARY FOR THE
DISCOVERY, DEVELOPMENT, MANUFACTURE OR USE OF LEAD COMPOUNDS BASED ON HITS
(AND/OR ANY OTHER HITS FROM THE SAME SCREENING PROGRAM AS SUCH LEAD COMPOUND) OR
CORRESPONDING DERIVATIVE COMPOUNDS AND/OR THE DISCOVERY, DEVELOPMENT,
MANUFACTURE, USE, SALE OR COMMERCIALIZATION OF CORRESPONDING AGREEMENT PRODUCTS,
IN EACH CASE, TO THE EXTENT PHARMACOPEIA HAS THE RIGHT TO LICENSE OR SUBLICENSE
THE SAME, AND SUBJECT TO ANY LIMITATIONS AND PROHIBITIONS OF SUCH LICENSE OR
SUBLICENSE.

 

1.31.3                  “PHARMACOPEIA IMPROVEMENTS” SHALL MEAN ALL PATENTABLE
INVENTIONS CONCEIVED AND REDUCED TO PRACTICE, SOLELY OR JOINTLY, BY PHARMACOPEIA
OR SCHERING IN THE CONDUCT OF THE COLLABORATION THAT ARE WITHIN THE SCOPE OF A
CLAIM OF AN ISSUED PATENT WITHIN THE EXISTING PHARMACOPEIA PATENT RIGHTS
(I) WHICH PATENT ISSUED PRIOR TO THE EFFECTIVE DATE OR (II) WHICH CLAIM HAS AN
EFFECTIVE FILING DATE PRIOR TO THE EFFECTIVE DATE; PROVIDED, HOWEVER, THAT
PHARMACOPEIA IMPROVEMENTS SHALL NOT INCLUDE PHARMACOPEIA INDEPENDENT TECHNOLOGY
(AS DEFINED IN SECTION 2.10.1).

 

1.32                           “PHASE III” SHALL MEAN PHASE III CLINICAL TRIALS
AS PRESCRIBED BY APPLICABLE FDA REGULATIONS, REGARDLESS OF WHETHER SUCH TRIALS
ARE CONDUCTED IN THE UNITED STATES OR ELSEWHERE.

 

1.33                           “REGULATORY APPROVAL” SHALL MEAN ANY APPLICATIONS
OR APPROVALS, INCLUDING ANY INDS, NDAS, SUPPLEMENTS, AMENDMENTS, PRE- AND
POST-APPROVALS, MARKETING AUTHORIZATIONS BASED UPON SUCH APPROVALS (INCLUDING
ANY PREREQUISITE MANUFACTURING APPROVALS OR AUTHORIZATIONS RELATED THERETO) AND
LABELING APPROVAL(S), TECHNICAL, MEDICAL AND SCIENTIFIC LICENSES, REGISTRATIONS
OR AUTHORIZATIONS OF ANY NATIONAL, REGIONAL, STATE OR LOCAL REGULATORY AGENCY,
DEPARTMENT, BUREAU, COMMISSION, COUNCIL OR OTHER GOVERNMENTAL ENTITY, NECESSARY
FOR THE MANUFACTURE, DISTRIBUTION, USE, IMPORT, EXPORT OR SALE OF AGREEMENT
PRODUCT(S) IN THE TERRITORY.

 

1.34                           “SCHERING COMPOUND” SHALL MEAN A COMPOUND WHICH
IS INDEPENDENTLY DISCOVERED BY OR ON BEHALF OF SCHERING, WITHOUT THE USE OF
COLLABORATION TECHNOLOGY OR PHARMACOPEIA TECHNOLOGY AS DEMONSTRATED BY
DOCUMENTED EVIDENCE CREATED AT THE TIME OF SUCH DISCOVERY, AND WHICH IS ACTIVE
AGAINST A SPECIFIC TARGET.

 

1.35                           “SCHERING DERIVATIVE” SHALL MEAN ANY COMPOUND
DERIVED BY SCHERING DURING THE TERM OF THE COLLABORATION OR FOR A PERIOD OF *
AFTER THE EXPIRATION OR EARLIER TERMINATION OF THE COLLABORATION, IN EACH CASE
FROM ANY DERIVATIVE COMPOUND(S) OR FROM A LEAD COMPOUND WHICH IS A HIT, AND
HAVING AS ITS PRIMARY MODE OF ACTION *.  AS USED HEREIN, A COMPOUND SHALL BE
DEEMED TO HAVE BEEN “DERIVED FROM” SUCH A LEAD COMPOUND OR A DERIVATIVE COMPOUND
IF IT *

 

1.36                           “SCHERING TECHNOLOGY” SHALL MEAN SCHERING PATENT
RIGHTS, SCHERING KNOW-HOW AND SCHERING IMPROVEMENTS.

 

1.36.1                  “SCHERING PATENT RIGHTS” SHALL MEAN (I) ALL EXISTING
PATENTS AND PATENT APPLICATIONS OWNED OR CONTROLLED IN WHOLE OR IN PART BY
SCHERING OR ITS AFFILIATES AS OF THE EFFECTIVE DATE (INCLUDING, WITHOUT
LIMITATION, THOSE WHICH CLAIM THE SYNTHESIS OR COMPOSITION OF MATTER OF A LEAD
COMPOUND OR DERIVATIVE COMPOUND, OR THE METHOD OF USE THEREOF, OR WHICH RELATE
TO ANY TARGET OR ANY ASSAY PROVIDED BY SCHERING FOR USE IN THE COLLABORATION OR
THE CORRESPONDING TARGETS FOR SUCH ASSAYS), (II) ALL PATENTS AND PATENT
APPLICATIONS CLAIMING ANY INVENTION OR DISCOVERY MADE BY OR BEHALF OF SCHERING
OR ITS AFFILIATES, OTHER THAN IN PERFORMANCE OF THE COLLABORATION, IN CONNECTION
WITH THE DISCOVERY AND/OR DEVELOPMENT OF ANY AGREEMENT COMPOUNDS AND/OR SCHERING
COMPOUNDS, AND/OR THE DEVELOPMENT AND COMMERCIALIZATION OF ANY AGREEMENT
PRODUCT, AND (III) ANY DIVISIONS, CONTINUATIONS, CONTINUATIONS-IN-PART,
REISSUES, REEXAMINATIONS, EXTENSIONS OR OTHER GOVERNMENTAL ACTIONS WHICH EXTEND
ANY OF THE SUBJECT MATTER OF THE PATENT APPLICATIONS OR PATENTS IN (I) OR (II)
ABOVE, AND ANY SUBSTITUTIONS, CONFIRMATIONS, REGISTRATIONS, REVALIDATIONS, OR
ADDITIONS OF ANY OF THE FOREGOING.

 

1.36.2                  “SCHERING KNOW-HOW” SHALL MEAN ALL IDEAS, INVENTIONS,
DATA, KNOW-HOW, INSTRUCTIONS, PROCESSES, FORMULAS, MATERIALS, EXPERT OPINION AND
INFORMATION, INCLUDING, WITHOUT LIMITATION, BIOLOGICAL, CHEMICAL,
PHARMACOLOGICAL, TOXICOLOGICAL, PHARMACEUTICAL, PHYSICAL AND ANALYTICAL,
CLINICAL, SAFETY, MANUFACTURING AND QUALITY CONTROL DATA AND INFORMATION (EXCEPT
FOR ANY OF THE ABOVE ARISING IN PERFORMANCE OF THE COLLABORATION) OWNED OR
CONTROLLED IN WHOLE OR PART BY SCHERING BY LICENSE, ASSIGNMENT OR OTHERWISE,
WHICH IS NECESSARY FOR THE DISCOVERY, DEVELOPMENT, MANUFACTURE, USE, SALE OR
COMMERCIALIZATION OF AGREEMENT PRODUCTS, IN EACH CASE, TO THE EXTENT SCHERING

 

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HAS THE RIGHT TO LICENSE OR SUBLICENSE THE SAME, AND SUBJECT TO ANY LIMITATIONS
AND PROHIBITIONS OF SUCH LICENSE OR SUBLICENSE; PROVIDED, HOWEVER, THAT SCHERING
KNOW-HOW DOES NOT INCLUDE SCHERING PATENT RIGHTS.

 

1.36.3                  “SCHERING IMPROVEMENTS” SHALL MEAN ALL PATENTABLE
INVENTIONS CONCEIVED AND REDUCED TO PRACTICE SOLELY OR JOINTLY BY SCHERING OR
PHARMACOPEIA IN THE CONDUCT OF THE COLLABORATION THAT ARE WITHIN THE SCOPE OF
THE CLAIMS OF ANY ISSUED PATENT WITHIN THE SCHERING PATENT RIGHTS (I) WHICH
PATENT ISSUED PRIOR TO THE EFFECTIVE DATE OR (II) WHICH CLAIM HAS AN EFFECTIVE
FILING DATE PRIOR TO THE EFFECTIVE DATE.

 

1.37                           “SCREENING PROGRAM” SHALL MEAN A PROGRAM TO
SCREEN PHARMACOPEIA’S INTERNAL COMPOUND LIBRARIES FOR ACTIVITY AGAINST ONE OR
MORE SCREENING TARGETS FOR THE PURPOSE OF IDENTIFYING HITS.

 

1.38                           “SCREENING TARGET” SHALL MEAN A TARGET AGREED TO
BY THE PARTIES PURSUANT TO SECTION 2.1.2.

 

1.39                           “SUBLICENSEE” SHALL MEAN WITH RESPECT TO A
PARTICULAR AGREEMENT PRODUCT, A THIRD PARTY TO WHOM SCHERING HAS GRANTED A
SUBLICENSE UNDER THE APPLICABLE PHARMACOPEIA TECHNOLOGY, SCHERING TECHNOLOGY OR
COLLABORATION TECHNOLOGY TO MAKE, USE AND/OR SELL SUCH AGREEMENT PRODUCT.  AS
USED IN THIS AGREEMENT, IT IS UNDERSTOOD THAT “SUBLICENSEE” SHALL ALSO INCLUDE A
THIRD PARTY OR THIRD PARTIES TO WHOM SCHERING HAS GRANTED THE RIGHT TO
DISTRIBUTE SUCH AGREEMENT PRODUCT, PROVIDED THAT SUCH THIRD PARTY OR PARTIES HAS
(HAVE) THE PRIMARY RESPONSIBILITY FOR MARKETING AND PROMOTION AT ITS (THEIR)
EXPENSE OF SUCH AGREEMENT PRODUCT WITHIN THE FIELD OR TERRITORY FOR WHICH SUCH
DISTRIBUTION RIGHTS ARE GRANTED, WHICH MARKETING AND PROMOTIONAL ACTIVITIES ARE
NOT SUBSIDIZED DIRECTLY OR INDIRECTLY BY SCHERING.

 

1.40                           “TARGET” SHALL MEAN A BIOMOLECULAR ENTITY
(INCLUDING, WITHOUT LIMITATION, RECEPTORS, ENZYMES, NUCLEIC ACIDS AND PROTEINS,
AND/OR FRAGMENTS THEREOF) THAT A SMALL MOLECULE IS SCREENED AGAINST IN ORDER TO
DETERMINE WHETHER THE SMALL MOLECULE DEMONSTRATES A SPECIFIC BIOCHEMICAL OR
PHARMACEUTICAL EFFECT.

 

1.41                           “TERRITORY” SHALL MEAN THE UNITED STATES AND ITS
TERRITORIES, POSSESSIONS AND COMMONWEALTHS.

 

1.42                           “THIRD PARTY” SHALL MEAN ANY PARTY OTHER THAN
PHARMACOPEIA AND ITS AFFILIATES, SCHERING AND ITS AFFILIATES, SCHERING-PLOUGH,
LTD. AND ITS AFFILIATES, AND THEIR PERMITTED ASSIGNS.

 

1.43                           “1994 Agreements” shall have the meaning set
forth in Section 11.17.

 

1.44                           “1998 Agreements” shall have the meaning set
forth in Section 11.17.

 

1.44                           “Valid Claim” shall mean a composition-of-matter
or method-of-use claim of an issued and unexpired patent included within the
Collaboration Patent Rights or Pharmacopeia Patent Rights, and in each case
which has not been revoked or held 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
disclaimed, denied or admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise.

 

ARTICLE II
COLLABORATION

 

2.0                                 EFFECTIVE DATE; 1998 AGREEMENTS.

 

2.01                           EFFECTIVE DATE.  SCHERING AND PHARMACOPEIA HAVE
SIGNED THIS AGREEMENT ON THE EXECUTION DATE AS EVIDENCE OF THEIR MUTUAL DESIRE
TO ESTABLISH A COLLABORATIVE ALLIANCE TO DISCOVER AND DEVELOP AGREEMENT PRODUCTS
EFFECTIVE AGAINST CERTAIN TARGETS. *

 

2.02                           RELATIONSHIP TO 1998 AGREEMENTS.  AS OF THE
EFFECTIVE DATE, ALL OF SCHERING’S REMAINING OBLIGATIONS TO PROVIDE RESEARCH
FUNDING FOR PHARMACOPEIA FTES UNDER SECTIONS 2.4 AND 5.2 OF THE 1998 AGREEMENTS,
AND

 

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ALL OF PHARMACOPEIA’S REMAINING OBLIGATIONS TO PROVIDE FTES UNDER SECTION 2.5.1
OF THE 1998 AGREEMENTS, SHALL TERMINATE.  IN ADDITION, AS OF THE EFFECTIVE DATE,
ANY AND ALL ONGOING RESEARCH PROGRAMS AT PHARMACOPEIA * SHALL CONTINUE TO BE
PERFORMED USING THE PHARMACOPEIA FTES TO BE PROVIDED UNDER THIS AGREEMENT, AS
DETERMINED BY THE COLLABORATION COMMITTEE.  AS OF THE EFFECTIVE DATE, ANY AND
ALL SUCH ONGOING PROGRAMS (HEREINAFTER “CARRYOVER PROGRAMS”) SHALL BE TREATED
UNDER THIS AGREEMENT AS OPTIMIZATION PROGRAMS; PROVIDED, HOWEVER, THAT
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE PROVISIONS OF THIS
AGREEMENT RELATED TO DILIGENCE, MILESTONE PAYMENTS, ROYALTIES, OWNERSHIP,
EXCLUSIVITY, PATENT RELATED ACTIVITIES AND ANY AND ALL OTHER RIGHTS OR
OBLIGATIONS WITH RESPECT TO * SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF
THE 1998 AGREEMENTS, AND SCHERING SHALL HAVE NO MILESTONE OR ROYALTY PAYMENT
OBLIGATIONS UNDER THIS AGREEMENT WITH RESPECT THERETO.   EXCEPT AS EXPRESSLY
MODIFIED AND AMENDED BY THIS AGREEMENT, ALL OTHER TERMS AND CONDITIONS OF THE
1998 AGREEMENTS SHALL REMAIN IN FULL FORCE AND EFFECT.

 

2.1                                 COLLABORATION RESEARCH PROGRAMS.

 

2.1.1                        OPTIMIZATION PROGRAMS.  WITHIN THIRTY (30) DAYS OF
THE EFFECTIVE DATE, THE COLLABORATION COMMITTEE SHALL AGREE UPON A WRITTEN
OVERALL PLAN FOR EACH OF THE OPTIMIZATION PROGRAMS TO BE CONDUCTED BY THE
PARTIES (THE “COLLABORATION RESEARCH PLAN”).  THE COLLABORATION RESEARCH PLAN
SHALL BE PERIODICALLY REVISED AND UPDATED (AT LEAST ANNUALLY) BY THE
COLLABORATION COMMITTEE DURING THE TERM OF THE COLLABORATION.  THE COLLABORATION
RESEARCH PLAN SHALL SET FORTH THE RESPONSIBILITIES OF EACH OF THE PARTIES WITH
RESPECT TO PERFORMANCE OF THE OPTIMIZATION PROGRAMS.  THE COLLABORATION
COMMITTEE SHALL HAVE RESPONSIBILITY FOR MONITORING THE PERFORMANCE OF
OPTIMIZATION PROGRAMS AGAINST THE CURRENT COLLABORATION RESEARCH PLAN. 
NOTWITHSTANDING THE FOREGOING, THE PARTIES ACKNOWLEDGE AND AGREE THAT SCHERING,
IN ITS SOLE DISCRETION, SHALL HAVE PRIMARY RESPONSIBILITY AND DECISION MAKING
AUTHORITY WITH RESPECT TO THE SELECTION OF THE TARGETS AND LEAD COMPOUNDS AND
THE SPECIFIC OPTIMIZATION PROGRAMS TO BE CONDUCTED DURING THE COLLABORATION;
PROVIDED THAT PHARMACOPEIA SHALL NOT BE OBLIGATED TO UNDERTAKE AN OPTIMIZATION
PROGRAM FOR A TARGET SELECTED BY SCHERING IF PHARMACOPEIA REASONABLY DETERMINES
THAT THE PERFORMANCE OF AN OPTIMIZATION PROGRAM BASED UPON THAT TARGET WOULD
CONSTITUTE A BREACH ONE OR MORE OF PHARMACOPEIA’S EXISTING CONTRACTUAL
OBLIGATIONS TO THIRD PARTIES; AND PROVIDED FURTHER, THAT PHARMACOPEIA’S
OBLIGATION TO UNDERTAKE SUCH AN OPTIMIZATION PROGRAM SHALL BE SUBJECT TO
SECTION 2.12.

 

2.1.2                        Screening Programs.  Within thirty (30) days after
the Effective Date, Schering shall notify Pharmacopeia in writing of the
identity of * Screening Targets.  Such notice shall include the applicable
Activity Criteria recommended by Schering for each proposed Screening Target,
which Activity Criteria shall constitute Schering Know-How.  Such Activity
Criteria shall include, without limitation, * Pharmacopeia shall have the right
to reject any proposed Targets as Screening Targets if: (i) it has a
pre-existing contractual obligation to any Third Party that provides for
exclusivity and/or non-compete obligations with respect to such Target; or (ii)
Pharmacopeia has previously screened one or more Pharmacopeia Compounds against
the same Target and there are less than two million (2,000,000) Pharmacopeia
Compounds that have not previously been screened against the Target; or (iii) in
accordance with the terms of Section 2.12.  In addition, in the event that
Pharmacopeia reasonably believes (based upon objective scientific information)
that the Activity Criteria recommended by Schering for a proposed Screening
Target are not reasonably attainable, then the Collaboration Committee shall
promptly meet to agree in good faith upon mutually acceptable Activity
Criteria.  Pharmacopeia shall promptly notify in writing whether it accepts or
rejects each such Target as a Screening Target.  Schering shall have the right
to propose a replacement Target for each Target rejected by Pharmacopeia, which
replacement Target may be accepted or rejected by Pharmacopeia, as described
above.  The Parties shall use reasonable efforts to agree on * Schering shall
propose * additional Targets for acceptance by Pharmacopeia as Screening Targets
for Screening Programs.  Pharmacopeia shall have the right to accept or reject
such Targets, as described above, and the Parties shall use reasonable efforts
to agree on * new Screening Targets for Screening Programs to be conducted by
Pharmacopeia * To the extent that Schering will be funding * the Parties shall
use reasonable efforts to agree upon * new Targets (to be proposed by Schering *
as Screening Targets for Screening Programs to be conducted by Pharmacopeia *

 

2.2                                 COLLABORATION TERM.  THE TERM OF THE
COLLABORATION SHALL BE *AND, UNLESS EXTENDED PURSUANT TO SECTION 2.2.1, OR
EARLIER TERMINATED PURSUANT TO SECTION 2.2.2 OR ARTICLE X, SHALL EXPIRE ON THE
THIRD ANNIVERSARY OF THE EFFECTIVE DATE.

 

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2.2.1                        EXTENSION OF COLLABORATION TERM.  IN THE EVENT THAT
SCHERING CONTINUES TO FUND THE COLLABORATION *IN ACCORDANCE WITH SECTION 2.5.2,
THEN THE COLLABORATION MAY BE EXTENDED FOR *AS PROVIDED BELOW.  THE FIRST *SHALL
BE EFFECTIVE UPON AGREEMENT BY SCHERING *SHALL BE EFFECTIVE UPON AGREEMENT BY
SCHERING *EACH OF THE *SHALL BECOME EFFECTIVE UPON WRITTEN NOTICE BY SCHERING TO
PHARMACOPEIA THAT IT AGREES TO THE *IN ACCORDANCE WITH SECTION 2.8.3.  *SHALL BE
AT SCHERING’S SOLE DISCRETION AND SHALL BE FOR THE PURPOSE OF COMPLETING ANY
OPTIMIZATION PROGRAMS WHICH ARE STILL IN PROGRESS AT THE END *THE *EXTENSION, IF
ANY, SHALL BE EFFECTIVE UPON WRITTEN NOTICE BY SCHERING TO PHARMACOPEIA AT
LEAST*  IF SCHERING DOES NOT PROVIDE SUCH NOTICE, THE COLLABORATION SHALL EXPIRE
ON *

 

2.2.2                        Wind Down Period.  The parties acknowledge that *
of the Collaboration is intended to serve as a wind down period during which any
then ongoing Optimization Programs can be completed.  Thus, if Schering does not
elect to *during the * shall be the wind down period.  In the event that
Schering is * during * of the Collaboration and Schering does not agree to *
during * of the Collaboration based upon one or more * then the Collaboration
shall continue for a wind down period of * to enable the Parties to complete and
wind down any remaining Optimization Programs then ongoing.  Schering’s funding
obligations during the * period shall be governed by the terms of Section 2.5.2
*2.5.4 *or 2.5.3 *, as applicable.

 

2.2.3                        TERMINATION OF COLLABORATION UPON PHARMACOPEIA
CHANGE IN CONTROL.  IN THE EVENT OF A PHARMACOPEIA CHANGE IN CONTROL DURING THE
TERM OF THE COLLABORATION, SCHERING SHALL HAVE THE RIGHT, IN ITS DISCRETION,
(I) TO TERMINATE THE AGREEMENT PURSUANT TO SECTION 10.4.1, BELOW, OR (II) TO
TERMINATE THE COLLABORATION AND NOT THE AGREEMENT UPON NINETY (90) DAYS WRITTEN
NOTICE TO PHARMACOPEIA AFTER SUCH CHANGE IN CONTROL EXPRESSLY STATING ITS
INTENTION TO TERMINATE THE COLLABORATION.  IN THE EVENT THAT SCHERING ELECTS TO
TERMINATE THE COLLABORATION AND NOT THE AGREEMENT, THEN (A) SCHERING WILL NOT BE
OBLIGATED TO MAKE THE PAYMENTS SET FORTH IN SECTION 5.2 FOR THE PERIOD AFTER THE
EFFECTIVE DATE OF SUCH TERMINATION, (B) PHARMACOPEIA SHALL NOT BE OBLIGATED TO
CONDUCT ANY COLLABORATION RESEARCH ACTIVITIES AFTER THE EFFECTIVE DATE OF SUCH
TERMINATION, AND (C) THE REMAINING TERMS AND CONDITIONS OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION THE LICENSES AND ROYALTY OBLIGATIONS SET FORTH
HEREIN, SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL THE AGREEMENT EXPIRES OR IS
TERMINATED AS SET FORTH IN ARTICLE X, BELOW.

 

2.2.4                        Early Termination of Screening Programs.  In the
event that Pharmacopeia fails to identify any Hits meeting the applicable
Activity Criteria from any of the Screening Programs conducted during * then
Schering shall have the right to terminate all further obligations with regard
to Screening Programs in *.  This right shall be exercisable by Schering, in its
sole discretion, by providing written notice to that effect to Pharmacopeia
within * In the event that the Screening Programs are terminated pursuant to
this Section 2.2.4, then Pharmacopeia shall not conduct any further Screening
Programs under this Agreement during the remaining term of the Collaboration. 
In addition, notwithstanding anything herein to the contrary: (i) the
Collaboration shall be limited to a total *of three (3) years with the third
year being a wind down year in which Schering shall only be obligated to fund *
chemists, as provided in Section 2.5.2; and (ii) the number of FTEs to be funded
during *, consisting of * chemistry FTEs and * biology FTEs, to conduct the
Optimization Programs * In the event that following such early termination of
the Screening Programs by Schering, or during any other wind down period under
Section 2.2.2, Pharmacopeia undertakes any new Optimization Programs based upon
Lead Compounds which are Schering Compounds (“Wind Down Programs”), then
notwithstanding anything herein to the contrary, Pharmacopeia shall be entitled
to receive milestone payments with respect to any new Agreement Compounds
resulting from such Wind Down Programs under Section 5.4.1(a), but shall not be
entitled to receive any royalty payments under Section 5.5 on sales of any
Agreement Products containing an Agreement Compound resulting from such Wind
Down Programs or with respect to any pharmaceutical products containing a
Schering Compound having primary activity against the Target which was the
subject of the Wind Down Program.

 

2.3                                 PHARMACOPEIA RESPONSIBILITIES.  PHARMACOPEIA
SHALL USE COMMERCIALLY REASONABLE EFFORTS TO PROVIDE:

 

(I)                           THE NUMBER OF SCIENTIST FTES AGREED TO BY THE
PARTIES, AS SET FORTH IN SECTION 2.5, AND SUCH ADDITIONAL SCIENTISTS AS MAY BE
MUTUALLY AGREED TO IN WRITING BY THE PARTIES AND PAID FOR BY SCHERING, FOR
PERFORMANCE OF THE COLLABORATION DURING EACH YEAR OF THE COLLABORATION (IT BEING
UNDERSTOOD AND AGREED THAT FTES PROVIDED BY PHARMACOPEIA FOR THE COLLABORATION
UNDER THE INTERNATIONAL AGREEMENT SHALL ALSO BE DEEMED TO BE PROVIDED TO THIS
COLLABORATION FOR PURPOSES OF DETERMINING THE NUMBER OF FTES PROVIDED BY
PHARMACOPEIA HEREUNDER);

 

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(II)                        RESEARCH FACILITIES, LABORATORIES AND EQUIPMENT
SUFFICIENT TO ENABLE THE COLLABORATION SCIENTISTS (INCLUDING PHARMACOPEIA
EMPLOYEES AND ONE (1) SCHERING EMPLOYEE TO BE PROVIDED PURSUANT TO
SECTION 2.4(I)) TO PERFORM THE COLLABORATION IN A FASHION SIMILAR TO THE
OPERATION OF PHARMACOPEIA’S OWN OPERATIONS.  THE CHEMISTRY FTES SHALL WORK IN
DEDICATED LABORATORIES AT PHARMACOPEIA’S RESEARCH FACILITIES IN NEW JERSEY; AND

 

(III)                     ADMINISTRATIVE SERVICES NECESSARY TO CONDUCT THE
BUSINESS OF THE COLLABORATION IN A MANNER COMPARABLE TO THAT OF PHARMACOPEIA’S
OWN BUSINESS ACTIVITIES.

 

It is understood and agreed that, except as may be mutually agreed by the
Parties, Pharmacopeia shall not be obligated hereunder to conduct research or
development activities in the Collaboration which are outside the scope of the
Collaboration Research Plan or the Screening Programs.

