EXHIBIT 10.21

 

DRUG DISCOVERY, DEVELOPMENT, AND LICENSE AGREEMENT

by and between

DIVERSA CORPORATION

and

INTRABIOTICS PHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

1.       DEFINITIONS

2.       R&D PROGRAM

2.1     R&D Program.

2.2     Research and Development Activities.

2.3     Limited Use of Materials Provided by Diversa.

2.4     Records.

2.5     Permitted Affiliates, its Sublicensees and Third Party Subcontractors.

3.       COMMITTEES; SELECTION OF COMPOUNDS AND COMPOUND DERIVATIVES

3.1     Organization.

3.2     Responsibilities.

3.3     Meetings of the RMC and Steering Committee.

3.4     Requirements for Action.

3.5     Members.

3.6     Visits to Facilities.

3.7     Information Sharing.

3.8     Dispute Resolution.

3.9     Expenses.

4.       GRANT OF RIGHTS AND REVERSION OF RIGHTS

4.1     License.

4.2     Rights to Sublicense.

4.3     License Period.

4.4     Reserved Sets.

4.5     IBP Diligence Obligations.

4.6     Reversion of Rights to Diversa.

4.7     Manufacturing Rights.

4.8     Extension of Research Period.

4.9     Compound Exclusivity; Non-Compete.

5.       INTELLECTUAL PROPERTY RIGHTS

5.1     Intellectual Property Ownership.

5.2     Filing, Prosecution and Maintenance of Patents.

5.3     Cooperation of the Parties.

5.4     Potential Assignments To IBP.

5.5     Infringement by Third Parties.

5.6     Third Party Claims of Infringement.

5.7     Hold Harmless.

6.       PAYMENTS, REPORTS, AND RECORDS

6.1     Technology Access Fee Payments.

6.2     Research Funding

6.3     Milestone Payments; Diligence Payment.

6.4     Royalties.

6.5     Reports and Payments.

6.6     Payments by IBP to Diversa.

6.7     Records.

6.8     Late Payments.

7.       CONFIDENTIAL INFORMATION

7.1     Definition of Confidential Information.

7.2     Obligations.

7.3     Exceptions.

7.4     Survival of Obligations.

7.5     Public Announcement.

7.6     Publication.

8.       REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS

8.1     Organization; Good Standing.

8.2     Binding Obligation; Due Authorization; No Conflict.

8.3     No Suit.

8.4     Title to Intellectual Property Rights.

8.5     No Violations of Third Party Intellectual Property Rights.

8.6     No Unauthorized Use Necessary.

8.7     Proper Assignment of Inventions.

8.8     Disclaimers.

8.9     Limitation of Liability.

9.       INDEMNIFICATION

9.1     Indemnification.

9.2     Procedures.

10.     TERM AND TERMINATION

10.1   Term.

10.2   Mutual Consent.

10.3   Default.

10.4   Bankruptcy.

10.5   Disposition of Confidential Information.

10.6   Effect of Termination or Expiration.

11.     DISPUTE RESOLUTION

11.1   Informal Dispute Resolution.

11.2   Mediation.

11.3   Court of Law.

11.4   Confidentiality.

12.     MISCELLANEOUS

12.1   Relationship of Parties.

12.2   Governing Law.

12.3   Binding Effect.

12.4   Assignment.

12.5   Notices.

12.6   Exports.

12.7   Amendment and Waiver.

12.8   Severability.

12.9   Third Parties.

12.10 Entire Agreement.

12.11 Regulatory Filings.

12.12 Force Majeure.

12.13 Withholding.

12.14 No Trademark Rights.

12.15 Counterparts.

12.16 Titles and Subtitles; Form of Pronouns; Construction and Definitions.

 

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

EXHIBIT 10.21

DRUG DISCOVERY, DEVELOPMENT, AND LICENSE AGREEMENT

             THIS DRUG DISCOVERY, DEVELOPMENT, AND LICENSE AGREEMENT, dated and
effective as of January 6, 2001 (the “Effective Date”), is by and between
DIVERSA CORPORATION, a Delaware corporation (“Diversa”), having its principal
place of business at 4955 Directors Place, San Diego, California 92121, and
INTRABIOTICS PHARMACEUTICALS, INC., a Delaware corporation (“IBP”), having its
principal place of business at 2021 Stierlin Court, Mountain View, California
94043 (collectively, the “Parties”).

RECITALS

             WHEREAS, Diversa has developed proprietary technologies for the
rapid discovery, development and optimization of Compounds (as such term is
defined below); and

             WHEREAS, IBP is developing novel antibacterial and antifungal drugs
for the prevention or treatment of serious infectious diseases; and

             WHEREAS, IBP and Diversa desire to collaborate to identify novel
molecules derived from Diversa Technology (as such term is defined below) that
demonstrate efficacy against assays that are designed to identify compounds
having antibacterial or antifungal properties; and

             WHEREAS, as part of such collaboration, IBP and Diversa desire to
use certain other of their respective technologies to improve the discovery
process for delivering optimized lead drug candidates prior to pre-clinical
testing; and

             WHEREAS, the Parties desire to set forth herein the terms governing
such collaboration.

             NOW, THEREFORE, in consideration of the mutual covenants set forth
in this Agreement, the receipt and sufficiency of which the Parties hereby
acknowledge, the Parties hereby agree as follows:

1.          DEFINITIONS

             “Active Substructure” shall mean the [ * ] structure that is [ * ]
of a Compound or Compound Derivative and which has been identified or confirmed
against antibacterial or antifungal screens under the Work Plan.

 

             “Affiliate” shall mean any entity that directly or indirectly Owns,
is Owned by or is under common Ownership, with IBP, or Diversa, as the case may
be, where “Owns,” “Owned” or “Ownership” means direct or indirect possession of
more than fifty percent (50%) of the outstanding voting securities of a
corporation or a comparable equity interest in any other type of entity or such
lesser amount as constitutes control in the relevant jurisdiction.

             “Agreement” shall mean this Drug Discovery, Development, and
License Agreement.

             “Alternate” shall have the meaning set forth in Section 3.5.

             “Annual Net Sales” shall mean the Net Sales made within each
calendar year.

             “Audited Party” shall have the meaning set forth in Section 6.7.

             “Auditing Party” shall have the meaning set forth in Section 6.7.

             “Committee Member” shall have the meaning set forth in Section
3.1.1.

             “Compound” shall mean a chemical compound that:  (1) is initially [
* ] during the Research Period, (2) has a [ * ] the Parties to allow [ * ] to
determine whether such [ * ], and (3) is not an Excluded Compound [ * ] with
respect to such compound pursuant to [ * ].

             “Compound Derivative” shall mean any [ * ] of a particular Compound
that has all of the following properties:

             (1)         that [ * ] of such Compound; and

             (2)         the [ * ] of which has been [ * ] under the Work Plan
as those used to identify such Compound; and

             (3)         which was [ * ] such Compound or [ * ] of such
Compound; and

             (4)         where the Active Substructure of such [ * ] with
respect to such Compound, if an Active Substructure has [ * ] with respect to
such Compound; and

             (5)         that was identified by either Party or by both Parties
together during the Research Period and [ * ]; and

             (6)         the [ * ] of which has been [ * ] and [ * ] in
accordance with the terms of this Agreement; and

             (7)         which is not an Excluded Compound at the [ * ]
hereunder.

             “Compound Patent(s)” shall have the meaning set forth in Section
5.2.2.

 

             “Compound Set” shall mean, with respect to [ * ] with respect to
such Compound.  A Compound Set shall not include [ * ].

             “Confidential Information” shall have the meaning set forth in
Section 7.1.

             “CPI” shall mean the Consumer Price Index for Urban Consumers, as
published by the United States Department of Labor from time to time, or, if
such statistic is no longer published, any similar inflation factor as may be
mutually agreed to by the Parties in writing.

             “Defaulting Party” shall have the meaning set forth in Section
10.3.1.

             “Disclosing Party” shall mean that Party disclosing Confidential
Information under Section 7.1.

             “Dispute” shall have the meaning set forth in Section 11.1.

             “Diversa Know-How” shall mean all know-how, trade secrets,
inventions, data, processes, procedures, devices, methods, formulas, media and
all lines, reagents, protocols and marketing and other information, including
improvements thereon, whether or not patentable, but which are necessary or
useful for the commercial exploitation of the Diversa Patent Rights, the conduct
of the research and development activities hereunder, the development, use, or
manufacture of compounds [ * ], the development, use, manufacture, offer for
sale, sale, or import of Products, in each case which are owned by or licensed
to Diversa, with the right to sublicense, as of the Effective Date or otherwise
during the Research Period (including the [ * ]).  Diversa Know-How shall not
include Diversa Patent Rights.

             “Diversa Patent Rights” shall mean all patent applications and
issued and subsisting patents, including, without limitation, all provisionals,
converted provisionals, continued prosecution applications, substitutions,
divisionals, continuations, continuations-in-part, reissues, reexaminations,
extensions and supplementary protection certificates thereof, including foreign
counterparts of the foregoing owned by or licensed to Diversa, with the right to
sublicense, as of the Effective Date or otherwise during the Research Period
(including the [ * ]), which are necessary or useful to conduct research and
development activities hereunder, to develop, use, or manufacture compounds
within Compound Sets, or to develop, use, manufacture, offer for sale, sale, or
import Products.

             “Diversa Technology” shall mean the Diversa Know-How and the
Diversa Patent Rights.

             “EMEA” means the European Medicines Evaluation Agency, or any
successor agency thereto which coordinates the scientific review of human
pharmaceutical products under the centralized licensing procedure in the
European Union.

             “Excluded Compound” shall mean any chemical compound with respect
to which Diversa has granted rights or an option to obtain rights to a Third
Party prior to the date upon which IBP notifies Diversa that IBP desires to
obtain a license or other right pursuant to this Agreement such that Diversa
could not grant to IBP a License under Section 4.1 to such compound without
breaching its obligations to such Third Party.

 

             “FDA” means the United States Food and Drug Administration, or any
successor agency thereto having the administrative authority to regulate the
marketing of human pharmaceutical products or biological therapeutic products,
delivery systems and devices in the United States.

             “Field” shall mean use in the treatment, prevention or diagnosis of
a fungal or bacterial infection in humans.

             “FTE” shall mean the equivalent of one full year of work on a full
time basis by a scientist or other professional (whether an employee or
independent contractor of Diversa) possessing skills and experience necessary to
carry out the research activities by Diversa contemplated by this Agreement,
determined in accordance with the Diversa’s normal policies and procedures.

             “IBP Know-How” shall mean all know-how, trade secrets, inventions,
data, processes, procedures, devices, methods, formulas, media and all lines,
reagents, protocols and marketing and other information, including improvements
thereon, whether or not patentable, but which are necessary or useful for the
commercial exploitation of the IBP Patent Rights, the conduct of the research
and development activities hereunder, the development, use, or manufacture of
compounds within Compound Sets, the development, use, manufacture, offer for
sale, sale, or import of Products, in each case which are owned by or licensed
to IBP, with the right to sublicense, as of the Effective Date or otherwise
during the Research Period (including the six-month period of Section 4.8).  IBP
Know-How shall not include IBP Patent Rights.

             “IBP Patent Rights” shall mean all patent applications and issued
and subsisting patents, including, without limitation, all provisionals,
converted provisionals, continued prosecution applications, substitutions,
divisionals, continuations, continuations-in-part, reissues, reexaminations,
extensions and supplementary protection certificates thereof, including foreign
counterparts of the foregoing owned by or licensed to IBP, with the right to
sublicense, as of the Effective Date or otherwise during the Research Period
(including the six-month period of Section 4.8), which are necessary or useful
to conduct research and development activities hereunder, or the development,
use, or manufacture compounds within Compound Sets, or to develop, use,
manufacture, offer for sale, sale, or import Products.

             “IBP Technology” shall mean the IBP Know-How and the IBP Patent
Rights.

             “IND” shall mean an investigational new drug application (or
equivalent application outside of the United States).

             “IND-Enabling Toxicology Studies” shall mean toxicology studies as
required or suggested by the FDA (or equivalent agency outside of the United
States) for filing of an IND.

             “Indemnitee” shall have the meaning set forth in Section 9.2.

             “Indemnitor” shall have the meaning set forth in Section 9.2.

             “Independent Expert” shall have the meaning set forth in Section
4.6.1.

             “Industry Expert” shall have the meaning set forth in Section
3.2.4.

             “JAMS” shall have the meaning set forth in Section 11.2.

 

             “Lead Compound” shall mean a particular compound in a particular
Compound Set that is selected by IBP pursuant to the terms of this Agreement for
commencement of preclinical and clinical development activities.  Such
activities include, but are not limited to, [ * ].

             “License” shall have the meaning set forth in Section 4.1.

             “License Period” shall have the meaning set forth in Section 4.3.

             “Major Market” shall mean any one of the following countries:  the
[ * ].

             “Mediation Rules” shall have the meaning set forth in Section 11.2.

             “MHW” the Ministry of Health and Welfare agency of Japan or any
successor agency thereto which coordinates the scientific review of human
pharmaceutical products under the licensing procedures in Japan.

