Exhibit 10.1


 


***CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT (INDICATED BY ASTERISKS)
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 17 C.F.R.
SECTIONS 200.80(b)(4) AND 240.24b-2.


 


LICENSE
AND COLLABORATION AGREEMENT


 


THIS LICENSE AND COLLABORATION
AGREEMENT is entered into as of June 29, 2005 (the “Effective Date”) by and between ORGANON (IRELAND) LTD., an Irish company (“Organon”), having an address at
Churerstrasse 158, Pfaffikon 8808, Switzerland, and CYPRESS
BIOSCIENCE, INC., a Delaware corporation (“Cypress”),
having offices at 4350 Executive Drive, Suite 325, San Diego, California
92121, United States of America.


 


RECITALS


 


WHEREAS, the
parties possess proprietary technologies that may be useful in the development
of mirtazapine or its [...***...]enantiomer as a single or combination drug
product in the Field;


 


WHEREAS, Organon
possesses proprietary intellectual property that may be useful in the development
and manufacturing of mirtazapine and its enantiomers (in various forms) in the
Field;


 


WHEREAS, Cypress
possesses proprietary intellectual property that may be useful in the
development of combination products with mirtazapine (in various forms) in the
Field; and


 


WHEREAS, the
parties desire to enter into a collaborative relationship for research and
development activities using mirtazapine and its [...***...]enantiomer, alone
or in combination with other active ingredient(s), and for the development and
commercialization of human therapeutic products resulting from such activities
in the Field.


 


AGREEMENT


 


NOW, THEREFORE,
in consideration of the foregoing premises and the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:


 


1.                                      DEFINITIONS


 


For purposes of this
Agreement, the following capitalized terms shall have the following meanings:


 


1.1                               “50/50 Split” shall mean 50% as to Organon and 50% as to
Cypress.


 


1.2                               “60/40 Split” shall mean 60% as to Organon and 40% as to
Cypress.


 


1.3                               “Acquirer” shall have the meaning set forth in Section 18.13(g).


 










***Confidential Treatment Requested


 


1





















 


1.4                               “Administrator” shall have the meaning set forth in Section 17.2(a).


 


1.5                               “Affiliate” shall mean any company or entity controlled
by, controlling, or under common control with a party hereto.  For this purpose, the term “control” shall mean the direct or
indirect ownership of more than 50% of the voting stock or other ownership
interests of that entity, or the power, directly or indirectly to cause the
direction of the management and policies of such entity.


 


1.6                               “Agreement” shall mean this License and Collaboration
Agreement, as may be amended in accordance with its terms.


 


1.7                               “Allowable Commercialization Expenses” shall mean the
sum of (a) Product Supply Costs, (b) the aggregate fees and expenses
paid by Organon and Cypress to outside consultants and counsel in respect of
filing, prosecution and maintenance of Cypress Patents, Organon Patents and
Joint Patents with respect to Approved Products in the Shared Territory from
and after the Date of First Commercial Sale of such Approved Product, (c) the
aggregate payments made by Organon or Cypress to Third Parties as milestone,
royalty or similar payments that the parties agree is required for the sale or
other transfer of Approved Products in the Field in the Shared Territory and (d) the
aggregate payments made by Organon and Cypress to Third Parties for the launch,
promotion, marketing, distribution and sale of a Approved Product in the Field
in the Shared Territory, including, without limitation, Post-Approval Study
Expenses, Selling Expenses, Marketing Management, Market and Consumer Research,
Advertising, Trade Promotion, Consumer Promotion, Education and Freight and
Transportation–Out, using the defined terms set forth below.  For clarification, Allowable
Commercialization Expenses shall not include (1) any internal costs of
Organon or Cypress for the promotion, marketing, distribution and sale of
Approved Product in the Field in the Shared Territory, including any amounts
paid to Third Parties for the Cypress Sales Force or (2) any expenses
incurred before execution of any agreement entered into by the parties with
regard to joint commercialization of an Approved Product in the Field in the
Shared Territory.  The costs of
activities which promote Organon’s or Cypress’ business as a whole without
being specific to Approved Products (such as corporate image advertising) are
specifically excluded from Allowable Commercialization Expenses.  To the extent multiple products are involved
and some of such products are not Approved Products, then such amounts will be
allocated on a pro rata basis to be negotiated between the parties that is
designed to account for the respective contributions made to the marketing
efforts for each product.  Within 60 days
of the end of a Calendar Year, the parties will make reconciling payments, if
any are required, to reflect any difference between actual costs and such
allocation for such year.


 


(a)                                  “Advertising” means payments made by Organon and Cypress
to Third Parties for media costs associated with Approved Product advertising
in the Shared Territory as follows: 
production expense/artwork including set up; design and art work for an
advertisement; the cost of securing print space, air time, etc. in newspapers,
magazines, trade journals, television, radio, billboards, etc.  Advertising will not include any additional
costs except as mutually agreed by the parties in writing in advance.


 


(b)                                  “Consumer Promotion” means payments made by Organon and
Cypress to Third Parties for programs to promote Approved Product in the Shared
Territory directly to


 


2





















 


the prescriber or end user, which specifically means expenses
associated with promoting products directly to the professional community such
as professional samples, professional literature, promotional material costs,
patient aids and detailing aids. 
Consumer Protection will not include any additional costs except as
mutually agreed by the parties in writing in advance.


 


(c)                                  “Education” means payments made by Organon and Cypress
to Third Parties for professional education with respect to a Approved Product
in the Shared Territory through any means not covered above, including, but not
limited to, articles appearing in journals, newspapers, magazines or other media;
seminars, scientific exhibits, and conventions; and symposia, advisory boards
and opinion leader development activities. 
Education will not include any additional costs except as mutually
agreed by the parties in writing in advance.


 


(d)                                  “Freight and Transportation–Out” means (to the extent
not already recovered in the calculation of Net Sales) payments made by Organon
and Cypress to Third Parties for the portion of storage and distribution costs
relating to storing and moving Approved Product in the Shared Territory from a
warehouse to another warehouse or to the customer as follows: outbound
transportation costs; costs of moving goods from a manufacturing point to a
warehouse at another location from which it is ultimately to be distributed to
a customer.  Freight and
Transportation-Out will not include any additional costs except as mutually
agreed by the parties in writing in advance.


 


(e)                                  “Market and Consumer Research” means payments made by
Organon and Cypress to Third Parties for conducting and monitoring professional
and consumer appraisals of existing, new or proposed Approved Product in the
Shared Territory, such as market share services (e.g., IMS data), special
research testing and focus groups. 
Market and Consumer Research will not include any additional costs
except as mutually agreed by the parties in writing in advance.