 

2.4                                 SCHERING RESPONSIBILITIES.  SCHERING SHALL
PROVIDE RESEARCH FUNDING FOR THE COLLABORATION AS SET FORTH IN SECTION 5.2 AND
SHALL USE COMMERCIALLY REASONABLE EFFORTS TO PROVIDE:

 

(I)                           ONE SCIENTIFIC DIRECTOR PROVIDED BY SCHERING, IN
COMBINATION WITH SCHERING-PLOUGH, LTD., TO WORK FULL-TIME ON THE COLLABORATION
MANAGING THE DAY-TO-DAY OPERATIONS OF THE COLLABORATION (THE “COLLABORATION
DIRECTOR”);

 

(II)                        ADDITIONAL SUPPORT FOR COLLABORATION RESEARCH
PROJECTS, INCLUDING, WITHOUT LIMITATION, SCIENTISTS, FACILITIES AND MATERIALS TO
PERFORM BIOLOGICAL RESEARCH TO IDENTIFY TARGETS, ASSAY DEVELOPMENT, COMPOUND
SCREENING, MEDICINAL CHEMICAL RESEARCH AND ANALYTICAL SUPPORT SERVICES; AND

 

(III)                     THE RESEARCH MATERIALS, PROCEDURES AND SCHERING
KNOW-HOW NECESSARY TO CONDUCT THE SCREENING PROGRAMS, AS PROVIDED IN
SECTION 2.8.

 

2.5                                 COLLABORATION STAFFING.

 

2.5.1                        PHARMACOPEIA INITIAL FTE COMMITMENTS.  DURING *
PHARMACOPEIA WILL PROVIDE * FTES, CONSISTING OF SYNTHETIC/MEDICINAL CHEMISTS *
AND THE REMAINING * BIOLOGY FTES TO BE ALLOCATED, AS DETERMINED BY THE
COLLABORATION COMMITTEE, BETWEEN BIOASSAY SUPPORT FOR OPTIMIZATION PROGRAMS AND
PERFORMANCE OF SCREENING PROGRAMS.  THE PARTIES AGREE THAT THE COLLABORATION
COMMITTEE SHALL HAVE THE RIGHT TO (I) INCREASE OR DECREASE THE TOTAL NUMBER OF
FTES TO BE PROVIDED BY PHARMACOPEIA AND FUNDED BY SCHERING DURING ANY YEAR OF
THE COLLABORATION, AND/OR (II) TO ADJUST THE ALLOCATION OF THE TOTAL NUMBER OF
FTES WORKING ON THE COLLABORATION BETWEEN CHEMISTRY AND BIOLOGY FTES, IN EACH
CASE AS NECESSARY TO CARRY OUT THE COLLABORATION RESEARCH PLAN; PROVIDED,
HOWEVER, THAT ANY SUCH ADJUSTMENTS MUST BE AGREED UPON BY THE COLLABORATION
COMMITTEE IN ADVANCE IN WRITING, SHALL NOT BE MADE MORE THAN ONCE IN ANY GIVEN
QUARTER, AND SHALL NOT * OR * IN ANY WIND DOWN YEAR.  PHARMACOPEIA’S OBLIGATION
TO PROVIDE FTES DURING * AS WELL AS DURING ANY EXTENSION OF THE COLLABORATION
PURSUANT TO SECTION 2.2.1 OR WIND DOWN PERIOD PURSUANT TO SECTION 2.2.2, SHALL
BE DETERMINED IN ACCORDANCE WITH SECTIONS 2.5.2, 2.5.3 OR 2.5.4, AS APPLICABLE. 
ALL OF THE PHARMACOPEIA CHEMISTRY FTES ASSIGNED TO WORK ON THE COLLABORATION *
ON OR BEFORE THE EFFECTIVE DATE, PHARMACOPEIA WILL PROVIDE TO SCHERING A LIST
INDIVIDUALLY IDENTIFYING THOSE PHARMACOPEIA CHEMISTRY FTES ASSIGNED TO THE
COLLABORATION, WHICH LIST SHALL BE UPDATED FROM TIME TO TIME DURING THE TERM OF
THE COLLABORATION AS FTES ASSIGNED TO WORK EXCLUSIVELY FOR THE COLLABORATION ARE
ADDED, REMOVED AND/OR REPLACED.   DURING THE TERM OF THE COLLABORATION, UPON
INITIATING EACH OPTIMIZATION PROGRAM, PHARMACOPEIA WILL ALSO INDIVIDUALLY
IDENTIFY A BIOLOGY FTE AS THE PRIMARY CONTACT AT PHARMACOPEIA FOR THE
PERFORMANCE OF ASSAYS AND OTHER BIOLOGY RELATED ACTIVITIES FOR SUCH OPTIMIZATION
PROGRAM, IT BEING UNDERSTOOD THAT SUCH INDIVIDUALS MAY HAVE RESPONSIBILITY FOR
MORE THAN ONE OPTIMIZATION PROGRAM.  IT IS UNDERSTOOD THAT, IN THE AGGREGATE,
THE EDUCATION, TRAINING AND EXPERIENCE LEVELS OF ALL PHARMACOPEIA FTES ASSIGNED
TO THE COLLABORATION WILL BE REASONABLY REPRESENTATIVE OF PHARMACOPEIA EMPLOYEES
WORKING ON PHARMACOPEIA’S INTERNAL RESEARCH PROGRAMS.  WITHIN FIFTEEN (15)
BUSINESS DAYS AFTER THE EFFECTIVE DATE, PHARMACOPEIA WILL PROVIDE SCHERING WITH:
(I) A COPY OF THE COLLABORATION BUSINESS CONDUCT POLICY (AS DESCRIBED IN
SECTION 7.6) TO BE OBSERVED BY ALL PHARMACOPEIA FTES ASSIGNED TO WORK ON THE
COLLABORATION; AND (II) PHARMACOPEIA’S WRITTEN REPRESENTATION AND WARRANTY THAT
ALL SUCH FTES ASSIGNED TO THE COLLABORATION HAVE READ AND UNDERSTAND THE TERMS
OF THE COLLABORATION BUSINESS CONDUCT POLICY.

 

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2.5.2                        PHARMACOPEIA FTE COMMITMENTS FOR *.  IN THE EVENT
THAT DURING *THE PARTIES HAVE INITIATED, OR SCHERING HAS AGREED TO INITIATE, *
OPTIMIZATION PROGRAMS * THEN PHARMACOPEIA SHALL CONTINUE TO PROVIDE, AND
SCHERING WILL CONTINUE TO FUND, * FTES DURING *IF AT LEAST * THEN SCHERING SHALL
HAVE THE RIGHT (IN ITS SOLE DISCRETION) TO REDUCE THE NUMBER OF FTES TO BE
PROVIDED BY PHARMACOPEIA AND FUNDED BY SCHERING; PROVIDED THAT THE NUMBER OF
PHARMACOPEIA FTES TO BE FUNDED BY SCHERING DURING THE THIRD YEAR OF THE
COLLABORATION SHALL BE * FTES; AND PROVIDED FURTHER THAT ALL SUCH FTES SHALL BE
CHEMISTRY FTES DEDICATED TO WORK FULL TIME ON THE COLLABORATION.

 

2.5.3                        Pharmacopeia FTE Commitments During *.  If the term
of the Collaboration is * pursuant to Section 2.2.1, Schering shall continue to
fund and Pharmacopeia shall continue to provide * FTEs during *, if applicable. 
If Schering extends the Collaboration for * pursuant to Section 2.2.1, then the
level of FTE support to be provided by Pharmacopeia and funded by Schering shall
be determined by the Parties based * to be completed during *.

 

2.5.4                        Pharmacopeia FTE Commitments *.  Schering shall
have the right (in its sole discretion) to decrease the level of FTE support to
be provided by Pharmacopeia and funded by Schering * as determined pursuant to
Section 2.2.2) * provided that the number of Pharmacopeia FTEs to be funded by
Schering during * shall be at least *; and provided further that all such FTEs
shall be chemistry FTEs dedicated to work full time on the Collaboration.

 

2.5.5                        SCHERING FTE COMMITMENTS.  DURING THE TERM OF THE
COLLABORATION SCHERING SHALL, IN COMBINATION WITH SCHERING-PLOUGH LTD. UNDER THE
INTERNATIONAL AGREEMENT, PROVIDE A SINGLE SCIENTIFIC DIRECTOR AS SET FORTH IN
SECTION 2.4(I).  SUCH DIRECTOR SHALL BE SUBJECT TO PHARMACOPEIA’S
CONFIDENTIALITY RESTRICTIONS SUCH AS LIMITED ACCESS TO LABORATORIES AND ACCESS
ONLY TO DATA THAT SPECIFICALLY RELATE TO THE COLLABORATION.  IT IS UNDERSTOOD
THAT THE SCIENTIFIC DIRECTOR SHALL REMAIN AN EMPLOYEE OF SCHERING, AND THAT
SCHERING SHALL REMAIN RESPONSIBLE FOR, AND INDEMNIFY PHARMACOPEIA FOR ANY CLAIMS
ARISING FROM OR RELATING TO, THE CONDUCT, ACTIVITIES, SALARY AND BENEFITS OF
SUCH DIRECTOR, EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF PHARMACOPEIA.  IN ADDITION, SCHERING SHALL PROVIDE SUCH ADDITIONAL
FTES LOCATED AT SCHERING’S RESEARCH FACILITIES AS SCHERING DETERMINES, IN ITS
SOLE DISCRETION, ARE REASONABLY NECESSARY TO SUPPORT THE ONGOING RESEARCH
PROGRAMS OF THE COLLABORATION, INCLUDING, WITHOUT LIMITATION, ASSAY DEVELOPMENT,
SCREENING, MEDICINAL CHEMISTRY, ANALYTICAL SERVICES AND ANIMAL TESTING SERVICES.

 

2.6                                 CAPITAL EXPENDITURES.  IN THE EVENT THAT THE
PARTIES REASONABLY DETERMINE THAT ONE OR MORE OPTIMIZATION PROGRAMS TO BE
PERFORMED AT PHARMACOPEIA, AS IDENTIFIED IN THE APPLICABLE COLLABORATION
RESEARCH PLAN, WILL REQUIRE CAPITAL EXPENDITURES TO PROVIDE PHARMACOPEIA WITH
ACCESS TO SPECIALIZED EQUIPMENT NEEDED TO PERFORM SUCH OPTIMIZATION PROGRAM,
SCHERING SHALL BE RESPONSIBLE (AT ITS EXPENSE) FOR THE PURCHASE OF SUCH
SPECIALIZED EQUIPMENT, AND FOR PURCHASING, OR REIMBURSING PHARMACOPEIA FOR THE
OUT-OF-POCKET COSTS OF, ANY SPECIALIZED CONSUMABLES THAT ARE UNIQUELY NECESSARY
FOR THE PROPER OPERATION OF SUCH SPECIALIZED EQUIPMENT.  THE PARTIES WILL MAKE
ARRANGEMENTS FOR THE DELIVERY AND INSTALLATION OF SUCH SPECIALIZED EQUIPMENT AT
PHARMACOPEIA’S FACILITIES; PROVIDED THAT THE SPECIALIZED EQUIPMENT IS AND SHALL
REMAIN THE SOLE AND EXCLUSIVE PROPERTY OF SCHERING.  PHARMACOPEIA SHALL HAVE THE
RIGHT TO UTILIZE THE SPECIALIZED EQUIPMENT IN PERFORMANCE OF OPTIMIZATION
PROGRAMS AND SHALL NOT USE THE SPECIALIZED EQUIPMENT FOR ANY OTHER ACTIVITIES OR
PROGRAMS WHATSOEVER.  PHARMACOPEIA SHALL BE RESPONSIBLE (AT ITS OWN EXPENSE) FOR
ALL ROUTINE OPERATING COSTS INCURRED IN CONNECTION WITH THE USE OF ANY
SPECIALIZED EQUIPMENT PROVIDED BY SCHERING UNDER THIS SECTION 2.6, INCLUDING
WITHOUT LIMITATION, ANY UTILITY COSTS AND THE COSTS OF  REAGENTS, SOLVENTS OR
OTHER SUPPLIES NECESSARY FOR THE OPERATION OF THE SPECIALIZED EQUIPMENT. 
PHARMACOPEIA SHALL ENSURE THAT ALL PHARMACOPEIA EMPLOYEES OPERATING THE
SPECIALIZED EQUIPMENT HAVE BEEN PROPERLY TRAINED IN ITS USE AND SHALL USE THE
SPECIALIZED EQUIPMENT IN ACCORDANCE WITH THE INSTRUCTIONS AND OPERATING
PROCEDURES TO ENSURE ITS PROPER USE.  PHARMACOPEIA SHALL BE RESPONSIBLE (AT ITS
EXPENSE) FOR ANY DAMAGE (EXCLUDING ORDINARY WEAR AND TEAR) TO ANY OF SCHERING’S
SPECIALIZED EQUIPMENT PROVIDED TO PHARMACOPEIA PURSUANT TO THIS SECTION 2.6
RESULTING FROM PHARMACOPEIA’S USE OF THE SPECIALIZED EQUIPMENT.  UPON EXPIRATION
OR EARLIER TERMINATION OF THE COLLABORATION, PHARMACOPEIA SHALL FULLY COOPERATE
WITH SCHERING TO PROMPTLY RETURN THE SPECIALIZED EQUIPMENT TO SCHERING. 
ALTERNATIVELY, THE PARTIES MAY DECIDE TO PERMIT PHARMACOPEIA TO RETAIN THE
SPECIALIZED EQUIPMENT FOLLOWING THE EXPIRATION OR TERMINATION OF THE
COLLABORATION, IN WHICH CASE THE PARTIES SHALL ARRANGE FOR THE PURCHASE AND
TRANSFER OF OWNERSHIP OF THE SPECIALIZED EQUIPMENT TO PHARMACOPEIA ON FINANCIAL
TERMS TO BE AGREED TO BY THE PARTIES BASED UPON THE THEN CURRENT FAIR MARKET
VALUE OF THE SPECIALIZED EQUIPMENT.

 

2.7                                 RECORD KEEPING AND INSPECTION OF RECORDS. 
EACH OF SCHERING AND PHARMACOPEIA, AND THEIR RESPECTIVE AFFILIATES, SHALL
MAINTAIN RECORDS OF ITS COLLABORATION ACTIVITIES (OR CAUSE SUCH RECORDS TO BE
MAINTAINED) IN SUFFICIENT DETAIL AND IN GOOD SCIENTIFIC MANNER APPROPRIATE FOR
PATENT AND REGULATORY PURPOSES AS WILL PROPERLY REFLECT ALL WORK

 

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PERFORMED AND THE RESULTS ACHIEVED IN PERFORMANCE OF THE COLLABORATION. 
SCHERING SHALL ALSO MAINTAIN ANALOGOUS RECORDS OF ITS DEVELOPMENT ACTIVITIES
WITH RESPECT TO AGREEMENT COMPOUNDS AND AGREEMENT PRODUCTS.  SUCH RECORDS MAY
INCLUDE BOOKS, RECORDS, REPORTS, RESEARCH NOTES, CHARTS, GRAPHS, COMMENTS,
COMPUTATIONS, ANALYSES, RECORDINGS, PHOTOGRAPHS, COMPUTER PROGRAMS AND
DOCUMENTATION THEREOF, COMPUTER INFORMATION STORAGE MEDIA, SAMPLES OF MATERIALS
AND OTHER GRAPHIC OR WRITTEN DATA GENERATED IN CONNECTION WITH THE
COLLABORATION, INCLUDING ANY DATA REQUIRED TO BE MAINTAINED PURSUANT TO ALL
REQUIREMENTS OF APPLICABLE LAWS, RULES AND REGULATIONS, OR AS DIRECTED BY THE
COLLABORATION COMMITTEE.  PHARMACOPEIA’S RECORDS SHALL ALSO DOCUMENT BY NAME
WHICH INDIVIDUALS ASSIGNED TO THE COLLABORATION PURSUANT TO SECTION 2.5 ARE
WORKING ON EACH SPECIFIC COLLABORATION RESEARCH PROJECT (IDENTIFYING THE
TARGET(S) INVOLVED).  DURING THE COLLABORATION AND FOR FIVE (5) YEARS
THEREAFTER, EACH OF SCHERING AND PHARMACOPEIA SHALL HAVE THE RIGHT, UPON AT
LEAST FIVE (5) BUSINESS DAYS’ PRIOR NOTICE, TO INSPECT ALL SUCH RECORDS OF THE
OTHER PARTY (OR LEGIBLE COPIES THEREOF) DURING NORMAL BUSINESS HOURS.  EACH
PARTY’S RIGHTS UNDER THIS SECTION 2.7 SHALL BE LIMITED TO ONE (1) INSPECTION IN
ANY CALENDAR YEAR.  IN EACH CASE, THE PARTY CONDUCTING THE INSPECTION SHALL
MAINTAIN SUCH RECORDS AND THE INFORMATION DISCLOSED THEREIN IN CONFIDENCE IN
ACCORDANCE WITH SECTION 7.1, AND SHALL USE SUCH INFORMATION SOLELY FOR PURPOSES
OF THIS AGREEMENT.  UPON REQUEST AND TENDER OF PAYMENT FOR THE ACTUAL COST IN
PROVIDING COPIES, PHARMACOPEIA AND/OR SCHERING, AS APPROPRIATE, SHALL PROVIDE TO
THE REQUESTING PARTY COPIES OF SUCH RECORDS.

 

2.8                                 PERFORMANCE OF SCREENING PROGRAMS.  WITH
RESPECT TO EACH SCREENING TARGET, THE PARTIES AGREE THAT PROMPTLY FOLLOWING THE
ACCEPTANCE BY PHARMACOPEIA OF EACH SCREENING TARGET IN ACCORDANCE WITH
SECTION 2.1.2, SCHERING WILL PROVIDE PHARMACOPEIA (FREE OF CHARGE) WITH
REASONABLE QUANTITIES OF THE SCREENING TARGET PROTEIN AND ANY OF SCHERING’S
OTHER PROPRIETARY REAGENTS REQUIRED TO PERFORM ASSAYS TO IDENTIFY COMPOUNDS
HAVING ACTIVITY AGAINST SUCH SCREENING TARGET.  ALL SUCH PROTEINS AND OTHER
REAGENTS ARE AND SHALL REMAIN THE PROPERTY OF SCHERING, SHALL BE USED BY
PHARMACOPEIA SOLELY IN PERFORMANCE OF THE SCREENING PROGRAM, AND SHALL NOT BE
TRANSFERRED OR OTHERWISE MADE AVAILABLE TO ANY THIRD PARTY WITHOUT SCHERING’S
PRIOR WRITTEN CONSENT (WHICH CONSENT MAY BE GRANTED OR WITHHELD IN SCHERING’S
SOLE DISCRETION.)  UPON RECEIPT OF SUCH * PHARMACOPEIA SHALL USE DILIGENT
EFFORTS TO INITIATE AND CONDUCT A SCREENING PROGRAM TO IDENTIFY PHARMACOPEIA
COMPOUNDS HAVING ACTIVITY AGAINST SUCH SCREENING TARGET.  SUCH EFFORTS SHALL
INCLUDE ANY ASSAY DEVELOPMENT WORK OR ASSAY MODIFICATIONS NECESSARY TO ENABLE
PHARMACOPEIA TO PERFORM THE RELEVANT ASSAYS TO DETERMINE WHETHER OR NOT THE
APPLICABLE ACTIVITY CRITERIA ARE MET FOR SUCH SCREENING TARGET.  EXCEPT AS
OTHERWISE PROVIDED IN SECTION 2.6, PHARMACOPEIA SHALL BE SOLELY RESPONSIBLE *
EFFECTIVE UPON ACCEPTANCE BY PHARMACOPEIA OF EACH SCREENING TARGET UNDER
SECTION 2.1.2, PHARMACOPEIA SHALL NOT CONDUCT ANY SCREENING OF PHARMACOPEIA
COMPOUNDS, EITHER FOR ITSELF OR FOR ANY THIRD PARTY, AGAINST THE SAME TARGET AS
SUCH SCREENING TARGET (AS DETERMINED PURSUANT TO SECTION 2.11.1) FOR THE PERIOD
*

 

2.8.1                        HITS.  ANY PHARMACOPEIA COMPOUND(S) IDENTIFIED AS
MEETING THE ACTIVITY CRITERIA AGAINST A SCREENING TARGET THROUGH SCREENING OF
THE PHARMACOPEIA COMPOUNDS BY PHARMACOPEIA DURING THE TERM OF THE COLLABORATION,
SHALL BE DESIGNATED A HIT.  UPON COMPLETION BY PHARMACOPEIA OF THE SCREENING
PROGRAM FOR A GIVEN SCREENING TARGET, PHARMACOPEIA SHALL PROMPTLY NOTIFY
SCHERING OF ALL HITS IDENTIFIED WITH RESPECT TO THAT SCREENING TARGET, WHICH
NOTICE SHALL IDENTIFY THE SCREENING TARGET AND THE AVAILABLE DATA GENERATED BY
PHARMACOPEIA REGARDING *BUT SHALL NOT DISCLOSE THE CHEMICAL STRUCTURE OF THE
HITS, OR IN THE EVENT THAT NO HITS ARE IDENTIFIED FROM THE SCREENING PROGRAM,
PHARMACOPEIA SHALL NOTIFY SCHERING TO THAT EFFECT.  * INFORMATION AND SAMPLES OF
HITS SOLELY FOR THE PURPOSE OF CONFIRMING THAT SUCH PHARMACOPEIA COMPOUND MEETS
THE ACTIVITY CRITERIA FOR THE SCREENING TARGET.  THIS WILL INCLUDE THE
PERFORMANCE BY SCHERING OF ANY TESTS NECESSARY TO CONFIRM *  SCHERING AGREES,
HOWEVER, NOT TO CONDUCT, OR HAVE CONDUCTED, *

 

2.8.2                        * WITHIN SCHERING SHALL NOTIFY PHARMACOPEIA IN
WRITING OF THOSE COMPOUNDS WHICH SCHERING HAS CONFIRMED ARE HITS * PROMPTLY
AFTER RECEIPT OF SUCH NOTICE, PHARMACOPEIA SHALL DISCLOSE TO SCHERING * UPON
RECEIPT OF THE * SCHERING SHALL ENSURE THAT THOSE EMPLOYEES HAVING ACCESS TO THE
* SHALL ONLY USE SUCH INFORMATION FOR *

 

2.8.3                        Lead Compounds from Screening Programs. * Schering
shall notify Pharmacopeia which (if any) of those confirmed Hits are acceptable
to Schering as Lead Compounds for initiation of new Optimization Programs. 
Following notice from Schering that one or more Hits are acceptable as Lead
Compounds, the Parties shall, as soon as reasonably practicable, initiate a new
Optimization Program based upon such Lead Compound(s) in accordance with
Section 2.9.  The Parties acknowledge and agree that if Schering notifies
Pharmacopeia that at least one Hit is acceptable to Schering as a Lead Compound
for a given Screening Target, then the licenses granted to Schering under
Article 4 with respect to such Lead Compound shall also include * The
restrictions set forth in Section 2.8.2

 

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regarding disclosure, access and use of structural information with respect to
confirmed Hits shall no longer apply following notice of acceptance by Schering
of one or more such Hits as a Lead Compound pursuant to this Section 2.8.3. 
Upon acceptance by Schering of one or more Hits as a Lead Compound pursuant to
this Section 2.8.3, the duration of the restriction on screening by Pharmacopeia
against the relevant Screening Target, as set forth in the last sentence of
Section 2.8, *

 

2.8.4                        Hits Not Accepted by Schering.  In the event that
Schering does not accept any of the Hits identified by Pharmacopeia with respect
to a given Screening Target as Lead Compounds for an Optimization Program,
Pharmacopeia shall have the right to * In the event that Pharmacopeia decides to
* Following receipt of any * by Schering, the Parties agree that for *

 

2.9                                 Performance of Optimization Programs.  The
first Optimization Programs to be performed under this Agreement are the ongoing
research programs for Optimization Libraries (as defined in the 1998 Agreements)
listed in Exhibit D, which shall be subject to the terms and conditions of
Section 2.0.  All new Optimization Programs to be initiated by the Parties after
the Effective Date shall be programs based upon Lead Compounds selected under
the terms and conditions of this Agreement and Section 2.0 shall not apply to
any such new Optimization Programs. It is anticipated that the Parties will
generally seek to maintain * ongoing Optimization Programs during each year of
the Collaboration in which Schering is funding research at the full level of *
FTEs in accordance with Section 2.5; provided, however, that the Parties
acknowledge that the actual number of ongoing Optimization Programs at any given
time may vary and shall be subject in part to Pharmacopeia’s success in
identifying Hits from Screening Programs.  If the Parties are unable to maintain
* of Optimization Programs based upon Lead Compounds which are Hits from
Screening Programs, Schering will use commercially reasonable efforts to approve
and initiate new Optimization Programs based upon Lead Compounds which are
Schering Compounds as necessary in order maintain a reasonable number of ongoing
Optimization Programs based upon the available Pharmacopeia FTEs working on the
Collaboration; provided, however, failure by Schering to provide Lead Compounds
which are Schering Compounds shall not constitute a breach under this
Agreement.  If Schering ceases funding the Collaboration at the full level in *
in accordance with Sections 2.5.2, 2.5.3 and 2.5.4, then Schering will not be
obligated to initiate any new Optimization Programs *.  The Collaboration
Committee shall be responsible for allocation of the FTEs and other resources
among the various Optimization Programs selected by Schering.  This will include
allocation of the medicinal chemistry FTEs, as well as additional FTEs to
provide bioassay support, as necessary, for each Optimization Program to
generate primary assay data for Lead Compounds and Derivative Compounds.  In the
event that all FTEs are fully allocated among the various ongoing Optimization
Programs, any new Optimization Programs will be initiated as resources become
available within the Collaboration, based upon prioritization determined by
Schering.  Any delay in initiating an Optimization Program based upon a Lead
Compound which is a Hit from a Screening Program shall not have any effect on
the acceptance of such Hit as a Lead Compound and Pharmacopeia shall not acquire
any *

 

2.9.1                        Preparation of Derivative Compounds.  In performing
each Optimization Program, Pharmacopeia shall undertake the synthesis of analogs
and other Derivative Compounds based upon the relevant Lead Compounds. 
Pharmacopeia will also conduct primary screening assays of all such Derivative
Compounds to determine activity against the applicable Target.  Pharmacopeia
will provide the Collaboration Committee with regular (at least quarterly)
written reports of the data and results generated in performance of each
Optimization Program.  Such reports will identify the chemical structure of any
and all Derivative Compounds prepared by Pharmacopeia in performance of the
Optimization Program (whether or not such compounds are identified as active
against the Target), and all test data with respect thereto.

 

2.9.2                        * .

 

2.9.3                        * Notwithstanding the provisions of Section 2.9.2,
*

 

2.9.4                        Leads Based Upon Schering Compounds.  Schering
shall not be obligated to disclose the structure of any Schering Compound(s)
proposed as Lead Compounds unless and until Pharmacopeia has agreed, pursuant to
Section 2.1.1, to conduct an Optimization Program against the relevant Target. 
Upon Pharmacopeia’s agreement to conduct an Optimization Program based upon one
or more Lead Compounds which are Schering Compounds, Schering shall disclose to
Pharmacopeia the structure of such Schering Compounds.  Effective upon the

 

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date Pharmacopeia agrees to perform an Optimization Program based upon one or
more Lead Compounds which are Schering Compounds, for the period extending from
*

 

2.10                           Pharmacopeia Independent Research Activities.

 

2.10.1                  Activities Outside the Collaboration.  The Parties
acknowledge that during and after the term of the Collaboration Pharmacopeia may
(either alone or in collaboration with one or more Third Parties) perform
independent research and development activities with respect to Targets
(including, without limitation, to identify, develop and commercialize
products), which activities are not within the scope of this Agreement; provided
that Pharmacopeia shall not use any Schering Technology, and except as otherwise
expressly set forth in this Agreement shall not use any Collaboration
Technology, in connection with any such independent research and development
activities.  Any data, information, materials, compounds, products or other
technology resulting from such independent research and development activities
is the property of Pharmacopeia (“Pharmacopeia Independent Technology”).  The
Parties further acknowledge that Pharmacopeia Independent Technology may include
technology independently acquired, discovered or developed by Pharmacopeia (as
demonstrated by documented evidence created at the time of such acquisition,
discovery or development) and which coincidentally is substantially the same as
technology within the scope of Collaboration Technology and/or Schering
Technology.  Schering shall have no rights or licenses whatsoever to any
Pharmacopeia Independent Technology.