             “Net Sales” shall mean, with respect to each given country, the
gross amount invoiced for sales of Products by or on behalf of a Party, its
Affiliates or Sublicensees to any Third Party (whether an end-user, a
distributor or otherwise), exclusive of inter-company transfers or sales to or
from Affiliates or Sublicensees, less the following deductions from such gross
amounts only to the extent reasonable and customary, and which are actually
incurred and included in gross amounts invoiced:

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

                           (b)        freight, postage, shipping, customs,
duties and insurance charges;

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

                           (d)        charge back payments and rebates granted
to managed health care organizations or to federal, state and local governments,
their agencies, and purchasers and reimbursers or to trade customers;

                           (e)         commissions paid to Third Parties other
than sales personnel and sales representatives or sales agents by such Party,
its Affiliates or Sublicensees; and

                           (f)         rebates (or equivalents thereof) granted
to or charged by national, state or local government authorities in countries
other than the United States and actually paid by such Party, its Affiliates or
Sublicensees in accordance with the applicable laws, regulations or rules of
such countries.

             If a Product is sold in the form of a combination product, Net
Sales for such combination product shall 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 Product contained in the combination product if sold
separately by a Party, its Affiliate, or Sublicensee; and B is the invoice price
of any other active component or components in the combination product if sold
separately by such Party, its Affiliate, or Sublicensee.  If the Product is sold
in the form of a combination product for which the Net Sales cannot reasonably
be calculated using such formula, then the Net Sales for purposes of determining
royalty payments shall be negotiated in good faith and agreed upon in writing by
the Parties based on the relative value contributed by each component.

 

             “Non-Defaulting Party” shall have the meaning set forth in Section
10.3.1.

             “Notice of Default” shall have the meaning set forth in Section
10.3.1.

             “Notification” shall have the meaning set forth in Section 3.2.3.

             “Party” shall mean Diversa or IBP, as applicable.

             “Patent Rights” shall mean Diversa Patent Rights or IBP Patent
Rights, as applicable.

             “Performance Default” shall have the meaning set forth in Section
10.3.1.

             “Product” shall mean a commercial product containing, consisting
of, based on, or incorporating any compound in a Compound Set for use in the
Field.

             “Program Inventions” shall mean all inventions, discoveries,
developments and improvements, whether or not patentable, conceived of by
employees or consultants of either Party, or jointly by employees and
consultants of both Parties, in the course of the activities conducted under the
Work Plan during the Research Period and if applicable, [ * ].

             “Progress Report” shall have the meaning set forth in Section 3.7.

             “Project Leader” shall have the meaning set forth in Section 3.1.3.

             “R&D Data” means all data, including, but not limited to, all in
vitro and in vivo data, structure elucidation data, the medicinal chemistry
efforts, and any other information obtained or developed in the course of
performance of the R&D Program.

             “R&D Program” shall mean the research and development program to be
conducted by Diversa and IBP pursuant to Section 2, as more fully described in
the Work Plan.  The R&D Program with respect to a given compound in a Compound
Set shall end upon the earliest of (i) the date that an investigational new drug
application (or equivalent application outside of the United States) is filed
for a Product containing such compound or (ii) the date that any License with
respect to such compound terminates.

             “Receiving Party” shall mean that Party receiving Confidential
Information under Section 7.1.

 

             “Regulatory Approval” shall mean any approvals (including
supplements, amendments, pre- and post-approvals and price approvals), licenses,
registrations or authorizations of any national, supra-national (e.g., the
European Commission or the Council of the European Union), regional, state or
local regulatory agency, department, bureau, commission, council or other
governmental entity, necessary for the manufacture, distribution, use or sale of
Products in a regulatory jurisdiction.

             “Representation Default” shall have the meaning set forth in
Section 10.3.1.

             “Research Period” shall mean the period beginning on the Effective
Date and ending upon the third anniversary of the Effective Date, unless
extended by mutual written agreement of the Parties in accordance with the terms
of this Agreement.

             “Reserved Set” shall have the meaning set forth in Section 4.4.

             “Reversion License” shall have the meaning set forth in Section
4.6.1.

             “Royalty Period” shall mean, with respect to each Product in any
country, every calendar quarter, or partial calendar quarter, commencing with
the first arms-length, commercial sale of such Product in such country and
ending upon the later to occur of (a) the date all Valid Claims included in
patents covering Program Inventions under the license of Section 4.1.1 covering
a Product (or any associated Lead Compound contained therein) in that country
have expired, or (b) the date all Valid Claims included in the Diversa Patent
Rights covering a Product (or any associated Lead Compound contained therein) in
that country have expired, or (c) twelve (12) years from the date of the first
arms-length commercial sale in that country of the applicable Product.

             “RMC” shall have the meaning set forth in Section 3.1.1.

             “Senior Executives” shall have the meaning set forth in Section
11.1.

             “Staffing Level” shall have the meaning set forth in Section 2.2.1.

             “Steering Committee” shall have the meaning set forth in Section
3.1.2.

             “Sublicensee” shall mean any Third Party licensed by IBP or its
Affiliates to make, use (except where the implied right to use accompanies the
sale to the Third Party of any Product by IBP or its Affiliates or
Sublicensees), sell, import, export, advertise, promote and otherwise
commercialize any Product.

             “Territory” shall mean the world.

             “Third Party” shall mean any individual, partnership, joint
venture, corporation, trust, estate, unincorporated organization, government or
any department or agency thereof, or any other entity other than Diversa or IBP
or an Affiliate of Diversa or IBP.

 

             “Valid Claim” shall mean a claim included in (a) any issued patent,
which, with respect to any pending claim, has not been irrevocably abandoned or
held to be unpatentable by a court or other authority of competent jurisdiction
in a proceeding which is not reversed, not appealable and not appealed, or, with
respect to any issued claim, has not been held invalid by a decision of a court
or other authority of competent jurisdiction which is not reversed, not
appealable and not appealed or (b) any patent application within the Patent
Rights of either Party, so long as such application is being prosecuted and the
claim in question has not been abandoned by the owner Party of the application
(and provided that such patent application has not been pending for more than
seven (7) years in the country in question).

             “Work Plan” shall mean the work plan that outlines the research and
development activities to be performed by Diversa and IBP hereunder, including
identification of deliverables from IBP and Diversa, which is set forth in a
letter agreement between the Parties of even date herewith.  In case of any
discrepancies between the terms of the Work Plan and the terms of this
Agreement, the terms of this Agreement shall prevail.

             The above definitions are intended to encompass the defined terms
in both the singular and plural tenses.

2.          R&D PROGRAM

             2.1        R&D Program. The scope of the collaboration between IBP
and Diversa during the Research Period will be the areas of discovery,
optimization, and development of Compound Sets in the Field, as well as all
other aspects of the R&D Program, being defined in more detail in the Work Plan,
which is hereby incorporated by reference into this Agreement.  The Parties
shall work together to identify compounds having potential use in the Field, and
intend that IBP may obtain exclusive rights to such Compound Sets, subject to
certain diligence and payment obligations as provided in this Agreement.

             2.2        Research and Development Activities.

                           2.2.1    Staffing Level.  In carrying out the R&D
Program, Diversa shall devote [ * ] FTEs per year during the Research Period
(the “Staffing Level”), and IBP shall pay Diversa for the services of such FTEs
as set forth herein.  Diversa shall not be obligated to utilize more than [ * ]
FTEs per year during the Research Period in carrying out the R&D Program unless
the Parties otherwise mutually agree.  If IBP chooses to exercise its option
under [ * ], the Parties shall mutually agree to the number of FTEs dedicated to
the development of Compound Derivatives during the specified [ * ].  The FTE
rate applicable at the time of IBP’s exercise shall be the FTE rate for such
mutually agreed FTEs.  Notwithstanding the foregoing or anything contained
herein to the contrary, the Staffing Level shall remain at [ * ] FTEs per year
during the Research Period, unless the Parties mutually agree in writing to a
change in the Staffing Level.  Following the Research Period, if IBP requests
that Diversa perform research services hereunder with respect to a compound
within a Compound Set subject to a License (e.g., for supply of a Compound
following the Research Period where such Compound is a member of a formerly
Reserved Set), Diversa hereby agrees to discuss such request in good faith with
IBP; provided, however, that Diversa shall not be obligated to agree to perform
such services, and IBP shall be required to pay Diversa for any such services
performed by Diversa FTEs at Diversa’s then applicable FTE rate.

                           2.2.2    Commercially Reasonable Efforts. Diversa and
IBP shall use commercially reasonable efforts to perform the tasks for which
each Party is responsible as set forth in the Work Plan, and to provide the
facilities, materials, and equipment necessary to perform the R&D Program under
the Work Plan.

 

                           2.2.3    Allocation of Responsibility. While the
Parties intend to work collaboratively under the auspices of the RMC to specify
the Party or Parties with responsibility for performing the specific research
and development activities under the R&D Program, IBP shall be responsible for
performing (or, subject to the limitations herein, arranging for Third Party
subcontractors to perform) all research and development activities under the R&D
Program that are not specified to be performed by Diversa. IBP shall be
responsible for funding all research and development activities conducted
hereunder, including those by Diversa or by IBP and by permitted Third Parties,
if any, designated to conduct research and/or development activities in support
of the R&D Program.

             2.3        Limited Use of Materials Provided by Diversa. IBP agrees
that it will use materials provided from Diversa’s environmental libraries
pursuant to the Work Plan only for (i) screening such materials in connection
with the R&D Program against assays selected by the RMC and/or (ii) conducting a
medicinal chemistry program with respect to any particular Compound within such
materials, and IBP agrees that it will not use such materials for any other
purpose.  IBP may not transfer such materials to any Affiliate, Sublicensee or
Third Party subcontractor unless: (i) IBP notifies Diversa, through the RMC, of
such transfer and (ii) IBP executes a agreement that governs the transfer of
such materials that provides ownership of all inventions made or discovered
using such materials to be allocated in a manner substantially consistent with
the provisions of Article 5, as well as an obligation of confidentiality
substantially similar to those set forth in Article 7, and a limitation on use
of such materials to the performance of work under this Agreement.  IBP and
Diversa will separately inform the RMC in writing of the assays to be used in
its screening of such materials prior to commencing such screening.  IBP will
provide Diversa with regular written reports identifying the extracts and assays
used in such screening and the results of such screening.  Diversa will provide
IBP with regular written reports identifying the materials and assays used in
such screening and the results of such screening.  IBP will employ a system to
track the identity and use of such materials and to ensure that such materials
are maintained separately from any other materials used by IBP (or any Affiliate
of IBP, its Sublicensee or Third Party subcontractor) and will provide Diversa
with a detailed description of such system prior to the delivery of any
materials by Diversa to IBP under the Work Plan.

             2.4        Records  During the Research Period and if applicable,
the six-month period of Section 4.8, and continuing for a period of [ * ]
thereafter, and/or as required by regulatory bodies, Diversa and IBP shall
maintain records of the R&D Program (or cause such records to be maintained),
both in notebooks and electronic forms that are generated for the R&D Program
that are separate from any Third Party information, in sufficient detail and
good scientific manner as will properly reflect all work done in the R&D Program
and results achieved in the performance of the R&D Program.  During the Research
Period and continuing for a period of    [ * ] thereafter, each Party shall
allow the other Party to have reasonable access to all pertinent R&D Data
generated by or on behalf of such Party with respect to any Lead Compound and
Product.  This retention of records may be extended if there is a legal
proceeding pending (i.e., court action, or United States interference or
opposition in any country involving Diversa’s or IBP’s intellectual property
applicable to information within such records) where those records are
reasonably required and a written request with the reason is provided to the
other Party.  Nothing herein shall require, or be construed to require, that
either Party disclose to the other Party any of its Know-How, except to the
extent necessary for the development and/or commercialization of Lead Compounds
and Products.

 

             2.5        Permitted Affiliates, its Sublicensees and Third Party
Subcontractors. The Parties contemplate that either Party may have certain of
the work to be performed by such Party in support of the R&D Program be
performed by an Affiliate of such Party, or its Sublicensees, or any Third Party
subcontractor hired for the sole purpose of performing such work, in accordance
with the terms set forth herein so long as any inventions or discoveries made or
discovered by an Affiliate of such Party, or its Sublicensees, or any Third
Party subcontractor during the course of performing such work shall be owned by
the appropriate Party as set forth in Article 5.  Such Affiliate, Sublicensee or
Third Party subcontractor may be involved in the following research and
development activities: developing and performing assays, manufacturing Compound
Derivatives and the Lead Compound, and running toxicology and stability
studies.  Each Party shall remain primarily responsible for the work to be
performed by such Party, even if such work is performed by an Affiliate,
Sublicensee, or Third Party subcontractor in support of the R&D Program under
this Agreement.  Either Party shall be permitted to involve Third Party
subcontractors, its Sublicensees and/or its Affiliates with specific aspects of
the R&D Program.  In all events, however, the Party delegating any aspects of
the R&D Program to Affiliates, Sublicensees or Third Party Subcontractor shall
remain responsible hereunder for the activities of such Affiliates,
Sublicensees, or Third Party subcontractors.

3.          COMMITTEES; SELECTION OF COMPOUNDS AND COMPOUND DERIVATIVES

             3.1        Organization.

                           3.1.1    Research Management Committee. IBP and
Diversa shall establish a research management committee (the “RMC”) comprised of
[ * ] persons (each, a “Committee Member”), [ * ] of whom shall be appointed by
IBP and [ * ] of whom shall be appointed by Diversa.  The RMC may invite other
persons, including representatives of the Parties, to participate in meetings of
the RMC, as appropriate, subject to appropriate obligations of confidentiality
and non-use and provided that such persons shall not have the right to vote as
Committee Members.  The Parties may mutually agree to increase the number of
Committee Members on the RMC if they determine that such increase would allow
individuals with appropriate expertise to participate in the RMC, provided that
after implementation of any increase in the number of Committee Members, each
Party shall have an equal number of representatives on the RMC.