 


(f)                                    “Marketing Management” means payments made by Organon
and Cypress to Third Parties for product management and sales promotion
management with respect to Approved Product in the Shared Territory,
specifically costs associated with developing overall sales and marketing
strategies (e.g., product line or customer segment), as well as planning and
programs for Approved Product in the Shared Territory and trademark selection, filing,
prosecution and enforcement.  Marketing
Management will not include any additional costs except as mutually agreed by
the parties in writing in advance.


 


(g)                                 “Post-Approval Study Expenses” means the payments made
by Organon or Cypress to Third Parties for any trials or studies of Approved
Product after Regulatory Approval of such Approved Product, other than those
trials or studies of Approved Product that are required to obtain or maintain
Regulatory Approval of such Approved Product and are included in Development
Expenses.


 


(h)                                 “Selling Expenses” means payments made by Organon and
Cypress to Third Parties for the management of and the performance of the
selling functions with respect to Approved Product in the Shared Territory,
including payments to Third Parties under contract sales and marketing
agreements.  Selling Expenses will not
include any additional costs except 


 


3





















 


as mutually agreed by the parties in writing in advance.  The Parties agree that this shall not include
the costs of the Cypress or Organon sales forces.


 


(i)                                    “Trade Promotion” means the allowances given to
retailers, brokers, distributors, hospital buying groups and similar groups for
purchasing, promoting, and distribution of Approved Product in the Shared
Territory, specifically purchasing, advertising, new distribution, and display
allowances as well as free goods, wholesale allowances and reasonable field
sales samples.  Trade Promotion will not
include any additional costs except as mutually agreed by the parties in
writing in advance.


 


1.8                               “Animal Health Field” shall mean use in companion or
production animals.


 


1.9                               “Approved Product” shall mean, on a country by country
basis, a Development Candidate for which Regulatory Approval in the Field has
been given in the applicable country.


 


1.10                        “Arbitrators” shall have the meaning set forth in Section 17.2(a).


 


1.11                        “Budget” shall mean the budget of Development Expenses
for research and development with respect to Development Candidates or Approved
Products in the Field in the Shared Territory to be performed under this
Agreement or for Allowable Commercialization Expenses for manufacturing,
launch, promotion, marketing and sales activities with respect to Development
Candidates or Approved Products in the Field in the Shared Territory to be
performed under this Agreement for each year of the License Term.


 


1.12                        “Calendar Quarter” shall mean each respective period of
three consecutive months ending on March 31, June 30, September 30
and December 31.


 


1.13                        “Calendar Year” shall mean each respective period of 12
consecutive months ending on December 31.


 


1.14                        [...***...]


 


1.15                        [...***...] Agreement” shall mean that certain
License Agreement dated April 11, 2005 between Cypress and [...***...] as
may be amended in accordance with its terms (which amendment may not expand the
exception under the definitions of Cypress Information and Cypress Patents,
except with Organon’s written consent).


 


1.16                        “Change in Control” shall have the meaning set forth in Section 18.13(h).


 


1.17                        “Claim” shall have the meaning set forth in Section 17.2(a)


 


1.18                        “Clinical Supply Agreement” means an agreement to be
negotiated by Cypress and Organon regarding the manufacture of Development
Candidates for use in the Field in the Shared Territory, which shall include
applicable terms regarding the manufacture of clinical supplies of Development
Candidates as set forth in this Agreement.


 


1.19                        “Clinical Supply Costs” means the cost to have
Development Candidates manufactured for use in the Shared Territory pursuant to
this Agreement.  Such cost shall be


 










***Confidential Treatment Requested


 


4





















 


calculated using Organon’s (or its Affiliate’s) cost accounting
methods, including a reasonable cost of capital as agreed by the parties in
writing, consistently applied, or, if the parties use a Third Party supplier,
the actual cost of supply paid to such Third Party.


 


1.20                        “Compound” shall mean the substance known as
mirtazapine, in any form, including, without limitation, its [...***...]enantiomer,
salts of mirtazapine and the salts of the [...***...]enantiomer alone.


 


1.21                        “Confidential Information” shall have the meaning set
forth in Section 14.1.


 


1.22                        “Control” shall mean, with respect to any Information or
intellectual property right, possession by a party of the ability (whether by
ownership, license or otherwise, other than any license granted under this
Agreement) to grant access, a license or a sublicense to such Information or
intellectual property right as provided for herein without violating the terms
of any agreement or other arrangement with any Third Party as of the time such
party would first be required hereunder to grant the other party such access,
license or sublicense, or at any other time during the term of such access,
license or sublicense.


 


1.23                        “Cypress” shall have the meaning set forth in the
introductory paragraph.


 


1.24                        “Cypress Information” shall mean Information related to
the Compounds, Approved Products or Development Candidates, which is Controlled
by Cypress or its Affiliates as of the Effective Date or developed or acquired
by or for Cypress or its Affiliates in the course of performance of this
Agreement.  Cypress Information excludes
Cypress Patents, Joint Patents and Joint Data, but includes Information
licensed to Cypress pursuant to the Cereus Agreement and the Orexigen
Agreement.  For clarification, Cypress
Information excludes all Information licensed by Cypress to Forest pursuant to
the Forest Agreement, including all Patents licensed by Cypress under that
agreement.


 


1.25                        “Cypress Option” shall have the meaning set forth in Section 6.2.


 


1.26                        “Cypress Participation Right” shall mean the right of
Cypress to participate in the detailing and promotion of Approved Product in
the Field in the Shared Territory in accordance with the terms of this
Agreement.


 


1.27                        “Cypress Patents” shall mean all Patents Controlled by
Cypress as of the Effective Date or during the License Term that are necessary
or useful for the development, manufacture, use, sale, offer for sale or import
of any Compound, Development Candidate or Approved Product in the Field,
including, without limitation, the Patents set forth on Exhibit A,
but excluding the Joint Patents and all Patents licensed by Cypress to Forest
pursuant to the Forest Agreement, including all Patents licensed by Cypress
under that agreement.


 


1.28                        “Cypress Sales Force” shall mean those members of
Cypress’ sales force (whether Cypress employees, contractors (including any
Organon sales representatives provided pursuant to Section 5.3(b)(v)) or
agents), who promote Approved Products pursuant to the exercise of the Cypress
Participation Right.


 










***Confidential Treatment Requested


 


5





















 


 


1.29                        “Cypress Technology” shall mean the Cypress Patents and
the Cypress Information.


 


1.30                        “Date of First Commercial Sale” shall mean the actual
date of first commercial sale of an Approved Product in the Shared Territory.


 


1.31                        “Development Candidate” shall mean any therapeutic
preparation containing any of the substances or combinations listed on Exhibit I.