 

2.11                           Schering’s Screening Programs.  The Parties
acknowledge that Schering shall have the right to conduct its own independent
screening programs against any and all Targets, and that except as expressly set
forth in this Section 2.11, * resulting from such independent screening
programs.  Schering shall have the right * The Parties acknowledge and agree
that any pharmaceutical products discovered, developed and commercialized as a
result of * are and shall be treated as Agreement Products and shall be subject
to * but shall not be subject *

 

2.11.1                  Differentiation of Targets.  A Target will encompass *

 

2.12                           Third Party Patents.  The Parties acknowledge and
agree that Pharmacopeia shall have the right to reject and shall not be
obligated to undertake any Screening Program or Optimization Program, or any new
research activities in connection with an ongoing Screening Program or
Optimization Program, pursuant to this Agreement if Pharmacopeia reasonably
determines, in good faith, that such program or activities cannot be performed
without infringing an issued US patent held by a Third Party.  It is further
understood and agreed that, unless Schering obtains a license for Pharmacopeia,
or grants Pharmacopeia a sublicense under a license held by Schering, to conduct
such program or research activities, Pharmacopeia’s failure to conduct such
program or research activities shall not constitute a breach of this Agreement. 
Pharmacopeia shall promptly inform Schering in the event that Pharmacopeia
determines in accordance with this Section 2.12 that it will be unable to
undertake any proposed Screening Program, Optimization Program or research
activities due to Third Party patents. *

 

ARTICLE III
COLLABORATION MANAGEMENT

 

3.1                                 COLLABORATION COMMITTEE.  THE PARTIES SHALL
ESTABLISH A COLLABORATION COMMITTEE TO OVERSEE, REVIEW AND COORDINATE THE
CONDUCT OF THE COLLABORATION.  THE COLLABORATION COMMITTEE SHALL BE COMPRISED OF
THREE (3) REPRESENTATIVES FROM EACH OF SCHERING AND PHARMACOPEIA, OR SUCH OTHER
EQUAL NUMBER OF REPRESENTATIVES AS THE PARTIES MAY AGREE, EACH PARTY’S MEMBERS
SELECTED BY THAT PARTY.  EACH OF PHARMACOPEIA AND SCHERING MAY REPLACE ITS
COLLABORATION COMMITTEE REPRESENTATIVES AT ANY TIME UPON WRITTEN NOTICE TO THE
OTHER PARTY.  THE COLLABORATION COMMITTEE SHALL BE CHAIRED BY THE COLLABORATION
DIRECTOR APPOINTED BY SCHERING, UNLESS OTHERWISE AGREED BY THE PARTIES. 

 

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FROM TIME TO TIME THE COLLABORATION COMMITTEE MAY ESTABLISH VARIOUS
SUBCOMMITTEES, CONSTITUTED AS AGREED BY THE COLLABORATION COMMITTEE, TO OVERSEE
PARTICULAR PROJECTS OR ACTIVITIES WITHIN THE COLLABORATION.

 

3.2                                 COLLABORATION COMMITTEE MEETINGS.  DURING
THE TERM OF THE COLLABORATION, INCLUDING AS IT MAY BE EXTENDED, THE
COLLABORATION COMMITTEE SHALL MEET AT LEAST FOUR (4) TIMES PER YEAR, OR MORE
OFTEN AS AGREED BY THE PARTIES, AT SUCH LOCATIONS AS THE PARTIES SHALL AGREE. 
AT SUCH MEETINGS THE COLLABORATION COMMITTEE’S RESPONSIBILITIES WILL INCLUDE:
(I) FORMULATING AND REVIEWING THE COLLABORATION OBJECTIVES WITH RESPECT TO EACH
OPTIMIZATION PROGRAM; (II) MONITORING THE PROGRESS OF THE COLLABORATION TOWARD
THOSE OBJECTIVES; (III) EVALUATING HITS IDENTIFIED BY PHARMACOPEIA FROM
SCREENING PROGRAMS; (IV) INITIALLY REVIEWING RECOMMENDATIONS BY PHARMACOPEIA TO
SCHERING FOR HITS PROPOSED TO BE ACCEPTED AS LEAD COMPOUNDS FOR NEW OPTIMIZATION
PROGRAMS; AND (V) TAKING SUCH OTHER ACTIONS AS MAY BE SPECIFIED UNDER THIS
AGREEMENT OR WHICH THE PARTIES DEEM APPROPRIATE.  THE COLLABORATION COMMITTEE
MAY DESIGNATE A PATENT COMMITTEE COMPRISED OF EMPLOYEES OR REPRESENTATIVES OF
THE PARTIES TO OVERSEE THE PATENT PROSECUTION AND/OR ENFORCEMENT ACTIVITIES
DESCRIBED IN ARTICLE VI, AND TO FACILITATE COMMUNICATION AND AGREEMENT BETWEEN
THE PARTIES REGARDING INVENTORSHIP OF INVENTIONS MADE IN THE COLLABORATION AND
THE CLASSIFICATION OF SUCH INVENTIONS (E.G., AS SCHERING IMPROVEMENTS,
PHARMACOPEIA IMPROVEMENTS, COLLABORATION TECHNOLOGY, ETC.).  ADDITIONAL
NON-VOTING REPRESENTATIVES OR CONSULTANTS FROM EITHER PARTY MAY FROM TIME TO
TIME BE INVITED BY SCHERING OR PHARMACOPEIA TO ATTEND AND PARTICIPATE IN
COLLABORATION COMMITTEE MEETINGS (E.G., TO EVALUATE AND ADVISE ON BUSINESS OR
SCIENTIFIC ISSUES) SUBJECT TO COMPLIANCE WITH THE CONFIDENTIALITY PROVISIONS OF
SECTION 7.1.  EACH PARTY SHALL BE RESPONSIBLE FOR ITS OWN EXPENSES IN CONNECTION
WITH THE COLLABORATION COMMITTEE.

 

3.3                                 COLLABORATION COMMITTEE DECISIONS. 
DECISIONS OF THE COLLABORATION COMMITTEE SHALL BE BASED UPON THE CONSENSUS OF
ALL THE MEMBERS.  IN THE EVENT THAT THE COLLABORATION COMMITTEE CANNOT OR DOES
NOT, AFTER GOOD FAITH EFFORTS, REACH AGREEMENT ON AN ISSUE, SUCH ISSUE SHALL BE
REFERRED TO THE PRESIDENT OF SCHERING’S AFFILIATE, THE SCHERING-PLOUGH RESEARCH
INSTITUTE (“SPRI”), AND THE PRESIDENT AND CHIEF OPERATING OFFICER OF
PHARMACOPEIA DRUG DISCOVERY FOR RESOLUTION.  IN THE EVENT THAT THESE OFFICERS
ARE UNABLE TO RESOLVE THE ISSUE WITHIN FIFTEEN (15) BUSINESS DAYS AFTER
SUBMISSION OF THE ISSUE TO THEM, THEN THE UNRESOLVED ISSUE MAY BE SUBMITTED BY
EITHER PARTY TO BINDING ARBITRATION PURSUANT TO SECTION 11.3 OF THIS AGREEMENT,
EXCEPT THAT THE DECISION SHALL BE MADE BY ONE (1) ARBITRATOR WITH EXPERTISE IN
PHARMACEUTICAL PRODUCT DEVELOPMENT, AND THE DECISION OF THE ARBITRATOR SHALL BE
RENDERED WITHIN SIX (6) MONTHS OF INITIATION OF THE ARBITRATION.  DURING THE
PENDENCY OF ANY SUCH ARBITRATION PROCEEDINGS, THE PARTIES SHALL PROCEED WITH
PERFORMANCE OF THE COLLABORATION FOLLOWING THE COURSE OF CONDUCT DETERMINED BY
SCHERING; PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE FOREGOING, PHARMACOPEIA
SHALL NOT BE OBLIGATED TO (I) PERFORM ANY ACTION THAT WOULD VIOLATE ITS
OBLIGATIONS TO ANY THIRD PARTY OR CONTRAVENE SECTION 2.12, (II) SPEND OR FOREGO
RECEIVING ANY AMOUNTS OF MONEY (EXCEPT AS NECESSARY IN CONNECTION WITH THE
FULFILLMENT OF PHARMACOPEIA’S RESPONSIBILITIES UNDER SECTION 2.3), OR (III)
KNOWINGLY PREPARE OR DELIVER TO SCHERING ANY COMPOUNDS PREVIOUSLY LICENSED TO
ANY THIRD PARTY.  NOTWITHSTANDING THE FOREGOING, SCHERING, IN ITS SOLE
DISCRETION, SHALL HAVE COMPLETE AND FINAL CONTROL OVER SCHERING’S RESEARCH,
DEVELOPMENT AND COMMERCIALIZATION OF SCHERING COMPOUNDS, AGREEMENT COMPOUNDS
AND/OR AGREEMENT PRODUCT(S) IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS
AGREEMENT.

 

3.4                                 DEVELOPMENT STATUS; NOTICE OF SALE OF
AGREEMENT PRODUCTS.  DURING THE TERM OF THIS AGREEMENT, SCHERING SHALL PROVIDE
PHARMACOPEIA WRITTEN ANNUAL REPORTS WITHIN THIRTY (30) DAYS AFTER THE FIRST AND
EACH SUBSEQUENT ANNIVERSARY OF THE EFFECTIVE DATE, WHICH REPORTS SHALL PROVIDE:
(I) A BRIEF REPORT SUMMARIZING THE DEVELOPMENT STATUS OF EACH LEAD COMPOUND
AND/OR DEVELOPMENT CANDIDATE UNDER DEVELOPMENT AT SCHERING; (II) THE STATUS OF
ALL PATENT APPLICATIONS CLAIMING ANY LIBRARY COMPOUNDS OR DERIVATIVE COMPOUNDS,
AND (III) COPIES OF ALL SUCH PATENT APPLICATIONS WHICH HAVE PUBLISHED DURING THE
RELEVANT TWELVE (12) MONTH PERIOD AND WERE NOT PREVIOUSLY PROVIDED TO
PHARMACOPEIA.  SUCH REPORTS SHALL CONTAIN INFORMATION SUFFICIENT TO ALLOW
PHARMACOPEIA TO MONITOR THE STATUS OF SCHERING’S EFFORTS WITH RESPECT TO THE
ACCOMPLISHMENT OF THE MILESTONES SET FORTH IN SECTION 5.3; PROVIDED, HOWEVER,
THAT NOTHING HEREUNDER SHALL BE CONSTRUED AS REQUIRING SCHERING TO PROVIDE
PHARMACOPEIA WITH ANY SPECIFIC RESEARCH DATA OR RESULTS, INCLUDING, WITHOUT
LIMITATION, INFORMATION RELATING TO TARGETS OR DATA OBTAINED FROM SCREENING
PROGRAMS BEING CONDUCTED AT SCHERING.  UNTIL THE FIRST COMMERCIAL SALE OF EACH
AGREEMENT PRODUCT BY OR ON BEHALF OF SCHERING HEREUNDER, SCHERING SHALL KEEP
PHARMACOPEIA REASONABLY INFORMED AS TO THE STATUS OF THE PRE-CLINICAL, CLINICAL
AND COMMERCIAL DEVELOPMENT OF SUCH AGREEMENT PRODUCT BY PROVIDING PHARMACOPEIA
WITH ANNUAL WRITTEN REPORTS SUMMARIZING SUCH ACTIVITIES WITH RESPECT TO EACH
POTENTIAL AGREEMENT PRODUCT UNDER DEVELOPMENT DURING THE TERM OF THIS
AGREEMENT.  WITHIN THIRTY (30) DAYS OF THE FIRST COMMERCIAL SALE OF ANY
AGREEMENT PRODUCT, SCHERING SHALL GIVE PHARMACOPEIA WRITTEN NOTICE THEREOF,
WHICH NOTICE

 

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SHALL DESCRIBE THE RELEVANT AGREEMENT PRODUCT, IDENTIFY THE ACTIVE INGREDIENTS
IN SUCH AGREEMENT PRODUCT, AND IDENTIFY THE SPECIFIC TARGET(S) WHICH LED TO THE
DEVELOPMENT OF SUCH AGREEMENT PRODUCT.

 

3.5                                 DILIGENCE.  THE PARTIES ACKNOWLEDGE AND
AGREE THAT ALL BUSINESS DECISIONS REGARDING RESEARCH, DEVELOPMENT AND
COMMERCIALIZATION OF AGREEMENT PRODUCTS (INCLUDING, WITHOUT LIMITATION,
DECISIONS RELATING TO THE DEVELOPMENT AND MANUFACTURE OF AGREEMENT COMPOUNDS, OR
TO THE DESIGN, DEVELOPMENT, MANUFACTURE, SALE, PRICE, DISTRIBUTION, MARKETING
AND PROMOTION OF AGREEMENT PRODUCTS UNDER THIS AGREEMENT) AND THE DECISION
WHETHER TO DEVELOP (OR CEASE DEVELOPING) A PARTICULAR AGREEMENT COMPOUND, OR TO
DEVELOP AND COMMERCIALIZE (OR CEASE DEVELOPING AND COMMERCIALIZING) A PARTICULAR
AGREEMENT PRODUCT, SHALL BE WITHIN THE SOLE DISCRETION OF SCHERING.  SCHERING
SHALL USE REASONABLE GOOD FAITH EFFORTS TO DISCOVER AND DEVELOP AGREEMENT
COMPOUNDS, AND TO DISCOVER, DEVELOP AND COMMERCIALIZE AGREEMENT PRODUCTS;
PROVIDED, HOWEVER, THAT SCHERING SHALL HAVE NO QUOTAS OR OTHER MINIMUM DILIGENCE
OBLIGATIONS WITH REGARD TO NUMBER OF AGREEMENT COMPOUNDS AND AGREEMENT PRODUCTS
TO BE DEVELOPED AND COMMERCIALIZED HEREUNDER.  SUCH DECISION MAKING AND/OR
REASONABLE GOOD FAITH EFFORTS SHALL BE EXPENDED BY SCHERING, AS DETERMINED IN
ITS REASONABLE COMMERCIAL JUDGEMENT, BASED UPON THE FACTS AND CIRCUMSTANCES IN
EXISTENCE AND REASONABLY AVAILABLE TO SCHERING AT THAT TIME, AND SHALL BE
EXERCISED IN A MANNER CONSISTENT WITH THE DISCOVERY, DEVELOPMENT AND
COMMERCIALIZATION OF SCHERING’S OTHER PRODUCTS OF COMPARABLE COMMERCIAL VALUE,
POTENTIAL AND STAGE OF DEVELOPMENT.  ALL OF SCHERING’S DILIGENCE OBLIGATIONS
HEREUNDER ARE EXPRESSLY CONDITIONED UPON THE CONTINUING ABSENCE OF ANY ADVERSE
CONDITION OR EVENT WHICH WARRANTS A DELAY IN COMMERCIALIZATION OF AN AGREEMENT
PRODUCT INCLUDING, BUT NOT LIMITED TO, AN ADVERSE CONDITION OR EVENT RELATING TO
THE SAFETY OR EFFICACY OF THE AGREEMENT PRODUCT OR UNFAVORABLE PRICING, PRICING
REIMBURSEMENT, LABELING OR LACK OF REGULATORY APPROVAL, AND SCHERING SHALL HAVE
NO OBLIGATION TO DEVELOP OR MARKET ANY SUCH AGREEMENT PRODUCT SO LONG AS IN
SCHERING’S OPINION ANY SUCH CONDITION OR EVENT EXISTS; PROVIDED THAT SCHERING
SHALL USE COMMERCIALLY REASONABLE EFFORTS TO OVERCOME ANY UNFAVORABLE PRICING OR
PRICING REIMBURSEMENT WITH RESPECT TO AGREEMENT PRODUCTS BEING COMMERCIALIZED
UNDER THIS AGREEMENT.  THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE
DILIGENCE OBLIGATIONS IN THIS SECTION 3.5 SHALL APPLY TO ANY SCHERING COMPOUNDS,
THE DISCOVERY, DEVELOPMENT AND COMMERCIALIZATION OF WHICH ARE THE SOLE AND
EXCLUSIVE RESPONSIBILITY OF SCHERING.

 

ARTICLE IV
LICENSES AND EXCLUSIVITY

 

4.1                                 LICENSE TO SCHERING.

 

4.1.1                        LICENSE TO PHARMACOPEIA TECHNOLOGY.  SUBJECT TO THE
TERMS OF SECTION 4.4.1, PHARMACOPEIA AGREES TO GRANT, AND HEREBY GRANTS TO
SCHERING AN EXCLUSIVE LICENSE UNDER THE PHARMACOPEIA TECHNOLOGY (EXCLUSIVE EVEN
AS TO PHARMACOPEIA AND ITS AFFILIATES) IN THE TERRITORY, TO MAKE, HAVE MADE,
USE, SELL, OFFER TO SELL, IMPORT AND EXPORT AGREEMENT PRODUCTS CONTAINING A LEAD
COMPOUND WHICH IS A HIT OR A CORRESPONDING DERIVATIVE COMPOUND AS AN ACTIVE
INGREDIENT.  IT IS UNDERSTOOD THAT SUCH LICENSES SHALL INCLUDE THE RIGHT TO
CONDUCT DRUG RESEARCH AND DEVELOPMENT, AND THE EXCLUSIVE RIGHT TO DISCOVER,
DEVELOP, MAKE, HAVE MADE AND USE SUCH LEAD COMPOUNDS AND CORRESPONDING
DERIVATIVE COMPOUNDS, DURING THE TERM OF THIS AGREEMENT.

 

4.1.2                        LICENSE TO COLLABORATION TECHNOLOGY.  PHARMACOPEIA
AGREES TO GRANT, AND HEREBY GRANTS TO SCHERING AN EXCLUSIVE LICENSE UNDER
PHARMACOPEIA’S INTEREST IN THE COLLABORATION TECHNOLOGY (EXCLUSIVE EVEN AS TO
PHARMACOPEIA AND ITS AFFILIATES), TO MAKE, HAVE MADE, USE, SELL, OFFER TO SELL,
IMPORT AND EXPORT AGREEMENT PRODUCTS IN THE TERRITORY.  IT IS UNDERSTOOD THAT
SUCH LICENSES SHALL INCLUDE THE RIGHT TO CONDUCT DRUG RESEARCH AND DEVELOPMENT,
AND THE EXCLUSIVE RIGHT TO DISCOVER, DEVELOP, MAKE, HAVE MADE AND USE AGREEMENT
COMPOUNDS, DURING THE TERM OF THIS AGREEMENT.

 

4.1.3                        LICENSE TO COLLABORATION TARGET-SPECIFIC
TECHNOLOGY.  PHARMACOPEIA AGREES TO GRANT, AND HEREBY GRANTS, TO SCHERING AN
EXCLUSIVE LICENSE (EXCLUSIVE EVEN AS TO PHARMACOPEIA AND ITS AFFILIATES), UNDER
ALL OF PHARMACOPEIA’S INTEREST IN THE COLLABORATION TARGET-SPECIFIC TECHNOLOGY
FOR ANY AND ALL PURPOSES IN THE TERRITORY, INCLUDING THE RIGHT TO GRANT
SUBLICENSES.

 

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4.1.4                        *

 

4.2                                 SUBLICENSES.  SCHERING SHALL HAVE THE RIGHT
TO SUBLICENSE THE RIGHTS GRANTED IN SECTION 4.1 ABOVE.  EACH SUCH SUBLICENSE
SHALL BE CONSISTENT WITH ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT. 
SCHERING SHALL REMAIN RESPONSIBLE TO PHARMACOPEIA FOR ALL OF EACH SUCH
SUBLICENSEE’S APPLICABLE FINANCIAL AND OTHER OBLIGATIONS DUE UNDER THIS
AGREEMENT.  SUCH SUBLICENSEE SHALL NOT HAVE THE RIGHT TO GRANT FURTHER
SUBLICENSES, AND SUCH SUBLICENSES MAY NOT BE ASSIGNED OR TRANSFERRED TO ANY
THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT OF PHARMACOPEIA.  EACH SUBLICENSE
SHALL PROVIDE FOR ITS CONTINUATION FOLLOWING EARLY TERMINATION OF THE LICENSE
RIGHTS OF SCHERING HEREUNDER AND ITS ASSIGNMENT TO PHARMACOPEIA.  PROMPTLY
FOLLOWING THE EXECUTION OF EACH SUBLICENSE REQUIRING PHARMACOPEIA’S CONSENT
HEREUNDER, SCHERING SHALL GIVE PHARMACOPEIA WRITTEN NOTICE OF THE EXISTENCE AND
IDENTITY OF EACH SUBLICENSEE AND IDENTIFY THE AGREEMENT PRODUCT(S) SUBLICENSED
TO SUCH SUBLICENSEE.

 

4.3                                 DIRECT AFFILIATE LICENSES.  WHENEVER
SCHERING SHALL REASONABLY DEMONSTRATE TO PHARMACOPEIA THAT, IN ORDER TO
FACILITATE DIRECT ROYALTY PAYMENTS BY AN AFFILIATE, IT IS DESIRABLE THAT A
SEPARATE LICENSE AGREEMENT BE ENTERED INTO BETWEEN PHARMACOPEIA AND SUCH
AFFILIATE, PHARMACOPEIA WILL GRANT SUCH LICENSES DIRECTLY TO SUCH AFFILIATE BY
MEANS OF AN AGREEMENT WHICH SHALL BE CONSISTENT WITH ALL OF THE PROVISIONS
HEREOF AND SCHERING SHALL GUARANTEE THE AFFILIATE’S OBLIGATIONS THEREUNDER AND
OTHERWISE PROVIDE TO PHARMACOPEIA ASSURANCES OF PERFORMANCE SATISFACTORY TO
PHARMACOPEIA.  SCHERING SHALL REIMBURSE PHARMACOPEIA FOR ITS REASONABLE
ATTORNEYS’ FEES AND COSTS INCURRED IN CONNECTION WITH ANY SUCH SEPARATE LICENSE
AGREEMENT.

 

4.4                                 THIRD PARTY RIGHTS.

 

4.4.1                        PHARMACOPEIA THIRD PARTY ACTIVITIES.  IT IS
UNDERSTOOD THAT AS OF THE EFFECTIVE DATE PHARMACOPEIA MAY HAVE ALREADY GRANTED,
OR ON OR AFTER THE EFFECTIVE DATE MAY GRANT, TO THIRD PARTIES RIGHTS TO ACQUIRE
LICENSES FOR PHARMACOPEIA COMPOUNDS SIMILAR TO SCHERING’S RIGHTS UNDER THIS
ARTICLE IV.  NOTWITHSTANDING THE LICENSES GRANTED TO SCHERING UNDER SECTIONS
4.1.1 AND 4.1.4 ABOVE, IT IS POSSIBLE THAT A THIRD PARTY ALREADY HAS OR MAY
ACQUIRE RIGHTS FROM PHARMACOPEIA WITH RESPECT TO ONE OR MORE COMPOUNDS OF WHICH
PHARMACOPEIA IS A SOLE OR JOINT OWNER, WHICH COMPOUNDS WERE MADE AND DESIGNED
INDEPENDENTLY OF PHARMACOPEIA’S ACTIVITIES IN THE COLLABORATION; ACCORDINGLY,
PHARMACOPEIA’S GRANT OF RIGHTS UNDER SECTIONS 4.1.1 AND 4.1.4 ARE LIMITED TO THE
EXTENT THAT (I) A THIRD PARTY (EITHER ALONE OR JOINTLY WITH PHARMACOPEIA) HAS
FILED A PATENT APPLICATION WITH RESPECT TO SUCH A COMPOUND PRIOR TO THE FILING
BY SCHERING (EITHER ALONE OR JOINTLY WITH PHARMACOPEIA) OF A PATENT APPLICATION
WITH RESPECT TO SUCH A COMPOUND, OR (II) PHARMACOPEIA HAS PREVIOUSLY GRANTED A
THIRD PARTY A LICENSE, AN OPTION TO ACQUIRE A LICENSE, A RIGHT OF FIRST
NEGOTIATION, FIELD EXCLUSIVITY, OR A NON-COMPETITION COVENANT WITH RESPECT TO
SUCH A COMPOUND, AND ARE SUBJECT TO ANY SUCH GRANT OF RIGHTS TO A THIRD PARTY.

 

4.4.2                        NO LIABILITY.  IT IS UNDERSTOOD AND AGREED THAT,
EVEN IF PHARMACOPEIA COMPLIES WITH ITS OBLIGATIONS UNDER THIS AGREEMENT,
COMPOUNDS PROVIDED TO THIRD PARTIES IN THE COURSE OF PHARMACOPEIA’S OTHER
BUSINESS ACTIVITIES MAY RESULT IN THIRD PARTY PATENT APPLICATIONS AND PATENTS,
INCLUDING PATENT APPLICATIONS AND PATENTS OWNED BY SUCH THIRD PARTIES, OR OWNED
JOINTLY BY PHARMACOPEIA AND SUCH THIRD PARTIES, WHICH COULD CONFLICT WITH PATENT
APPLICATIONS AND PATENTS OWNED BY SCHERING, OR JOINTLY OWNED BY SCHERING AND
PHARMACOPEIA HEREUNDER.  PHARMACOPEIA SHALL USE REASONABLE EFFORTS TO AVOID SUCH
CONFLICT, WHICH EFFORTS SHALL BE COMPARABLE TO THOSE USED BY PHARMACOPEIA IN
PERFORMING SIMILAR OBLIGATIONS UNDER ITS AGREEMENTS WITH THIRD PARTIES.  IT IS
UNDERSTOOD THAT, UNLESS SCHERING IS DAMAGED AS A PROXIMATE RESULT OF A MATERIAL
BREACH BY PHARMACOPEIA OF ANY OF THE REPRESENTATIONS AND WARRANTIES IN
ARTICLE VIII, THEN PHARMACOPEIA SHALL HAVE NO LIABILITY UNDER THIS AGREEMENT
WITH RESPECT TO ANY SUCH CONFLICT.

 

4.4.3                        PHARMACOPEIA REPORTS TO SCHERING ON THIRD PARTY
RIGHTS.  DURING THE PERIOD FROM THE EFFECTIVE DATE UNTIL THE FIRST COMMERCIAL
SALE OF AN AGREEMENT PRODUCT, WITHIN THIRTY (30) DAYS OF A WRITTEN DEMAND BY
SCHERING CONCERNING A PHARMACOPEIA LICENSE TO A THIRD PARTY OF A PATENT
APPLICATION OWNED OR CO-OWNED BY PHARMACOPEIA, PHARMACOPEIA SHALL, TO THE EXTENT
IT MAY DO SO WITHOUT BREACHING ANY CONTRACTUAL OR OTHER LEGAL OBLIGATION,
PROVIDE SCHERING WITH A STATEMENT EXPLAINING WHY THE INVENTION(S) CLAIMED IN THE
PATENT APPLICATION OR TECHNOLOGY LICENSED TO SUCH THIRD PARTY IS INDEPENDENT OF
PHARMACOPEIA’S ACTIVITIES IN THE COLLABORATION.  SUCH STATEMENT SHALL BE
SUPPORTED BY WRITTEN RECORDS KEPT IN THE ORDINARY COURSE OF BUSINESS CONSISTENT
WITH PHARMACEUTICAL INDUSTRY STANDARDS, PROVIDED THAT SUCH RECORDS NEED NOT BE
PROVIDED TO SCHERING AT THE TIME OF PROVIDING SUCH STATEMENT, BUT MAY HAVE TO BE

 

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PROVIDED PURSUANT TO SECTION 11.3.  SUCH INFORMATION SHALL BE DEEMED
CONFIDENTIAL INFORMATION OF PHARMACOPEIA PURSUANT TO THIS AGREEMENT.