                           3.1.2    Steering Committee. In addition, IBP and
Diversa shall establish a steering committee (the “Steering Committee”),
consisting of the Chief Executive Officer of Diversa and the Chief Executive
Officer of IBP, whose role shall be to oversee the functioning of the RMC and to
resolve disputes within the RMC as described in Section 3.8.

 

                           3.1.3    Project Leaders. Diversa and IBP shall each
name one of its RMC members to serve as a co-director of the R&D Program (each,
a “Project Leader”). The Project Leaders shall oversee the implementation of the
decisions and conclusions of the RMC with respect to the execution of the Work
Plan, and address the day-to-day issues arising under the R&D Program.

             3.2        Responsibilities. The purpose of the RMC shall be to
plan, coordinate, and direct the research efforts related to the R&D Program and
to ensure the execution of the Work Plan.  Responsibilities to effect this
purpose include, but are not limited to, the following:

                           3.2.1    Proposing Amendments to Work Plan. Either
Party’s representatives on the RMC shall be permitted to propose amendments to
the Work Plan.  All such proposals to amend the Work Plan shall be in writing
and delivered to each Committee Member prior to the RMC’s approval of such
proposed amendment(s).  Any material amendment(s) to the Work Plan shall be
approved in writing by all Committee Members at a meeting of the RMC (or by
written consent of all Committee Members) and, following approval of such
amendment(s) by the RMC, shall be included in the minutes of such meeting. 
Specifically, any proposed change to the Staffing Level shall first be
unanimously approved by the Committee Members and submitted to both Parties for
written approval; however, if the RMC cannot agree to such a change to the
Staffing Level, such issue shall be presented to the members of the Steering
Committee as set forth in Section 3.8.  Notwithstanding anything contained
herein to the contrary, the Staffing Level shall not be changed during the
Research Period absent the written approval of both Parties.

                           3.2.2    Review of Reports. At least quarterly, or at
such other more frequent intervals as determined by the RMC, the RMC shall
deliver to Diversa and IBP reports disclosing a complete compilation of all R&D
Data and revisions to the Work Plan, as appropriate.  The Parties will review
such R&D Data to determine progress made on the R&D Program.  Reports prepared
by the RMC and delivered to each Party shall be subject to the confidentiality
provisions contained herein.

                           3.2.3    Designation of Compound. If, as part of the
research activities hereunder in accordance with the Work Plan during the
Research Period, either Party invents or discovers a compound (i) that has not
been derived from an existing Compound or from knowledge of the structure of an
existing Compound and (ii) the structure of which has been elucidated as part of
the Work Plan, as soon as practicable following the elucidation of the chemical
structure of such compound sufficient to allow Diversa to determine whether such
structure corresponds to an Excluded Compound (but in no event later than [ * ]
after such event), such Party shall notify the RMC (as well as Diversa, if IBP
is such Party) in writing of such compound’s structure to enable Diversa to
determine whether such compound is an Excluded Compound.  Within [ * ] following
Diversa’s receipt of the structure information with respect to such compound,
Diversa shall notify the RMC as well as IBP in writing as to whether or not such
compound is an Excluded Compound (the “Notification”).  If such compound is an
Excluded Compound, then such compound shall not be deemed to be a Compound
hereunder.  If such compound is not an Excluded Compound, then such compound
shall be designated as a Compound hereunder and shall comprise the first
compound within the Compound Set associated with such Compound.

 

                           3.2.4    Designation of Compound Derivatives.

                                         (a)         If, as part of the research
activities hereunder in accordance with the Work Plan, either Party invents or
discovers a compound (i) that has been derived from an existing Compound or from
knowledge of the structure of an existing Compound, either by [ * ], or by other
means in the course of performing research pursuant to the Work Plan, including
without limitation Compound Derivatives and (ii) the structure of which has been
elucidated as part of the Work Plan, as soon as practicable following the
elucidation of the chemical structure of such compound sufficient to allow
Diversa to determine whether such structure corresponds to an Excluded Compound
(but in no event later than [ * ] after such event), such Party shall notify the
RMC (as well as Diversa, if IBP is such Party) in writing of such compound’s
structure to enable Diversa to determine whether such compound is an Excluded
Compound.  Within [ * ] business days following Diversa’s receipt of the
structure information with respect to such compound, Diversa shall notify the
RMC (as well as IBP) in writing as to whether such compound is an Excluded
Compound.  If such compound is not an Excluded Compound and the RMC agrees that
such compound otherwise satisfies the definition of a “Compound Derivative” with
respect to the Compound from which such compound was originally derived, then
such compound shall be deemed to be a Compound Derivative of such Compound and
shall comprise an additional compound within the Compound Set associated with
such Compound.  If the RMC cannot agree whether such compound satisfies the
definition of a “Compound Derivative,” or more specifically, if the RMC cannot
determine the structure of the Active Substructure of the Compound that is
associated with the Compound Set, and therefore cannot determine whether a
compound is a Compound Derivative in such Compound Set within [ * ] days after
Diversa has notified the RMC that the compound is not an Excluded Compound, then
the Parties shall engage a mutually acceptable independent expert having a Ph.D.
or equivalent degree in organic chemistry, with at least ten (10) years of
experience in performing medicinal chemistry within the pharmaceutical industry,
to determine whether the compound should be deemed to be a Compound Derivative
of such Compound (an “Industry Expert”).  The Parties shall select such Industry
Expert within [ * ] after the expiration of the foregoing [ * ] period. Within [
* ] of its selection, the Industry Expert shall confer with the Parties for no
longer than [ * ] after he or she receives information from each Party
supporting its position on the structure of the Active Substructure or whether
the compound should be deemed a “Compound Derivative” and make his or her
determination.  Each Party shall thereafter be bound by the decision of the
Industry Expert as to whether the compound is deemed a Compound Derivative.  The
RMC shall maintain a document identifying the Compound Sets of this Agreement
and amend such document from time to time with the addition of any new Compound
Sets as identified during the Research Period (including, if applicable, any
Compound Derivatives identified during the [ * ] period of Section 4.8), with a
copy of such document, as amended from time to time being distributed to each
Party within [ * ] following the end of the Research Period or if applicable,
the six-month period of Section 4.8.

                                         (b)         However, if such compound
is not an Excluded Compound and the RMC or the Industry Expert (whichever is
applicable) determines that the compound does not otherwise satisfy the
definition of a “Compound Derivative” with respect to the Compound from which
such compound was originally derived, then such compound shall be deemed to be a
new Compound with respect to which IBP shall be entitled to exercise its rights
under Section 3.2.3 and shall comprise the first compound within a new Compound
Set associated with such new Compound.

 

                           3.2.5    Compound Supply.  As soon as a Compound has
been designated under the procedures of Section 3.2.3 above, the RMC shall
convene to decide the most efficient route to produce sufficient quantities of
such Compound, not to exceed [ * ] of such Compound, to give IBP the opportunity
to perform the minimum studies required to determine IBP’s interest in obtaining
a License to a Compound Set associated with such Compound.  If the RMC
determines that the most efficient route to make such Compound is via [ * ], the
RMC shall so notify IBP in writing, and IBP shall be responsible for producing
sufficient quantities of the Compound as reasonably specified by the RMC. 
However, if the RMC determines that the most efficient route to make such
Compound is via [ * ], the RMC shall so notify Diversa in writing, and Diversa
shall be responsible for producing and delivering to IBP sufficient quantities
of the Compound via [ * ] as reasonably specified by the RMC.  IBP shall have a
maximum of [ * ] from manufacture or receipt (as applicable) of such applicable
quantities of the Compound to carry out such studies.  If, within such [ * ]
period, IBP determines that such Compound is of interest to IBP, IBP shall
promptly notify Diversa in writing as to IBP’s desire to obtain a License to
such Compound Set associated with such Compound.  Subject to the terms and
conditions of this Agreement, upon such written notification, if such Compound
is not an Excluded Compound at such time, Diversa shall be deemed to grant a
License to the Compound Set with respect to such Compound and Products based
thereon as provided in Section 4.1.  If Diversa is not so notified within such [
* ] period, however, IBP shall thereafter have no right to License such Compound
or the Compound Set with respect to such Compound.

             3.3        Meetings of the RMC and Steering Committee. The RMC
shall meet in person at least once every calendar quarter during the Research
Period and thereafter during the performance of the R&D Program, alternating the
sites of such in-person meetings between Diversa’s facilities in San Diego,
California and IBP’s facilities in Mountain View, California, or at such other
times and locations as the RMC determines.  Draft minutes for each meeting of
the RMC shall be circulated within [ * ] following each meeting of the RMC. 
Such minutes shall include a summary of the matters discussed, decisions made,
conclusions, and actions agreed upon by the RMC.  The responsibility for
preparing such meeting minutes shall alternate between the Project Leaders of
IBP and Diversa, and such minutes will not be finalized until the Project Leader
that did not prepare such minutes reviews and confirms the accuracy of such
minutes, which shall take place within [ * ] of receipt of the minutes.  The
Steering Committee shall meet at such times, with such frequency, and at such
locations as its members may agree from time to time.

             3.4        Requirements for Action. At each RMC meeting, at least
two Committee Members appointed by each Party shall constitute a quorum of the
RMC, and decisions shall be made by unanimous vote.  The Committee Members or
Alternates of IBP shall collectively have one (1) vote on the RMC, and the
Committee Members or Alternates of Diversa shall collectively have one (1) vote
on the RMC.

             3.5        Members.  The initial Committee Members of the RMC shall
be as follows:

                           Diversa Representatives             IBP
Representatives

                           [ * ]                                               
[ * ]

 

             A Party may change one or more of its Committee Members, provided,
however, that such person is technically qualified for the position as
reasonably demonstrated by that Party.  All appointments and withdrawals of
appointment shall be made by written notice to the other Party.  Each Party may
designate in writing an alternate Committee Member (“Alternate”) with at least
three (3) days prior notice to the other Party if the designated Committee
Member cannot attend a meeting, provided, however, that such Alternate is
technically qualified for the position as reasonably demonstrated by that
Party.  Any action taken with approval of an Alternate shall be as valid as if
taken with the approval of the designated Committee Member.

             3.6        Visits to Facilities.  Committee Members and their
designated representatives shall have reasonable opportunity to visit the
facilities of each Party (and such Party’s Affiliates, its Sublicensees and
permitted Third Party subcontractors hereunder) where activities under this
Agreement are in progress, as reasonably required to execute the Work Plan,
during normal business hours on a mutually agreeable date.  Each Party shall
bear its own expenses in connection with such site visits.  Committee Members
and their designated representatives shall be obligated to keep any and all
information that such Committee Member or their designated representatives
receives or reviews during such visits confidential, whether or not such
information relates to the research and development activities overseen by the
RMC under this Agreement.  Each Party shall exert reasonable efforts to limit
access by any permitted visitor to its facility to information that is unrelated
to the Parties’ performance under this Agreement.  Committee Members and their
designated representatives shall have the right at any time during the visit to
ask questions of and receive answers from personnel regarding their activities
and findings under this Agreement.

             3.7        Information Sharing.  Each Party shall provide to the
RMC information that is relevant and necessary to make decisions regarding the
R&D Program and demonstrate efforts in furthering the research and development
activities under the Work Plan in the form of a report (a “Progress Report”) no
fewer than [ * ] prior to a scheduled RMC meeting.  Each Progress Report shall,
at a minimum, provide the status of any research, preclinical, and clinical
development activities for compounds within a Compound Set and summarize any
outstanding material issues associated with such development efforts and the
likelihood of and timetable for commercialization of a Product based on any such
compounds.

             3.8        Dispute Resolution.  If the RMC and Program Directors
fail to reach agreement upon any matter, the dispute will be referred to the
Steering Committee, which shall attempt to resolve such disputes informally.  If
such disputes cannot be resolved informally by the Steering Committee, the
dispute will be resolved in accordance with the procedures set forth in Article
11.

             3.9        Expenses.  Diversa and IBP shall each bear all expenses
of their respective RMC and Steering Committee members related to their
participation on the RMC, attendance at RMC meetings, participation on the
Steering Committee, and attendance at Steering Committee meetings.

4.          GRANT OF RIGHTS AND REVERSION OF RIGHTS

             4.1        License.

                           4.1.1    Subject to the terms and conditions of this
Agreement, including, without limitation, [ * ], with respect to each Compound
Set for which IBP elects to take a license pursuant to Section 3.2.5, Diversa
hereby grants to IBP an exclusive, worldwide, milestone-bearing, royalty-bearing
license (the “License”) under the Diversa Technology to the Compound Set to the
extent necessary or useful to develop, make, have made, use, sell, offer for
sale and import Products in the Territory and within the Field. This License
also includes the right to identify and develop new compounds that are Compound
Derivatives of members of such a Compound Set by medicinal chemistry; provided,
however, that the license to identify and develop new compounds that are
Compound Derivatives of members of such a Compound Set [ * ]. Subject to Section
4.3, the duration of the License under this Section 4.1.1 shall be perpetual.