 


1.32                        “Development Expenses” means the costs and expenses that
are incurred by either party or their Affiliates in the research and
development of a Development Candidate after selection of the first Development
Candidate in accordance with an applicable Development Plan and associated
Budget approved by the Joint Development Committee, including (without
duplication) the sum of:


 


(a)                                  the
aggregate costs incurred by Organon and Cypress for Development FTEs performing
research and development of any Development Candidate for purposes of
registration in the Field in the Shared Territory or performing further
development activities required by any governmental authority with respect to
Approved Product in the Field in the Shared Territory after Regulatory Approval
in order to maintain Regulatory Approval, in each case at the Development FTE
Rate;


 


(b)                                  the
aggregate fees and expenses paid by Organon and Cypress to outside consultants
and counsel in respect of filing, prosecution and maintenance of Cypress
Patents, Organon Patents and Joint Patents with respect to the Development
Candidate in the Shared Territory prior to the Date of First Commercial Sale of
such Development Candidate;


 


(c)                                  the
aggregate payments made by Organon and Cypress to Third Parties as milestone
payments upon the occurrence of research and development milestone events with
respect to Development Candidates in the Field in the Shared Territory;


 


(d)                                  Clinical
Supply Costs;


 


(e)                                  the
actual payments made by Organon and Cypress to Third Parties to apply for
Regulatory Approval; and


 


(f)                                    the
aggregate payments made by Organon and Cypress to Third Parties for performing
research and development of any Development Candidate for purposes of
registration in the Shared Territory, including, without limitation, the cost
of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects
of a Development Candidate necessary or desirable for the purpose of obtaining
and/or maintaining Regulatory Approval of a Development Candidate in the Shared
Territory; costs (and related fees) for preparing, submitting, reviewing or
developing data or information for the purpose of submission to a governmental
authority to obtain and/or maintain Regulatory Approval of a Development
Candidate in the Shared Territory; and manufacturing process development and
scale-up for a Development Candidate in bulk and finished form for the Shared Territory
for purposes of conducting studies necessary to obtain and/or maintain
Regulatory Approval of Development Candidates in the Shared Territory.  In addition, Development Expenses include,
but are not 


 


6





















 


limited to, the aggregate payments made by Organon and Cypress to Third
Parties in support of further development activities required by any
governmental authority with respect to Approved Product in the Field in the
Shared Territory after Regulatory Approval in order to maintain Regulatory
Approval.  Development Expenses will
include, but are not limited to, the following costs incurred for the
development of a Development Candidate in the Field for the Shared Territory:
the costs of modifying and optimizing a prospective Development Candidate,
including its chemical structure and formulation, to achieve product
development goals regarding efficacy, safety, dosing and route of
administration.


 


1.33                        “Development FTE” shall mean the equivalent of the work
time of an employee or consultant of Cypress or Organon with appropriate
qualifications performing research, development or regulatory work under the
Development Plan on a full-time basis over a 12-month period (including normal
vacations, sick days and holidays).


 


1.34                        “Development FTE Rate” shall have the meaning set forth
in Section 4.1(f).


 


1.35                        “Development Plan” shall mean the plan(s) for
development of Development Candidates, to be approved by the Joint Development
Committee.


 


1.36                        “Diligent Efforts” shall mean the carrying out of
obligations or tasks by a party (or, as applicable, its Affiliates and
sublicensees) in a sustained manner using good faith commercially reasonable
efforts, which efforts shall be consistent with the exercise of prudent scientific
and business judgment applied in the pharmaceutical industry to products or
research, development or marketing projects of similar scientific and
commercial potential.


 


1.37                        “Effective Date” shall have the meaning set forth in the
introductory paragraph.


 


1.38                        [...***...] Enantiomer” shall mean the [...***...]enantiomer
of the substance known as mirtazapine and referred to internally by Organon as [...***...]
along with any salts thereof.


 


1.39                        “FDA” shall mean the United States Food and Drug
Administration or any successor agency.


 


1.40                        “Field” shall mean the treatment and/or prevention of
sleep related breathing disorders in humans. 
The parties agree that the development and commercialization of products
for the treatment and/or prevention of insomnia are outside the Field.


 


1.41                        “First Notice” shall have the meaning set forth in Section 4.3(a).


 


1.42                        “Forest” shall mean Forest Laboratories Ireland Limited.


 


1.43                        “Forest Agreement” shall mean the License and
Collaboration Agreement, dated January 9, 2004, as may be amended (which
amendment may not expand the exception under the definitions of Cypress
Information and Cypress Patents, except with Organon’s written consent),
between Cypress and Forest, which provides for an exclusive license by Cypress
to Forest of rights to develop and commercialize milnacipran.


 










***Confidential Treatment Requested


 


7





















 


1.44                        “GAAP” shall mean U.S. generally accepted accounting
principles, consistently applied.


 


1.45                        “IFRS” shall mean International Financial Reporting
Standards, consistently applied.


 


1.46                        “Indemnified Losses” shall have the meaning set forth in
Section 16.1(a).


 


1.47                        “Indemnitee” shall mean a person entitled to
indemnification under Section 16.1.


 


1.48                        “Indemnifying Party” shall have the meaning set forth in
Section 16.2.


 


1.49                        “Information” shall mean all tangible and intangible (a) techniques,
technology, practices, trade secrets, inventions (whether or not patentable),
methods, manufacturing processes, knowledge, know-how, skill, experience, test
data and results (including pharmacological, toxicological and clinical test
data and results), analytical and quality control data, results or descriptions
and software, (b) compounds, compositions of matter, cells, cell lines,
assays, and physical, biological or chemical material, and (c) marketing
data, including clinical studies designed to support promotional efforts.


 


1.50                        “IND” shall mean an Investigational New Drug Application
and all amendments and supplements thereto filed with the FDA (as more fully
defined in 21 C.F.R. 314.5 et seq.), or the equivalent application filed with
any equivalent agency or governmental authority outside the United States
(including any supra-national agency such as in the European Union) requiring
such filing.


 


1.51                        “Joint Commercialization Committee” shall have the
meaning set forth in Section 3.6.


 


1.52                        “Joint Committees” shall have the meaning set forth in Section 3.1.


 


1.53                        “Joint Data” shall mean all test data and results (including
pharmacological, toxicological and clinical test data and results), analytical
and quality control data, results or descriptions and marketing data with
respect to Development Candidates or Approved Products in the Field in the
course of performance of activities pursuant to this Agreement provided that
neither the Cypress Option nor the Organon Option has been exercised.


 


1.54                        “Joint Development Committee” shall have the meaning set
forth in Section 3.5.


 


1.55                        “Joint Marketing/Development Collaborator” shall have
the meaning set forth in Section 5.6.