 

4.5                                 COLLABORATION RESEARCH ACTIVITIES.  SCHERING
AGREES TO GRANT, AND HEREBY GRANTS, TO PHARMACOPEIA A ROYALTY-FREE,
NON-EXCLUSIVE LICENSE UNDER (I) SCHERING’S INTEREST IN THE COLLABORATION
TECHNOLOGY, AND (II) ANY SCHERING TECHNOLOGY WHICH SCHERING, IN ITS SOLE
DISCRETION, REASONABLY DETERMINES IS NECESSARY OR USEFUL FOR PHARMACOPEIA’S
PERFORMANCE OF THE COLLABORATION, IN EACH CASE TO USE DURING THE TERM OF THE
COLLABORATION AND SOLELY IN PERFORMANCE OF THE COLLABORATION.  PHARMACOPEIA WILL
NOT BE REQUIRED TO PAY ANY FEES TO USE SUCH INTELLECTUAL PROPERTY, BUT WILL AS A
CONDITION PRECEDENT TO SUCH USE EXECUTE ANY CONSENTS OR SUBLICENSES REQUIRED BY
ANY SCHERING LICENSOR.  PHARMACOPEIA SHALL NOT BE REQUIRED TO EXECUTE ANY
UNREASONABLE CONSENTS OR LICENSES AND WILL NOT BE IN BREACH OF THIS AGREEMENT
FOR FAILURE TO DO SO.

 

4.6                                 *

 

4.7                                 No Other Products.  Neither Schering nor its
Affiliates or Sublicensees shall commercialize any Hit, Lead Compound which is a
Hit, Derivative Compound, Schering Derivative or other composition of matter
claimed in a Collaboration Patent Right, other than as an Agreement Product in
accordance with this Agreement.

 

ARTICLE V
PAYMENTS

 

5.1                                 PAYMENTS BY SCHERING.  IN PARTIAL
CONSIDERATION FOR PHARMACOPEIA’S CONDUCTING RESEARCH ACTIVITIES IN THE
COLLABORATION AND THE RIGHTS AND LICENSES GRANTED TO SCHERING HEREIN, SCHERING
AGREES TO PAY TO PHARMACOPEIA THE AMOUNTS SET FORTH IN SECTIONS 5.2, 5.3, 5.4
AND 5.5.  *

 

5.2                                 COLLABORATION FUNDING.

 

5.2.1                        FUNDING DURING YEAR ONE.  SCHERING SHALL PAY TO
PHARMACOPEIA RESEARCH FUNDING FOR THE COLLABORATION AT A RATE OF * PER FTE PER
YEAR DURING THE FIRST YEAR OF THE COLLABORATION BASED UPON THE ACTUAL NUMBER OF
PHARMACOPEIA FTES ASSIGNED TO THE COLLABORATION AS SET FORTH IN SECTION 2.5.1,
PLUS ANY ADDITIONAL FTES (IF ANY) AGREED UPON BY THE PARTIES UNDER
SECTION 2.3(I).

 

5.2.2                        Funding During Subsequent Years.  Schering shall
pay to Pharmacopeia research funding for the Collaboration at an adjusted rate
per FTE during the second year and each subsequent year of the Collaboration,
based upon the actual number of Pharmacopeia FTEs assigned to the Collaboration
in such year in accordance with Sections 2.5.2, 2.5.3 or 2.5.4 (as applicable),
plus any additional FTEs (if any) agreed upon by the Parties under
Section 2.3(i).  The adjusted rate to be applied in each such year shall be *

 

5.2.3                        MANNER OF PAYMENT.  AS NOTED IN SECTION 5.1, WITH
RESPECT TO EACH PHARMACOPEIA FTE, * RESEARCH FUNDING FOR THE COLLABORATION UNDER
THIS SECTION 5.2 SHALL BE PAYABLE QUARTERLY IN ADVANCE ON THE FIRST DAY OF EACH
CALENDAR QUARTER.  PHARMACOPEIA SHALL SEND AN INVOICE THEREFOR TO SCHERING
FIFTEEN (15) BUSINESS DAYS PRIOR TO THE END OF THE PRECEDING QUARTER, AND
SCHERING SHALL PAY SUCH INVOICED AMOUNTS.  IT IS UNDERSTOOD THAT IN THE CASE OF
THE FIRST CALENDAR QUARTER OF THE FIRST YEAR OF THE COLLABORATION, PHARMACOPEIA
SHALL SEND AN INVOICE TO SCHERING AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE.  EACH INVOICE WILL INDICATE THE NUMBER OF PHARMACOPEIA FTES TO BE ASSIGNED
TO THE COLLABORATION FOR SUCH QUARTER AND ANY ADJUSTMENT FROM THE PRIOR QUARTER
AS DETERMINED IN ACCORDANCE WITH SECTION 5.2.4.  SCHERING WILL USE COMMERCIALLY
REASONABLE EFFORTS DURING EACH CALENDAR YEAR DURING THE TERM OF THE
COLLABORATION TO PAY ITS FIRST CALENDAR QUARTER COLLABORATION FUNDING PAYMENTS
TO PHARMACOPEIA ON OR BEFORE THE FIRST (1ST) DAY OF JANUARY; PROVIDED, HOWEVER,
THAT IN THE EVENT SCHERING IS UNABLE TO COMPLETE SUCH PAYMENT, PAYMENT BY
SCHERING ON OR BEFORE THE SEVENTH (7TH) DAY OF JANUARY IN SUCH CALENDAR YEAR
SHALL NOT CONSTITUTE A BREACH OR DEFAULT BY SCHERING.

 

5.2.4                        QUARTERLY ADJUSTMENT.  AT THE CONCLUSION OF EACH
QUARTER, PHARMACOPEIA WILL CALCULATE THE ACTUAL NUMBER OF FTES PROVIDED BY
PHARMACOPEIA DURING THAT QUARTER AND CALCULATE ANY DIFFERENCE BETWEEN THE ACTUAL
NUMBER OF FTES PROVIDED BY PHARMACOPEIA AND THE NUMBER PREPAID BY SCHERING.  ANY
OVERPAYMENT OR UNDERPAYMENT

 

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SHALL BE REFLECTED AS A CREDIT OR ADDITIONAL CHARGE, AS THE CASE MAY BE, IN THE
NEXT QUARTERLY INVOICE AS PER SECTION 5.2.3, AND IN THE EVENT THAT NO FURTHER
QUARTERLY PAYMENTS ARE DUE UNDER THIS SECTION 5.2, THEN (I) ANY UNDERPAYMENT
SHALL BE PAID BY SCHERING TO PHARMACOPEIA WITHIN FIFTEEN (15) BUSINESS DAYS OF
RECEIVING NOTICE AND INVOICE THEREFOR, OR (II) PHARMACOPEIA SHALL WITHIN THIRTY
(30) DAYS REIMBURSE SCHERING FOR ANY OVERPAYMENT.  FOR PURPOSES OF CLARITY AND
AVOIDANCE OF DOUBT, THE PARTIES ACKNOWLEDGE AND AGREE THAT NOTHING IN THIS
SECTION 5.2.4 SHALL BE CONSTRUED AS OBLIGATING SCHERING TO PAY FOR ANY
PHARMACOPEIA FTES ACTUALLY WORKING IN THE COLLABORATION DURING A GIVEN YEAR OF
THE COLLABORATION IN EXCESS OF THE NUMBER OF FTES SPECIFICALLY PROVIDED FOR IN
SECTION 2.2 DURING SUCH YEAR, UNLESS SUCH INCREASED FTE SUPPORT IS AGREED TO IN
ADVANCE IN WRITING BY SCHERING.

 

5.3                                 LEAD COMPOUND MILESTONE.  SCHERING SHALL PAY
TO PHARMACOPEIA A MILESTONE PAYMENT OF * FOR EACH NEW OPTIMIZATION PROGRAM
INITIATED OR AGREED TO BY SCHERING WITH RESPECT TO A SCREENING TARGET BASED UPON
ONE OR MORE LEAD COMPOUND(S) ACCEPTED BY SCHERING IN ACCORDANCE WITH SECTION 2.8
THAT ARE HITS ARISING FROM SCREENING PROGRAMS CONDUCTED BY PHARMACOPEIA.  NO
SUCH MILESTONE SHALL BE PAYABLE WITH RESPECT TO ANY OPTIMIZATION PROGRAMS
INITIATED OR AGREED TO BASED UPON LEAD COMPOUNDS WHICH ARE SCHERING COMPOUNDS. 
SUCH MILESTONE PAYMENT SHALL BE DUE WITHIN THIRTY (30) DAYS AFTER SCHERING
NOTIFIES PHARMACOPEIA PURSUANT TO SECTION 2.8.3 THAT IT HAS ACCEPTED ONE OR MORE
PHARMACOPEIA COMPOUNDS AS LEAD COMPOUNDS.  THE MILESTONE PAYMENT UNDER THIS
SECTION 5.3 SHALL ONLY BE PAYABLE * FURTHER, IT IS UNDERSTOOD AND AGREED THAT
ALL AMOUNTS PAYABLE UNDER THIS SECTION 5.3 ARE IN ADDITION TO ANY MILESTONE
PAYMENTS THAT MAY BE DUE TO PHARMACOPEIA UNDER THE CORRESPONDING PROVISIONS OF
THE INTERNATIONAL AGREEMENT.  FOR THE AVOIDANCE OF DOUBT, IT IS UNDERSTOOD AND
AGREED THAT, FOR EACH NEW OPTIMIZATION PROGRAM CONDUCTED BY PHARMACOPEIA,
PHARMACOPEIA SHALL BE ENTITLED TO RECEIVE THE MILESTONE PAYMENT UNDER THIS
SECTION 5.3 AND THE MILESTONE PAYMENT FROM SCHERING-PLOUGH LTD. UNDER THE
CORRESPONDING PROVISION OF THE INTERNATIONAL AGREEMENT.

 

5.4                                 MILESTONE PAYMENTS.

 

5.4.1                        EVENTS AND AMOUNTS.

 

(A)                                  MILESTONES FOR OPTIMIZATION PROGRAMS BASED
UPON SCHERING COMPOUNDS.  SCHERING AGREES TO PAY TO PHARMACOPEIA THE FOLLOWING
AMOUNTS UPON ATTAINMENT, BY OR ON BEHALF OF SCHERING, ITS AFFILIATES OR
SUBLICENSEES, OF THE INDICATED MILESTONES WITH RESPECT TO ANY NEW AGREEMENT
COMPOUNDS/AGREEMENT PRODUCTS DISCOVERED BY PHARMACOPEIA IN PERFORMANCE OF AN
OPTIMIZATION PROGRAM BASED UPON ONE OR MORE LEAD COMPOUNDS WHICH ARE SCHERING
COMPOUNDS (I.E., ANY DERIVATIVE COMPOUNDS RESULTING FROM SUCH OPTIMIZATION
PROGRAM AND/OR ANY SCHERING DERIVATIVES DERIVED FROM SUCH DERIVATIVE COMPOUNDS):

 

(I)                         * UPON NOMINATION OF A DEVELOPMENT CANDIDATE;

 

(II)                      *UPON THE FILING AND ACCEPTANCE OF AN IND OR ITS
EQUIVALENT;

 

(III)                   * UPON INITIATION OF TREATMENT OF THE FIRST PATIENT IN A
PHASE III CLINICAL STUDY;

 

(IV)                  * UPON FILING AND ACCEPTANCE OF AN NDA WITH THE FDA; AND

 

(V)                     * UPON REGULATORY APPROVAL IN THE TERRITORY.

 

(B)                                 MILESTONES FOR OPTIMIZATION PROGRAMS BASED
UPON HITS.  SCHERING AGREES TO PAY TO PHARMACOPEIA THE FOLLOWING AMOUNTS UPON
ATTAINMENT, BY OR ON BEHALF OF SCHERING, ITS AFFILIATES OR SUBLICENSEES, OF THE
INDICATED MILESTONES WITH RESPECT TO AN AGREEMENT COMPOUND/AGREEMENT PRODUCT
ARISING FROM AN OPTIMIZATION PROGRAM BASED UPON ONE OR MORE LEAD COMPOUNDS WHICH
ARE HITS, (I.E., ANY SUCH LEAD COMPOUNDS, RELATED HITS, DERIVATIVE COMPOUNDS
RESULTING FROM SUCH OPTIMIZATION PROGRAM AND/OR SCHERING DERIVATIVES DERIVED
FROM SUCH LEAD COMPOUNDS, HITS OR DERIVATIVE COMPOUNDS):

 

(I)                         * UPON NOMINATION OF A DEVELOPMENT CANDIDATE;

 

(II)                      * UPON THE FILING AND ACCEPTANCE OF AN IND OR ITS
EQUIVALENT;

 

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(III)                   * UPON INITIATION OF TREATMENT OF THE FIRST PATIENT IN A
PHASE III CLINICAL STUDY;

 

(IV)                  * UPON FILING AND ACCEPTANCE OF AN NDA WITH THE FDA; AND

 

(V)                     * UPON REGULATORY APPROVAL IN THE TERRITORY.

 

It is understood and agreed that all amounts payable under this Section 5.3.1
are in addition to any milestone payments that may be due to Pharmacopeia under
the terms of the International Agreement.

 

5.4.2                        DEVELOPMENT CANDIDATE.  A DEVELOPMENT CANDIDATE
SHALL HAVE BEEN DEEMED TO HAVE BEEN NOMINATED UPON THE EARLIER OF THE DATE (I)
THE SCHERING-PLOUGH RESEARCH INSTITUTE PROJECT ASSESSMENT COMMITTEE OR ITS
SUCCESSOR APPROVES PROCEEDING WITH FULL DEVELOPMENT OF SUCH COMPOUND, OR (II)
SCHERING (OR ITS AFFILIATE) INITIATES IN VIVO TOXICOLOGY TRIALS NECESSARY, AND
MEETING U.S. FDA (OR CORRESPONDING EUROPEAN OR JAPANESE) STANDARDS, FOR
OBTAINING APPROVAL FOR USE OF SUCH AGREEMENT COMPOUND IN HUMAN CLINICAL TRIALS. 
WITHIN THIRTY (30) DAYS AFTER THE NOMINATION OF A DEVELOPMENT CANDIDATE,
SCHERING SHALL NOTIFY PHARMACOPEIA THEREOF.

 

5.4.3                        MANNER OF PAYMENT.  ALL PAYMENTS MADE TO
PHARMACOPEIA BY SCHERING PURSUANT TO SECTION 5.4.1(A) OR (B) SHALL BE DUE WITHIN
THIRTY (30) DAYS AFTER THE ACHIEVEMENT OF THE CORRESPONDING MILESTONE AND SHALL
BE NONREFUNDABLE AND NOT CREDITABLE AGAINST OTHER AMOUNTS DUE TO PHARMACOPEIA. 
THE PAYMENTS PROVIDED FOR UNDER THIS SECTION 5.4 SHALL ONLY BE PAYABLE ONCE UPON
THE FIRST ACHIEVEMENT OF THE INDICATED MILESTONE WITH RESPECT TO AN AGREEMENT
COMPOUND AND/OR AGREEMENT PRODUCT DEVELOPED AGAINST A PARTICULAR TARGET AND NO
ADDITIONAL PAYMENTS SHALL BE DUE ON SUBSEQUENT OR REPEATED ACHIEVEMENT OF THE
SAME MILESTONE FOR ANOTHER AGREEMENT COMPOUND AND/OR AGREEMENT PRODUCT DEVELOPED
AGAINST THE SAME TARGET.  NO MILESTONES SHALL BE PAYABLE UNDER THIS SECTION 5.4
WITH RESPECT TO ANY COMPOUNDS OR PRODUCTS OTHER THAN AGREEMENT COMPOUNDS AND
AGREEMENT PRODUCTS, NOR SHALL ANY PAYMENTS BE DUE UNDER THIS SECTION 5.4 WITH
RESPECT TO ANY AGREEMENT PRODUCTS DISCOVERED BY SCHERING WITH RESPECT TO TARGETS
WHICH ARE NOT THE SUBJECT OF A SCREENING PROGRAM AND/OR OPTIMIZATION PROGRAM, AS
PROVIDED IN SECTION 2.11.

 

5.5                                 ROYALTIES.  IN PARTIAL CONSIDERATION FOR THE
KNOW-HOW LICENSES, PATENT LICENSES AND OTHER RIGHTS GRANTED TO SCHERING
HEREUNDER, SCHERING SHALL PAY ROYALTIES TO PHARMACOPEIA BASED UPON THE SALES OF
AGREEMENT PRODUCTS IN THE TERRITORY.  THE PARTIES ACKNOWLEDGE AND AGREE THAT,
EXCEPT AS EXPRESSLY SET FORTH HEREIN, SCHERING’S OBLIGATION TO PAY SUCH
ROYALTIES IS NOT CONDITIONED UPON THE EXISTENCE OF PATENT PROTECTION FOR THE
AGREEMENT PRODUCTS.

 

5.5.1                        BASE ROYALTY.  SCHERING SHALL PAY TO PHARMACOPEIA
RUNNING ROYALTIES ON NET SALES OF AGREEMENT PRODUCTS BY SCHERING, ITS AFFILIATES
AND SUBLICENSEES IN THE TERRITORY, AS FOLLOWS:

 

(I)                         * OF NET SALES OF AGREEMENT PRODUCTS WHERE THE
AGREEMENT COMPOUND IN SUCH AGREEMENT PRODUCT IS (1) A LEAD COMPOUND WHICH IS A
HIT, OR (2) A DERIVATIVE COMPOUND DISCOVERED BY PHARMACOPEIA IN AN OPTIMIZATION
PROGRAM BASED UPON A LEAD COMPOUND WHICH IS A HIT, OR (3) A CORRESPONDING
SCHERING DERIVATIVE; OR

 

(II)                      * OF NET SALES OF AGREEMENT PRODUCTS WHERE THE
AGREEMENT COMPOUND IN SUCH AGREEMENT PRODUCT IS A DERIVATIVE COMPOUND DISCOVERED
BY PHARMACOPEIA IN AN OPTIMIZATION PROGRAM BASED UPON A LEAD COMPOUND WHICH IS A
SCHERING COMPOUND;

 

(iii)                   * of Net Sales of Agreement Products where the Agreement
Compound in such Agreement Product is (1) a Lead Compound which is a Hit, or (2)
a Derivative Compound, and in each case where such Agreement Product was
developed and commercialized by Schering as a result of an independent screening
program conducted by Schering pursuant to Section 2.11 against a Target which
was not the subject of a Screening Program or Optimization Program under this
Agreement; or

 

(iv)                  * of net sales (to be determined in the same manner as Net
Sales) of a pharmaceutical product containing as an active ingredient a Schering
Derivative derived from a Derivative Compound

 

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discovered by Pharmacopeia in an Optimization Program based upon a Lead Compound
which is a Schering Compound.

 

5.5.2                        ROYALTY TERM FOR AGREEMENT PRODUCTS.  SCHERING’S
OBLIGATION TO PAY ROYALTIES TO PHARMACOPEIA UNDER SECTIONS 5.5.1(I), 5.5.1(II),
5.5.1(III) OR 5.5.1(IV), AS APPLICABLE, SHALL CONTINUE FOR EACH AGREEMENT
PRODUCT UNTIL THE DATE WHICH IS THE LATER OF *

 

5.5.3                        SINGLE ROYALTY; NON-ROYALTY SALES.  NO ROYALTY
SHALL BE PAYABLE UNDER SECTION 5.5.1 ABOVE WITH RESPECT TO SALES OF AGREEMENT
PRODUCTS AMONG SCHERING, ITS AFFILIATES AND SUBLICENSEES FOR RESALE; HOWEVER, A
ROYALTY SHALL BE PAYABLE UPON SUCH RESALE BY SCHERING’S AFFILIATES AND
SUBLICENSEES TO ANY THIRD PARTY.  IN NO EVENT SHALL MORE THAN ONE ROYALTY BE DUE
HEREUNDER WITH RESPECT TO ANY AGREEMENT PRODUCT UNIT EVEN IF COVERED BY MORE
THAN ONE PATENT INCLUDED IN THE PHARMACOPEIA TECHNOLOGY OR COLLABORATION
TECHNOLOGY.  FOR PURPOSES OF CLARITY AND AVOIDANCE OF DOUBT, THE PARTIES
ACKNOWLEDGE AND AGREE THAT UNDER NO CIRCUMSTANCES WILL ANY ROYALTY EVER BE
PAYABLE UNDER SECTIONS 5.5.1(I) OR 5.5.1(II) WITH RESPECT TO SALES OF ANY
AGREEMENT PRODUCT RESULTING FROM AN INDEPENDENT SCREENING PROGRAMS CONDUCTED BY
SCHERING PURSUANT TO SECTION 2.11.  NO ROYALTIES SHALL ACCRUE ON THE DISPOSITION
OF ANY AGREEMENT PRODUCT IN REASONABLE QUANTITIES BY SCHERING, ITS AFFILIATES OR
ITS SUBLICENSES AS (I) SAMPLES (PROMOTIONAL OR OTHERWISE), (II) DONATIONS (FOR
EXAMPLE, TO NON-PROFIT INSTITUTIONS OR GOVERNMENT AGENCIES FOR A NON-COMMERCIAL
PURPOSE), (III) FOR USE IN CLINICAL STUDIES, OR (IV) FREE OF CHARGE IN
COMPASSIONATE USE AND/OR INDIGENT CARE PROGRAMS.

 

5.5.4                        THIRD PARTY ROYALTIES.

 

(A)                                  SCHERING RESPONSIBILITIES.  SCHERING SHALL
BE RESPONSIBLE FOR THE PAYMENT OF ANY ROYALTIES DUE TO LICENSES OBTAINED FROM
THIRD PARTIES RELATING TO THE MANUFACTURE, USE, MARKETING, SALE OR DISTRIBUTION
OF AGREEMENT PRODUCTS BY SCHERING, ITS AFFILIATES OR SUBLICENSEES UNDER THE
COLLABORATION TECHNOLOGY OR SCHERING TECHNOLOGY.

 

(B)                                 THIRD PARTY ROYALTY OFFSET.  NOTWITHSTANDING
SECTION 5.5.4(A) ABOVE, IF A THIRD PARTY ALLEGES THAT THE MANUFACTURE, USE OR
SALE OF AN AGREEMENT PRODUCT INFRINGES ITS PATENTS, BASED SOLELY ON THE PRACTICE
OF THE PHARMACOPEIA TECHNOLOGY, PHARMACOPEIA AND SCHERING SHALL CONSULT
REGARDING WHETHER A LICENSE SHOULD BE TAKEN FROM SUCH THIRD PARTY.  IF
PHARMACOPEIA AND SCHERING AGREE THAT SUCH A LICENSE IS REQUIRED, SCHERING, ITS
AFFILIATES OR SUBLICENSEES MAY, WITH RESPECT TO SALES OF SUCH AGREEMENT PRODUCT,
PAY ROYALTIES DIRECTLY (OR INDIRECTLY THROUGH PHARMACOPEIA) TO THE THIRD PARTY
WHOSE PATENTS MAY BE INFRINGED BY SUCH SALES.  SCHERING MAY REDUCE ANY ROYALTY
DUE PHARMACOPEIA UNDER SECTION 5.5.1 TO REIMBURSE SCHERING FOR ANY SUCH
ROYALTIES ACTUALLY PAID TO THIRD PARTIES; PROVIDED THAT THE AMOUNT OF THE
REDUCTION SHALL BE EQUAL TO * OF THE ROYALTY ACTUALLY PAID TO SUCH THIRD PARTIES
WITH RESPECT TO SALES OF THE AGREEMENT PRODUCT IN SUCH COUNTRY; PROVIDED,
HOWEVER, THAT IN NO EVENT SHALL THE ROYALTY DUE PHARMACOPEIA FOR ANY CALENDAR
QUARTER, WITH RESPECT TO ANY SUCH AGREEMENT PRODUCT, BE THEREBY REDUCED TO * OF
THE ROYALTY DUE PHARMACOPEIA UNDER SECTION 5.5.1 WITH RESPECT TO NET SALES IN
SUCH COUNTRY.  IF THE PARTIES CANNOT PROMPTLY REACH AGREEMENT THEY SHALL APPOINT
AN INDEPENDENT PATENT COUNSEL REASONABLY ACCEPTABLE TO EACH OF THEM TO GIVE AN
OPINION, WHICH WILL BE BINDING AS BETWEEN THE PARTIES, AND THE PARTIES SHALL
HAVE NO FURTHER RECOURSE TO DISPUTE SUCH OPINION (INCLUDING, WITHOUT LIMITATION,
THE PROVISIONS OF SECTION 11.3, WHICH SHALL NOT APPLY).  IF IT IS THE
INDEPENDENT PATENT COUNSEL’S OPINION THAT THE PATENT IS VALID AND INFRINGED BY
THE SALE OF SUCH AGREEMENT PRODUCT DUE TO USE OF THE PHARMACOPEIA TECHNOLOGY,
SCHERING MAY SETTLE THE MATTER IN ITS SOLE DISCRETION ON SUCH TERMS AS IT DEEMS
APPROPRIATE, PROVIDED THAT SUCH SETTLEMENT DOES NOT CONTAIN AN ADMISSION OR
ACKNOWLEDGMENT OF INFRINGEMENT OR INVALIDITY.

 

5.5.5                        COMPULSORY ROYALTY REDUCTIONS.  IF THE ROYALTIES
SET FORTH HEREIN ARE HIGHER THAN THE MAXIMUM ROYALTIES PERMITTED BY THE LAW OR
REGULATION IN ANY COUNTRY OR TERRITORY OR POSSESSION THEREOF IN THE WORLD, THE
ROYALTY PAYABLE FOR SALES IN SUCH COUNTRY, TERRITORY OR POSSESSION SHALL BE
EQUAL TO THE MAXIMUM PERMITTED ROYALTY UNDER SUCH LAW OR REGULATIONS.

 

5.5.6                        ROYALTY OVERPAYMENT.  IN THE EVENT SCHERING PAYS
PHARMACOPEIA ROYALTIES IN EXCESS OF THE AMOUNTS DUE UNDER SECTION 5.5.1 HEREIN,
SCHERING SHALL PROMPTLY NOTIFY PHARMACOPEIA PROVIDING A WRITTEN EXPLANATION OF

 

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THE AMOUNT OF OVERPAYMENT.  ANY SUCH OVERPAYMENT SHALL BE FULLY CREDITABLE
AGAINST ROYALTIES SUBSEQUENTLY DUE HEREUNDER.