                           4.1.2    Subject to the terms and conditions of this
Agreement, including, without limitation, [ * ], Diversa hereby grants to IBP a
nonexclusive, fully-paid, worldwide license to use a [ * ] and an exclusive,
fully-paid, worldwide license to [ * ], in each case, solely to manufacture or
have manufactured a Compound or Product in the Territory and within the Field,
provided [ * ] (i) direct the synthesis of a compound included within a Compound
Set or a Product and (ii) (A) were identified or otherwise known or available as
part of the R&D Program [ * ], or, (B) with respect to those Compound Sets opted
to be carried into the [ * ], were identified or otherwise known or available as
part of the R&D Program [ * ]; and provided further that such licenses shall not
include any rights to genetically modify any [ * ].  For clarity, the period of
identifying [ * ] for all compounds within a Compound Set that are not opted to
be carried into the [ * ] expires at the end of the Research Period; the period
for identifying [ * ] for all compounds within a Compound Set that is opted for
further development during the [ * ] expires at the end of such period.  If a
License under Section 4.1.1 terminates, then the licenses under this Section
4.1.2 shall also terminate.

                           4.1.3    Diversa hereby grants to IBP (i) a
nonexclusive, fully-paid, perpetual license to practice any and all Program
Inventions that are not covered by [ * ] (or applications related thereto, so
long as such applications are being prosecuted) made by IBP employees or
consultants, either alone or jointly with Diversa employees or consultants, and
[ * ], and (ii) a nonexclusive, fully-paid, perpetual license to practice any
and all Program Inventions made by IBP employees or consultants either alone or
jointly with Diversa employees or consultants, for IBP to carry out its
responsibilities in accordance with this Agreement; provided however, that the
license granted in this Section 4.1.3 shall not include a license to practice
any Diversa Patent Rights.  For the sake of clarity, [ * ].

             4.2        Rights to Sublicense.  Under each License, IBP shall
have the right to grant sublicenses, through multiple tiers of sublicenses,
provided that any such sublicense shall expressly provide for the Sublicensee to
be bound by obligations consistent with those provided in this Agreement.  If
the Sublicensee receives materials provided by Diversa under Section 2.3 or if
the Sublicensee performs work under the Work Plan as set forth in Sections 2.1
and 2.5, such sublicense shall provide for rights necessary for the Sublicensee
to conduct and complete such activities on behalf of IBP in a manner consistent
with the terms provided in this Agreement.  IBP shall provide Diversa with
prompt written notice of each sublicense agreement, as well as a copy of such
sublicense agreement, after it is granted, provided that IBP may redact from
such copy any terms not  necessary to confirm compliance with this Section 4.2.

 

             4.3        License Period.  The term of the License with respect to
each Compound Set, other than a Reserved Set, shall continue in force for the
period (the “License Period”) ending on the earliest to occur of:

                                         (a)         the date IBP notifies
Diversa that IBP does not intend to proceed with further development of [ * ] in
accordance with the Work Plan, such notice to be made promptly after IBP makes
such determination; or

                                         (b)         the date IBP notifies
Diversa that IBP does not intend to continue to commercialize Product(s) based
upon [ * ], such notice to be made promptly after IBP makes such determination;
or

                                         (c)         expiration of [ * ]
following IBP’s election to obtain a License pursuant to Section 3.2.5 to such
Compound Set if IBP has not previously initiated [ * ] in the Compound Set,
provided that such [ * ] time frame shall be extended (1) if [ * ], based on
available data, to conduct additional lead optimization studies to select the [
* ], (2) if unexpected problems arise during exploratory toxicology studies
prior to [ * ] that necessitate the replacement of the [ * ] with another
compound in the Compound Set, (3) if [ * ] has not [ * ] under the Work Plan
during the [ * ] or (4) if situations arise where [ * ] time frame shall be
extended; or

                                         (d)         expiration of [ * ]
following IBP’s election to obtain a License pursuant to Section 3.2.5 to such
Compound Set if IBP has not previously filed an investigational new drug
application with the FDA (or equivalent application with an equivalent agency
outside of the United States), or sought approval from an Institutional Review
Board for initiation of human testing with respect to [ * ], provided that such
thirty-six (36) month time frame shall be extended if such event has not
occurred for reasons outside of IBP’s reasonable control, for example, but not
limited to, (1) if [ * ] during development, (2) if [ * ], or (3) if [ * ]; or

                                         (e)         any date prior to
Regulatory Approval of a Product based upon a compound in such Compound Set upon
which IBP, its Affiliate(s), and/or Sublicensee(s) (as applicable) cease(s) to
use commercially reasonable efforts to develop a Product associated with any
compound within such Compound Set; or

 

                                         (f)         any date prior to
commercialization of a Product containing or based upon a compound within such
Compound Set, (i) if [ * ], its Affiliate(s), and/or Sublicensee(s) (as
applicable) [ * ] with respect to such Compound Set as set forth in the Work
Plan or (ii) upon which [ * ], its Affiliate(s), and/or Sublicensee(s) (as
applicable) [ * ] such Product unless, in the case of clause (ii), after such
date [ * ] continues to spend at least [ * ] basis to [ * ] of such a Product
and [ * ] as set forth in the Work Plan demonstrating that [ * ] is continuing,
at this level of funding, to [ * ], [ * ] with respect to a compound within such
Compound Set and [ * ] with respect to a compound within such Compound Set; or

                                         (g)        the date that IBP notifies
Diversa in writing that it waives its rights under the License as to the
Compound Set; or

                                         (h)        expiration of the applicable
Royalty Period(s) with respect to the Product(s) associated with such Compound
Set; or

                                         (i)         the date that a Party
terminates the License for such Compound Set pursuant to Section 10.3 due to a
Default by the other Party.

             4.4        Reserved Sets.  During the Research Period, IBP shall
have the right to obtain a License with respect to as many Compound Sets as it
identifies as being of interest to it pursuant to Section 3.2.4, subject to the
provisions of Section 4.3 which provide for termination of the License Period
for a given Compound Set if IBP [ * ] of compounds within the associated
Compound Set.  The Parties recognize that IBP [ * ] with respect to other
Compound Sets.  Accordingly, IBP may elect to [ * ] such Compound Set, by
notifying Diversa in writing at the time [ * ] (each, a “Reserved Set”).  IBP
may not have a License to more than [ * ].  For each compound within a Reserved
Set, IBP may continue to [ * ] at the following times following its election to
take a License for such Reserved Set: 

[ * ] [ * ] [ * ] [ * ] [ * ] [ * ]

IBP shall not be obligated to [ * ] with respect to a Reserved Set pursuant to
this Section 4.4 [ * ] at any time after IBP [ * ] with a [ * ] below, as
certified by IBP in a written notice to Diversa that IBP has [ * ].  After such
written notice is received by Diversa, such Compound Set shall no longer be
deemed to be a Reserved Set and the obligations under [ * ] with respect to such
Compound Set shall [ * ] as if the [ * ], provided that Diversa shall be
permitted to promptly request a reasonable amount of information from IBP to [ *
], which information IBP shall use its commercially reasonably efforts to supply
to Diversa promptly on written request.  However, after such notice is provided
to Diversa, the [ * ] for such Compound Set shall [ * ] if any of the events
described therein occurs.  If IBP does not (a) [ * ] within [ * ] with respect
thereto and (b) [ * ], then [ * ] with respect to such Reserved Set [ * ].  IBP
shall not be entitled to re-designate a Compound Set as a Reserved Set (i) after
[ * ] thereto pursuant to the foregoing sentence or (ii) following [ * ] of such
Reserved Set as specified in this Section 4.4.

 

             4.5        IBP Diligence Obligations. IBP shall have the sole and
absolute discretion to make all decisions relating to marketing and other
commercialization activities with respect to any Compound, compound within a
Compound Set or any Product, provided that IBP may delegate the conduct and
completion of such activities to its Affiliates, its Sublicensees, or any Third
Party subcontractors, subject to the terms of this Agreement.  However,
notwithstanding the foregoing or anything to the contrary contained herein, each
License to a Compound Set that is not a Reserved Set is expressly subject to (i)
IBP’s continuing to use commercially reasonable efforts consistent with
standards typically made by a [ * ] to proceed with the development of a Lead
Compound in accordance with the Work Plan and (ii) following commercialization
of a Product associated with such Lead Compound, IBP’s continuing to use
commercially reasonable efforts consistent with standards typically made by a [
* ] to market and sell the Product.  In the event that IBP no longer wishes t o
use such efforts, IBP shall promptly notify Diversa in writing of the same, and
the License with respect to such Compound Set shall immediately terminate in
accordance with the terms of this Agreement.  In the event that Diversa believes
that IBP is no longer using such efforts with respect to a Compound Set, then
Diversa shall promptly notify IBP in writing of the same, and the Parties shall
discuss such failure during the following [ * ].  If Diversa, after such [ * ]
day period, believes that IBP has not remedied its failure to use such efforts,
Diversa shall so notify IBP in writing, and IBP may then exercise its rights
under Section 10.3 as a Defaulting Party thereunder to cure such default prior
to Diversa’s terminating the License to such Compound Set.  If, within the
period specified in such notice, IBP has not cured such default with respect to
such Compound Set, the License to such Compound Set shall immediately terminate.

             4.6        Reversion of Rights to Diversa.

                           4.6.1    If the License Period with respect to the
License to a Compound Set expires pursuant to the terms of this Agreement,
including, without limitation, pursuant to the reasons set forth in Section 4.4
above, IBP shall have [ * ] and, at Diversa’s written request, shall transfer to
Diversa or destroy all Confidential Information relating to the Compound Set
(regardless of which Party generated such Confidential Information) within [ * ]
after such expiration; provided, however, that IBP may retain one copy of such
Confidential Information for the sole purposes of use in any litigation
resulting from this Agreement or the activities undertaken pursuant to this
Agreement.  Upon the expiration of the License to a Compound Set, the Parties
shall promptly initiate and continue negotiations, in good faith, for [ * ] to
establish the terms of an [ * ] (the “Reversion License”).  Specifically, the
Parties shall negotiate the [ * ] for such Reversion License based on, among
other things, the [ * ] created (in whole or in part) by [ * ], the [ * ] of
compounds within such reverted Compound Set or Product based on such Compound
Set, and [ * ] such Compound Set or Product based therein.  If the Parties
cannot agree to the terms of the Reversion License within the [ * ] period, then
the Parties shall engage a mutually acceptable independent expert with
experience in valuing pharmaceutical compounds (the “Independent Expert”) to
determine such [ * ] for the Reversion License, the costs of which shall be
shared equally by the Parties.  The Parties shall select such Independent Expert
within [ * ] after the expiration of the foregoing [ * ] period.  Within [ * ]
of selection of such Independent Expert, each Party shall provide the
Independent Expert with a reasonable amount of information such Party wishes the
Independent Expert to consider as part of his or her decision.  The Independent
Expert shall confer with the Parties for [ * ] after he or she receives such
information from each Party and make his or her determination at the end of such
[ * ] period.  Each Party shall thereafter be bound by the decision of the
Independent Expert as to the amount that represents [ * ] to IBP for such
Reversion License, and such matter shall not be subject to the dispute
resolution procedure set forth in Article 11 hereof. [ * ] to be [ * ] hereunder
for such Reversion License shall be subject to the accrual of [ * ]; provided
however, that in no event shall [ * ] applicable.  Such rate shall be determined
as soon as practicable following the determination of the [ * ] hereunder for
such Reversion License, and [ * ] shall begin to [ * ] after the date of such
determination.

 

                           4.6.2    Notwithstanding anything contained herein to
the contrary, [ * ] with respect to any reverted Compound Set until and unless [
* ] attributable to one or more compounds within such reverted Compound Set. 
With respect to each reverted Compound Set, [ * ] associated with the
compound(s) within such reverted Compound Set that [ * ] receives, as well as [
* ], if any, of Products [ * ] that incorporate such compound(s), until [ * ]
set pursuant to Section 4.6.1 above, together with all [ * ] thereon.

             4.7        Manufacturing Rights.

                           4.7.1    As development progresses under the Work
Plan for each compound within a Compound Set or Product such that IBP requires
larger quantities of such compounds or Products manufactured in compliance with
GMP, or other manufacturing standards, IBP shall notify Diversa of its need for
preclinical, clinical or commercial supply, as applicable.  If Diversa desires
to be considered as a potential manufacturer, Diversa shall provide IBP with the
requisite information to enable IBP to evaluate whether Diversa can manufacture
compounds within a Compound Set or Products, as applicable, in accordance with
regulatory requirements, IBP’s own standards for manufacture and other standards
typically applicable in the pharmaceutical industry for the manufacture of
pharmaceuticals.  Selection of the manufacturer will be at IBP’s sole
discretion.  However, provided (i) IBP desires that the compound or Product in
question be manufactured via a [ * ] route and (ii) Diversa possesses the
ability to manufacture such compound or Product via [ * ], at a comparable price
and in compliance with the relevant GMP, or other manufacturing and laboratory
standards reasonably required by IBP, and (iii) Diversa is able to meet all
other commercially reasonable requirements of IBP (e.g., regarding quality
control, total cost, and capacity requirements)) IBP shall negotiate [ * ] with
Diversa in good faith for [ * ] regarding the terms of a manufacturing agreement
regarding such compound or Product (as applicable) [ * ], unless [ * ].