 


1.56                        “Joint Patents” shall mean Patents covering each
invention made jointly by both parties pursuant to this Agreement.


 


1.57                        “Level of Effort” shall have the meaning set forth in Section 5.3(b)(iii).


 


1.58                        “License Term” shall have the meaning set forth in Section 15.1.


 


8





















 


1.59                        “Manufacturing Agreement” means an agreement to be
negotiated by Cypress and Organon regarding the manufacture of Approved Products
for use in the Field in the Shared Territory, which shall include applicable
terms regarding the arm’s length, commercial manufacture of Approved Products
as set forth in this Agreement.


 


1.60                        “Marketing Plan” shall have the meaning set forth in Section 5.3(b)(i).


 


1.61                        “NDA” shall mean a New Drug Application and all
amendments and supplements thereto filed with the FDA (as more fully defined in
21 C.F.R. 314.5 et seq.), or the equivalent application filed with any
equivalent agency or governmental authority outside the United States
(including any supra-national agency such as in the European Union) requiring
such filing, including all documents, data and other information concerning a
pharmaceutical product that are necessary for gaining Regulatory Approval to
market and sell such pharmaceutical product.


 


1.62                        “Net Sales” shall mean, the gross amount invoiced for
sales or other transfers of Approved Products labeled for use in the Field (but
not sales or other transfers of any product that is an Approved Product but is
labeled only for use for any indication outside the Field) by Cypress and its
Affiliates or by Organon and its Affiliates to Third Parties that are not
licensees or sublicensees of the applicable party, less the deductions listed
in subsections (a) through (f) below (without duplication), as
allocable to such Approved Product.  If
Organon and Cypress do not share Shared Revenue with respect to such Approved
Product, the gross amount invoiced for sales or other transfers of Approved
Products labeled for use in the Field by licensees or sublicensees of Organon
or Cypress, as applicable, to Third Parties shall also be included in Net
Sales.  If Organon and Cypress share
Shared Revenue with respect to such Approved Product, the gross amount invoiced
for sales or other transfers of Approved Products labeled for use in the Field
by licensees or sublicensees of Organon or Cypress (including any Joint
Marketing/Development Collaborator) to Third Parties shall not be included in
Net Sales.  In addition, if Cypress,
Organon or any of their respective Affiliates sells or transfers Approved
Products labeled for use in the Field to any licensee or sublicensee of the
applicable party that is an end user of such Approved Product, an amount equal
to the amount that would have been invoiced to an independent Third Party in an
arm’s length transaction upon the sale of Approved Product shall also be
included in Net Sales.


 


(a)                                  trade
or quantity discounts actually allowed;


 


(b)                                  refunds,
rebates, chargebacks, retroactive price adjustments, billing errors and any
other allowances (including, without limitation, government-mandated and
managed health care-negotiated rebates) actually granted which effectively
reduce the net selling price;


 


(c)                                  product
returns and credits actually granted;


 


(d)                                  any
tax imposed on the production, sale, delivery or use of the product (excluding
federal, state or local taxes based on income), in so far as possible to
allocate to sale of Approved Product;


 


(e)                                  freight,
postage, shipping, customs duties, excises, tariffs, surcharges, other
governmental charges (excluding federal, state or local taxes based on income)
and insurance charges actually allowed or paid for delivery of Approved
Product;


 


9





















 


(f)                                    an
[...***...] as actually incurred; and


 


(g)                                 payments
or rebates paid with respect to such Approved Product, as applicable, in
connection with state or federal Medicare, Medicaid or similar programs in the
United States or in connection with similar programs in other countries in
which there are sales.


 


Such amounts shall be
determined from the books and records of Cypress and its Affiliates, licensees
and sublicensees or Organon and its Affiliates, licensees and sublicensees, as
the case may be, maintained in accordance with IFRS or GAAP, as applicable.


 


As used below, the term “Combination Product” means any
Approved Product, as applicable, sold in combination with any other active
pharmaceutical ingredient(s) that is not part of the Approved Product (whether
packaged together or in the same therapeutic formulation).  The following provisions shall apply only in
the event that Organon has exercised the Organon Option or Cypress has
exercised the Cypress Option.  In the
event the Approved Product is sold as part of a Combination Product, the Net
Sales from the Combination Product, for the purposes of determining royalty
payments, will be determined by multiplying the Net Sales of the Combination
Product by the fraction, [...***...]


 


In the event that the
average sale price of the Approved Product can be determined but the average
sale price of the other active pharmaceutical ingredient(s) in the Combination
Product cannot be determined, Net Sales for purposes of determining royalty
payments will be calculated by multiplying the Net Sales of the Combination
Product by the fraction [...***...]  If
the average sale price of the other active pharmaceutical ingredient(s) can be
determined but the average price of the Approved Product, as applicable, cannot
be determined, Net Sales for purposes of determining royalty payments will be
calculated by multiplying the Net Sales of the Combination Product by the
following formula: [...***...]


 


In the event that the
average sales price of both the Approved Product, as applicable, and the other
active pharmaceutical ingredient(s) in the Combination Product cannot be
determined, the Net Sales of the Approved Product shall be negotiated in good
faith by the parties.


 


The Net Sales price for a
Combination Product in a given country will be calculated once each Contract
Year and such price will be used during all applicable royalty reporting
periods for the entire Contract Year for such country, absent extraordinary
conditions or events.  When determining
the average sale price of an Approved Product, as applicable, or the other
active pharmaceutical ingredient(s) in the Combination Product, the average
sale price will be calculated using data arising from the 12 months preceding
the calculation of the Net Sales price for the Combination Product.


 










***Confidential Treatment Requested


 


10





















 


In no event shall
provision of free samples of Approved Product, as applicable, or the
disposition of Development Candidate or Approved Product for, or the use of
Development Candidate or Approved Product in, Phase I Clinical Trials, Phase II
Clinical Trials, Phase III Clinical Trials or post-approval studies in which
such Development Candidate or Approved Product is provided to patients without
any payment result in any Net Sales.


 


1.63                        “Operational Control” shall mean, in the context of
development, management of the overall development activities, organizing
progress meetings between the operational groups, coordinating clinical
research organizations and other consultants performing research, development
and regulatory activities, organizing information sharing, managing of central
database of clinical study results, and harmonizing procedures and information
technology systems, in each case in accordance with the Development Plan.  In the context of commercialization,
Operational Control shall mean management of marketing strategy, branding of
Approved Product, Phase IV studies, trademark matters, launch logistics, and
coordination of sales efforts and commercialization of the Approved Product, in
each case in accordance with the Marketing Plan.  In no event shall the party exercising
Operational Control be entitled to obligate the other party to pay any amount
to a third party or to be responsible for costs beyond what was previously
agreed in a Budget, or be entitled to modify or amend the Development Plan or
Marketing Plan, as applicable.