 

5.6                                 REPORTS; PAYMENT OF ROYALTY; PAYMENT
EXCHANGE RATE AND CURRENCY CONVERSIONS.

 

5.6.1                        ROYALTY REPORTS AND PAYMENTS.  AFTER THE FIRST
COMMERCIAL SALE OF AN AGREEMENT PRODUCT ON WHICH ROYALTIES ARE PAYABLE BY
SCHERING, ITS AFFILIATE OR SUBLICENSEES HEREUNDER, SCHERING SHALL MAKE QUARTERLY
WRITTEN REPORTS TO PHARMACOPEIA WITHIN SIXTY (60) DAYS AFTER THE END OF EACH
CALENDAR QUARTER, STATING IN EACH SUCH REPORT SEPARATELY FOR SCHERING AND EACH
OF ITS AFFILIATES AND SUBLICENSEES THE NUMBER, DESCRIPTION, AND AGGREGATE NET
SALES BY COUNTRY OF EACH AGREEMENT PRODUCT SOLD DURING THE CALENDAR QUARTER UPON
WHICH A ROYALTY IS PAYABLE UNDER SECTION 5.5 ABOVE.  SUBJECT TO ANY REDUCTIONS
PERMITTED PURSUANT TO THE EXPRESS TERMS OF THIS AGREEMENT, CONCURRENTLY WITH THE
MAKING OF SUCH REPORTS, SCHERING SHALL PAY TO PHARMACOPEIA ROYALTIES AT THE
RATES SPECIFIED IN SECTION 5.5.1.

 

5.6.2                        PAYMENT METHOD.  ALL PAYMENTS DUE UNDER THIS
AGREEMENT SHALL BE MADE BY BANK WIRE TRANSFER IN IMMEDIATELY AVAILABLE FUNDS TO
AN ACCOUNT DESIGNATED BY PHARMACOPEIA.  ALL PAYMENTS HEREUNDER SHALL BE MADE IN
U.S. DOLLARS.  ANY PAYMENTS THAT ARE NOT PAID ON THE DATE SUCH PAYMENTS ARE DUE
UNDER THIS AGREEMENT SHALL BEAR INTEREST, CALCULATED ON THE NUMBER OF DAYS SUCH
PAYMENT IS DELINQUENT, AT THE LESSER OF: (I) THE PRIME RATE AS REPORTED BY THE
CHASE MANHATTAN BANK, NEW YORK, NEW YORK, ON THE DATE SUCH PAYMENT IS DUE, PLUS
AN ADDITIONAL TWO PERCENT (2%), OR (II) THE MAXIMUM RATE PERMITTED BY APPLICABLE
LAW.

 

5.6.3                        PLACE OF ROYALTY PAYMENT AND CURRENCY CONVERSIONS. 
ROYALTIES SHALL BE DEEMED PAYABLE BY THE ENTITY MAKING THE NET SALES FROM THE
COUNTRY IN WHICH EARNED IN LOCAL CURRENCY AND SUBJECT TO FOREIGN EXCHANGE
REGULATIONS THEN PREVAILING.  ROYALTY PAYMENTS SHALL BE MADE IN UNITED STATES
DOLLARS TO THE EXTENT THAT FREE CONVERSION TO UNITED STATES DOLLARS IS
PERMITTED.  THE RATE OF EXCHANGE TO BE USED IN ANY SUCH CONVERSION FROM THE
CURRENCY IN THE COUNTRY WHERE SUCH NET SALES OCCURS SHALL BE IN ACCORDANCE WITH
THE POLICY SET FORTH IN EXHIBIT A HERETO.  IF, DUE TO RESTRICTIONS OR
PROHIBITIONS IMPOSED BY NATIONAL OR INTERNATIONAL AUTHORITY, PAYMENTS CANNOT BE
MADE AS AFORESAID, THE PARTIES SHALL CONSULT WITH A VIEW TO FINDING A PROMPT AND
ACCEPTABLE SOLUTION, AND SCHERING OR ITS DESIGNATED AFFILIATES WILL, FROM TIME
TO TIME, DEAL WITH SUCH MONIES AS PHARMACOPEIA MAY LAWFULLY DIRECT AT NO
ADDITIONAL OUT-OF-POCKET EXPENSE TO SCHERING.  NOTWITHSTANDING THE FOREGOING, IF
ROYALTIES IN ANY COUNTRY CANNOT BE REMITTED TO PHARMACOPEIA FOR ANY REASON
WITHIN SIX (6) MONTHS AFTER THE END OF THE CALENDAR QUARTER DURING WHICH THEY
ARE EARNED, THEN SCHERING SHALL BE OBLIGATED TO DEPOSIT THE ROYALTIES IN A BANK
ACCOUNT IN SUCH COUNTRY IN THE NAME OF PHARMACOPEIA.

 

5.7                                 MAINTENANCE OF RECORDS; AUDITS.

 

5.7.1                        RECORDS; INSPECTION.  SCHERING AND ITS AFFILIATES
SHALL KEEP COMPLETE, TRUE AND ACCURATE BOOKS OF ACCOUNT AND RECORDS FOR THE
PURPOSE OF DETERMINING THE ROYALTY AMOUNTS PAYABLE UNDER THIS AGREEMENT, WHICH
BOOKS AND RECORDS SHALL BE MAINTAINED IN ACCORDANCE WITH SCHERING’S RECORDS
RETENTION POLICIES. UPON PRIOR WRITTEN NOTICE FROM PHARMACOPEIA, SCHERING SHALL,
WITHIN A PERIOD NOT TO EXCEED FORTY-FIVE (45) DAYS, PERMIT AN INDEPENDENT
CERTIFIED PUBLIC ACCOUNTING FIRM OF NATIONALLY RECOGNIZED STANDING SELECTED BY
PHARMACOPEIA AND REASONABLY ACCEPTABLE TO SCHERING, AT PHARMACOPEIA’S EXPENSE,
TO HAVE ACCESS DURING NORMAL BUSINESS HOURS TO EXAMINE PERTINENT BOOKS AND
RECORDS OF SCHERING AND/OR ITS AFFILIATES AS MAY BE REASONABLY NECESSARY TO
VERIFY THE ACCURACY OF THE ROYALTY REPORTS HEREUNDER.  THE EXAMINATION SHALL BE
LIMITED TO PERTINENT BOOKS AND RECORDS FOR ANY CALENDAR YEAR ENDING NOT MORE
THAN THIRTY-SIX (36) MONTHS PRIOR TO THE DATE OF SUCH REQUEST.  SUCH INSPECTIONS
MAY BE MADE NO MORE THAN ONCE EACH CALENDAR YEAR.  IN THE EVENT THAT THE
ACCOUNTING FIRM CORRECTLY CONCLUDES THAT A VARIATION OR ERROR HAS OCCURRED
RESULTING IN AN UNDERPAYMENT OF ROYALTIES BY SCHERING OF FIVE PERCENT (5)% OR
MORE OF THE AMOUNT ACTUALLY DUE FOR THE PERIOD COVERED BY THE INSPECTION,
SCHERING SHALL PAY TO PHARMACOPEIA SUCH ADDITIONAL AMOUNTS, AS WELL AS THE COSTS
RELATING TO THE INSPECTION, WITHIN THIRTY (30) DAYS OF RECEIPT OF AN INVOICE FOR
SUCH AMOUNTS.  ANY OVERPAYMENT OF ROYALTIES BY SCHERING DISCOVERED THROUGH SUCH
AUDIT SHALL BE FULLY CREDITABLE AGAINST ROYALTIES SUBSEQUENTLY DUE HEREUNDER. 
SCHERING MAY DESIGNATE COMPETITIVELY SENSITIVE INFORMATION WHICH SUCH AUDITOR
MAY NOT DISCLOSE TO PHARMACOPEIA; PROVIDED, HOWEVER, THAT SUCH DESIGNATION SHALL
NOT ENCOMPASS THE AUDITOR’S CONCLUSIONS.  THE ACCOUNTING FIRM SHALL DISCLOSE TO
PHARMACOPEIA ONLY WHETHER THE ROYALTY REPORTS ARE CORRECT OR INCORRECT AND THE
SPECIFIC DETAILS CONCERNING ANY DISCREPANCIES.  NO OTHER INFORMATION SHALL BE
PROVIDED TO PHARMACOPEIA.  THE ACCOUNTING FIRM EMPLOYEES SHALL SIGN
CONFIDENTIALITY AGREEMENTS ACCEPTABLE TO SCHERING AS A CONDITION PRECEDENT TO
THEIR INSPECTION.  SCHERING SHALL INCLUDE IN EACH SUBLICENSE GRANTED BY IT
PURSUANT TO THIS AGREEMENT A PROVISION REQUIRING THE SUBLICENSEE TO MAKE REPORTS
TO SCHERING, TO KEEP AND MAINTAIN

 

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RECORDS OF SALES MADE PURSUANT TO SUCH SUBLICENSE AND TO GRANT ACCESS TO SUCH
RECORDS BY PHARMACOPEIA’S INDEPENDENT ACCOUNTANT TO THE SAME EXTENT REQUIRED OF
SCHERING UNDER THIS AGREEMENT.  UPON EXPIRATION OF THE THIRTY-SIX (36) MONTH
PERIOD IMMEDIATELY FOLLOWING THE RECEIPT BY PHARMACOPEIA OF SCHERING’S FOURTH
QUARTER ROYALTY REPORT FOR A GIVEN CALENDAR YEAR IN ACCORDANCE WITH
SECTION 5.6.1, THE CALCULATION OF ROYALTIES PAYABLE WITH RESPECT TO SUCH YEAR
SHALL BE BINDING AND CONCLUSIVE UPON PHARMACOPEIA, AND SCHERING, ITS AFFILIATES
AND ITS SUBLICENSEES SHALL BE RELEASED FROM ANY LIABILITY OR ACCOUNTABILITY WITH
RESPECT TO ROYALTIES FOR SUCH YEAR, EXCEPT FOR INSTANCES OF FRAUD OR OTHER
INTENTIONAL MISCONDUCT BY SCHERING.

 

5.8                                 COORDINATION WITH PAYMENTS UNDER
INTERNATIONAL AGREEMENT.  THE MILESTONES AND ROYALTIES PAYABLE BY SCHERING UNDER
SECTIONS 5.3, 5.4 AND 5.5 ARE IN CONSIDERATION FOR THE RIGHTS AND LICENSES
GRANTED TO SCHERING UNDER THIS AGREEMENT AND ARE IN ADDITION TO ANY AMOUNTS
PAYABLE TO PHARMACOPEIA UNDER THE INTERNATIONAL AGREEMENT.  IT IS UNDERSTOOD AND
AGREED THAT, WITH RESPECT TO THE SPECIFIC MILESTONES PAYABLE UNDER SECTIONS
5.4.1(A)(I)-(III) AND 5.4.1(B)(I)-(III), THE OCCURRENCE OF THE SAME MILESTONE
EVENT WILL RESULT IN MILESTONE PAYMENT OBLIGATIONS UNDER BOTH THIS AGREEMENT AND
THE CORRESPONDING PROVISIONS OF THE INTERNATIONAL AGREEMENT.  HOWEVER, THE
SPECIFIC MILESTONES PAYABLE UNDER SECTIONS 5.4.1(A)(IV) AND (V) AND SECTIONS
5.4.1(B)(IV) AND (V) UNDER THIS AGREEMENT AND THE ANALOGOUS MILESTONES UNDER THE
INTERNATIONAL AGREEMENT SHALL BE PAID, RESPECTIVELY, UPON OCCURRENCE OF THE
RELEVANT MILESTONE EVENT SPECIFIED IN THIS AGREEMENT OR THE INTERNATIONAL
AGREEMENT.

 

5.9                                 TAX MATTERS.

 

5.9.1                        WITHHOLDING TAXES.  ALL ROYALTY AMOUNTS REQUIRED TO
BE PAID TO PHARMACOPEIA PURSUANT TO THIS AGREEMENT SHALL BE PAID WITH DEDUCTION
FOR WITHHOLDING FOR OR ON ACCOUNT OF ANY TAXES (OTHER THAN TAXES IMPOSED ON OR
MEASURED BY NET INCOME) OR SIMILAR GOVERNMENTAL CHARGE IMPOSED BY A JURISDICTION
OTHER THAN THE UNITED STATES (“WITHHOLDING TAXES”) TO THE EXTENT PHARMACOPEIA
AND/OR ITS AFFILIATES OR THEIR SUCCESSORS HAS THE LAWFUL RIGHTS TO UTILIZE THE
WITHHOLDING TAXES PAID BY SCHERING AS A CREDIT AGAINST PHARMACOPEIA’S AND/OR ITS
AFFILIATES REGULAR U.S. TAX LIABILITY.  SCHERING SHALL PROVIDE PHARMACOPEIA
DOCUMENTATION EVIDENCING PAYMENT OF ANY WITHHOLDING TAXES HEREUNDER IN A MANNER
THAT IS SATISFACTORY FOR PURPOSES OF THE U.S. INTERNAL REVENUE SERVICE.  ANY
WITHHOLDING TAXES PAID WHEN DUE HEREUNDER SHALL BE FOR THE ACCOUNT OF
PHARMACOPEIA AND SHALL NOT BE INCLUDED IN THE CALCULATION OF NET SALES. 
PAYMENTS OF WITHHOLDING TAXES MADE BY SCHERING PURSUANT TO THIS SECTION 5.9.1
SHALL BE MADE BASED UPON FINANCIAL INFORMATION PROVIDED TO SCHERING BY
PHARMACOPEIA, AND TO THE EXTENT THAT SUCH INFORMATION IS INCORRECT PHARMACOPEIA
SHALL BE LIABLE FOR ANY DEFICIENCY, AND ANY FINE, ASSESSMENT OR PENALTY IMPOSED
BY ANY TAXING AUTHORITY IN THE TERRITORY FOR ANY DEFICIENCY IN THE AMOUNT OF ANY
SUCH WITHHOLDING TAXES, OR THE FAILURE TO MAKE PAYMENT OF WITHHOLDING TAXES,
BASED UPON SUCH INCORRECT INFORMATION.  IF SCHERING IS REQUIRED TO PAY ANY SUCH
DEFICIENCY, OR ANY FINE, ASSESSMENT OR PENALTY FOR ANY SUCH DEFICIENCY BASED
UPON SUCH INCORRECT INFORMATION (EXCEPT TO THE EXTENT CAUSED BY SCHERING’S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), PHARMACOPEIA SHALL PROMPTLY REIMBURSE
SCHERING FOR SUCH PAYMENTS, WHICH SHALL NOT BE INCLUDED IN THE CALCULATION OF
NET SALES.

 

5.10                           PRODUCT DEVELOPMENT COSTS.  SCHERING SHALL, AT
SCHERING’S EXPENSE, BE RESPONSIBLE FOR CONDUCTING ALL DEVELOPMENT OF AGREEMENT
COMPOUNDS, AGREEMENT PRODUCTS, SCHERING COMPOUNDS, AND ALL COMMERCIALIZATION OF
AGREEMENT PRODUCTS.

 

ARTICLE VI
PATENTS AND INVENTIONS

 

6.1                                 OWNERSHIP OF SCHERING TECHNOLOGY AND
PHARMACOPEIA TECHNOLOGY.  IT IS UNDERSTOOD AND AGREED THAT (I) SCHERING SHALL
OWN ALL SCHERING TECHNOLOGY INCLUDING, WITHOUT LIMITATION, SCHERING
IMPROVEMENTS, AND (II) PHARMACOPEIA SHALL OWN ALL PHARMACOPEIA TECHNOLOGY
INCLUDING, WITHOUT LIMITATION, PHARMACOPEIA IMPROVEMENTS.

 

6.2                                 OWNERSHIP OF COLLABORATION TECHNOLOGY.  THE
PARTIES ANTICIPATE THAT THE COLLABORATION MAY RESULT IN NEW INVENTIONS,
DISCOVERIES AND INNOVATIONS, AS WELL AS IMPROVEMENTS TO EXISTING TECHNOLOGIES,
WHETHER PATENTABLE OR NOT, WITHIN THE COLLABORATION TECHNOLOGY.  OWNERSHIP OF
COLLABORATION TECHNOLOGY SHALL BE DETERMINED BASED UPON U.S.

 

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PATENT LAWS AND THE FOLLOWING GUIDELINES; PROVIDED, HOWEVER, THAT OWNERSHIP
RIGHTS TO ALL COLLABORATION TECHNOLOGY SHALL BE SUBJECT TO THE APPLICABLE
LICENSES AND OTHER RIGHTS GRANTED UNDER ARTICLE IV OF THIS AGREEMENT.

 

(A)                                  INVENTIONS BY SCHERING EMPLOYEES. TITLE TO
ALL COLLABORATION TECHNOLOGY INVENTED SOLELY BY EMPLOYEES OF SCHERING WORKING ON
THE COLLABORATION AT PHARMACOPEIA, TOGETHER WITH ANY DERIVATIVE COMPOUNDS
SYNTHESIZED BY PHARMACOPEIA PURSUANT TO SECTION 2.9, SHALL BE DEEMED TO BE OWNED
BY SCHERING.

 

(B)                                 INVENTIONS BY PHARMACOPEIA EMPLOYEES. TITLE
TO ALL COLLABORATION TECHNOLOGY INVENTED SOLELY BY EMPLOYEES OF PHARMACOPEIA
SHALL BE DEEMED TO BE OWNED BY PHARMACOPEIA.

 

(C)                                  JOINT INVENTIONS. TITLE TO ALL
COLLABORATION TECHNOLOGY INVENTED JOINTLY BY ONE OR MORE EMPLOYEES OF SCHERING
WORKING ON THE COLLABORATION AT PHARMACOPEIA, AND ONE OR MORE EMPLOYEES OF
PHARMACOPEIA SHALL BE DEEMED TO BE JOINTLY OWNED BY SCHERING AND PHARMACOPEIA.

 

6.3                                 FILING, PROSECUTION AND MAINTENANCE OF
PATENTS.

 

6.3.1                        COLLABORATION TECHNOLOGY.  SCHERING SHALL HAVE THE
RIGHT TO PREPARE, FILE, PROSECUTE AND MAINTAIN IN SUCH COUNTRIES AS IT DEEMS
APPROPRIATE IN ITS DISCRETION, AT ITS OWN EXPENSE AND UPON APPROPRIATE
CONSULTATION WITH PHARMACOPEIA, PATENT APPLICATIONS AND PATENTS, AND TO CONDUCT
ANY INTERFERENCES, RE-EXAMINATIONS, REISSUES, OPPOSITIONS OR REQUESTS FOR PATENT
TERM EXTENSION OR GOVERNMENTAL EQUIVALENTS THERETO WITHIN THE COLLABORATION
TECHNOLOGY, AND PHARMACOPEIA SHALL GIVE REASONABLE COOPERATION IN CONNECTION
THEREWITH, AT SCHERING’S REQUEST AND EXPENSE.  SCHERING SHALL PROVIDE
PHARMACOPEIA WITH COPIES OF ANY NEW PATENT APPLICATIONS CLAIMING COLLABORATION
TECHNOLOGY WHICH ARE PROPOSED TO BE FILED BY SCHERING, AS PROVIDED IN
SECTION 6.4.1.  IN THE EVENT THAT SCHERING DOES NOT FILE A PATENT OR PATENT
APPLICATION CLAIMING AN INVENTION WITHIN SUCH COLLABORATION TECHNOLOGY, OR IF IT
CEASES TO SO PROSECUTE, MAINTAIN, CONDUCT ANY INTERFERENCES, RE-EXAMINATIONS,
REISSUES, OPPOSITIONS OR REQUESTS FOR PATENT TERM EXTENSION OR GOVERNMENTAL
EQUIVALENTS THERETO RELATING TO SUCH AN INVENTION, PHARMACOPEIA SHALL HAVE THE
RIGHT, IN ITS SOLE DISCRETION, TO UNDERTAKE SUCH ACTIVITIES AT ITS OWN EXPENSE,
AND SCHERING SHALL GIVE REASONABLE COOPERATION IN CONNECTION THEREWITH, AT
PHARMACOPEIA’S EXPENSE.

 

6.3.2                        SCHERING TECHNOLOGY.  SCHERING SHALL HAVE THE RIGHT
TO PREPARE, FILE, PROSECUTE AND MAINTAIN IN SUCH COUNTRIES AS IT DEEMS
APPROPRIATE IN ITS DISCRETION, AT ITS OWN EXPENSE, PATENT APPLICATIONS AND
PATENTS, AND TO CONDUCT ANY INTERFERENCES, RE-EXAMINATIONS, REISSUES,
OPPOSITIONS OR REQUESTS FOR PATENT TERM EXTENSION OR GOVERNMENTAL EQUIVALENTS
THERETO WITHIN THE SCHERING TECHNOLOGY AND PHARMACOPEIA SHALL GIVE REASONABLE
COOPERATION IN CONNECTION THEREWITH, AT SCHERING’S REQUEST AND EXPENSE.

 

6.3.3                        PHARMACOPEIA TECHNOLOGY.  PHARMACOPEIA SHALL HAVE
THE RIGHT TO PREPARE, FILE, PROSECUTE AND MAINTAIN IN SUCH COUNTRIES AS IT DEEMS
APPROPRIATE IN ITS DISCRETION, AT ITS OWN EXPENSE, PATENT APPLICATIONS AND
PATENTS, AND TO CONDUCT ANY INTERFERENCES, RE-EXAMINATIONS, REISSUES,
OPPOSITIONS OR REQUESTS FOR PATENT TERM EXTENSION OR GOVERNMENTAL EQUIVALENTS
THERETO WITHIN THE PHARMACOPEIA TECHNOLOGY, AND SCHERING SHALL GIVE REASONABLE
COOPERATION IN CONNECTION THEREWITH, AT PHARMACOPEIA’S REQUEST AND EXPENSE.

 

6.4                                 COOPERATION.

 

6.4.1                        COOPERATION.  UPON REQUEST, AND AT THE REQUESTING
PARTY’S EXPENSE, EACH OF PHARMACOPEIA AND SCHERING SHALL PROVIDE THE OTHER PARTY
REASONABLE ASSISTANCE TO PREPARE, FILE, PROSECUTE AND MAINTAIN PATENTS AND
PATENT APPLICATIONS COVERING ANY COLLABORATION TECHNOLOGY, SCHERING IMPROVEMENTS
OR PHARMACOPEIA IMPROVEMENTS WHICH THE REQUESTING PARTY HAS THE RIGHT TO FILE. 
REASONABLE ASSISTANCE SHALL INCLUDE, WITHOUT LIMITATION, PROVIDING THE
REQUESTING PARTY WITH NECESSARY OR USEFUL DATA AND INFORMATION RELATING TO THE
COLLABORATION TECHNOLOGY, SCHERING IMPROVEMENTS OR PHARMACOPEIA IMPROVEMENTS, AS
THE CASE MAY BE, AND REASONABLE ACCESS TO THE INVENTORS OF SAID INVENTIONS, AS
WELL AS CAUSING THE EXECUTION OF REQUIRED PATENT ASSIGNMENTS AND/OR OTHER
DOCUMENTS.  WITH RESPECT TO ALL PATENT APPLICATIONS CLAIMING COLLABORATION
TECHNOLOGY, OR ANY DERIVATIVE COMPOUNDS, LEAD COMPOUNDS WHICH ARE HITS, OR
SCHERING DERIVATIVES, THE FILING PARTY SHALL GIVE THE NON-FILING PARTY AN
OPPORTUNITY TO REVIEW THE TEXT OF SUCH PATENT APPLICATIONS BEFORE FILING, SHALL
CONSULT WITH THE NON-FILING PARTY WITH RESPECT THERETO, AND SHALL SUPPLY THE
NON-FILING PARTY WITH A

 

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COPY OF THE APPLICATIONS AS FILED, TOGETHER WITH NOTICE OF ITS FILING DATE AND
SERIAL NUMBER.  SCHERING WILL IDENTIFY TO PHARMACOPEIA ANY OF SCHERING’S
PROPRIETARY INFORMATION CONTAINED IN SUCH DOCUMENTS TO BE PROVIDED TO
PHARMACOPEIA TO ENSURE THAT PHARMACOPEIA WILL PROTECT SCHERING’S PROPRIETARY
INFORMATION, INCLUDING WITHOUT LIMITATION, INFORMATION RELATING TO TARGETS.  IN
ADDITION, WITH RESPECT TO APPLICATIONS WHICH DO NOT INCLUDE PHARMACOPEIA
INVENTORS, SCHERING MAY REDACT OR PROVIDE IN CODED FORM ANY INFORMATION
CONTAINED IN SUCH DOCUMENTS TO BE PROVIDED TO PHARMACOPEIA TO THE EXTENT
NECESSARY (IN SCHERING’S OPINION) TO PROTECT SCHERING’S PROPRIETARY INFORMATION,
INCLUDING WITHOUT LIMITATION, INFORMATION RELATING TO TARGETS.  PHARMACOPEIA AND
SCHERING SHALL EACH KEEP THE OTHER PARTY ADVISED OF THE STATUS OF THE ACTUAL AND
PROSPECTIVE PATENTS AND PATENT APPLICATIONS WITHIN THE COLLABORATION PATENT
RIGHTS FOR WHICH IT IS RESPONSIBLE, AND UPON THE WRITTEN REQUEST OF THE OTHER
PARTY, WILL PROVIDE ADVANCE COPIES OF ANY SUBSTANTIVE PAPERS RELATED TO THE
FILING, PROSECUTION AND MAINTENANCE OF SUCH COLLABORATION PATENT RIGHTS.

 

6.5                                 ENFORCEMENT.

 

6.5.1                        NOTICE.  EACH PARTY SHALL PROMPTLY NOTIFY THE OTHER
OF ITS KNOWLEDGE OF ANY ACTUAL OR POTENTIAL INFRINGEMENT OF THE COLLABORATION
TECHNOLOGY BY A THIRD PARTY.

 

6.5.2                        COLLABORATION TECHNOLOGY.  SCHERING SHALL HAVE THE
INITIAL RIGHT, BUT NOT THE OBLIGATION, TO TAKE REASONABLE LEGAL ACTION TO
ENFORCE AGAINST INFRINGEMENTS BY THIRD PARTIES OR DEFEND ANY DECLARATORY
JUDGMENT ACTION RELATING TO ANY PATENT WITHIN THE COLLABORATION TECHNOLOGY AT
ITS SOLE COST AND EXPENSE.  IF, WITHIN SIX (6) MONTHS FOLLOWING RECEIPT OF
NOTICE OF SUCH INFRINGEMENT FROM PHARMACOPEIA (OR WRITTEN NOTICE OF A
DECLARATORY JUDGMENT ACTION ALLEGING INVALIDITY OR UNENFORCEABILITY OF SUCH
COLLABORATION TECHNOLOGY), SCHERING DOES NOT TAKE SUCH ACTION AGAINST A
COMMERCIALLY SIGNIFICANT INFRINGEMENT, PHARMACOPEIA SHALL, IN ITS SOLE
DISCRETION, HAVE THE RIGHT, BUT NOT THE OBLIGATION TO TAKE SUCH ACTION AT ITS
SOLE EXPENSE.

 

6.5.3                        SCHERING TECHNOLOGY AND PHARMACOPEIA TECHNOLOGY. 
IT IS UNDERSTOOD AND AGREED THAT PHARMACOPEIA SHALL HAVE THE SOLE RIGHT, BUT NOT
THE OBLIGATION, TO INITIATE AND CONDUCT LEGAL PROCEEDINGS TO ENFORCE THE
PHARMACOPEIA TECHNOLOGY AGAINST ANY ACTUAL OR THREATENED INFRINGEMENT OR
MISAPPROPRIATION OR DEFEND ANY DECLARATORY JUDGMENT ACTION RELATING THERETO, AT
ITS SOLE EXPENSE, AND THAT SCHERING SHALL HAVE THE SOLE RIGHT, BUT NOT THE
OBLIGATION, TO INITIATE AND CONDUCT LEGAL PROCEEDINGS TO ENFORCE THE SCHERING
TECHNOLOGY AGAINST ANY ACTUAL OR THREATENED INFRINGEMENT OR MISAPPROPRIATION OR
DEFEND ANY DECLARATORY JUDGMENT ACTION RELATING THERETO, AT ITS SOLE EXPENSE.