                           4.7.2    Subject to Sections 4.1.2 and 4.7.1 above,
if IBP desires that the compound or Product in question be manufactured via a [
* ] but (a) IBP desires to manufacture such compound or Product internally or
through a Third Party manufacturer, (b) Diversa notifies IBP that it is not
interested in manufacturing such compound or Product (as applicable), (c)
Diversa does not possess the ability to manufacture such compound or Product via
[ * ] and in compliance with the relevant GMP, or other manufacturing standards,
and other commercially reasonable standards required by IBP, or (d) Diversa is
not a reasonably competitive prospective manufacturer of such compound or
Product, then, subject to the Parties agreeing in good faith to reasonable
compensation for all reasonable technology transfer costs and other reasonable
Diversa costs as mutually agreed by the Parties.  Subject to Section 4.1.2, IBP
may engage a Third Party manufacturer for such compound or Product and may [ * ]
to such Third Party solely to manufacture such compound or Product in accordance
with this Agreement and the terms of such license; provided, however, that such
[ * ] to such Third Party manufacturer under a [ * ] with the provisions of this
Agreement.  However, IBP shall [ * ] in good faith for [ * ] regarding the terms
of any manufacturing agreement of such compound or Product (as applicable) via [
* ] prior to [ * ] , unless Diversa notifies IBP in writing that it is not
interested in manufacturing such compound or Product (as applicable).  Prior to
execution of any sublicense agreement with a Third Party manufacturer, IBP shall
provide Diversa with a copy of such sublicense agreement, provided that IBP may
redact from such copy any terms not necessary to confirm compliance with the
provisions of Section 4.2 and this Section 4.7.2.  Within [ * ] of receipt of
such copy, Diversa shall have the right to approve such sublicense agreement,
such approval not to be unreasonably withheld.  Diversa’s failure to respond
within [ * ] of receipt of the copy of the sublicense agreement shall constitute
approval of the sublicense agreement.

 

             4.8        Extension of Research Period.  Notwithstanding the [ * ]
period to extend the Research Period set forth in Section 10.1, IBP shall have
the option to continue developing Compound Derivatives of the compounds within
the Compound Sets existing at the end of the originally scheduled Research
Period for up to [ * ] as an extension of the Research Period for such Compound
Sets.  Specifically, at least thirty (30) days before the end of the initial [ *
] Research Period, IBP shall identify to Diversa the Compound Sets for which IBP
wishes to continue developing Compound Derivatives, and the Parties can conduct
such work for up to [ * ] thereafter.  During such extended Research Period, IBP
shall not have the right to designate Compounds as set forth in Section 3.2.3 or
Compound Derivatives as set forth in Section 3.2.4 that are not Compound
Derivatives within the Compound Sets identified by IBP.  Any Compound
Derivatives made, discovered or invented during the extended Research Period
shall be subject to all applicable terms of this Agreement regarding Compound
Derivatives, including without limitation the provisions regarding the payment
to Diversa of milestones and royalties.

             4.9        Compound Exclusivity; Non-Compete.  With respect to each
Compound Set for which IBP has a License that has not terminated, Diversa shall
not itself develop or commercialize products based upon or containing any
compounds within such Compound Set, or grant to any Third Party a license under
the Diversa Technology or collaborate with any Third Party, to develop or
commercialize products based upon or containing compounds within such Compound
Set.  In addition, for a period of [ * ] following the Effective Date, Diversa
shall not outlicense any Diversa Technology to a Third Party company (i) whose
primary business is the research, development and commercialization of novel
drugs in the Field and (ii) who owns, either directly or through one or more
wholly-owned subsidiaries, patents related to all of the following:  [ * ]

5.          INTELLECTUAL PROPERTY RIGHTS

             5.1        Intellectual Property Ownership.   All Program
Inventions shall be owned by Diversa, except that IBP shall own all Program
Inventions that relate solely to (a) [ * ] and (b) [ * ] and that are designated
by the RMC as proprietary [ * ].  Each Party shall notify promptly the other
Party, in writing, of any Program Invention.  Such written notification shall
provide the [ * ], to the extent known, of any compounds made, discovered or
invented, and all other data relevant to determining the patentability and
inventorship of such Program Invention.

                           5.1.1    Each Party shall continue to own all
intellectual property owned by such Party prior to the Effective Date.

                           5.1.2    Each Party shall have the right to secure
patent protection for the Program Inventions owned by it, in accordance with
this Section 5.  Each Party shall (and shall cause its applicable Affiliates to)
make such assignments and take such other actions as may be necessary or
appropriate to effect the ownership of intellectual property rights in
accordance with this Section 5.1.

 

             5.2        Filing, Prosecution and Maintenance of Patents.

                           5.2.1    Except as provided in this Section 5.2 or
Section 5.5, each Party shall have the sole right, at its own expense, to
control the filing, prosecution, maintenance, defense and enforcement of its own
patents and patent applications.

                           5.2.2    Diversa shall confer with IBP regarding its
plans to secure patent protection for any Program Inventions owned by Diversa
which cover the composition, manufacture or use of Compounds, Compound
Derivatives, Active Substructures and/or Products (“Compound Patents”).  The
Parties shall seek to agree on the patent strategy to be followed in securing
such protection.

                                         (a)         Diversa shall select
outside counsel to prepare, prosecute, and maintain each patent application and
resulting patent within the Compound Patents, and IBP shall reimburse Diversa
for [ * ] incurred in connection with such work.  The Parties shall have equal
access to such outside counsel.  The Parties shall seek to agree on the
prosecution of patent applications within the Compound Patents, but in the event
of disagreement, Diversa shall control the prosecution.  If IBP is dissatisfied
with the prosecution of patent applications within the Compound Patents by the
outside counsel selected by Diversa, IBP shall so inform Diversa in writing, and
such patent applications shall be transferred to a different,
mutually-acceptable outside counsel.  Diversa shall provide IBP a list
identifying at least three (3) alternative outside counsel, identify its first
preferred choice within such list and request approval of its first preferred
choice from IBP.  IBP’s approval shall not be unreasonably withheld.  If IBP has
a reasonable basis to disagree with the selection of such outside counsel, the
Parties shall negotiate, in good faith, the selection of an alternative outside
counsel from the remaining outside counsel identified in the list.  The Parties
shall confer with respect to the list of countries outside the United States in
which patent applications within the Compound Patents will be filed and
maintained, and with prior notice, IBP may decline to pay any fees or expenses
with respect to individual countries.  In such case, Diversa shall make the sole
decision about whether to pursue such patent applications in such countries, at
its sole expense.

                                         (b)         Diversa shall furnish IBP
with copies of draft patent applications and correspondence relating thereto to
and from governmental patent agencies and other authorities which relate to
Compound Patents.  Diversa shall permit IBP to offer its comments thereon before
Diversa makes a submission to a governmental patent agency or other authority
which could materially affect the scope or validity of the patent coverage with
respect to such Compound Patent, and IBP shall offer its comments promptly;
provided IBP’s failure to respond within [ * ] of receipt of the draft patent
application or correspondence relating thereto shall be deemed approval of such
patent application or correspondence.  Diversa shall seek to incorporate IBP’s
comments in its patent prosecution activities, and to the extent that it
declines to incorporate such comments, shall explain to IBP its reasons for such
decision.  Diversa shall also keep IBP informed of its patent prosecution for
all Compound Patents that are subject to the License of Section 4.1, and shall
confer reasonably with IBP and provide IBP with copies of any patent
applications and correspondence related thereto to and from governmental patent
agencies or other authorities to the extent reasonably requested by IBP to
monitor the scope and nature of the rights to which IBP holds a license under
this Agreement.

 

                                         (c)         If Diversa decides not to
file any Compound Patent, or to abandon any patent application, patent or other
intellectual property right covering such matter, either on a worldwide basis or
in particular countries, it shall provide IBP reasonable written notice of such
intention, and shall permit IBP, at the sole option and expense of IBP, to file,
prosecute and maintain such patent application, patent, or other intellectual
property right in the name of IBP.  In such event, Diversa shall cooperate fully
with IBP and shall provide to IBP whatever assignments and other documents that
may be needed in connection therewith.

                                         (d)         IBP may, at its election
and from time to time, disclaim any special rights under paragraph (a) above
with respect to particular patent application(s) included within Compound
Patents, in which case Diversa shall assume exclusive control over the
prosecution of such application(s) at its sole expense.  In such case, IBP shall
retain the rights set forth elsewhere in this Section 5.2 with respect to patent
prosecution covering other Program Inventions.

             5.3        Cooperation of the Parties.  Each Party agrees (and will
cause any of its Affiliates) to cooperate fully in the preparation, filing,
prosecution and maintenance of any patent rights with respect to Program
Inventions.  Such cooperation shall include but not be limited to:

                                         (a)         executing all papers and
instruments, or using reasonable efforts to cause its employees or agents to
execute such papers and instruments, so as to effectuate the ownership of
intellectual property rights set forth in Section 5.1 and to enable the other
Party to file and to prosecute patent applications and to maintain patents in
any country;

                                         (b)         promptly informing the
other Party of any matters coming to such Party’s attention that may affect the
preparation, filing or prosecution of any such patent applications or the
maintenance of any such patents; and

                                         (c)         undertaking no actions that
are potentially deleterious to the preparation, filing or prosecution of such
patent applications or to the maintenance of such patents.

             5.4        Potential Assignments To IBP.  Diversa recognizes that
IBP has a commercial interest in determining the patent protection for
Compounds, Compound Derivatives, Active Substructures and Products, and
enforcing any patents which cover the composition, manufacture or uses thereof. 
In the event IBP makes a determination to commence human clinical trials of any
particular Product or Product(s), the Parties will discuss whether it is
practical to assign to IBP any of the patent applications or patents arising
from Program Inventions that are specific to the Product in question, or the
Compound or Compound Derivative contained therein, or related compounds within
the same Active Substructure.  In the alternative, the Parties shall consider
whether it is practical to create and assign to IBP divisional patent properties
which are specific to such matters.  Any such assignments shall occur only by
mutual agreement of the Parties in the future, but Diversa agrees to review
opportunities for such assignment in good faith, and without further
consideration to be paid by IBP (except that IBP would become responsible for
any costs of assignment and the future prosecution and maintenance of any patent
applications and patents which are assigned).

 

             5.5        Infringement by Third Parties.

                           5.5.1    Notice.  Each Party shall promptly notify
the other Party in writing of any competitive products sold by Third Parties or
other activities by Third Parties of which they become aware that appear to
infringe any patent or patent application included within the Patent Rights of
the other Party.

                           5.5.2    IBP Actions.  IBP shall have the first right
to bring and control, by counsel of its own choice and at its own expense, any
action or proceeding with respect to infringement of any IBP Patent Rights, as
well as any Compound Patents subject to a License at the time of commencement of
any such action or proceeding or which issue during the pendency of any such
action or proceeding.  If IBP requests Diversa to enforce or to authorize IBP to
enforce other Diversa Patent Rights that may be infringed by the activities of a
Third Party, then Diversa will consider in good faith bringing such action or
authorizing IBP to bring such action.  Diversa shall have the right, using
counsel of its own choice and at its own expense, to participate in any such
action regarding the Diversa Patent Rights.  Upon written notice to Diversa, IBP
may require Diversa to participate in such action as a necessary party, at IBP’s
expense.  If IBP fails to bring an action or proceeding with respect to any such
Diversa Patent Rights within (a) [ * ] following the notice of alleged
infringement or (b) [ * ] before the time limit, if any, set forth in the
appropriate laws and regulations for the filing of such actions, whichever comes
first, Diversa shall have the right to bring and control any such action, at its
own expense and by counsel of its own choice, and IBP shall have the right,
using counsel of its own choice and at its own expense, to be represented in any
such action.

                           5.5.3    Diversa Actions.  Diversa shall have the
right to bring and control, by counsel of its own choice, any action or
proceeding with respect to infringement of any Diversa Patent Rights which are
not subject to a License at the time of commencement of such action or
proceeding.

                           5.5.4    Cooperation; Awards.  In the event a Party
bring an infringement action which relates to Program Inventions, the other
Party shall (and shall endeavor to cause its Affiliates, Sublicensees and Third
Party subcontractors, if appropriate, to) cooperate fully, including if required
to bring such action, the furnishing of a power of attorney.  Neither Party
shall have the right to settle any patent infringement litigation under this
Section 5.5 in a manner that diminishes the rights of the other Party without
the prior written consent of the other Party.  Except as otherwise agreed to by
the Parties as part of a cost sharing agreement, any recovery realized as a
result of such litigation, after reimbursement of any litigation costs of
Diversa and IBP, shall be shared between the Parties so that the Party bringing
such action retains [ * ] of such amount and the other Party retains [ * ] of
such amount.

             5.6        Third Party Claims of Infringement.   Diversa and IBP
shall promptly notify the other in writing of any allegation by a Third Party
that the exercise of the rights granted to IBP under this Agreement or the
activities of either Party under this Agreement infringes or may infringe the
intellectual property rights of such Third Party.  Each Party will use
commercially reasonable efforts (and will endeavor to cause its Affiliates to
use commercially reasonable efforts) to cooperate with the other Party to
resolve or defend against any such claims.  Neither Party shall have the right
to settle any patent infringement litigation under this Section 5.6 in a manner
that diminishes the rights of the other Party without the prior written consent
of such other Party.