 


1.64                        [...***...]


 


1.65                        [...***...] Agreement” shall mean that certain License
Agreement dated January 3, 2005 between Cypress and [...***...], as may be
amended (which amendment may not expand the exception under the definitions of
Cypress Information and Cypress Patents, except with Organon’s written
consent), in accordance with its terms.


 


1.66                        “Organon” shall have the meaning set forth in the
introductory paragraph.


 


1.67                        “Organon Information” shall mean Information related to
Compounds, Development Candidates or Approved Products, which is Controlled by
Organon or its Affiliates as of the Effective Date or developed or acquired by
or for Organon or its Affiliates in the course of performance of this
Agreement.  Organon Information excludes
Organon Patents, Joint Patents and Joint Data, but includes Information licensed
to Organon pursuant to the UIC Agreement.


 


1.68                        “Organon Group” shall have the meaning set forth in Section 18.13(i).


 


1.69                        “Organon Option” shall have the meaning set forth in Section 6.1.


 


1.70                        “Organon Patents” shall mean all Patents Controlled by
Organon or its Affiliates as of the Effective Date or during the License Term
that are necessary or useful for the development, manufacture, use, sale, offer
for sale or import of any Compound, Development Candidate or Approved Product
in the Field, including, without limitation, the Patents set forth on Exhibit B, but excluding any Joint Patents.


 


1.71                        “Organon Technology” shall mean the Organon Patents and
the Organon Information.


 










***Confidential Treatment Requested


 


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1.72                        “Patent” shall mean (a) valid and enforceable
patents, re-examinations, reissues, renewals, confirmations, extensions
(including supplemental protection certificates) and term restorations, and (b) pending
applications for patents, including without limitation, continuations,
continuations-in-part, provisionals, divisionals and substitute applications,
including without limitation, inventors’ certificates.


 


1.73                        “Pharmaceutical Company” shall have the meaning set
forth in Section 18.13(k).


 


1.74                        “Phase II Clinical Trial” shall mean a Phase II study
(however denominated) as defined in 21 C.F.R. 312.21(b) (or its successor
regulation).


 


1.75                        “Phase III Clinical Trial” shall mean a Phase III study
(however denominated) as defined in 21 C.F.R. 312.21(c) (or its successor
regulation).


 


1.76                        “Product Supply Costs” means the cost to have Approved
Products manufactured in final packaged form as purchased by Organon from an
Affiliate or a Third Party pursuant to the Manufacturing Agreement and
delivered to the first independent Third Party. 
The price negotiated in the Manufacturing Agreement for “Product Supply
Costs” shall be [...***...] that shall include: 
(i) actual direct costs incurred in manufacturing or purchasing
materials, including freight-in costs, sales and excise taxes imposed thereon
and customs duty and charges levied by government authorities, and all costs of
packaging components; (ii) actual direct cost of employees engaged in
direct manufacturing activities and quality control and quality assurance
activities who are directly employed in manufacturing and packaging such
Development Candidate; [...***...] (iv) storage costs; (v) cost of
maintaining redundant manufacturing capacity as provided in the Manufacturing
Agreement; (vi) losses for expired or failed product; (vi) depreciation;
(vii) [...***...] and (viii) manufacturing overhead attributable to
such Approved Product, which will include a reasonable allocation of indirect
labor (not previously included in direct labor costs), a reasonable allocation
of administrative costs, and a reasonable allocation of facilities costs, all
in accordance with IFRS, but will not include corporate administrative overhead
or plant start-up costs or costs associated with excess capacity.  All allocations will be based on the assumption
that such party’s plant and equipment are utilized to their reasonable full
capacity (except with respect to equipment that is specific to the Approved
Product being manufactured), and all costs and allocations shall be based on
direct project headcount or other generally accepted accounting methods and
consistent with the methods used for such costs and allocations for such party’s
internal purposes.  More specifically,
the components of Product Supply Costs shall comprise: (A) direct labor
(manufacturing personnel); (B) direct materials; (C) facility costs
(rent, property taxes, depreciation of leaseholds, utilities, spare parts,
maintenance contracts); (D) manufacturing equipment depreciation; (E) allocations
for information technology, document control, quality engineering, purchasing,
warehouse management, headcount or square footage occupancy, depending on the
category); (F) indirect labor (manufacturing supervision); (G) manufacturing
department overhead (uniforms, materials used in plant maintenance); (H) quality


 










***Confidential Treatment Requested


 


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assurance/quality control; and (I) such other similar costs as may be
reasonably included in such definition as agreed in writing by the parties.


 


1.77                        “Program Materials” shall have the meaning set forth in Section 4.6.


 


1.78                        “Proof of Concept Trial” shall mean a human clinical
trial (however denominated) that is conducted in order to ascertain the
efficacy of a product and that precedes a Phase II Clinical Trial.


 


1.79                        “Regulatory Approval” shall mean any and all approvals
(including price and reimbursement approvals), licenses, registrations, or
authorizations of health/regulatory authorities or any country, federal, state
or local regulatory agency, department, bureau or other government entity that
are legally required or necessary from an economic point of view for the
manufacture, use, storage, import, transport and/or sale of a Development
Candidate in such jurisdiction.


 


1.80                        “Rest of the World” shall mean the entire world
excluding the Shared Territory.


 


1.81                        “Second Notice” shall have the meaning set forth in Section 4.3(b).


 


1.82                        [...***...] Enantiomer” shall mean the [...***...]enantiomer
of the substance known as mirtazapine and any salt thereof.  For purposes of clarity, the parties agree
that this does not include the [...***...] Enantiomer.


 


1.83                        “Selection Criteria” shall mean the criteria set forth
on Exhibit C.


 


1.84                        [...***...] Product” shall mean a product
containing the [...***...] as the [...***...] with an indication in the Field.


 


1.85                        “Shared Revenue” shall mean, on a Approved
Product-by-Approved Product basis, an amount equal to (a) Net Sales of
such Approved Product, plus (b) Sublicensing Revenue for such Approved
Product in each case calculated using GAAP or IFRS, as applicable.


 


1.86                        “Shared Territory” shall mean the United States
(including its territories and possessions), Canada and Mexico.


 


1.87                        “Sharing Ratio” shall have the meaning set forth in Section 5.3(b)(iv) .


 


1.88                        “Specifications” shall mean the technical description of
the method of manufacture for an Approved Product.


 


1.89                        “Specific Country” shall have the meaning set forth in Section 7.1(b).