 

6.5.4                        COOPERATION; COSTS AND RECOVERIES.  EACH PARTY
AGREES TO RENDER SUCH REASONABLE ASSISTANCE AS THE ENFORCING PARTY MAY REQUEST,
AND AT THE ENFORCING PARTY’S EXPENSE.  COSTS OF MAINTAINING ANY SUCH ACTION
SHALL BE PAID BY THE PARTY BRINGING THE ACTION AND ANY DAMAGES OR SETTLEMENTS
RECOVERED THEREFROM SHALL BELONG TO SUCH PARTY.  TO THE EXTENT THAT SCHERING
RECOVERS ANY LOST PROFITS OR OTHER RECOVERY BASED UPON THIRD PARTY SALES OF
INFRINGING PRODUCTS, PHARMACOPEIA SHALL RECEIVE AN EQUITABLE SHARE OF SUCH
RECOVERY, AS DETERMINED BASED UPON THE ROYALTIES PHARMACOPEIA WOULD HAVE BEEN
ENTITLED TO UNDER THIS AGREEMENT ON NET SALES BY SCHERING, ITS AFFILIATES OR
SUBLICENSEES OF THE RELEVANT AGREEMENT PRODUCTS CORRESPONDING TO SUCH LOST
PROFITS.  IF SCHERING, IN ITS SOLE DISCRETION, AGREES TO SETTLE ANY SUCH
INFRINGEMENT ACTION BY GRANTING A SUBLICENSE TO THE THIRD PARTY INFRINGER, AND
SUCH THIRD PARTY, BUT FOR THE GRANT OF SUCH SUBLICENSE, WOULD BE INFRINGING A
CLAIM OF AN ISSUED PATENT IN THE COLLABORATION TECHNOLOGY, OR A
COMPOSITION-OF-MATTER CLAIM OF AN ISSUED PATENT IN THE SCHERING TECHNOLOGY,
SCHERING SHALL BE ENTITLED TO RECEIVE ALL CONSIDERATION PAYABLE BY SUCH THIRD
PARTY FOR THE GRANT OF THE LICENSE; PROVIDED, HOWEVER, THAT NET SALES OF SUCH
THIRD PARTY PRODUCTS IN THE TERRITORY ON WHICH SCHERING RECEIVES SUCH
CONSIDERATION (INCLUDING, WITHOUT LIMITATION, RUNNING ROYALTIES OR LUMP SUM
PAYMENTS) SHALL BE TREATED AS NET SALES FOR PURPOSES OF THIS AGREEMENT, AND
FURTHER PROVIDED THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY,
SCHERING’S ROYALTY OBLIGATIONS TO PHARMACOPEIA WITH RESPECT TO SUCH THIRD PARTY
SALES IN ANY CALENDAR QUARTER SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE
ROYALTIES RECEIVED BY SCHERING FROM SUCH THIRD PARTY FOR THE SAME QUARTER.

 

6.6                                 INFRINGEMENT CLAIMS.  IF THE MANUFACTURE,
SALE OR USE OF ANY AGREEMENT PRODUCT PURSUANT TO THIS AGREEMENT BECAUSE OF THE
PRACTICE OF THE PHARMACOPEIA TECHNOLOGY, COLLABORATION TECHNOLOGY OR SCHERING
TECHNOLOGY, RESULTS IN ANY CLAIM, SUIT OR PROCEEDING ALLEGING PATENT
INFRINGEMENT AGAINST PHARMACOPEIA OR SCHERING (OR THEIR RESPECTIVE AFFILIATES OR
SUBLICENSEES), SUCH PARTY SHALL PROMPTLY NOTIFY THE OTHER PARTY HERETO IN
WRITING SETTING FORTH THE FACTS OF SUCH CLAIM IN REASONABLE DETAIL.  THE PARTY
SUBJECT TO SUCH CLAIM SHALL HAVE THE EXCLUSIVE RIGHT AND OBLIGATION TO DEFEND
AND CONTROL THE DEFENSE OF ANY SUCH CLAIM, SUIT OR PROCEEDING, AT ITS OWN
EXPENSE, USING COUNSEL OF ITS OWN CHOICE;

 

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PROVIDED, HOWEVER, IT SHALL NOT ENTER INTO ANY SETTLEMENT WHICH ADMITS OR
CONCEDES THAT ANY ASPECT OF (I) THE SCHERING TECHNOLOGY OR COLLABORATION
TECHNOLOGY IN THE CASE OF PHARMACOPEIA, AND (II) THE PHARMACOPEIA TECHNOLOGY OR
COLLABORATION TECHNOLOGY IN THE CASE OF SCHERING, IS INVALID OR UNENFORCEABLE
WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH OTHER PARTY.  THE PARTY SUBJECT TO THE
CLAIM SHALL KEEP THE OTHER PARTY HERETO REASONABLY INFORMED OF ALL MATERIAL
DEVELOPMENTS IN CONNECTION WITH ANY SUCH CLAIM, SUIT OR PROCEEDING.

 

6.7                                 CERTIFICATION UNDER DRUG PRICE COMPETITION
AND PATENT RESTORATION ACT.  PHARMACOPEIA AND SCHERING EACH SHALL IMMEDIATELY
GIVE WRITTEN NOTICE TO THE OTHER OF ANY CERTIFICATION OF WHICH THEY BECOME AWARE
FILED PURSUANT TO 21 U.S.C.§§355(B)(2)(A)(IV) AND 355(J)(2)(A)(VII) CLAIMING
THAT COLLABORATION PATENT RIGHTS DO NOT COVER THE USE OR SALE OF ANY PRODUCT(S)
EQUIVALENT TO AN EXISTING AGREEMENT PRODUCT(S) BY A THIRD PARTY.  SCHERING SHALL
HAVE THE RIGHT TO BRING AN INFRINGEMENT ACTION, IN ITS SOLE DISCRETION AND AT
ITS OWN EXPENSE, IN ITS OWN NAME AND/OR IN THE NAME OF PHARMACOPEIA, SUBJECT TO
SECTION 6.5 ABOVE.  THE PROVISIONS OF SECTION 6.5.4 SHALL APPLY TO ANY SUCH
INFRINGEMENT ACTION.

 

6.8                                 PATENT TERM RESTORATION.  THE PARTIES HERETO
SHALL GIVE REASONABLE COOPERATION TO EACH OTHER IN OBTAINING PATENT TERM
RESTORATION OR SUPPLEMENTAL PROTECTION CERTIFICATES OR THEIR EQUIVALENTS IN ANY
COUNTRY IN THE TERRITORY WHERE APPLICABLE TO THE COLLABORATION TECHNOLOGY.

 

ARTICLE VII
CONFIDENTIALITY

 

7.1                                 CONFIDENTIAL INFORMATION.  EXCEPT AS
EXPRESSLY PROVIDED HEREIN, THE PARTIES AGREE THAT, * THE RECEIVING PARTY SHALL
NOT DISCLOSE AND EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 7, SHALL NOT USE
FOR ANY PURPOSE ANY CONFIDENTIAL INFORMATION (“CONFIDENTIAL INFORMATION”)
FURNISHED TO IT BY THE DISCLOSING PARTY HERETO PURSUANT TO THIS AGREEMENT EXCEPT
TO THE EXTENT THAT IT CAN BE ESTABLISHED BY THE RECEIVING PARTY BY COMPETENT
PROOF THAT SUCH INFORMATION:

 

(I)                           WAS ALREADY KNOWN TO THE RECEIVING PARTY, OTHER
THAN UNDER AN OBLIGATION OF CONFIDENTIALITY, AT THE TIME OF DISCLOSURE;

 

(II)                        WAS GENERALLY AVAILABLE TO THE PUBLIC OR OTHERWISE
PART OF THE PUBLIC DOMAIN AT THE TIME OF ITS DISCLOSURE TO THE RECEIVING PARTY;

 

(III)                     BECAME GENERALLY AVAILABLE TO THE PUBLIC OR OTHERWISE
PART OF THE PUBLIC DOMAIN AFTER ITS DISCLOSURE AND OTHER THAN THROUGH ANY ACT OR
OMISSION OF THE RECEIVING PARTY IN BREACH OF THIS AGREEMENT;

 

(IV)                    WAS INDEPENDENTLY DEVELOPED BY THE RECEIVING PARTY AS
DEMONSTRATED BY DOCUMENTED EVIDENCE PREPARED CONTEMPORANEOUSLY WITH SUCH
INDEPENDENT DEVELOPMENT; OR

 

(V)                       WAS SUBSEQUENTLY LAWFULLY DISCLOSED TO THE RECEIVING
PARTY, OTHER THAN UNDER A DUTY OF CONFIDENTIALITY, BY A THIRD PARTY THAT HAD THE
RIGHT TO MAKE SUCH DISCLOSURE.

 

7.2                                 PERMITTED USE AND DISCLOSURES.  EACH PARTY
HERETO MAY USE OR DISCLOSE CONFIDENTIAL INFORMATION DISCLOSED TO IT BY THE OTHER
PARTY TO THE EXTENT SUCH INFORMATION IS INCLUDED IN THE PHARMACOPEIA TECHNOLOGY,
SCHERING TECHNOLOGY OR COLLABORATION TECHNOLOGY, AS THE CASE MAY BE, AND TO THE
EXTENT (I) SUCH USE OR DISCLOSURE IS REASONABLY NECESSARY AND PERMITTED IN THE
EXERCISE OF THE RIGHTS GRANTED HEREUNDER IN FILING OR PROSECUTING PATENT
APPLICATIONS, PROSECUTING OR DEFENDING LITIGATION, (II) SUCH DISCLOSURE IS
REASONABLY REQUIRED TO BE MADE TO ANY INSTITUTIONAL REVIEW BOARD OF ANY ENTITY
CONDUCTING CLINICAL TRIALS WITH AGREEMENT COMPOUND(S) AND/OR AGREEMENT
PRODUCT(S), OR TO ANY GOVERNMENTAL OR OTHER REGULATORY AGENCY, IN ORDER TO GAIN
APPROVAL TO CONDUCT CLINICAL TRIALS OR TO MARKET AGREEMENT COMPOUND(S) AND/OR
AGREEMENT PRODUCTS, (III) SUCH DISCLOSURE IS REQUIRED BY LAW, REGULATION, RULE,
ACT OR ORDER OF ANY GOVERNMENTAL AUTHORITY, COURT, OR AGENCY, OR IS MADE IN
CONNECTION WITH SUBMITTING REQUIRED INFORMATION TO TAX OR OTHER GOVERNMENTAL
AUTHORITIES, OR (IV) SUCH DISCLOSURE OR USE IS REASONABLY REQUIRED IN CONDUCTING
CLINICAL TRIALS, OR MAKING A PERMITTED SUBLICENSE OR OTHERWISE EXERCISING
LICENSE RIGHTS EXPRESSLY GRANTED TO IT BY THE OTHER PARTY PURSUANT TO THE TERMS

 

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OF THIS AGREEMENT; IN EACH CASE, PROVIDED THAT IF A PARTY IS REQUIRED TO MAKE
ANY SUCH DISCLOSURE OF ANOTHER PARTY’S CONFIDENTIAL INFORMATION, OTHER THAN
PURSUANT TO A CONFIDENTIALITY AGREEMENT, IT WILL GIVE REASONABLE ADVANCE NOTICE
TO THE OTHER PARTY OF SUCH DISCLOSURE AND, SAVE TO THE EXTENT INAPPROPRIATE IN
THE CASE OF PATENT APPLICATIONS, WILL USE ITS REASONABLE DILIGENT EFFORTS TO
SECURE CONFIDENTIAL TREATMENT OF SUCH CONFIDENTIAL INFORMATION IN CONSULTATION
WITH THE OTHER PARTY PRIOR TO ITS DISCLOSURE (WHETHER THROUGH PROTECTIVE ORDERS
OR OTHERWISE) AND DISCLOSE ONLY THE MINIMUM NECESSARY TO COMPLY WITH SUCH
REQUIREMENTS.

 

7.3                                 RETURN OF CONFIDENTIAL INFORMATION. 
FOLLOWING TERMINATION OF THIS AGREEMENT, AT ANY TIME UPON REQUEST OF THE
DISCLOSING PARTY, THE RECEIVING PARTY WILL RETURN ALL DOCUMENTS, AND COPIES
THEREOF, CONTAINING THE DISCLOSING PARTY’S CONFIDENTIAL INFORMATION THAT ARE
STILL IN THE RECEIVING PARTY’S POSSESSION OR CONTROL; HOWEVER, THE RECEIVING
PARTY MAY RETAIN ONE COPY OF SUCH DOCUMENTS IN A SECURE LOCATION SOLELY FOR THE
PURPOSE OF DETERMINING ITS OBLIGATIONS HEREUNDER, TO COMPLY WITH ANY APPLICABLE
REGULATORY REQUIREMENTS, OR TO DEFEND AGAINST ANY PRODUCT LIABILITY CLAIMS.

 

7.4                                 NONDISCLOSURE OF TERMS.  EACH OF THE PARTIES
HERETO AGREES NOT TO DISCLOSE TO ANY THIRD PARTY THE EXISTENCE OR THE TERMS OF
THIS AGREEMENT WITHOUT THE PRIOR WRITTEN CONSENT OF EACH OTHER PARTY HERETO,
EXCEPT TO SUCH PARTY’S ATTORNEYS, ADVISORS, INVESTORS AND OTHERS ON A NEED TO
KNOW BASIS UNDER CIRCUMSTANCES THAT REASONABLY ENSURE THE CONFIDENTIALITY
THEREOF, OR TO THE EXTENT REQUIRED BY LAW.  NOTWITHSTANDING THE FOREGOING, THE
PARTIES WILL AGREE UPON A PRESS RELEASE TO ANNOUNCE THE EFFECTIVENESS OF THIS
AGREEMENT, TOGETHER WITH A CORRESPONDING Q&A OUTLINE FOR USE IN RESPONDING TO
INQUIRIES ABOUT THE AGREEMENT; AND IN SUCH EVENT, PHARMACOPEIA AND SCHERING MAY
EACH DISCLOSE TO THIRD PARTIES THE INFORMATION CONTAINED IN SUCH PRESS RELEASE
AND Q&A WITHOUT THE NEED FOR FURTHER APPROVAL BY THE OTHER.  IN ADDITION,
PHARMACOPEIA MAY MAKE PUBLIC STATEMENTS REGARDING PROGRESS WITH RESPECT TO THE
DEVELOPMENT AND COMMERCIALIZATION OF AGREEMENT COMPOUNDS AND/OR AGREEMENT
PRODUCTS, INCLUDING ANNOUNCEMENT OF THE ACHIEVEMENT OF MILESTONES, FOLLOWING
CONSULTATION WITH SCHERING AND WITH THE WRITTEN CONSENT OF SCHERING.  NOTHING IN
THIS SECTION 7.4 SHALL PROHIBIT A PARTY FROM MAKING SUCH DISCLOSURES TO THE
EXTENT REASONABLY REQUIRED UNDER APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR
ANY RULE OR REGULATION OF ANY NATIONALLY RECOGNIZED SECURITIES EXCHANGE.  IN
SUCH EVENT, HOWEVER, THE DISCLOSING PARTY SHALL USE GOOD FAITH EFFORTS TO NOTIFY
AND CONSULT WITH THE OTHER PARTY PRIOR TO SUCH DISCLOSURE AND, WHERE APPLICABLE,
SHALL DILIGENTLY SEEK CONFIDENTIAL TREATMENT TO THE EXTENT AVAILABLE.

 

7.5                                 PUBLICATION.  ANY MANUSCRIPT BY SCHERING OR
PHARMACOPEIA OR THEIR AFFILIATES DESCRIBING AGREEMENT PRODUCTS SHALL BE SUBJECT
TO THE PRIOR REVIEW OF THE OTHER PARTY AT LEAST NINETY (90) DAYS PRIOR TO
SUBMISSION.  FURTHER, TO AVOID LOSS OF PATENT RIGHTS AS A RESULT OF PREMATURE
PUBLIC DISCLOSURE OF PATENTABLE INFORMATION, THE RECEIVING PARTY SHALL NOTIFY
THE DISCLOSING PARTY IN WRITING WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A
DISCLOSURE WHETHER THE RECEIVING PARTY DESIRES TO FILE A PATENT APPLICATION ON
ANY INVENTION DISCLOSED IN SUCH SCIENTIFIC RESULTS.  IN THE EVENT THAT THE
RECEIVING PARTY DESIRES TO FILE SUCH A PATENT APPLICATION, THE DISCLOSING PARTY
SHALL WITHHOLD PUBLICATION OR DISCLOSURE OF SUCH SCIENTIFIC RESULTS UNTIL THE
EARLIER OF (I) A PATENT APPLICATION IS FILED THEREON, OR (II) THE PARTIES
DETERMINE AFTER CONSULTATION THAT NO PATENTABLE INVENTION EXISTS, OR (III) ONE
HUNDRED AND EIGHTY (180) DAYS AFTER RECEIPT BY THE DISCLOSING PARTY OF THE
RECEIVING PARTY’S WRITTEN NOTICE OF THE RECEIVING PARTY’S DESIRE TO FILE SUCH
PATENT APPLICATION, OR SUCH OTHER PERIOD AS IS REASONABLE FOR SEEKING PATENT
PROTECTION.  FURTHER, IF SUCH SCIENTIFIC RESULTS CONTAIN THE INFORMATION OF THE
RECEIVING PARTY THAT IS SUBJECT TO USE AND NONDISCLOSURE RESTRICTIONS UNDER THIS
ARTICLE 7, THE DISCLOSING PARTY AGREES TO REMOVE SUCH INFORMATION FROM THE
PROPOSED PUBLICATION OR DISCLOSURE.

 

7.6                                 PHARMACOPEIA EMPLOYEES.  ALL PHARMACOPEIA
EMPLOYEES ASSIGNED TO WORK EXCLUSIVELY ON COLLABORATION RESEARCH PROJECTS
PURSUANT TO SECTION 2.5, SHALL BE REQUIRED TO HAVE READ AND UNDERSTOOD THE
COLLABORATION BUSINESS CONDUCT POLICY.  ANY PHARMACOPEIA EMPLOYEES ASSIGNED TO
WORK EXCLUSIVELY ON COLLABORATION RESEARCH PROJECTS SHALL ALSO BE SUBJECT TO
NON-COMPETE OBLIGATIONS, AS SET FORTH BELOW, WITH RESPECT TO ANY TARGET WITH
RESPECT TO WHICH COLLABORATION RESEARCH EFFORTS DIRECTED TO SUCH TARGET ARE
PERFORMED AT PHARMACOPEIA (INCLUDING, WITHOUT LIMITATION, THE DESIGN AND
SYNTHESIS OF DERIVATIVE COMPOUNDS BASED ON LEAD COMPOUNDS).  NONE OF THE
INDIVIDUAL PHARMACOPEIA CHEMISTS PARTICIPATING IN TARGET SPECIFIC COLLABORATION
RESEARCH SHALL * PHARMACOPEIA SHALL BE LIABLE FOR ANY BREACH OF THE
COLLABORATION BUSINESS CONDUCT POLICY AND/OR THESE NON-COMPETE OBLIGATIONS BY
ITS EMPLOYEES.  *, PHARMACOPEIA SHALL USE REASONABLY DILIGENT EFFORTS TO ENSURE
THAT ITS EMPLOYEES WORKING ON THE COLLABORATION DO NOT DISCLOSE OR PROVIDE
ACCESS TO ANY COLLABORATION TARGET-SPECIFIC TECHNOLOGY, SCHERING TECHNOLOGY, OR
THE RESULTS OF ANY SCREENING OR OTHER TARGET SPECIFIC RESEARCH PERFORMED AT
PHARMACOPEIA IN THE COLLABORATION, TO ANY PHARMACOPEIA

 

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EMPLOYEES NOT WORKING ON THE COLLABORATION (EXCEPT TO THE EXTENT REASONABLY
NECESSARY FOR PHARMACOPEIA TO ENSURE ITS COMPLIANCE WITH ITS EXCLUSIVITY
OBLIGATIONS HEREUNDER) OR TO ANY THIRD PARTIES.

 

ARTICLE VIII
REPRESENTATIONS, WARRANTIES AND COVENANTS

 

8.1                                 SCHERING.  SCHERING WARRANTS, REPRESENTS AND
COVENANTS ON BEHALF OF ITSELF AND ITS AFFILIATES THAT: (I) IT HAS THE LEGAL
RIGHT AND POWER TO EXTEND THE RIGHTS GRANTED IN THIS AGREEMENT; (II) IT HAS THE
LEGAL POWER, AUTHORITY AND RIGHT TO ENTER INTO THIS AGREEMENT, AND TO PERFORM
ALL ITS OBLIGATIONS HEREUNDER, AND (III) IT HAS NOT PREVIOUSLY GRANTED, AND
DURING THE TERM OF THIS AGREEMENT WILL NOT KNOWINGLY MAKE ANY COMMITMENT OR
GRANT ANY RIGHTS WHICH IN ANY MATERIAL WAY CONFLICT WITH THE RIGHTS AND LICENSES
GRANTED HEREIN.

 

8.2                                 PHARMACOPEIA.  PHARMACOPEIA REPRESENTS,
WARRANTS AND COVENANTS ON BEHALF OF ITSELF AND ITS AFFILIATES THAT:  (I) IT HAS
THE LEGAL RIGHT AND POWER TO EXTEND THE RIGHTS GRANTED IN THIS AGREEMENT; (II)
IT HAS THE LEGAL POWER, AUTHORITY AND RIGHT TO ENTER INTO THIS AGREEMENT, AND TO
PERFORM ALL ITS OBLIGATIONS HEREUNDER; (III) IT HAS NOT PREVIOUSLY GRANTED, AND
DURING THE TERM OF THIS AGREEMENT WILL NOT KNOWINGLY MAKE ANY COMMITMENT OR
GRANT ANY RIGHTS WHICH IN ANY MATERIAL WAY CONFLICT WITH THE RIGHTS AND LICENSES
GRANTED HEREIN; (IV) TO THE BEST OF ITS KNOWLEDGE AS OF THE EFFECTIVE DATE,
THERE ARE NO EXISTING OR THREATENED ACTIONS, SUITS OR CLAIMS PENDING AGAINST IT
WITH RESPECT TO THE PHARMACOPEIA TECHNOLOGY; (V) TO THE BEST OF ITS KNOWLEDGE AS
OF THE EFFECTIVE DATE, IT IS NOT AWARE OF ANY EXISTING PHARMACOPEIA KNOW-HOW
WHICH IS NOT AVAILABLE FOR USE FOR ALL PURPOSES CONTEMPLATED BY THIS AGREEMENT;
AND (VI) TO THE BEST OF ITS KNOWLEDGE AS OF THE EFFECTIVE DATE, IT OWNS OR
CONTROLS ALL OF THE PHARMACOPEIA TECHNOLOGY, AND HAS THE RIGHTS TO GRANT THE
LICENSES OR SUBLICENSES GRANTED TO SCHERING HEREUNDER WITH RESPECT THERETO.

 

8.3                                 COMPLIANCE WITH AGREEMENT AND LAWS.  EACH
PARTY SHALL COMPLY IN ALL MATERIAL RESPECTS WITH THE TERMS OF THIS AGREEMENT AND
WITH ALL LAWS, RULES AND REGULATIONS APPLICABLE TO THE DISCOVERY, DEVELOPMENT,
MANUFACTURE, DISTRIBUTION, IMPORT AND EXPORT AND SALE OF PHARMACEUTICAL PRODUCTS
PURSUANT TO THIS AGREEMENT.

 

8.4                                 DISCLAIMER.  SCHERING AND PHARMACOPEIA
EXPRESSLY DISCLAIM ANY REPRESENTATION, WARRANTY OR GUARANTY THAT THE
COLLABORATION WILL BE SUCCESSFUL.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS AGREEMENT, PHARMACOPEIA AND SCHERING AND THEIR RESPECTIVE AFFILIATES MAKE
NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE PHARMACOPEIA TECHNOLOGY, THE SCHERING
TECHNOLOGY, THE COLLABORATION TECHNOLOGY, LEAD COMPOUNDS, DERIVATIVE COMPOUNDS,
AGREEMENT COMPOUNDS OR AGREEMENT PRODUCTS, OR INFORMATION DISCLOSED PURSUANT TO
ARTICLE VII, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OF THE PHARMACOPEIA TECHNOLOGY, COLLABORATION
TECHNOLOGY OR SCHERING TECHNOLOGY (IN EACH CASE, WHETHER PATENTED OR
UNPATENTED), OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.

 

ARTICLE IX
INDEMNIFICATION

 

9.1                                 INDEMNIFICATION BY SCHERING.  SCHERING SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS PHARMACOPEIA AND ITS AFFILIATES, AND EACH OF
ITS AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS AND AGENTS (THE
“PHARMACOPEIA INDEMNITEES”) FROM AND AGAINST ANY AND ALL LIABILITY, LOSS,
CLAIMS, DAMAGE, COST, AND EXPENSE (INCLUDING REASONABLE ATTORNEYS’ AND
PROFESSIONALS’ FEES AND OTHER EXPENSES OF LITIGATION) (COLLECTIVELY, A
“LIABILITY”) ARISING OUT OF OR IN CONNECTION WITH THIRD PARTY CLAIMS RELATING TO
(I) THE DISCOVERY, DEVELOPMENT, MANUFACTURE, USE, TESTING, MARKETING, SALE OR
OTHER DISPOSITION OF AGREEMENT PRODUCTS BY OR ON BEHALF OF SCHERING OR ITS
AFFILIATES OR SUBLICENSEES, (II) PERFORMANCE OF THE COLLABORATION BY SCHERING,
(III) ANY INJURY, ILLNESS OR DISEASE SUFFERED BY ANY SCHERING EMPLOYEES IN
CONNECTION

 

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WITH THE PERFORMANCE OF THE COLLABORATION, (IV) THE USE OF ANY AND ALL TARGETS
WITH RESPECT TO WHICH RESEARCH ACTIVITIES ARE CONDUCTED IN THE COLLABORATION,
INCLUDING WITHOUT LIMITATION CLAIMS IN CONNECTION WITH MATERIALS RELATING TO
SUCH TARGET, OR (V) ANY BREACH BY SCHERING OF ITS REPRESENTATIONS AND WARRANTIES
MADE UNDER THIS AGREEMENT, EXCEPT, IN EACH CASE, TO THE EXTENT SUCH LIABILITIES
RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF PHARMACOPEIA, ITS
AFFILIATES, OR ANY OF THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS OR AGENTS.