 

             5.7        Hold Harmless.   During the term of this Agreement, (a)
Diversa shall hold IBP harmless from and against claims by Diversa of
infringement of Diversa Technology with respect to IBP’s activities in
accordance with this Agreement except for claims covered by Section 9.2 and (b)
IBP shall hold Diversa harmless from and against claims by IBP of infringement
of IBP Technology with respect to Diversa’s activities in accordance with this
Agreement except for claims covered by Section 9.1 solely for the purposes of
carrying out the R&D Program as set forth in the Work Plan.  The provisions of
this Section 5.7 are intended to permit both Parties to have freedom to carry
out their respective responsibilities and perform their respective obligations
under this Agreement and the Work Plan without fear of being made a party to any
legal action concerning infringing any intellectual property of the other Party
that is used to carry out such responsibilities or perform such obligations. 
Notwithstanding the foregoing, the provisions of this Section 5.7 shall not be
construed to grant to the other Party any license to use a Party’s Technology to
perform any activities beyond the scope of the roles and responsibilities
assigned to the Parties under this Agreement and the Work Plan outside the scope
of the licenses provided herein, or to limit a Party’s obligations under Article
9.

6.          PAYMENTS, REPORTS, AND RECORDS

             6.1        Technology Access Fee Payments.  In exchange for
utilizing Diversa’s research and development services during the Research Period
as part of the Work Plan, IBP shall pay to Diversa a technology access fee of [
* ], payable as follows:  [ * ] due on [ * ], [ * ] due on or before [ * ], and
[ * ] due on or before [ * ].  Such technology access fee payments set forth in
this Section 6.1 shall be non-refundable and shall not be credited against any
research funding, milestones, or royalties, or any other amounts payable to
Diversa under this Agreement.

             6.2        Research Funding

                           6.2.1    Subject to Section 6.2.2 below, within [ * ]
following the end of each calendar quarter, Diversa shall invoice IBP, [ * ],
for the research and development services provided by Diversa in the previous
quarter, at the initial rate per FTE of [ * ].  For the second year of the term
of this Agreement and through the end of the Research Period, such FTE rate
shall be adjusted annually beginning on January 1, 2002 by a percentage equal to
the change in the CPI from the month prior to the beginning of the annual period
to the month prior to the date of the adjustment; provided, however, that in no
event shall such FTE rate be reduced for a subsequent year.  All amounts listed
on each invoice delivered to IBP pursuant to this Section 6.2.1 shall be paid to
Diversa within [ * ] after the end of such quarter, except to the extent that
IBP disputes, in good faith, the proper amount of such invoice and so notifies
Diversa in writing before the end of such thirty-day period (in which case IBP
shall promptly pay all undisputed amounts in accordance with this Section
6.2.1).

                           6.2.2    Within [ * ] following the end of each
calendar quarter for which Diversa shall invoice IBP [ * ] under Section 6.2.1
above, IBP shall provide Diversa with a written certification that IBP has, at
the time of the certification, at least an adequate amount in cash to meet the
demands of its operations for the next [ * ].  If IBP does not make such a
certification, Diversa shall be entitled to immediately invoice IBP for the
estimated payments associated with the research and development activities of
the Diversa FTEs for the then-current calendar quarter, and all amounts listed
on each invoice delivered to IBP pursuant to this Section 6.2.2 shall be paid to
Diversa within [ * ] after the end of such quarter, except to the extent that
IBP disputes, in good faith, the proper amount of such invoice and so notifies
Diversa in writing before the end of such thirty-day period (in which case IBP
shall promptly pay all undisputed amounts in accordance with this Section
6.2.2).  In addition, in such event, Diversa thereafter be entitled to invoice
IBP in advance of each succeeding calendar quarter for the research and
development services estimated in good faith by Diversa to be performed by
Diversa FTEs in such quarter, which amounts shall be paid to Diversa within [ *
] of receipt of such invoice.  If IBP subsequently provides Diversa with a
written certification that the total of IBP’s cash and cash equivalents as of
the end of a subsequent calendar quarter exceeds IBP’s projected cash burn rate
for the subsequent [ * ], advance invoicing and payment procedure set forth this
Section 6.2.2 shall be suspended, and the corresponding procedure set forth in
Section 6.2.1 shall thereafter apply (subject to IBP’s continuing obligation to
supply the monthly certifications as set forth herein).

 

             6.3        Milestone Payments; Diligence Payment With respect to
each Compound Set developed pursuant to this Agreement, IBP shall pay to Diversa
the following amounts within [ * ] after (a) achievement of each of the
following milestones, in the case of the payments specified in the following
table, and (b) the expiration of the [ * ] period, in the case of the payment
specified in Section 6.3.1:

Milestone Payment to Diversa Notification by IBP to Diversa that [ * ] US $[ * ]
Commencement of [ * ] US $[ * ] Submission of an IND to the FDA (or equivalent
application to an equivalent agency outside of the United States) or
institutional review board [ * ]* US $[ * ] The first enrollment in any country
of the first patient in a Phase II clinical trial study (or equivalent clinical
program outside of the United States) involving [ * ] US$[ * ] The first
enrollment in any country of the first patient in a Phase III clinical trial
study (or equivalent clinical program outside of the United States) involving [
* ] US$[ * ] Receipt of Regulatory Approval by the FDA for a Product [ * ] US$[
* ] Receipt of Regulatory Approval by the EMEA or receipt of marketing approval
in one of the Major Markets for a [ * ] US$[ * ] Receipt of Regulatory Approval
by the MHW or receipt of marketing approval in Japan for a Product [ * ] US$[ *
]

--------------------------------------------------------------------------------

*  Such milestone shall be reduced to [ * ] if such event occurs on or before
the date that is [ * ] after IBP obtains a License to the relevant Compound Set,
except as provided for in Section 4.3(d).

 

                           6.3.1    The milestone and other payments set forth
in this Section 6.3 shall be non-refundable and shall not be credited against
any research funding, other milestones, or royalties payable to Diversa under
this Agreement.  All of the milestones and other amounts provided for in this
Section 6.3 shall be payable to Diversa once for each Lead Compound within a
Compound Set; provided, however, that, notwithstanding the foregoing, (i) the [
* ] milestone shall be payable to Diversa [ * ] for each Compound Set to which
IBP has notified Diversa it is interested in obtaining a License, and (ii) with
respect to any particular Lead Compound, IBP shall not be required to pay
Diversa development milestones (i.e., milestones other than ones attributable to
the receipt of regulatory or marketing approval) for which IBP has previously
paid Diversa if (a) IBP has replaced a Lead Compound that has achieved such
milestones with a different Lead Compound from the same Compound Set from which
the first Lead Compound was derived and (b) IBP has discontinued development of
such replaced Lead Compound.  IBP shall promptly notify Diversa in writing of
each occurrence of any of the foregoing milestone events, but in no event less
than [ * ] thereafter.

             6.4        Royalties.  In consideration of the Licenses granted to
IBP by Diversa hereunder, for all sales by IBP, its Affiliates and Sublicensees
of Products, IBP shall pay to Diversa incremental royalties on Annual Net Sales
of a Product pursuant to the corresponding percentages set forth under the
column heading “Applicable Maximum Royalty to Diversa” of the following table,
subject to offsets as provided below:

Portion of Annual Net Sales Applicable Minimum
Royalty to Diversa Applicable Maximum
Royalty to Diversa US$0 to $250,000,000 [ * ] [ * ] US$250,000,001 to
$500,000,000 [ * ] [ * ] US$500,000,001 to $750,000,000 [ * ] [ * ]
US$750,000,001 to $1,000,000,000 [ * ] [ * ] Over US$1,000,000,000 [ * ] [ * ]

             No royalty shall accrue under this Section 6.4 on sales among IBP,
its Affiliates and Sublicensees, unless IBP or such Affiliate or Sublicensee is
the end user of a Product.  Royalties shall be payable only once for any given
unit of Product sold.

 

             IBP shall not be permitted to engage the services of any Third
Parties to whom royalties on Products would be payable with an offset pursuant
to this Section 6.4, unless (i) such services represented proprietary, enabling
technologies of the type that IBP was not reasonably capable of providing itself
(e.g., such services would not include medicinal chemistry services), (ii) IBP
provided Diversa with prior written notice at least [ * ] in advance of entering
into any such arrangement with a Third Party, and (iii) such notice specified
the name(s) of the Third Party/Parties, the services to be rendered, and the
royalty compensation requested by such Third Party/Parties.  In the event IBP is
obligated to pay to Third Parties royalties with respect to sales of Products
for such enabling technologies, IBP may offset against the royalties due to
Diversa under this Section 6.4, on a country-by-country basis and
Product-by-Product basis, up to [ * ] of all royalties due to such Third Parties
for such technologies; provided, however, that in no event shall the incremental
royalties due to Diversa hereunder on Annual Net Sales of a Product be reduced
as a result to less than the corresponding minimum percentages set forth under
the column heading “Applicable Minimum Royalty to Diversa” of the table above.

             6.5        Reports and Payments.

                           6.5.1    All royalty payments under this Agreement
shall be made to Diversa or its designee quarterly within [ * ] after the end of
the calendar quarter for which royalties are due from IBP; provided that, for
royalties due to Diversa with respect to Net Sales of Products by IBP’s
Sublicensees, such payment shall be due within [ * ] after IBP receives such
royalties from such Third Party, but in no event later than [ * ] after the end
of such calendar quarter.  IBP shall, at the time of payment of such royalties
deliver to Diversa a report containing the following information:

                                         (a)         Estimated gross sales and
returns of Products by IBP, its Affiliates and Sublicensees during the
applicable Royalty Period in each country of sale;

                                         (b)         Adjustments and calculation
of Net Sales for the applicable Royalty Period in each country of sale; and

                                         (c)         Calculation of royalty.

                           6.5.2    All amounts payable under this Section will
first be calculated in the currency of sale and then converted into United
States dollars.  The buying rates involved for the currency of the United States
into which the currencies involved are being exchanged shall be the arithmetic
averages of the ones quoted by the Western Edition of The Wall Street Journal at
the close of business on the last business day of each calendar month of the
applicable Royalty Period.  In the event that such publication no longer
publishes such rates, another financial publication mutually agreed on by the
Parties shall be substituted or one shall be chosen by an investment
banker/analyst mutually agreed on by the Parties.

 

                           6.5.3    Diversa shall pay any and all taxes levied
on account of royalties and other payments it receives under this Agreement.  If
laws or regulations require that taxes be withheld, IBP will deduct such taxes
from the amount due to Diversa, pay such taxes to the proper tax authority, and
send evidence of the obligation together with proof of payment to Diversa
promptly after making such payment.

             6.6        Payments by IBP to Diversa. All payments due under this
Agreement shall be payable in United States dollars. IBP shall make all payments
to Diversa by bank wire transfer in immediately available funds as follows, or
as otherwise specified by Diversa in writing:

[ * ]

             6.7        Records.   IBP and its Affiliates shall maintain
complete and accurate records of Products made, used or sold by them or their
Sublicensees under this Agreement, and any amounts payable to Diversa in
relation to Products, which records shall contain sufficient information to
Diversa to confirm the accuracy of any reports delivered to them in accordance
with Section 6.5.  IBP and its Affiliates shall retain such records relating to
a given Royalty Period for at least [ * ] after the conclusion of that Royalty
Period.  Diversa (acting as the “ Auditing Party”) shall have the right, at its
own expense, to cause an independent certified public accountant reasonably
acceptable to IBP, to inspect such records of IBP or its Affiliates (the
“Audited Party”) during normal business hours for the sole purpose of verifying
any reports and payments delivered under this Agreement.  Such accountant shall
not disclose to the Auditing Party any information other than information
relating to accuracy of reports and payments delivered under this Agreement and
shall provide the Audited Party with a copy of any report given to the Auditing
Party.  The Parties shall reconcile any underpayment or overpayment within [ * ]
after the accountant delivers the results of the audit.  The Auditing Party
shall bear the full cost of the audit unless the audit performed under this
Section reveals an underpayment in excess of [ * ] in any Royalty Period, in
which case the Audited Party shall bear the full cost of such audit.  Diversa
may exercise its rights under this Section [ * ] and only with reasonable prior
notice to IBP.  IBP shall require that its Affiliates and its Sublicensees shall
have to obligation to account and provide records to IBP for all their sales of
Products as annual Net Sales by IBP.

             6.8        Late Payments.  In the event that any payment, including
royalty payments, due hereunder is not made within [ * ] of the date due, the
payment shall accrue interest from that date due at the rate of [ * ] per month;
provided however, that in no event shall such rate exceed the maximum legal
annual interest rate.  The payment of such interest shall not limit Diversa from
exercising any other rights it may have as a consequence of the lateness of any
payment as set forth in Section 10.3, provided such exercise shall follow the
procedures set forth in such section.

7.          CONFIDENTIAL INFORMATION

7.1            Definition of Confidential Information. “Confidential
Information” shall mean any technical or business information furnished by the
Disclosing Party to the Receiving Party in connection with this Agreement,
whether orally or in writing.  Such Confidential Information shall include,
without limitation, the existence and terms of this Agreement, information
disclosed by one Party to the other Party relating to the structure of a
Compound, any gene encoding such Compound, the use and manufacture of the
Compound, any Compound Derivatives, any Lead Compound, and any other compound in
the Compound Set, Diversa Technology, IBP Technology, trade secrets, know-how,
inventions, technical data or specifications, testing methods, business or
financial information, research and development activities, product and
marketing plans, and customer and supplier information, including, but not
limited to, such information that become known to a Party during visits to the
facilities of the other Party.  Notwithstanding the foregoing, IBP shall solely
own all data resulting from the clinical development of Products, and all such
data shall be deemed Confidential Information of IBP.