 


1.90                        “Sublicensing Revenue” shall mean (a) all license
fees, milestone payments, royalties, annual maintenance fees and similar
payments and consideration paid by a Third Party licensee or sublicensee to
Organon or Cypress, as applicable, and such applicable party’s Affiliates,
solely in consideration for the grant by Organon or Cypress, as applicable, or
such applicable party’s Affiliates, of a license or sublicense of rights to
Cypress Technology, Organon


 










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Technology, Joint Data or Joint Patents in the Field hereunder, and (b) the
gross margin (i.e. sales price less reasonable cost of goods sold) on all
Development Candidates and Approved Products supplied by Organon or Cypress, as
applicable, or such applicable party’s Affiliates, to a Third Party licensee or
sublicensee of rights to Cypress Technology, Organon Technology, Joint Data or
Joint Patents in the Field hereunder (with any of the foregoing consideration
received by Organon or Cypress, as applicable, or such applicable party’s
Affiliates, other than in the form of cash to be valued at its fair market
value as of the date of receipt); provided, however, that “Sublicensing
Revenues” shall in any event exclude payments for equity or debt securities of
Organon or Cypress, as applicable, or such applicable party’s Affiliates (at
its fair market value upon date of receipt) and, except as provided above,
reasonable payments tied to the provision of goods and/or services by Organon
or Cypress, as applicable, or such applicable party’s Affiliates, to such Third
Party licensee or sublicensee to compensate Organon or Cypress, as applicable,
or such applicable party’s Affiliates, for the provision of such goods and/or
services.


 


1.91                        “Third Party” shall mean any entity other than Cypress
or Organon or an Affiliate of Cypress or Organon.


 


1.92                        “Trademarks” shall mean the registered marks used for
the identification of Approved Products.


 


1.93                        [...***...] Agreement” shall mean that certain
License Agreement between Organon and [...***...] dated January 17, 2005.


 


1.94                        “Voting Stock” shall have the meaning set forth in Section 18.13(k).


 


2.                                      GENERAL


 


2.1                               Objectives.  The parties intend to carry out their
obligations and responsibilities under this Agreement, consistent with the
objectives set forth in and the resources allocated to such activities in the
Development Plan or the Marketing Plan, as applicable.  It is intended that the work performed under
this Agreement will be conducted as a unified collaborative effort with
activities by the parties carried out at each party’s respective facilities or
through the use contracted Third Parties, and this intent shall be reflected in
the Development Plan or the Marketing Plan, as applicable.


 


2.2                               Research
and Development Activities.  It is
the intention of the parties that each party shall contribute to the research
and development of one or more Development Candidates in the Field.  It is intended that each party shall
contribute to costs (internal and external) related to such research and development
activities applying a 50/50 Split, or, with respect to the [...***...] only, if
elected by Organon upon written notice to Cypress upon selection of the [...***...]
a 60/40 Split, and the Development Plan will be consistent with and provide for
such proportional contribution and subject to the prior approval of a Budget
for the relevant time period.


 


2.3                               Commercialization.  It is the intention of the parties to
collaborate in the commercialization of one or more Approved Products in the
Field in the Shared Territory, consistent with the objectives set forth in and
the resources allocated to such activities in the 


 










***Confidential Treatment Requested


 


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Marketing Plan.  It is intended
that the commercialization activities in the Shared Territory will be conducted
as a unified collaborative effort, and this intent shall be reflected in the
Marketing Plan.  Shared Revenue generated
with respect to Approved Products in the Field in the Shared Territory shall be
shared in proportion to the Level of Effort expended by the parties as
determined in accordance with the Marketing Plan, except to the extent that
such effort is not equal, in which case an appropriate royalty shall be
calculated as described herein. In the Rest of the World, Organon shall be
solely responsible for commercialization of Approved Products, and shall pay
Cypress a royalty on Net Sales.


 


2.4                               Manufacturing. In support of the collaboration, Organon
or its Affiliates shall manufacture and supply all quantities of Development
Candidates and Approved Products necessary for development and
commercialization in the Field and shall be responsible for implementing all
aspects of manufacturing, subject to the terms of the Manufacturing Agreement, unless
the parties decide, through the Joint Development Committee or Joint
Commercialization Committee, as applicable, to have such supplies provided by a
Third Party.


 


3.                                      COLLABORATION
MANAGEMENT


 


3.1                               General. The parties shall coordinate and plan
their respective activities hereunder through the use of two committees, a
Joint Development Committee and a Joint Commercialization Committee, which
shall be collectively known as “Joint Committees.”


 


3.2                               Procedures
for the Joint Committees


 


(a)                                  Membership.  The Joint Committees shall include an equal
number of members designated by each of Organon and Cypress, such number to be
mutually agreed upon by the parties. 
Each Joint Committee member shall have experience appropriate for the
activities to be conducted by such Joint Committee.


 


(b)                                  Meetings.  The Joint Committees shall meet at such times
and such places as shall be determined from time to time by Organon and
Cypress, but in any event, not less than twice in each calendar year.  Members of a Joint Committee may participate
in meetings of such Joint Committee in person or by conference telephone call.


 


(c)                                  Quorum.  A quorum for the conduct of business by a
Joint Committee shall consist of a majority of the members designated by
Organon and a majority of the members designated by Cypress.


 


(d)                                  Decisions.  All actions and decisions by a Joint
Committee shall require unanimous approval at a meeting at which a quorum is
present, with the members representing Cypress collectively having one vote and
the members representing Organon collectively having one vote.  All actions taken, whether at a meeting or by
an action by written consent, shall be set forth in minutes and circulated to
each member of a Joint Committee. 
Expenses incurred by a member of a Joint Committee in connection with
the activities of the Joint Committee will be borne by the party that
designated such member.


 


(e)                                  Administration.  The chairperson of each Joint Committee shall
be determined by the party that has Operational Control of the activities
relevant to such committee.


 


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The party not designating the chairperson shall designate one of its
representative members as secretary to such Joint Committee.  The chairperson shall be responsible for
calling meetings of such Joint Committee, sending notices of meetings to all
members and leading such meetings.


 


(f)                                    Minutes. Within 15 days after a Joint Committee
meeting, the secretary of such Joint Committee shall prepare and distribute
minutes of the meeting, which shall provide a description in reasonable detail
of the discussions had at the meeting and a list of any actions, decisions or
determinations approved by such Joint Committee.  The secretary shall be responsible for
circulation of all draft and final minutes. 
Draft minutes shall be first circulated to the chairperson, edited by
the chairperson and then circulated in final draft form to all members of such
Joint Committee sufficiently in advance of the next meeting to allow adequate
review and comment prior to the meeting. 
Minutes shall be approved or disapproved, and revised as necessary,
within 30 days after the applicable meeting. 
Final minutes shall be distributed to the members of such Joint
Committee.