 

9.2                                 INDEMNIFICATION BY PHARMACOPEIA. 
PHARMACOPEIA SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SCHERING AND ITS
AFFILIATES, AND EACH OF ITS AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS
AND AGENTS (THE “SCHERING INDEMNITEES”) FROM AND AGAINST ANY LIABILITY (AS
DEFINED ABOVE) ARISING OUT OF OR IN CONNECTION WITH THIRD PARTY CLAIMS RELATING
TO (I) THE PERFORMANCE OF THE COLLABORATION BY PHARMACOPEIA EXCEPT TO THE EXTENT
DIRECTLY RELATED TO THE USE OF TARGETS, (II) ANY INJURY, ILLNESS OR DISEASE
SUFFERED BY ANY PHARMACOPEIA EMPLOYEES IN CONNECTION WITH THE PERFORMANCE OF THE
COLLABORATION, (III) ANY PRODUCT BASED UPON A PHARMACOPEIA COMPOUND DEVELOPED,
MANUFACTURED, USED, SOLD OR OTHERWISE DISTRIBUTED BY OR ON BEHALF OF
PHARMACOPEIA, ITS AFFILIATES OR LICENSEES, AS PERMITTED UNDER THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, PRODUCT LIABILITY AND PATENT INFRINGEMENT
CLAIMS), (IV) ANY BREACH OF PHARMACOPEIA’S CONTRACTUAL OBLIGATIONS TO THIRD
PARTIES, OR (V) ANY BREACH BY PHARMACOPEIA OF ITS REPRESENTATIONS AND WARRANTIES
MADE UNDER THIS AGREEMENT, EXCEPT, IN EACH CASE, TO THE EXTENT SUCH LIABILITIES
RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SCHERING, ITS
AFFILIATES, OR ANY OF THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS OR AGENTS.

 

9.3                                 NO CONSEQUENTIAL DAMAGES.  EXCEPT WITH
RESPECT TO THIRD PARTY CLAIMS AS PROVIDED FOR UNDER SECTIONS 9.1 AND 9.2, IN NO
EVENT SHALL ANY PARTY TO THIS AGREEMENT HAVE ANY CLAIMS AGAINST OR LIABILITY TO
THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING
UNDER THIS AGREEMENT UNDER ANY THEORY OF LIABILITY.

 

9.4                                 PROCEDURE.  IN THE EVENT THAT ANY INDEMNITEE
INTENDS TO CLAIM INDEMNIFICATION UNDER THIS ARTICLE IX, IT SHALL PROMPTLY NOTIFY
THE OTHER PARTY IN WRITING OF ANY SUCH ALLEGED LIABILITY.  THE INDEMNIFYING
PARTY SHALL HAVE THE RIGHT TO CONTROL THE DEFENSE THEREOF WITH COUNSEL OF ITS
CHOICE; PROVIDED, HOWEVER, THAT ANY INDEMNITEE SHALL HAVE THE RIGHT TO RETAIN
ITS OWN COUNSEL, WITH THE FEES AND EXPENSES TO BE PAID BY THE INDEMNIFYING
PARTY, IF REPRESENTATION OF SUCH INDEMNITEE BY THE COUNSEL RETAINED BY THE
INDEMNIFYING PARTY WOULD BE INAPPROPRIATE DUE TO ACTUAL OR POTENTIAL DIFFERING
INTERESTS BETWEEN SUCH INDEMNITEE AND ANY OTHER PARTY REPRESENTED BY SUCH
COUNSEL IN SUCH PROCEEDING.  THE AFFECTED INDEMNITEES SHALL COOPERATE REASONABLY
WITH THE INDEMNIFYING PARTY AND ITS LEGAL REPRESENTATIVES IN THE INVESTIGATION
AND DEFENSE OF ANY ACTION, CLAIM OR LIABILITY COVERED BY THIS ARTICLE IX. 
NEITHER PARTY MAY SETTLE A CLAIM OR ACTION RELATED TO A LIABILITY FOR WHICH IT
OR THE OTHER PARTY SEEKS INDEMNIFICATION HEREUNDER WITHOUT THE CONSENT OF THE
OTHER PARTY, IF SUCH SETTLEMENT WOULD IMPOSE ANY MONETARY OBLIGATION ON THE
OTHER PARTY OR REQUIRE THE OTHER PARTY TO SUBMIT TO AN INJUNCTION OR OTHERWISE
LIMIT THE OTHER PARTY’S RIGHTS UNDER THIS AGREEMENT.  ANY PAYMENT MADE BY A
PARTY TO SETTLE ANY SUCH CLAIM OR ACTION SHALL BE AT ITS OWN COST AND EXPENSE.

 

9.5                                 INSURANCE.  EACH PARTY SHALL OBTAIN AND
MAINTAIN THROUGHOUT THE TERM OF THIS AGREEMENT STATUTORY WORKERS’ COMPENSATION
AND EMPLOYER’S LIABILITY INSURANCE COVERING ALL EMPLOYEES ENGAGED IN THE
PERFORMANCE OF WORK UNDER THIS AGREEMENT.  EACH PARTY SHALL PROVIDE THE OTHER
PARTY WITH EVIDENCE OF SUCH INSURANCE AND/OR SELF-INSURANCE PROGRAM, UPON
REQUEST.

 

ARTICLE X
TERM AND TERMINATION

 

10.1                           TERM AND EXPIRATION.  THIS AGREEMENT SHALL BE
EFFECTIVE AS OF THE EFFECTIVE DATE AND UNLESS TERMINATED EARLIER AS PROVIDED IN
THIS ARTICLE X OR BY MUTUAL WRITTEN AGREEMENT OF THE PARTIES, THE TERM OF THIS
AGREEMENT SHALL CONTINUE IN FULL FORCE AND EFFECT, ON A COUNTRY-BY-COUNTRY AND
PRODUCT-BY-PRODUCT BASIS, UNTIL SCHERING AND ITS AFFILIATES AND SUBLICENSEES
HAVE NO FURTHER OBLIGATION TO PAY ROYALTIES UNDER ARTICLE V HEREOF IN A COUNTRY,
AT WHICH TIME THE AGREEMENT SHALL EXPIRE IN ITS ENTIRETY IN SUCH COUNTRY AND THE
PARTIES SHALL HAVE NO FURTHER PAYMENT OBLIGATIONS OR OTHER FINANCIAL OBLIGATIONS
TO EACH OTHER WITH RESPECT TO THE CONTINUING USE IN SUCH COUNTRY OF PHARMACOPEIA
TECHNOLOGY, SCHERING TECHNOLOGY AND/OR COLLABORATION TECHNOLOGY, AS THE CASE MAY
BE, IN THE MANNER LICENSED HEREIN.  AS ROYALTY PAYMENT OBLIGATIONS FOR AN
AGREEMENT PRODUCT EXPIRE IN A COUNTRY, EVEN IF THE AGREEMENT THEREAFTER REMAINS
IN EFFECT IN

 

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SUCH COUNTRY, SCHERING, ITS AFFILIATES AND SUBLICENSEES, SHALL NO LONGER HAVE
ANY REMAINING PAYMENT OBLIGATIONS HEREUNDER WITH RESPECT TO SUCH AGREEMENT
PRODUCT IN THAT COUNTRY.

 

10.2                           TERMINATION FOR CAUSE.  THIS AGREEMENT MAY BE
TERMINATED BY WRITTEN NOTICE BY EITHER PARTY AT ANY TIME DURING THE TERM OF THIS
AGREEMENT IF THE OTHER PARTY (THE “BREACHING PARTY”) IS IN MATERIAL BREACH OR
DEFAULT OF ANY OF ITS MATERIAL OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT
LIMITATION, ANY PAYMENT OBLIGATIONS), AS FOLLOWS:  (I) THE TERMINATING PARTY
SHALL SEND WRITTEN NOTICE OF THE BREACH OR DEFAULT TO THE BREACHING PARTY; AND
(II) IF SUCH DEFAULT OR BREACH THEREAFTER CONTINUES FOR SIXTY (60) DAYS AFTER
WRITTEN NOTICE THEREOF WAS PROVIDED TO THE BREACHING PARTY, THEN THE TERMINATION
SHALL BECOME EFFECTIVE AT THE END OF SUCH SIXTY (60) DAY PERIOD, UNLESS THE
BREACHING PARTY (OR ANY OTHER PARTY ON ITS BEHALF) HAS CURED ANY SUCH BREACH OR
DEFAULT PRIOR TO THE EXPIRATION OF THE SIXTY (60) DAY PERIOD OR HAS COMMENCED
ACTIVITIES REASONABLY EXPECTED TO CURE SUCH BREACH WITHIN SUCH SIXTY (60) DAY
PERIOD AND THEREAFTER USES DILIGENT EFFORTS TO COMPLETE THE CURE AS SOON AS
PRACTICABLE.

 

10.3                           TERMINATION UPON BANKRUPTCY OR INSOLVENCY.  THIS
AGREEMENT MAY BE TERMINATED BY PHARMACOPEIA GIVING WRITTEN NOTICE OF TERMINATION
TO SCHERING UPON THE FILING OF BANKRUPTCY OR INSOLVENCY OF SCHERING OR THE
APPOINTMENT OF A RECEIVER FOR THE ASSETS OF SCHERING, OR THE MAKING BY SCHERING
OF AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR THE INSTITUTION OF ANY
PROCEEDINGS AGAINST SCHERING UNDER ANY BANKRUPTCY LAW.  TERMINATION SHALL BE
EFFECTIVE UPON THE DATE SPECIFIED IN SUCH NOTICE.  THE RIGHTS OF SCHERING UNDER
THIS AGREEMENT SHALL NOT TERMINATE IN THE EVENT OF A BANKRUPTCY OF PHARMACOPEIA,
UNLESS SCHERING ELECTS TO TERMINATE THIS AGREEMENT IN ACCORDANCE WITH THE
FOLLOWING PROVISIONS OF THIS SECTION 10.3.  IN THE EVENT THAT (I) PHARMACOPEIA
SHALL MAKE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, FILE A PETITION IN
BANKRUPTCY, PETITION OR APPLY TO ANY TRIBUNAL FOR THE APPOINTMENT OF CUSTODIAN,
RECEIVER OR ANY TRUSTEE FOR IT OR A SUBSTANTIAL PART OF ITS ASSETS, OR SHALL
COMMENCE ANY CASE OR PROCEEDING UNDER ANY BANKRUPTCY, REORGANIZATION,
ARRANGEMENT, READJUSTMENT OF DEBT, DISSOLUTION OR LIQUIDATION LAW OR STATUTE OF
ANY JURISDICTION, WHETHER NOW OR HEREAFTER IN EFFECT; OR (II) IF THERE SHALL
HAVE BEEN FILED ANY SUCH BONA FIDE PETITION OR APPLICATION, OR ANY SUCH
PROCEEDING SHALL HAVE BEEN COMMENCED AGAINST IT, IN WHICH AN ORDER FOR RELIEF IS
ENTERED OR WHICH REMAINS UNDISMISSED FOR A PERIOD OF SIXTY (60) DAYS OR MORE; OR
(III) IF PHARMACOPEIA BY ANY ACT OR OMISSION OF ACT SHALL INDICATE ITS CONSENT
TO, APPROVAL OF OR ACQUIESCENCE IN ANY SUCH BONA FIDE PETITION, APPLICATION, OR
PROCEEDING OR ORDER FOR RELIEF OR THE APPOINTMENT OF A CUSTODIAN, RECEIVER OR
TRUSTEE FOR IT OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR SHALL SUFFER ANY SUCH
CUSTODIANSHIP, RECEIVERSHIP OR TRUSTEESHIP TO CONTINUE UNDISCHARGED FOR A PERIOD
OF SIXTY (60) DAYS OR MORE (EACH SUCH EVENT A “PHARMACOPEIA BANKRUPTCY EVENT”),
THEN SCHERING SHALL HAVE THE FOLLOWING RIGHTS.  SCHERING SHALL HAVE THE RIGHT,
IN ITS SOLE DISCRETION, TO ELECT TO TERMINATE THIS AGREEMENT BY GIVING WRITTEN
NOTICE OF SUCH TERMINATION TO PHARMACOPEIA.  IN THE EVENT THAT SCHERING DOES NOT
ELECT TO TERMINATE THIS AGREEMENT, THEN NOTWITHSTANDING ANY REJECTION OF THIS
AGREEMENT BY PHARMACOPEIA (WHICH, FOR PURPOSES OF THIS SECTION 10.3, INCLUDES
ANY DEBTOR IN POSSESSION, TRUSTEE OR OTHER ENTITY THAT MAY SUCCEED PHARMACOPEIA)
PURSUANT TO 11 U.S.C. §365, SCHERING SHALL RETAIN ALL OF ITS RIGHTS, BENEFITS,
LICENSES, PROTECTIONS AND PRIVILEGES UNDER THIS AGREEMENT AND SHALL BE ENTITLED
TO ALL OF THE RIGHTS, BENEFITS AND PROTECTIONS OF A LICENSEE UNDER 11 U.S.C.
365(N).  SCHERING WILL HAVE THE RIGHT (INCLUDING, WITHOUT LIMITATION, THE RIGHT
AND ABILITY TO CURE ANY AND ALL DEFAULTS BY PHARMACOPEIA UNDER THIS AGREEMENT,
ANY AGREEMENT SUPPLEMENTARY HERETO, AND ANY AGREEMENT WITH A THIRD PARTY
AFFECTING OR COMPRISING ALL OR A PART OF THE PHARMACOPEIA TECHNOLOGY, AND TO
TAKE ANY OTHER ACTIONS, TO OPPOSE A REJECTION PURSUANT TO 11 U.S.C. §365 OF THIS
AGREEMENT, AND TO CONTRACT DIRECTLY WITH THIRD PARTIES, IF ANY, INVOLVED IN
CONTRACTED ARRANGEMENTS WITH PHARMACOPEIA WITH RESPECT TO PERFORMANCE OF THE
COLLABORATION), PROVIDED THAT SCHERING’S OBLIGATIONS TO MAKE PAYMENTS TO
PHARMACOPEIA UNDER THIS AGREEMENT SHALL AUTOMATICALLY BE REDUCED BY THE AMOUNT
OF ALL OUT-OF-POCKET COSTS AND EXPENSES INCURRED BY SCHERING IN EXERCISING SUCH
RIGHTS.  THE PARTIES ACKNOWLEDGE AND AGREE THAT ALL INFORMATION, DATA AND OTHER
INTELLECTUAL PROPERTY REFERRED TO IN THIS SECTION 10.3 (INCLUDING, WITHOUT
LIMITATION, PHARMACOPEIA TECHNOLOGY) AND ALL AGREEMENT COMPOUNDS, AGREEMENT
PRODUCTS, COLLABORATION TECHNOLOGY AND ANY OTHER INTELLECTUAL PROPERTY THAT IS
LICENSED, OR IS THE SUBJECT OF ANY OTHER RIGHT, BENEFIT, PROTECTION OR PRIVILEGE
THAT IS GRANTED, TRANSFERRED OR OTHERWISE AFFORDED, TO SCHERING HEREUNDER IS
“INTELLECTUAL PROPERTY” WITHIN THE MEANING OF 11 U.S.C. §365.

 

10.4                           TERMINATION FOR PHARMACOPEIA CHANGE IN CONTROL.

 

10.4.1                  TERMINATION OF ENTIRE AGREEMENT.  IN THE EVENT OF ANY
PHARMACOPEIA CHANGE IN CONTROL DURING THE TERM OF THIS AGREEMENT, SCHERING SHALL
HAVE THE RIGHT TO TERMINATE THIS AGREEMENT UPON NINETY (90) DAYS WRITTEN NOTICE
AFTER SUCH PHARMACOPEIA CHANGE IN CONTROL.  IN SUCH EVENT, THE PROVISIONS OF
SECTIONS 10.6.1, 10.6.2, 10.6.3 AND 10.6.4(D) SHALL APPLY, BUT NONE OF THE
PROVISIONS OF SECTION 10.6.5 SHALL BE APPLICABLE.

 

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10.4.2                  TERMINATION OF THE COLLABORATION.  IN THE EVENT THAT
SUCH PHARMACOPEIA CHANGE IN CONTROL OCCURS DURING THE TERM OF THE COLLABORATION,
SCHERING MAY, IN ITS DISCRETION, ELECT TO TERMINATE THE COLLABORATION (BUT NOT
THE AGREEMENT) ON NINETY (90) DAYS WRITTEN NOTICE AS SET FORTH IN
SECTION 2.2.3.  UPON RECEIPT OF WRITTEN NOTICE FROM SCHERING OF ITS DECISION TO
TERMINATE THE COLLABORATION (BUT NOT THE AGREEMENT) PURSUANT TO THIS
SECTION 10.4.2 AND SECTION 2.2.3, PHARMACOPEIA (OR ITS SUCCESSOR IN INTEREST AS
A RESULT OF THE PHARMACOPEIA CHANGE IN CONTROL) SHALL HAVE THE OPTION
(EXERCISABLE IN ITS SOLE DISCRETION) TO PROVIDE TO SCHERING WITHIN THIRTY (30)
DAYS AFTER RECEIPT OF SUCH NOTICE A WRITTEN CERTIFICATION SIGNED BY A SENIOR
CORPORATE OFFICER OF PHARMACOPEIA (OR SUCH SUCCESSOR) SETTING FORTH WRITTEN
REPRESENTATIONS AND WARRANTIES BY PHARMACOPEIA (OR SUCH SUCCESSOR):

 

(I)                                     THAT IT IS COMMITTED TO CONTINUING IN
GOOD FAITH TO PERFORM THE COLLABORATION UNDER THE TERMS OF THIS AGREEMENT;

 

(II)                                  THAT IT WILL CONTINUE TO PROVIDE AT LEAST
THE SAME LEVEL AND QUALITY OF PERSONNEL, FACILITIES AND RESOURCES FOR THE
PERFORMANCE OF THE COLLABORATION AS EXISTED PRIOR TO THE PHARMACOPEIA CHANGE IN
CONTROL;

 

(III)                               THAT IT WILL IMPLEMENT SUCH ADDITIONAL
SAFEGUARDS AS MAY BE REQUIRED (AND WHICH ARE REASONABLY ACCEPTABLE TO SCHERING)
TO ENSURE THAT ALL OF SCHERING’S CONFIDENTIAL INFORMATION WILL BE PROTECTED FROM
UNAUTHORIZED DISCLOSURE OR USE BY PHARMACOPEIA (OR SUCH SUCCESSOR) AND ITS
AFFILIATES; AND

 

(IV)                              THAT IT WILL TAKE SUCH OTHER ACTIONS AS ARE
REASONABLY NECESSARY TO PROVIDE REASONABLE ASSURANCES TO SCHERING THAT THE
RESULTS OF THE COLLABORATION, INCLUDING WITHOUT LIMITATION, ANY AGREEMENT
COMPOUNDS AND COLLABORATION TECHNOLOGY, WILL ONLY BE USED BY PHARMACOPEIA (OR
SUCH SUCCESSOR) AND ITS AFFILIATES IN FURTHERANCE OF THE COLLABORATION OR AS
OTHERWISE EXPRESSLY PERMITTED UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT.

 

IF PHARMACOPEIA (OR SUCH SUCCESSOR) DOES NOT PROVIDE A CERTIFICATION UNDER THIS
SECTION 10.4.2 WITHIN SUCH THIRTY (30) DAY PERIOD, THEN THE COLLABORATION SHALL
TERMINATE UPON EXPIRATION OF THE NINETY (90) PERIOD FOLLOWING SCHERING’S NOTICE
OF TERMINATION UNDER THIS SECTION 10.4.2, AND ALL OF THE PROVISIONS OF
SECTION 10.6.5 SHALL APPLY.

 

IF PHARMACOPEIA (OR SUCH SUCCESSOR) DOES PROVIDE A CERTIFICATION UNDER THIS
SECTION 10.4.2 WITHIN SUCH THIRTY (30) DAY PERIOD, THEN FOLLOWING SCHERING’S
RECEIPT OF SUCH CERTIFICATION FROM PHARMACOPEIA (OR SUCH SUCCESSOR) PURSUANT TO
THIS SECTION 10.4.2, SCHERING SHALL HAVE THE RIGHT TO RESCIND ITS NOTICE OF
TERMINATION OF THE COLLABORATION BY PROVIDING WRITTEN NOTICE TO PHARMACOPEIA
WITHIN THIRTY (30) DAYS AFTER RECEIPT OF SUCH WRITTEN CERTIFICATION.  IF
FOLLOWING RECEIPT OF SUCH CERTIFICATION, SCHERING PROVIDES WRITTEN NOTICE
RESCINDING ITS DECISION TO TERMINATE THE COLLABORATION WITHIN SUCH THIRTY (30)
DAY PERIOD, THEN NONE OF THE PROVISIONS OF SECTION 10.6 SHALL APPLY AND THE
COLLABORATION SHALL CONTINUE UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT AS
IF SCHERING HAD NEVER PROVIDED ANY NOTICE OF TERMINATION UNDER SECTION 10.4.2. 
HOWEVER, IF FOLLOWING RECEIPT OF SUCH CERTIFICATION, SCHERING DOES NOT PROVIDE
WRITTEN NOTICE RESCINDING ITS DECISION TO TERMINATE THE COLLABORATION WITHIN
SUCH THIRTY (30) DAY PERIOD, THEN THE COLLABORATION SHALL TERMINATE UPON
EXPIRATION OF THE NINETY (90) DAY PERIOD FOLLOWING SCHERING’S NOTICE OF
TERMINATION UNDER SECTION 10.4.2, AND THE PROVISIONS OF SECTION 10.6.5(I) AND
(II) SHALL APPLY, BUT THE PROVISIONS OF SECTION 10.6.5(III) SHALL NOT APPLY. 
FOR PURPOSES OF CLARITY AND AVOIDANCE OF DOUBT, THE PARTIES AGREE THAT WRITTEN
NOTICE PROVIDED BY SCHERING–PLOUGH LTD. RESCINDING A DECISION BY SCHERING-PLOUGH
LTD. TO TERMINATE THE COLLABORATION UNDER THE CORRESPONDING PROVISIONS OF THE
INTERNATIONAL AGREEMENT SHALL ALSO BE DEEMED NOTICE BY SCHERING UNDER THIS
AGREEMENT.

 

10.5                           CONCURRENT TERMINATION WITH THE INTERNATIONAL
AGREEMENT.  IN THE EVENT OF ANY TERMINATION OF THE INTERNATIONAL AGREEMENT BY
EITHER PHARMACOPEIA OR SCHERING-PLOUGH LTD. UNDER THE PROVISIONS OF SECTIONS
10.2, 10.3 OR 10.4 THEREOF, AS APPLICABLE, THIS AGREEMENT SHALL AUTOMATICALLY
TERMINATE CONCURRENTLY UNDER THE CORRESPONDING SECTION 10.2, 10.3 OR 10.4 OF
THIS AGREEMENT.

 

10.6                           EFFECT OF TERMINATION.

 

10.6.1                  ACCRUED OBLIGATIONS.  TERMINATION OF THIS AGREEMENT FOR
ANY REASON SHALL NOT RELIEVE THE PARTIES FROM ANY LIABILITY WHICH AT THE TIME OF
SUCH TERMINATION HAS ALREADY ACCRUED TO THE OTHER PARTY, OR WHICH IS

 

30

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ATTRIBUTABLE TO A PERIOD PRIOR TO SUCH TERMINATION, NOR PRECLUDE EITHER PARTY
FROM PURSUING ALL RIGHTS AND REMEDIES IT MAY HAVE HEREUNDER OR AT LAW OR IN
EQUITY WITH RESPECT TO ANY BREACH OF THIS AGREEMENT.

 

10.6.2                  RETURN OF MATERIALS.  UPON ANY TERMINATION OF THIS
AGREEMENT, SCHERING AND PHARMACOPEIA SHALL PROMPTLY RETURN TO THE OTHER PARTY
ALL CONFIDENTIAL INFORMATION (INCLUDING WITHOUT LIMITATION ALL EXISTING SCHERING
KNOW-HOW OR EXISTING PHARMACOPEIA KNOW-HOW, AS THE CASE MAY BE) AS SET FORTH IN
SECTION 7.3.

 

10.6.3                  EFFECT ON AGREEMENT PRODUCTS.  IN THE EVENT THAT TWO (2)
OR MORE AGREEMENT COMPOUNDS AND/OR AGREEMENT PRODUCTS ARE BEING DEVELOPED AND/OR
COMMERCIALLY EXPLOITED BY SCHERING, ITS AFFILIATES OR SUBLICENSEES UNDER THIS
AGREEMENT AND A BREACH ENTITLING PHARMACOPEIA TO TERMINATE THIS AGREEMENT OCCURS
WHICH RELATES SOLELY TO A SINGLE AGREEMENT COMPOUND OR AGREEMENT PRODUCT, THEN
PHARMACOPEIA SHALL HAVE THE OPTION TO TERMINATE THIS AGREEMENT ONLY WITH RESPECT
TO THE APPLICABLE AGREEMENT COMPOUND OR AGREEMENT PRODUCT, AND IN WHICH CASE ALL
OF THE TERMS OF THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT WITH REGARD
TO THE OTHER AGREEMENT COMPOUNDS AND/OR AGREEMENT PRODUCTS BEING DEVELOPED AND
COMMERCIALIZED.  IN THE EVENT THIS AGREEMENT IS TERMINATED WITH RESPECT TO A
GIVEN AGREEMENT PRODUCT, SCHERING SHALL HAVE THE RIGHT TO CONTINUE TO SELL ITS
REMAINING INVENTORY OF SUCH AGREEMENT PRODUCT FOR A PERIOD OF UP TO SIX (6)
MONTHS AFTER THE DATE OF TERMINATION, PROVIDED THAT SCHERING CONTINUES TO PAY
ROYALTIES TO PHARMACOPEIA WITH RESPECT TO SUCH SALES.

 

10.6.4                  LICENSES.

 

(A)          TERMINATION BY PHARMACOPEIA PURSUANT TO SECTION 10.2.  IN THE EVENT
OF TERMINATION BY PHARMACOPEIA UNDER SECTION 10.2, THE LICENSES GRANTED
HEREUNDER RELATING TO ANY AGREEMENT PRODUCT WITH RESPECT TO WHICH THERE HAS BEEN
A MATERIAL BREACH, SHALL TERMINATE, AND THE LICENSES GRANTED TO PHARMACOPEIA
HEREUNDER SHALL REMAIN IN EFFECT, SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT; PROVIDED, HOWEVER, A BREACH SHALL HAVE NO EFFECT ON SCHERING’S
LICENSES HEREUNDER OTHER THAN WITH RESPECT TO THE AGREEMENT PRODUCT (TOGETHER
WITH ANY HITS, LEAD COMPOUNDS WHICH ARE HITS, AND/OR DERIVATIVE COMPOUNDS
DISCOVERED BY PHARMACOPEIA IN PERFORMANCE OF SCREENING PROGRAMS AND/OR
OPTIMIZATION PROGRAMS AGAINST THE SAME TARGET AS SUCH AGREEMENT PRODUCT) TO
WHICH THE BREACH SPECIFICALLY RELATES, AND THE REMAINING LICENSES GRANTED
HEREUNDER SHALL REMAIN IN EFFECT, SUBJECT TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT.

 

(B)         TERMINATION BY SCHERING PURSUANT TO SECTIONS 10.2 OR 10.3.  IN THE
EVENT OF ANY TERMINATION BY SCHERING PURSUANT TO SECTION 10.2 OR 10.3 ABOVE, ANY
LICENSES GRANTED BY SCHERING HEREUNDER SHALL TERMINATE CONCURRENTLY, AND ANY
LICENSES GRANTED BY PHARMACOPEIA SHALL REMAIN IN EFFECT, SUBJECT TO THE TERMS
AND CONDITIONS OF THIS AGREEMENT.

 

(C)          TERMINATION BY PHARMACOPEIA PURSUANT TO SECTION 10.3.  IN THE EVENT
OF ANY TERMINATION BY PHARMACOPEIA PURSUANT TO SECTION 10.3 ABOVE, ANY LICENSES
GRANTED BY PHARMACOPEIA HEREUNDER SHALL TERMINATE CONCURRENTLY, AND ANY LICENSES
GRANTED BY SCHERING SHALL REMAIN IN EFFECT, SUBJECT TO THE TERMS AND CONDITIONS
OF THIS AGREEMENT.