             7.2        Obligations. The Receiving Party agrees that it shall:

                           7.2.1    Maintain all Confidential Information in
strict confidence, except that the Receiving Party may disclose or permit the
disclosure of any Confidential Information to its, and its Affiliates,
directors, officers, employees, consultants and advisors who are obligated to
maintain the confidential nature of such Confidential Information and who need
to know such Confidential Information for the purposes set forth in this
Agreement;

                           7.2.2    Use all Confidential Information solely for
the purposes set forth in, or as permitted by, this Agreement; and

                           7.2.3    Allow its Affiliates, directors, officers,
employees, consultants and advisors to reproduce the Confidential Information
only to the extent necessary to effect the purposes set forth in this Agreement,
with all such reproductions being considered Confidential Information.

             Each Party shall be responsible for any breaches of this Section
7.2. by any of its Affiliates, directors, officers, employees, consultants and
advisors.

             7.3        Exceptions. The obligations of the Receiving Party under
Section 7.2. above shall not apply to any specific Confidential Information to
the extent that the Receiving Party can demonstrate by competent proof that such
Confidential Information:

                           7.3.1    Was generally known to the public or
otherwise part of the public domain prior to the time of its disclosure under
this Agreement;

                           7.3.2    Entered the public domain after the time of
its disclosure under this Agreement through means other than an unauthorized
disclosure resulting from an act or omission by the Receiving Party or its
Affiliates, directors, officers, employees, consultants, advisors or agents;

                           7.3.3    Was already known to the Receiving Party,
other than under an obligation of confidentiality, at the time of disclosure by
the Disclosing Party; or

                           7.3.4    Is or was disclosed to the Receiving Party
at any time, whether prior to or after the time of its disclosure under this
Agreement, by a Third Party having no fiduciary relationship with the Disclosing
Party and having no obligation of confidentiality to the Disclosing Party with
respect to such Confidential Information; or

 

                           7.3.5    Is required to be disclosed to comply with
applicable laws or regulations (such as disclosure to the United States
Securities and Exchange Commission, the United States Environmental Protection
Agency, the FDA, or the United States Patent and Trademark Office or to their
foreign equivalents), or to comply with a court or administrative order,
provided that the Disclosing Party receives prior written notice of such
disclosure and that the Receiving Party takes all reasonable and lawful actions
to obtain confidential treatment for such disclosure and, if possible, to
minimize the extent of such disclosure.

             7.4        Survival of Obligations. The obligations set forth in
Sections 7.1, 7.2 and 7.3 shall remain in effect after termination or expiration
of this Agreement for a period of [ * ].

             7.5        Public Announcement.  Upon the execution of this
Agreement, the Parties shall issue a joint press release that is mutually
acceptable to both Parties.  Except for the information disclosed in such press
release, neither Party shall use the name of the other Party or reveal the
existence of or terms of this Agreement in any publicity or advertising without
the prior written approval of the other Party, except that (i) either Party may
use the text of a written statement approved in advance by both Parties without
further approval, and (ii) either Party shall have the right to identify the
other Party and to disclose the terms of this Agreement as required by
applicable securities laws or other applicable law or regulation, provided that
the receiving Party takes reasonable and lawful actions to minimize the degree
of such disclosure.

             7.6        Publication.

                           7.6.1    In the event a Party desires to publish or
verbally disclose the results of any of the research and development work
performed hereunder, the Parties shall cooperate in appropriate publication of
the such results, but subject to the predominating interest to obtain patent
protection for any patentable subject matter.  To this end, prior to any public
disclosure of such results, the Party proposing disclosure shall send the other
Party a copy of the information to be disclosed, and shall allow the other Party
[ * ] from the date of receipt in which to determine whether the information to
be disclosed contains subject matter for which patent protection should be
sought prior to disclosure, or otherwise contains Confidential Information of
the reviewing Party.  The Party proposing disclosure shall be free to proceed
with the disclosure unless prior to the expiration of such [ * ] period the
reviewing Party notifies the Party proposing disclosure that the disclosure
contains subject matter for which patent protection should be sought or
Confidential Information of the reviewing Party, and the Party proposing
publication shall then delay public disclosure of the information for an
additional period to be mutually agreed not to exceed [ * ] from the time that
such information was available to the other Party to permit the preparation and
filing of a patent application on the subject matter to be disclosed or for the
Parties to determine a mutually acceptable modification to such publication to
protect the Confidential Information of the reviewing Party adequately. 
Notwithstanding the foregoing, either Party may publish any Confidential
Information owned by the other Party without the express written permission of
such other Party.  The Party proposing disclosure shall thereafter be free to
publish or disclose the information.  The determination of authorship for any
paper shall be in accordance with accepted scientific practice.

                           7.6.2    Notwithstanding Section 7.6.1, IBP shall
have the right to publish any data, results, or other information originating
from any clinical trials related to any compound within a Compound Set or
Product after the Research  Period.

8.          REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS

             8.1        Organization; Good Standing. Each Party hereby
represents to the other Party on the Effective Date and thereafter throughout
the Term that, to the best of its knowledge, it (a) is a corporation duly
organized, validly existing, (b) is in good standing under the laws of the
jurisdiction of its incorporation, (c) is qualified to do business and in good
standing in each jurisdiction in which the performance of its obligations
hereunder requires such qualification and (d) has all requisite power and
authority, corporate or otherwise, and the legal right to conduct its business
as now being conducted, to own, lease and operate its properties and to execute,
deliver and perform under this Agreement.

             8.2        Binding Obligation; Due Authorization; No Conflict. Each
Party hereby represents to the other Party on the Effective Date and thereafter
throughout the Term that, to the best of its knowledge, this Agreement is a
legal and valid obligation binding upon its execution and enforceable in
accordance with its terms and conditions.  The execution, delivery and
performance of this Agreement by such Party have been duly authorized by all
necessary corporate action, and the person executing this Agreement on behalf of
such Party has been duly authorized to do so by all requisite corporate actions
and do not and will not (a) require any consent or approval of its stockholders
or any Third Party or (b) conflict with, or constitute a material breach or
violation of, any agreement, instrument, understanding, oral or written, to
which it is a party or by which it may be bound, and any judgment of any court
or governmental body applicable to such a Party or (c) violate any law, decree,
order, rule or regulation of any court, governmental body or administrative or
other agency having authority over it.

             8.3        No Suit.  Each Party hereby represents to the other
Party on the Effective Date and thereafter throughout the Term, that it is aware
of no action, suit or inquiry or investigation contemplated or instituted by any
Third Party that questions or threatens the validity of this Agreement.

             8.4        Title to Intellectual Property Rights.  Each Party
hereby represents to the other Party that it has sufficient legal and beneficial
title under its intellectual property rights necessary for the purposes
contemplated under this Agreement and to grant the licenses contained in this
Agreement.

             8.5        No Violations of Third Party Intellectual Property
Rights.  Each Party hereby represents to the other Party, it is not aware of any
material communications alleging that it has violated or, by conducting its
obligations or the Work Plan as currently proposed under this Agreement, it
would violate any of the intellectual property rights of any Third Party.

             8.6        No Unauthorized Use Necessary.  Each Party hereby
represents to the other Party, there is no material unauthorized use,
infringement or misappropriation of any of its Patent Rights, copyrights,
trademarks, trade secret rights and know-how rights necessary or useful to
perform the R&D Program as provided in the Work Plan.

 

             8.7        Proper Assignment of Inventions.   Each Party hereby
represents to the other Party that all of its employees, officers and
consultants have executed agreements requiring assignment to the Party of all
inventions made during the course of and as a result of their association with
such Party and obligating the individual to maintain as confidential the
Confidential Information of such Party.

             8.8        Disclaimers. Each Party hereby acknowledges that the
data and any materials to be provided to such Party by the other Party under
this Agreement will be of an experimental nature, provided without warranties,
and neither Party shall accept any liability in connection with their use,
storage and disposal by the other Party.  EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EACH PARTY
ACKNOWLEDGES THAT THIS AGREEMENT PROVIDES FOR AN INNOVATIVE PROGRAM USING NEW
TECHNOLOGIES AND THAT NO WARRANTY IS MADE REGARDING THE SUCCESS OF ANY RESEARCH
DONE PURSUANT TO THIS AGREEMENT OR THE UTILITY OF ANY INFORMATION, MATERIALS OR
TECHNOLOGY PROVIDED HEREUNDER.  EACH PARTY EXPRESSLY DISCLAIMS ALL WARRANTIES AS
TO THE VALIDITY OR SCOPE OF PATENTS AND PATENT CLAIMS, ISSUED AND PENDING,
PROTECTING ITS TECHNOLOGY OR THAT ANY TECHNOLOGY WILL BE FREE FROM INFRINGEMENT
OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE
IN ANY WAY INFRINGING PATENT RIGHTS.

             8.9        Limitation of Liability. IN NO EVENT WILL EITHER PARTY,
ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT
LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT.

9.          INDEMNIFICATION

             9.1        Indemnification.

                           9.1.1    IBP shall indemnify, defend, and hold
harmless Diversa and its Affiliates and their directors, officers, employees,
and agents and their respective successors, heirs and assigns, against any
liability, damage, loss, or expense incurred by or imposed upon such persons or
any one of them in connection with any claims, settlements, suits, actions,
demands, or judgments arising out of any theory of product liability (including,
but not limited to, actions in the form of tort, warranty, or strict liability)
concerning any Compound, Compound Set, Compound Derivative or Product (or any
process or service) that is made, used, marketed, or sold by IBP or its
Affiliates or Sublicensees pursuant to any right or license granted under this
Agreement; provided, however, that such indemnification right shall not apply to
any liability, damage, loss, or expense to the extent directly attributable to
the negligence, reckless misconduct, or intentional misconduct of a party
seeking indemnification under this Section 9.1.1.  None of Diversa and its
Affiliates and their directors, officers, employees, and agents and their
respective successors, heirs and assigns shall be entitled to indemnification
for the settlement of any claim pursuant to this Agreement unless it obtains the
prior written consent of IBP to such settlement.

                           9.1.2    Diversa shall indemnify, defend, and hold
harmless IBP and its Affiliates and their directors, officers, employees, and
agents and their respective successors, heirs and assigns, against any
liability, damage, loss, or expense incurred by or imposed upon such persons or
any one of them in connection with any claims, settlements, suits, actions,
demands, or judgments arising out of any theory of product liability (including,
but not limited to, actions in the form of tort, warranty, or strict liability)
concerning any Compound, Compound Set, Compound Derivative or Product (or any
process or service) that is made, used, marketed, or sold by Diversa or its
Affiliates or Sublicensees pursuant to any right or license granted under this
Agreement; provided, however, that such indemnification right shall not apply to
any liability, damage, loss, or expense to the extent directly attributable to
the negligence, reckless misconduct, or intentional misconduct of a party
seeking indemnification under this Section 9.1.2.  None of Diversa and its
Affiliates and their directors, officers, employees, and agents and their
respective successors, heirs and assigns shall be entitled to indemnification
for the settlement of any claim pursuant to this Agreement unless it obtains the
prior written consent of IBP to such settlement.

             9.2        Procedures. Any party (an “Indemnitee”) that intends to
claim indemnification under Section 9.1 shall promptly notify either Diversa or
IBP, as applicable (the “Indemnitor”), of any claim in respect of which the
intends to claim such indemnification, and the Indemnitor shall assume the
defense thereof with counsel mutually satisfactory to the Parties; provided,
however, that an Indemnitee shall have the right to retain its own counsel, with
the fees and expenses of no more than the law firm representing all Indemnitees
in the proceeding or related proceeding, to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other Party represented by such counsel in such
proceedings.  The indemnity agreement in Section 9.1 shall not apply to amounts
paid in settlement of any loss, claim, liability or action if such settlement is
effected without the consent of the Indemnitor.  The failure to deliver notice
to the Indemnitor within a reasonable time after the commencement of any such
action, shall not relieve the Indemnitor of any liability to the Indemnitee
under Section 9.1, except to the extent the Indemnitor has been prejudiced by
such failure to give notice.  Each Party and its Affiliates and their employees
and agents shall cooperate fully with the other Party and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.

10.        TERM AND TERMINATION

             10.1     Term. The term of this Agreement will commence as of the
Effective Date of this Agreement and, unless sooner terminated as provided
hereunder, will expire on the later of (i) the last day of the Research Period
(which is three years from the Effective Date, unless extended by mutual
agreement by the Parties in accordance with this Agreement) or (ii) the
expiration of the last License granted hereunder with respect to a Compound Set;
provided, however, that by mutual written agreement of the Parties, the Research
Period may be extended for successive one-year periods on each anniversary of
the Effective Date, beginning with the third anniversary of the Effective Date. 
Any extension of the Research Period shall be exercised at least [ * ] before
the term of the Research Period would otherwise expire.

             10.2     Mutual Consent. This Agreement may be terminated at any
time by mutual written agreement of the Parties.

             10.3     Default.

                           10.3.1  Notice of Default. In the event any material
representation or warranty made hereunder by either Party shall be untrue
(“Representation Default”) or upon any breach or default of a material
obligation of this Agreement by a Party (“Performance Default”), the Party not
in Default (“Non-Defaulting Party”) must first give the other Party (“Defaulting
Party”) written notice thereof (“Notice of Default”), which notice must state
the nature of the untruthfulness, breach or default in reasonable detail and
request the Defaulting Party cure such Default within [ * ].