 


(g)                                 Diligence. Each Joint Committee shall adopt project
progression guidelines, including criteria for the designation of Development
Candidates, the filing of INDs, the commencement of Phase I Clinical Trials,
Phase II Clinical Trials and Phase III Clinical Trials, and the filing of INDs
and NDAs.  Each party shall use Diligent
Efforts to conduct the activities that are assigned to it in the Development
Plan or Marketing Plan, as applicable, and each shall devote sufficient
resources to carry out such respective activities.


 


(h)                                 Resources.  If either party believes that the parties are
not devoting resources and participation to the activities to be conducted
under this Agreement substantially in accordance with the principles and
objectives set forth in Sections 3.2(g), 4 and 5, such party may submit the
matter to the relevant Joint Committee in writing, providing a reasonably
detailed description of its reasons for such belief.  Taking into account historical and
prospective participation and resource devotion of the parties during the
current Calendar Quarter and the immediately following Calendar Quarter, the
relevant Joint Committee shall take such steps as may be reasonably necessary
to ensure substantial compliance in resources devoted and participation by the
parties in the activities to be conducted under this Agreement with the
principles and objectives set forth in Sections 3.2(g), 4 and 5.


 


3.3                               Dispute
Resolution.  In the event a Joint
Committee is unable to decide or resolve any issue related to its functions,
the issue shall be referred to an appropriate senior executive officer of
Cypress and an appropriate senior executive of Organon.  Such officers of the parties shall meet
promptly thereafter and shall negotiate in good faith to resolve such issue
within 30 days of commencing such negotiations, but in any event shall continue
negotiations until they reach mutual agreement and neither party may take any
action related to such disputed issue until there is mutual agreement by the
representatives of Organon and Cypress on the Joint Committee or by such
officers of the parties.


 


3.4                               Final
Decision Authority.


 


(a)                                  Development
Candidate Selection.  Final decision
making authority with respect to the selection of a Development Candidate with
the goal of developing Approved Products is as set forth in Section 4.3.


 


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(b)                                  Operational
Control.  Cypress shall have the
Operational Control of development of Development Candidates in the Field in
the Shared Territory, provided that, if Cypress exercises the Cypress Option,
Organon shall thereafter have Operational Control of clinical development of
Development Candidates in the Field in the Shared Territory.  Organon shall have the Operational Control of
development of Development Candidates in the Field in the Rest of the World,
provided that, if Organon exercises the Organon Option, Cypress shall
thereafter have Operational Control of clinical development of Development
Candidates in the Field in the Rest of the World.  Budgets, the Development Plan and the
Marketing Plan shall always require the joint approval of the parties or the
Joint Development Committee or the Joint Commercialization Committee, as
applicable, provided that neither the Organon Option nor the Cypress Option has
been exercised.  Organon shall have
Operational Control with respect to commercialization of Approved Products,
provided that, if Organon exercises the Organon Option, Cypress shall
thereafter have Operational Control with respect to commercialization of
Approved Products.  In no event shall
either party be required to spend more than was agreed in a Budget for any
given year.


 


3.5                               Establishment
of Joint Development Committee. 
Within 30 days of the Effective Date, the parties shall establish a
committee (the “Joint Development Committee”),
which shall coordinate development of Development Candidates in all
territories, including the conduct of the following activities:


 


(a)                                  Review,
discuss and agree upon the Development Plan, including any trials or studies
that are required to obtain or maintain Regulatory Approval of an Approved
Product;


 


(b)                                  Monitoring
of the execution of the Development Plan, including allocation of activities
and responsibilities between parties and review and discussion of progress and
performance of parties’ respective research and development activities under
the Development Plan;


 


(c)                                  Overseeing,
reviewing, discussing and approving  all
substantive communications and issues with the relevant regulatory authorities
regarding research, development and registration of Development Candidates in
the Field, including, but not limited to communications, meetings, submissions,
labeling and other regulatory actions;


 


(d)                                  Making
of go/no go decisions with respect to filing NDAs and other significant regulatory
filings related to the Development Candidates and Approved Product in the Field
in the Shared Territory.


 


(e)                                  Review,
discuss and approve (subject to final approval by the respective parties)
proposed Budgets for Development Expenses, and submit such Budgets for approval
by Cypress and Organon;


 


(f)                                    If
a party exceeds the expenses which it is permitted to incur under the Budget,
review and recommend to the parties, subject to their respective approval,
whether the Budget should be revised to include all or a portion of such
additional amount;


 


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(g)                                 Discuss
and determine whether a Third Party, rather than Organon, should supply
Development Candidates, taking into consideration quality and price of supply;


 


(h)                                 Review
and discuss Organon Information and Cypress Information presented at each
meeting of the Joint Development Committee;


 


(i)                                    Discuss
and determine whether both parties should cease development of all Development
Candidates in the Field;


 


(j)                                    If
there is a dispute between the parties as to which party shall own any
particular item of Information, establish a procedure to resolve such dispute,
which may include engaging a qualified Third Party patent attorney unaffiliated
with and independent of the parties and jointly selected by the parties, as an
expert to resolve such dispute; and


 


(k)                                Review
and discuss whether a license to any intellectual property rights of any Third
Party is required or beneficial for work under this Agreement.  In the event the Joint Development Committee
determines that such Third Party license is required or beneficial, the Joint
Development Committee shall determine which party shall be responsible for
obtaining such license, as applicable. 
In making any such determination provided for in this Section as to
the need for or benefit of any such Third Party license, due consideration
shall be given to the advisability of seeking an opinion of counsel.


 


3.6                               Joint
Commercialization Committee.  As soon
as the parties deem appropriate, but in no event later than the date on which
the first patient is enrolled in a Phase III Clinical Trial of a Development
Candidate, Organon and Cypress shall establish a Joint Commercialization
Committee (the “Joint Commercialization Committee”)
to coordinate the commercialization and marketing of Approved Products in the
Field in all territories, including the conduct of the following activities:


 


(a)                                  Review,
discuss and agree upon the Marketing Plan for the Shared Territory and
marketing issues with a worldwide impact, including any trials or studies other
than those that are required to obtain or maintain Regulatory Approval of an
Approved Product and launch criteria for commercialization (with input from the
Joint Development Committee);


 


(b)                                  Review
and discuss commercialization strategy for the Rest of the World;


 


(c)                                  Review,
discuss and approve (subject to final approval by the respective parties)
proposed Budgets for Allowable Commercialization Expenses, and submit such
Budgets for approval by Cypress and Organon;


 


(d)                                  Discuss
and determine whether a Third Party, rather than Organon, should supply
Approved Product, taking into consideration quality and price of supply;


 


(e)                                  Review
and discuss Organon Information and Cypress Information presented at each
meeting of the Joint Commercialization Committee;


 


(f)                                    Discuss
and determine whether both parties should cease commercialization of all
Approved Products in the Field; and


 


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(g)                                 If
there is a dispute between the parties as to which party shall own any
particular item of Information, establish a procedure to resolve such dispute,
which may include engaging a qualified Third Party patent attorney unaffiliated
with and independent of the parties and jointly selected by the parties, as an
expert to resolve such dispute.