 

(D)         TERMINATION BY SCHERING PURSUANT TO SECTION 10.4.  IN THE EVENT OF
ANY TERMINATION BY SCHERING PURSUANT TO SECTION 10.4 ABOVE, ANY LICENSES GRANTED
BY PHARMACOPEIA TO SCHERING, AND BY SCHERING TO PHARMACOPEIA, SHALL REMAIN IN
EFFECT, EXCEPT FOR THE LICENSES UNDER SECTION 4.5, WHICH SHALL TERMINATE
CONCURRENTLY.

 

10.6.5                  EFFECT OF TERMINATION OF THE COLLABORATION FOR
PHARMACOPEIA CHANGE IN CONTROL.  IN THE EVENT THAT THE COLLABORATION (BUT NOT
THE AGREEMENT) IS TERMINATED BY SCHERING PURSUANT TO SECTIONS 10.4.2 AND 2.2.3
AS A RESULT OF A PHARMACOPEIA CHANGE IN CONTROL, AND THE DECISION TO TERMINATE
IS NOT RESCINDED BY SCHERING IN ACCORDANCE WITH SECTION 10.4.2, THE PARTIES
FURTHER AGREE THAT, EFFECTIVE AS OF *

 

(i)                                     the non-solicitation provisions of
Section 11.8 shall not apply with respect to any of the individual Pharmacopeia
employees identified as working on the Collaboration under Section 2.5.1;

 

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(ii)                                  to the extent that Schering contracts with
one or more Third Parties to complete any Optimization Program which was ongoing
at the time the Collaboration was terminated, Schering shall have the right to *

 

(iii)                               if (and only if) Pharmacopeia (or its
successor in interest as a result of such Pharmacopeia Change in Control) has
failed to timely provide a certification to Schering in accordance with
Section 10.4.2, Pharmacopeia (or such successor) *

 

10.6.6                  SURVIVING PROVISIONS.  ARTICLES VI, VII, VIII, IX AND XI
OF THIS AGREEMENT, AS WELL AS SECTIONS 2.9.2, 2.9.3, 2.10, 2.11, 4.1.3, 4.4,
4.7, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, AND 10.6 SHALL SURVIVE THE EXPIRATION
OR TERMINATION OF THIS AGREEMENT FOR ANY REASON AND SHALL REMAIN IN FULL FORCE
AND EFFECT.

 

ARTICLE XI
MISCELLANEOUS

 

11.1                           ASSIGNMENT.  THIS AGREEMENT SHALL NOT BE
ASSIGNED, OR ASSIGNABLE, BY EITHER PARTY HERETO TO ANY THIRD PARTY WITHOUT THE
PRIOR WRITTEN CONSENT OF THE OTHER PARTY, AND ANY SUCH ATTEMPTED ASSIGNMENT
SHALL BE VOID AND WITHOUT FORCE OR EFFECT; PROVIDED, HOWEVER, THAT
NOTWITHSTANDING THE FOREGOING, EITHER PARTY MAY, WITHOUT SUCH CONSENT, ASSIGN
THIS AGREEMENT AND ITS RIGHTS AND OBLIGATIONS HEREUNDER TO AN AFFILIATE OR IN
CONNECTION WITH THE TRANSFER OR SALE OF ALL OR SUBSTANTIALLY ALL OF ITS BUSINESS
OR ASSETS RELATED TO THE SUBJECT MATTER TO WHICH THIS AGREEMENT PERTAINS, OR IN
THE EVENT OF ITS MERGER, REORGANIZATION, ACQUISITION, SALE, CONSOLIDATION OR
CHANGE IN CONTROL OR SIMILAR TRANSACTION.  THIS AGREEMENT SHALL BE BINDING UPON,
AND INURE TO THE BENEFIT OF, EACH PARTY, ITS AFFILIATES, AND ITS PERMITTED
SUCCESSORS AND ASSIGNS.  EACH PARTY SHALL BE RESPONSIBLE FOR THE COMPLIANCE BY
ITS AFFILIATES WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT.

 

11.2                           GOVERNING LAW.  THIS AGREEMENT AND ANY DISPUTE
ARISING FROM THE PERFORMANCE OR BREACH HEREOF, SHALL BE GOVERNED, INTERPRETED
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT
GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES.  THE PARTIES EXPRESSLY EXCLUDE
APPLICATION OF THE UNITED NATIONS CONVENTION FOR THE INTERNATIONAL SALE OF
GOODS.

 

11.3                           DISPUTE RESOLUTION.  EXCEPT AS SET FORTH IN
SECTIONS 3.3 AND 5.5.4, ANY DISPUTE UNDER THIS AGREEMENT WHICH IS NOT SETTLED BY
MUTUAL CONSENT SHALL BE FINALLY SETTLED BY BINDING ARBITRATION, CONDUCTED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION BY THREE ARBITRATORS APPOINTED IN ACCORDANCE WITH SAID RULES.  THE
ARBITRATION SHALL BE HELD IN NEW YORK, NEW YORK AND AT LEAST ONE OF THE
ARBITRATORS SHALL BE AN INDEPENDENT EXPERT IN PHARMACEUTICAL PRODUCT DEVELOPMENT
(INCLUDING CLINICAL DEVELOPMENT AND REGULATORY AFFAIRS).  ANY WRITTEN EVIDENCE
ORIGINALLY IN A LANGUAGE OTHER THAN ENGLISH SHALL BE SUBMITTED IN ENGLISH
TRANSLATION ACCOMPANIED BY THE ORIGINAL OR A TRUE COPY THEREOF.  THE COSTS OF
THE ARBITRATION, INCLUDING ADMINISTRATIVE AND ARBITRATORS’ FEES, SHALL BE SHARED
EQUALLY BY THE PARTIES.  EACH PARTY SHALL BEAR ITS OWN COSTS AND ATTORNEYS’ AND
WITNESS’ FEES.  A DISPUTED PERFORMANCE OR SUSPENDED PERFORMANCES PENDING THE
RESOLUTION OF THE ARBITRATION MUST BE COMPLETED WITHIN THIRTY (30) DAYS
FOLLOWING THE FINAL DECISION OF THE ARBITRATORS OR SUCH OTHER REASONABLE PERIOD
AS THE ARBITRATORS DETERMINE IN A WRITTEN OPINION.  ANY ARBITRATION SUBJECT TO
THIS SECTION 11.3 SHALL BE COMPLETED WITHIN ONE (1) YEAR FROM THE FILING OF
NOTICE OF A REQUEST FOR SUCH ARBITRATION.

 

11.4                           NO IMPLIED LICENSES.  ONLY THE LICENSES GRANTED
PURSUANT TO THE EXPRESS TERMS OF THIS AGREEMENT SHALL BE OF ANY LEGAL FORCE OR
EFFECT.  NO LICENSE RIGHTS SHALL BE CREATED BY IMPLICATION, ESTOPPEL OR
OTHERWISE.

 

11.5                           REPRESENTATION BY LEGAL COUNSEL.  EACH PARTY
HERETO REPRESENTS THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION
WITH THIS AGREEMENT AND ACKNOWLEDGES THAT IT HAS PARTICIPATED IN THE DRAFTING
HEREOF.  IN INTERPRETING AND APPLYING THE TERMS AND PROVISIONS OF THIS
AGREEMENT, THE PARTIES AGREE THAT NO PRESUMPTION SHALL EXIST OR BE IMPLIED
AGAINST THE PARTY WHICH DRAFTED SUCH TERMS AND PROVISIONS.

 

32

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11.6                           WAIVER.  ANY DELAY OR FAILURE IN ENFORCING A
PARTY’S RIGHTS UNDER THIS AGREEMENT OR ANY WAIVER AS TO A PARTICULAR DEFAULT OR
OTHER MATTER SHALL NOT CONSTITUTE A WAIVER OF SUCH PARTY’S RIGHTS TO THE FUTURE
ENFORCEMENT OF ITS RIGHTS UNDER THIS AGREEMENT, NOR OPERATE TO BAR THE EXERCISE
OR ENFORCEMENT THEREOF AT ANY TIME OR TIMES THEREAFTER, EXCEPTING ONLY AS TO AN
EXPRESS WRITTEN AND SIGNED WAIVER AS TO A PARTICULAR MATTER FOR A STATED
DURATION.

 

11.7                           INDEPENDENT CONTRACTORS.  THE RELATIONSHIP OF THE
PARTIES HERETO IS THAT OF INDEPENDENT CONTRACTORS.  NOTHING HEREIN CONTAINED
SHALL BE DEEMED TO CREATE AN EMPLOYMENT, AGENCY, JOINT VENTURE OR PARTNERSHIP
RELATIONSHIP BETWEEN THE PARTIES HERETO OR ANY OF THEIR AGENTS OR EMPLOYEES. 
NEITHER PARTY SHALL HAVE ANY POWER TO ENTER INTO ANY CONTRACTS OR COMMITMENTS OR
TO INCUR ANY LIABILITIES IN THE NAME OF, OR ON BEHALF OF, THE OTHER PARTY, OR TO
BIND THE OTHER PARTY IN ANY RESPECT WHATSOEVER.

 

11.8                           SOLICITATION OF EMPLOYEES.  SCHERING AND
PHARMACOPEIA BOTH AGREE THAT, DURING THE COLLABORATION TERM AND FOR ONE (1) YEAR
THEREAFTER, WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF THE OTHER PARTY, THEY
WILL NOT KNOWINGLY INDUCE OR ATTEMPT TO INDUCE, DIRECTLY OR INDIRECTLY, ANY
SCIENTIFIC OR TECHNICAL PERSONNEL THEN EMPLOYED BY THE OTHER PARTY TO ACCEPT
EMPLOYMENT OR AFFILIATION WITH THE INDUCING PARTY OR ITS AFFILIATES.

 

11.9                           COMPLIANCE WITH LAWS.  IN EXERCISING THEIR RIGHTS
UNDER THIS LICENSE, THE PARTIES SHALL FULLY COMPLY WITH THE REQUIREMENTS OF ANY
AND ALL APPLICABLE LAWS, REGULATIONS, RULES AND ORDERS OF ANY GOVERNMENTAL BODY
HAVING JURISDICTION OVER THE EXERCISE OF RIGHTS UNDER THIS LICENSE.

 

11.10                     EXPORT CONTROL.  THIS AGREEMENT AND THE OBLIGATIONS OF
BOTH PARTIES HEREUNDER ARE MADE SUBJECT TO, AND LIMITED BY, ALL APPLICABLE
RESTRICTIONS CONCERNING THE EXPORT OF PRODUCTS OR TECHNICAL INFORMATION FROM THE
UNITED STATES OF AMERICA WHICH MAY BE IMPOSED UPON OR RELATED TO PHARMACOPEIA OR
SCHERING FROM TIME TO TIME BY THE GOVERNMENT OF THE UNITED STATES OF AMERICA. 
FURTHERMORE, SCHERING AGREES THAT IT WILL NOT EXPORT, DIRECTLY OR INDIRECTLY,
ANY TECHNICAL INFORMATION ACQUIRED FROM PHARMACOPEIA UNDER THIS AGREEMENT OR ANY
PRODUCTS USING SUCH TECHNICAL INFORMATION TO ANY COUNTRY FOR WHICH THE UNITED
STATES GOVERNMENT OR ANY AGENCY THEREOF AT THE TIME OF EXPORT REQUIRES AN EXPORT
LICENSE OR OTHER GOVERNMENTAL APPROVAL, WITHOUT FIRST OBTAINING THE WRITTEN
CONSENT TO DO SO FROM THE DEPARTMENT OF COMMERCE OR OTHER AGENCY OF THE UNITED
STATES GOVERNMENT WHEN REQUIRED BY AN APPLICABLE STATUTE OR REGULATION.

 

11.11                     PATENT MARKING.  SCHERING AGREES TO MARK AND HAVE ITS
AFFILIATES AND SUBLICENSEES MARK ALL AGREEMENT PRODUCTS SOLD PURSUANT TO THIS
AGREEMENT IN ACCORDANCE WITH THE APPLICABLE STATUTE OR REGULATIONS RELATING TO
PATENT MARKING IN THE COUNTRY OR COUNTRIES OF MANUFACTURE AND SALE THEREOF.

 

11.12                     NOTICES.  ANY NOTICE REQUIRED OR PERMITTED TO BE GIVEN
OR SENT UNDER THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE HAND DELIVERED OR
SENT BY EXPRESS DELIVERY SERVICE OR CERTIFIED OR REGISTERED MAIL, POSTAGE
PREPAID, OR BY FACSIMILE TRANSMISSION (WITH WRITTEN CONFIRMATION COPY BY
REGISTERED FIRST-CLASS MAIL) TO THE PARTIES AT THE ADDRESSES AND FACSIMILE
NUMBERS INDICATED BELOW.

 

IF TO PHARMACOPEIA, TO:

 

PHARMACOPEIA, INC.
3000 EASTPARK BOULEVARD
CRANBURY, NEW JERSEY  08512
ATTN: CHIEF EXECUTIVE OFFICER
FAX NO.: (609) 452-3672

 

WITH A COPY TO:

 

PHARMACOPEIA, INC.
3000 EASTPARK BOULEVARD
CRANBURY, NEW JERSEY  08512
ATTN: GENERAL COUNSEL
FAX NO.: (609) 452-3655

 

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IF TO SCHERING, TO:

 

SCHERING CORPORATION
2000 GALLOPING HILL ROAD
KENILWORTH, NEW JERSEY  07033
ATTENTION: VICE PRESIDENT, BUSINESS DEVELOPMENT
FACSIMILE NO.: (908) 298-5379

 

WITH COPIES TO:

 

Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey  07033
Attention: Law Department, Senior Legal Director – Licensing
Facsimile No.: (908) 298-2739

 

Schering-Plough Ltd.
Toepferstrasse 5
CH 6004 Lucerne, Switzerland
Attention:  President
Facsimile No.: (011) 41 41 418 1630

 

Any such notice shall be deemed to have been given when received. Either Party
may change its address or its facsimile number by giving the other Party written
notice, delivered in accordance with this Section.

 

11.13                     FORCE MAJEURE.  FAILURE OF ANY PARTY TO PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT (EXCEPT THE OBLIGATION TO MAKE PAYMENTS WHEN
PROPERLY DUE) SHALL NOT SUBJECT SUCH PARTY TO ANY LIABILITY OR PLACE THEM IN
BREACH OF ANY TERM OR CONDITION OF THIS AGREEMENT TO THE OTHER PARTY TO THE
EXTENT (AND ONLY TO THE EXTENT) THAT SUCH FAILURE IS DUE TO FIRE, EXPLOSION,
FLOOD, DROUGHT, WAR, TERRORISM, RIOT, SABOTAGE, EMBARGO, STRIKES OR OTHER LABOR
TROUBLE, FAILURE OF SUPPLIERS, A NATIONAL HEALTH EMERGENCY, COMPLIANCE WITH ANY
ORDER OR REGULATION OF ANY GOVERNMENT ENTITY ACTING WITH COLOR OF RIGHT, OR ANY
OTHER CAUSE BEYOND THE REASONABLE CONTROL OF SUCH NON-PERFORMING PARTY AND NOT
CAUSED BY THE NEGLIGENCE, INTENTIONAL CONDUCT OR MISCONDUCT OF THE
NON-PERFORMING PARTY (SUCH EVENT OR CAUSE REFERRED TO AS “FORCE MAJEURE”).  THE
PARTY AFFECTED SHALL PROMPTLY NOTIFY THE OTHER PARTY OF THE CONDITION
CONSTITUTING FORCE MAJEURE AS DEFINED HEREIN AND SHALL EXERT REASONABLE EFFORTS
TO ELIMINATE, CURE OR OVERCOME ANY SUCH EVENT OF FORCE MAJEURE AND TO RESUME
PERFORMANCE OF ITS OBLIGATIONS WITH ALL POSSIBLE SPEED.  IF A CONDITION
CONSTITUTING FORCE MAJEURE AS DEFINED HEREIN EXISTS FOR MORE THAN NINETY (90)
CONSECUTIVE DAYS, THE PARTIES SHALL MEET TO NEGOTIATE A MUTUALLY SATISFACTORY
RESOLUTION TO THE PROBLEM, IF PRACTICABLE.  THE FOREGOING NOTWITHSTANDING,
NOTHING HEREIN SHALL REQUIRE ANY PARTY TO SETTLE ON TERMS UNSATISFACTORY TO SUCH
PARTY ANY STRIKE, LOCK-OUT OR OTHER LABOR DIFFICULTY, ANY INVESTIGATION OR
PROCEEDING BY ANY PUBLIC AUTHORITY OR ANY LITIGATION BY ANY THIRD PARTY.

 

11.14                     SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
BECOMES OR IS DECLARED BY A COURT OF COMPETENT JURISDICTION TO BE ILLEGAL,
INVALID OR UNENFORCEABLE OR VOID, IT IS MUTUALLY AGREED THAT THIS AGREEMENT
SHALL REMAIN IN FULL FORCE AND EFFECT WITHOUT SUCH PROVISION, AND THE PARTIES
WILL, IN GOOD FAITH, RENEGOTIATE THE TERMS AND CONDITIONS OF THIS AGREEMENT SO
AS TO LAWFULLY INCLUDE THE SUBSTANCE OF SUCH PROVISION (TO THE EXTENT POSSIBLE)
IN ORDER TO AS FULLY AS POSSIBLE REALIZE THE INTENT OF THE PARTIES AND THEIR
COMMERCIAL BARGAIN.

 

11.15                     COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, EACH OF WHICH SHALL BE AN ORIGINAL AS AGAINST EITHER
PARTY WHOSE SIGNATURE APPEARS THEREON, BUT ALL OF WHICH TAKEN TOGETHER SHALL
CONSTITUTE BUT ONE AND THE SAME INSTRUMENT, AND SHALL BECOME EFFECTIVE ON THE
EFFECTIVE DATE.

 

11.16                     CAPTIONS.  THE CAPTIONS OF THIS AGREEMENT ARE SOLELY
FOR THE CONVENIENCE OF REFERENCE AND SHALL NOT AFFECT ITS MEANING OR
INTERPRETATION.

 

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11.17                     COMPLETE AGREEMENT.  THIS AGREEMENT WITH ITS EXHIBITS,
TOGETHER WITH THE INTERNATIONAL AGREEMENT, CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND ALL PRIOR
AGREEMENTS RESPECTING THE SUBJECT MATTER HEREOF, EITHER WRITTEN OR ORAL,
EXPRESSED OR IMPLIED, SHALL BE ABROGATED, CANCELED, AND ARE NULL AND VOID AND OF
NO EFFECT; PROVIDED, HOWEVER THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NOTHING HEREIN SHALL AFFECT THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER: (I) THE CERTAIN COLLABORATION AGREEMENT AND THE CERTAIN RANDOM LIBRARY
AGREEMENT BETWEEN PHARMACOPEIA, SCHERING CORPORATION AND SCHERING-PLOUGH LTD.
EFFECTIVE AS OF DECEMBER 22, 1994, AS AMENDED (THE “1994 AGREEMENTS”); OR (II)
THE CERTAIN CONTEMPORANEOUS COLLABORATION AGREEMENTS BETWEEN PHARMACOPEIA AND
EACH OF SCHERING CORPORATION AND SCHERING-PLOUGH LTD., EFFECTIVE AS OF
OCTOBER 29, 1998, EACH AS AMENDED (THE “1998 AGREEMENTS”).  NO AMENDMENT,
MODIFICATION, SUPPLEMENT, CHANGE OR ADDITION TO THIS AGREEMENT (OR THE EXHIBITS
ATTACHED HERETO) SHALL BE EFFECTIVE OR BINDING ON EITHER OF THE PARTIES HERETO
UNLESS REDUCED TO WRITING AND EXECUTED BY THE RESPECTIVE DULY AUTHORIZED
REPRESENTATIVES OF PHARMACOPEIA AND SCHERING.

 

11.18                     Relationship of Prior Agreements.  For purposes of
clarity and avoidance of doubt, the Parties acknowledge and agree that the terms
and conditions of this Agreement shall not apply to any compounds or products
discovered and developed by or on behalf of the Parties under the 1994
Agreements or the 1998 Agreements.  In particular, the Parties acknowledge and
agree that (i) no milestone payment or royalty obligations set forth in this
Agreement shall apply to any compounds discovered and/or developed under the
1994 Agreements or the 1998 Agreements, and (ii) any Agreement Compounds and/or
Agreement Products discovered and developed under this Agreement shall not be
subject to any milestone payment or royalty obligations set forth in the 1994
Agreements or the 1998 Agreements.

 

11.19                     RECORDING.  EACH PARTY SHALL HAVE THE RIGHT, AT ANY
TIME, TO RECORD, REGISTER, OR OTHERWISE NOTIFY THIS AGREEMENT IN APPROPRIATE
GOVERNMENTAL OR REGULATORY OFFICES ANYWHERE IN THE WORLD, AND EACH PARTY SHALL
PROVIDE REASONABLE ASSISTANCE TO THE OTHER IN EFFECTING SUCH RECORDING,
REGISTERING OR NOTIFYING.  THE PARTIES ACKNOWLEDGE THAT THIS AGREEMENT MAY BE
NOTIFIED BY EITHER PARTY TO THE EUROPEAN COMMUNITY FOR COMPLIANCE WITH
APPLICABLE LAWS.

 

11.20                     FURTHER ACTIONS.  EACH PARTY AGREES TO EXECUTE,
ACKNOWLEDGE AND DELIVER SUCH FURTHER INSTRUMENTS, AND TO DO ALL OTHER ACTS, AS
MAY BE NECESSARY OR APPROPRIATE IN ORDER TO CARRY OUT THE PURPOSES AND INTENT OF
THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ANY FILINGS WITH ANY ANTITRUST
AGENCY WHICH MAY BE REQUIRED.

 

IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Parties as of the date set forth below.

 

 

PHARMACOPEIA, INC.

SCHERING CORPORATION

 

 

 

 

By:

/s/ Stephen A. Spearman

 

By:

/s/ David Poorvin

 

 

 

Title:

EVP

 

Title:

Vice President

 

 

 

Date:

7/9/03

 

Date:

7/9/03

 

 

35

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EXHIBIT A

 

CURRENCY CONVERSION

 

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*

 

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EXHIBIT C

 

Elements of Fully Allocated Manufacturing Costs

 

The following expenses are included in manufacturing costs:

 

1.                                       Direct Materials

 

Materials used in the manufacturing process that are traced directly to the
completed product, such as:

 

•                                                                                         
Inert raw materials or excipients

 

•                                                                                         
Active substances/ingredients

 

•                                                                                         
Packaging components such as bottles, caps, labels, etc.

 

2.                                       Direct Labor

 

The cost of employees engaged in production activities that are directly
identifiable with product costs.  Excludes supervision, which is included in
indirect labor, and production support activities such as inspection, plant and
equipment maintenance labor, and material handling personnel.  Direct Labor cost
includes:

 

•           Base pay, overtime, vacation and holidays, illness, personal time
with pay, and shift differential.

 

•           Cost of employee fringe benefits such as health and life insurance,
payroll taxes, welfare, pension, profit sharing and bonuses.

 

3.                                       Indirect Manufacturing Costs

 

Costs which are ultimately allocated to product based on an appropriate method
such as standard direct labor hours, tank hours, grams, vials, etc., of the
operating departments.  These costs include:

 

•           Indirect Production Labor - salaries of employees engaged in
production activities who are not classified as direct labor, including
supervision, clerical, etc.

 

•           Costs of Direct Labor - employees not utilized for the manufacturing
of product such as training, downtime and general duties.

 

i

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•                                                                                         
Indirect Materials - supplies and chemicals which are used in the manufacturing
process and are not assigned to specific products but are included in
manufacturing overhead costs.  Includes supplies for which direct assignment to
products is not practical.

 

•                                                                                         
Utilities - expenses incurred for fuel, electricity and water in providing power
for production and other plant equipment.

 

•                                                                                         
Maintenance and Repairs - amount of expense incurred in-house or purchased to
provide services for plant maintenance and repairs of facilities and equipment.

 

•                                                                                         
Other Services - purchased outside services and rentals such as the cost of
security, ground maintenance, etc.

 

•                                                                                         
Depreciation - of plant and equipment utilizing the straight-line method of
calculation.

 

•                                                                                         
Insurance - cost of inventory insurance, comprehensive insurance and other
insurance necessary for the safeguard of manufacturing plant and equipment.

 

•                                                                                         
Taxes - expense incurred for taxes on real and personal property (manufacturing
site, buildings and the fixed assets of equipment, furniture and fixtures,
etc.). If manufacturing site includes other operations (marketing, R&D, etc.),
taxes are allocated to manufacturing on the basis of total real and personal
property.

 

•                                                                                         
Cost of manufacturing, service departments - such as:

 

(where applicable)

 

•                                          Packaging Engineering

 

•                                          Manufacturing Maintenance

 

•                                          Industrial Engineering

 

•                                          Receiving and Warehousing

 

•                                          Purchasing and Accounting

 

•                                          Production Scheduling

 

•                                          Inventory Management

 

•                                          Plant Materials Management

 

•                                          Central Weigh

 

•                                          Manufacturing Administration

 

•                                          Regulatory Affairs direct support to
manufacturing
 (not to exceed $80,000 per year for a three(3) year period)

 

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•                                          Allocated costs of services provided
to manufacturing including: (where applicable)

 

•                                          Cafeteria

 

•                                          Personnel Operations

 

•                                          Health and Safety Services

 

•                                          Division Engineering and Operations
Services

 

•                                          Plant Services (housekeeping)

 

•                                          Manufacturing Information Systems

 

•                                          Plant Power

 

•                                          Office of V.P. Manufacturing

 

Various bases are used for allocating these costs to manufacturing operating
departments including headcount, square feet, metered utilities use, estimated
services rendered, EDP computer hours, etc.

 

4.                                       Quality Assurance Costs

 

Direct labor and indirect costs for Quality Assurance departments testing and
approving materials used in manufacturing and completed manufacturing batches
and finished products.  This includes all manufacturing in-process testing and
testing of finished materials.  Excluded from product costs are QA costs related
to research and development, stability testing, etc.

 

The following expenses are not included in manufacturing costs:

 

a)                                      Inventory Carrying Costs

 

b)                                     Regulatory Affairs Costs (except as set
forth above)

 

c)                                      Pilot plant costs, research batches and
other similar costs prior to turnover to manufacturing.  These are handled as
development costs and expensed to R&D.  This excludes commercial goods produced
by a research facility.

 

d)                                     Costs incurred by Manufacturing for
special projects, or for Schering-Plough Research Institute requests, to
establish and certify new production processes, batch sizes and product line
improvements, and new vendor certification of equipment and primary materials
components.  These costs are expensed to R&D.

 

e)                                      Manufacturing start-up costs and initial
one-time extraordinary manufacturing costs incurred prior to plant operation and
achievement of a normal production activity level.  Includes costs of training,
testing, qualification/validation of new equipment and facilities and initial
trial batches.  These costs are deferred and then amortized to Other Production
Costs over five years.

 

f)                                        Significant idle capacity is
eliminated from factory overhead and product cost.  Idle or excess capacity
costs are culled out of the Manufacturing Budget and expensed as a period cost
to Other Production Costs.

 

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g)                                     Finished goods warehousing, shipping and
other  distribution costs.  These are included in distribution costs which are
part of marketing expenses.

 

h)                                     Product liability and/or business
interruption insurance expenses.

 

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*

 

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