                           10.3.2  Termination for Default. Subject to Section
4.5, the Non-Defaulting Party may, in addition to any other remedies which may
be available to such Non-Defaulting Party at law or equity, terminate this
Agreement in the event of (a) a Representation Default by the Defaulting Party
or (b) a Performance Default by the Defaulting Party; that has not been cured
within [ * ] after receipt of a Notice of Default; or, if such Performance
Default cannot be cured within such [ * ] period, and the Defaulting Party shall
have failed to commence substantial remedial actions within such [ * ] period
and to diligently pursue the same.  Notwithstanding the foregoing, if a
Representation or Performance Default is not curable by its nature, the
Non-Defaulting Party may immediately terminate this Agreement with a Notice of
Default to the Defaulting Party.

                           10.3.3  Breach of Payment Obligations.
Notwithstanding the foregoing, in the event that IBP fails to make timely
payment of any amounts due under this Agreement within [ * ] after demand
therefor, Diversa may terminate this Agreement upon [ * ] prior written notice,
unless IBP cures such breach by paying all past-due amounts that are not the
subject of a good-faith dispute between the Parties within such [ * ] notice
period, provided that IBP shall be entitled to use such cure provision no more
than once in any twelve (12) month period.

             10.4     Bankruptcy.

                           10.4.1  A Party may terminate this Agreement if,
during the Term, the other Party shall file in court or agency pursuant to any
statute or regulation of any state or country, a petition in bankruptcy or
insolvency or for reorganization or for an arrangement or for the appointment of
a receiver or trustee of the Party or of its assets, or if the other Party
proposes a written agreement of composition or extension of its debts, or if the
other Party shall be served with an involuntary petition in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up arrangement,
composition or readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect, or there shall have been issued a
warrant of attachment, execution or similar process against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within ninety
(90) days after the filing thereof, or if the other Party shall propose or be a
Party to any dissolution or liquidation, or if the other Party shall make an
assignment for the benefit of creditors.

                           10.4.2  All rights and licenses granted under or
pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
“intellectual property” as defined under Section 101 of the U.S. Bankruptcy
Code.  The Parties agree that each Party that is a licensee of such rights under
this Agreement shall retain and may fully exercise its rights and elections
under the U.S. Bankruptcy Code.  The Parties further agree that, in the event of
the commencement of a bankruptcy proceeding by or against either Party under the
U.S. Bankruptcy Code, the Party hereto which is not a Party to such proceeding
shall be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in their possession, shall be,
within [ * ] of the commencement of such proceeding, delivered to them (i) upon
any such commencement of a bankruptcy proceeding upon their written request
therefore, unless the Party subject to such proceeding (or a trustee on behalf
of the subject Party) elects to continue to perform all of their obligations
under this Agreement or (ii) if not delivered under (i) above, upon the
rejection of this Agreement by or on behalf of the Party subject to such
proceeding upon written request therefore by the non-subject Party.

             10.5     Disposition of Confidential Information In the event of
termination or expiration of this Agreement, the Parties shall return or destroy
all forms of Confidential Information provided to them under this Agreement,
within [ * ] after such termination or expiration, provided, however, that each
Party may retain one copy of such Confidential Information for the sole purpose
of use in any litigation resulting from this Agreement or the activities
undertaken pursuant to this Agreement and further provided, that if Diversa is
the breaching Party, IBP may retain Compound Set, if any, pursuant to the
Licenses granted pursuant to Section 4.

             10.6     Effect of Termination or Expiration. Termination or
expiration of this Agreement shall not relieve the Parties of any obligation
accruing prior to such termination or expiration and shall not terminate any
License granted prior to such termination or expiration.  Except as otherwise
provided herein, the provisions of Sections 5.1.1, 5.6, 7.1, 7.2, 7.3, 7.4, 7.6,
8.8, 8.9, 10.5 and Articles 1, 9, 11, and 12 shall survive the expiration or
termination of this Agreement, and the provisions of Sections 4.1, 4.2, 4.3,
4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 6.3, 6.4, 6.5, 6.6, 6.7, and 6.8 shall survive the
termination of this Agreement with respect to any License granted prior to such
termination.  Termination of this Agreement pursuant to Section 10.3 shall not
limit any other rights and remedies of the terminating Party.

11.        DISPUTE RESOLUTION

             11.1     Informal Dispute Resolution In the event that a
controversy, claim or dispute arises under this Agreement (each, a “Dispute”)
between the Parties, either Party may, by written notice to the other Party,
have such Dispute referred to the Chief Executive Officer of Diversa and the
Chief Executive Officer of IBP, or their successors or counterparts (the “Senior
Executives”), for resolution by good faith negotiations at a mutually convenient
location and time within [ * ] after such notice is received.  If the Parties
are unable to reach agreement with respect to a Dispute between the Parties
pursuant to this Section 11.1, then such Dispute shall be resolved as described
in Section 11.2.

             11.2     Mediation. If the Dispute is not resolved within [ * ]
after referral under Section 11.1, or such other time as mutually agreed upon in
writing by the Parties, the Parties shall submit the matter to non-binding
mediation to be administered by the Judicial Arbitration and Mediation Services,
Inc. (the “JAMS”) under its rules governing mediation in effect at such time
(the “Mediation Rules”).  The Party desiring such mediation shall initiate it in
accordance with the Mediation Rules of JAMS.  Upon delivery of the mediation
request, the Parties shall endeavor in good faith to select a neutral mediator
who is acceptable to each Party.  If the Parties have not selected a mutually
acceptable neutral mediator within five (5) business days after delivery of the
mediation request, they shall notify the JAMS and request JAMS to appoint a
mediator in accordance with the Mediation Rules.  Unless otherwise agreed upon
by the Parties, all mediation sessions shall be held at the JAMS regional office
within California.  The Parties shall endeavor in good faith to resolve the
Dispute through the mediation process contemplated by this Section and neither
Party shall be entitled unilaterally to terminate the mediation prior to  [ * ]
after the appointment of a mediator.  Upon any termination of such mediation
proceeding by either Party after such [ * ] period, the Parties may submit the
Dispute to the appropriate court of law pursuant to Section 11.3.

             11.3     Court of Law.  Any Dispute under this Agreement that is
not settled pursuant to Sections 11.1 or 11.2 shall be finally decided in the
appropriate court of law or equity.  Except as otherwise expressly provided in
this Agreement, the costs of such legal action, including court fees, shall be
borne equally by the Parties and each Party shall bear its own costs and
attorneys’ and witness’ fees incurred in connection with the litigation.

             11.4     Confidentiality. The Parties hereby mutually agree that
the existence, terms, content and decision of any Dispute resolution pursuant to
Section 11.1 or 11.2, as well as all information or documents relating thereto,
shall be maintained in confidence and not be given, shown, disclosed to or
discussed with any Third Party, except (a) by prior written agreement of both
Parties; (b) during any legal proceeding to protect or secure a Party’s rights
under such Dispute resolution; (c) to counsel and accountants who shall agree to
maintain its confidentiality; (d) to the extent required by applicable reporting
requirements; and (e) upon compulsory legal process.

12.        MISCELLANEOUS

             12.1     Relationship of Parties. It is expressly agreed that
Diversa and IBP shall be independent contractors and that nothing in this
Agreement is intended or shall be deemed to constitute a partnership, agency,
distributorship, employer-employee or joint venture relationship between the
Parties.  No Party shall incur any debts or make any commitments for the other,
except to the extent, if at all, specifically provided herein.

             12.2     Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to those provisions governing conflicts of law.

             12.3     Binding Effect. This Agreement and all rights and
obligations hereunder shall inure to the benefit of and be binding upon the
Parties, their Affiliates, and their respective lawful successors and assigns
(including, without limitation, any successor to a Party upon a Change of
Control).

             12.4     Assignment. Except as otherwise provided herein, neither
this Agreement nor any interest hereunder will be assignable in part or in whole
by any Party without the prior written consent of the other Party; provided,
however, that either Party may assign this Agreement to any of its Affiliates or
to any successor by merger or sale of substantially all of its business to which
this Agreement relates (provided that, in the event of such merger or sale, no
intellectual property of any acquiring corporation that is not a Party on the
Effective Date shall be included in the technology licensed hereunder).  This
Agreement will be binding upon the successors and permitted assigns of the
Parties.  Any assignment which is not in accordance with this Section shall be
void.

             12.5     Notices. All notices, requests, demands and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given upon the date of
receipt if delivered by hand, recognized international overnight courier or
confirmed facsimile transmission to the following addresses or facsimile
numbers:

If to IBP: If to Diversa: [ * ] [ * ]                     With a copy to: with a
copy to: [ * ] [ * ]                    

             Either Party may change its designated address and facsimile number
by notice to the other Party in the manner provided in this Section.

             12.6     Exports. The Parties acknowledge that the export of
technical data, materials or Products is subject to the exporting Party
receiving any necessary export licenses and that the Parties cannot be
responsible for any delays attributable to export controls which are beyond the
reasonable control of either Party.  Diversa and IBP agree not to export or
re-export, directly or indirectly, any information, technical data, the direct
product of such data, samples, Products or equipment received or generated under
this Agreement in violation of any applicable export control laws or
governmental regulations.  Diversa and IBP agree to obtain similar covenants
from their licensees, Sublicensees and contractors with respect to the subject
matter of this paragraph.

             12.7     Amendment and Waiver. This Agreement may be amended,
supplemented, or otherwise modified only by means of a written instrument signed
by both Parties.  Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.

             12.8     Severability. In the event that any provision of this
Agreement shall, for any reason, be held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not affect any other
provision hereof, and the Parties shall negotiate in good faith to modify the
Agreement to preserve (to the extent possible) their original intent.

             12.9     Third Parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any Party, other than the Parties hereto and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

             12.10   Entire Agreement. Subject to any applicable provisions of
the Confidential Disclosure Agreement between the Parties executed on July 17,
2000, that do not contradict the terms of this Agreement, this Agreement and the
exhibits hereto constitute the entire agreement between the Parties with respect
to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations, and understandings of the Parties.  No Party hereto
shall be liable or bound to the other in any manner by any warranties,
representations or covenants with respect to the subject matter hereof except as
specifically set forth herein.

             12.11   Regulatory Filings. IBP shall have sole responsibility for
making all regulatory filings worldwide, including, without limitation, all
filings required by the Biodiversity Convention and other legislation related to
the ownership or use of biological resources, and obtaining the necessary
approvals to market Products.  Diversa will cooperate to provide information
required to make and maintain such filings, as appropriate.

             12.12   Force Majeure.  Neither Party shall be held liable or
responsible to the other Party, nor be deemed to be in breach of this Agreement,
for failure or delay in fulfilling or performing any provisions of this
Agreement (other than payment obligations) when such failure or delay is caused
by or results from any cause whatsoever outside the reasonable control of the
Party concerned including, but not limited to, fire, explosion, breakdown of
plant, damage to plant material by pests or otherwise, strike, lock-out, labor
disputes, casualty or accident, lack or failure of transportation facilities,
flood, lack or failure of sources of supply or of labor, raw materials or
energy, civil commotion, embargo, any law, regulation, decision, demand or
requirement of any national or local government or authority.  The Party
claiming relief shall, without delay, notify the other Party by registered
airmail or by telefax of the interruption and cessation thereof and shall use
its best efforts to remedy the effects of such hindrance with all reasonable
dispatch.  The onus of proving that any such Force Majeure event exists shall
rest upon the Party so asserting.  During the period that one Party is prevented
from performing its obligations under this Agreement due to a Force Majeure
event, the other Party may, in its sole discretion, suspend any obligations that
relate thereto.  Upon cessation of such Force Majeure event the Parties hereto
shall use their best efforts to make up for any suspended obligations.  If such
Force Majeure event is anticipated to continue, or has existed for nine (9)
consecutive months or more, this Agreement may be forthwith terminated by either
Party by registered airmail or by telefax.  In case of such termination the
terminating Party will not be required to pay to the other Party any indemnity
whatsoever.

             12.13   Withholding. To the extent any Party is required by law to
withhold or to make tax payments on behalf of or with respect to the other
Party, the first Party may withhold such amounts and make such tax payments as
so required.  For purposes of this Agreement, any such payments or withholdings
shall be treated as a payment to Party on behalf of whom the withholding or
payment was made.

             12.14   No Trademark Rights. Except as otherwise provided herein or
agreed to in advance in writing, no right, express or implied, is granted by
this Agreement to use in any manner the names “IntraBiotics” or “Diversa,” or
any other trade name or trademark of a Party or the names of any employees
thereof, for any purpose other than for the Parties’ own internal purposes.

             12.15   Counterparts.  This Agreement may be executed via facsimile
and in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument, and shall
become effective when there exist copies hereof which, when taken together, bear
the authorized signatures of each of the Parties hereto.  Only one such
counterpart signed by the Party against whom enforceability is sought needs to
be produced to evidence the existence of this Agreement.

             12.16   Titles and Subtitles; Form of Pronouns; Construction and
Definitions.  The titles of the sections and paragraphs of this Agreement are
for convenience only and are not to be considered in construing this Agreement. 
All pronouns used in this Agreement shall be deemed to include masculine,
feminine and neuter forms, the singular number includes the plural and the
plural number includes the singular.  Unless the context otherwise requires, the
term “including” shall mean “including, without limitation.”

             IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Agreement as a sealed instrument effective as of the date first
above written.

  DIVERSA CORPORATION     By:   /s Jay M. Short

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    Name:  Jay M. Short, Ph.D.     Title:  President and Chief Executive Officer
                            INTRABIOTICS PHARMACEUTICALS, INC     By:  /s/
Kenneth J. Kelley

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    Name:  Kenneth J. Kelley     Title:  Chairman and Chief Executive Officer