 


4.                                      DEVELOPMENT
AND REGULATORY APPROVAL ACTIVITIES


 


4.1                               Development
Activities.


 


(a)                                  Conduct
of Development Activities under the Development Plan.  The parties will undertake and share
responsibility for developing and obtaining Regulatory Approval of Development
Candidates in the Field in the Shared Territory after the selection of a
Development Candidate pursuant to Section 4.3.  Such development and efforts to obtain
Regulatory Approval shall be conducted pursuant to the Development Plan.  The Development Plan may be amended from time
to time with approval of the Joint Development Committee.


 


(b)                                  Contents
of the Development Plan.  The parties
agree that the Development Plan will include a Budget and will reflect
development activities for Development Candidates in the Field through the
first NDA filing.  Each Development Plan
shall be in writing and shall set forth with reasonable specificity the
research and development objectives, priorities, activities, milestones,
budgets, personnel requirements, other resources and allocations of
responsibilities between the parties with respect to the applicable Development
Candidate for the period covered by such Development Plan in a manner
consistent with the terms of this Agreement, including, without limitation, the
objectives set forth in Sections 2.1 and 2.2 and the terms and conditions set
forth in this Section 4.  The
Development Plan shall cover all aspects of development of Development
Compounds and Approved Products and shall include, with reasonable specificity,
the development activities to be performed by each party and the development
activities, if any, to be performed by subcontractors. The parties will use
Diligent Efforts to structure the Development Plan in such a way as to maximize
the usefulness of data and results generated thereunder for registration of
Development Candidates in the Field in the Rest of the World; provided that
neither party will be required to conduct studies or other development
activities that would cause such party to incur costs that would be
significantly greater than the costs that would have been incurred by such
party if such studies or other development activities were structured for
purposes of generating data and results for use in registration in the Shared
Territory only.


 


(c)                                  Adoption
and Modification of the Development Plan. 
The initial Development Plan shall be discussed at the first meeting of
the Joint Development Committee, and shall be finalized within 90 days of the
Effective Date.  In subsequent years, the
Joint Development Committee shall present an annual Budget of Development
Expenses, for each Development Candidate for the subsequent year, by November 1.  The responsibility of the Joint Development
Committee to prepare a Development Plan for a Development Candidate shall
terminate upon the earlier of (A) the date of exercise of the Organon
Option or the Cypress Option, as applicable, or (B) the agreement of the
parties to cease further development of the Development Candidate.


 


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(d)                                  Performance
of the Development Plan.  The parties
will use Diligent Efforts to perform their respective responsibilities under
the Development Plan.


 


(e)                                  Shared
Effort and Cost under the Development Plan. 
The Development Plan is intended to represent a 50/50 sharing of the
research and development efforts (which may be adjusted to a 60/40 sharing of
efforts as described in Section 5.3(b)(iv)), and internal and Third Party
costs of such efforts, required to obtain Regulatory Approval of Development
Candidates in the Field in the Shared Territory.


 


(f)                                    Development
FTE Rate.  The rate of payment for
Development FTEs (the “Development FTE Rate”)
shall be an initial rate of [...***...] per year per Development FTE, which may
be modified by the Joint Development Committee. 
The Development FTE Rate shall be adjusted on a Calendar Year basis to
account for inflation and exchange rates, based on agreed upon references, for
the subsequent Calendar Year.  No changes
shall be made on account of exchange rates in the event that the rate of
exchange between the US Dollar and the Euro remains between [...***...] to the
Euro.  The precise method of reconciling
these costs shall be determined by the Joint Development Committee.  Calculation of costs for Development FTEs to
be included in Development Expenses would be made using actual hours for
Development FTEs performing activities pursuant to the Development Plan.  In no event will any internal costs of a
party other than those included in the Development FTE Rate be included in the
Development Expenses.


 


4.2                               Initial
Studies in Obstructive Sleep Apnea. 
Cypress shall test [...***...] in a Proof of Concept Trial in the Field,
and Organon shall test the [...***...] in a Proof of Concept Trial/Phase II
Clinical Trial in the Field, which trials are expected to be completed within [...***...]
following the Effective Date.  Each party
shall bear its own costs for the studies discussed in this Section, and the
provisions of Sections 8.4 and 8.5 shall only apply after the completion of the
studies described in this Section.


 


4.3                               Selection
of Development Candidate.  Following
completion of the studies described in Section 4.2, the Joint Development
Committee shall apply the Selection Criteria to determine whether the studies
referenced in Section 4.2 generated results sufficient to allow selection
of a Development Candidate.  In the event
that the Joint Development Committee determines that additional studies are
required to reach a decision, then the Joint Development Committee shall order
additional studies, which will be shared equally by the parties.  In the event that Joint Development Committee
determines that it has sufficient information to enable selection of a
Development Candidate, the President of Cypress and the Vice President,
Research of Organon shall apply the Selection Criteria to determine which
Development Candidate to take into further Clinical Trials based on the Selection
Criteria within 30 days of presentation to the Joint Development Committee of
the results of such studies (and any other information the Joint Development
Committee determines to be necessary to make such decision).


 


(a)                                  First
Level of Resolution.  If such
determination is not made pursuant to the preceding paragraph within such [...***...]
the Joint Development Committee shall provide written notice thereof to Cypress
and Organon no later than the end of such [...***...] period (“First Notice”), referring such
determination to a senior scientific officer of Cypress, and a senior research
manager of Organon.  Such representatives
shall meet and make a final


 










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determination with respect to Development Candidate selection as soon
as reasonably practicable, and in no event more than [...***...] of receipt of
the First Notice.


 


(b)                                  Second
Level of Resolution.  If such
representatives are not able to make such determination within such [...***...]
period following the First Notice, they shall provide written notice thereof to
Cypress and Organon no later than the end of such [...***...] period (the “Second Notice”), referring such
determination to an Organon executive officer more senior than the preceding Section and
the Chief Executive Officer of Cypress. 
Such executive officers shall meet and make a final determination with
respect to Development Candidate selection within [...***...] of receipt of the
Second Notice; provided, however, that [...***...] then the determination made
by the senior executive officer of Organon shall be deemed the final
determination with respect to the Development Candidate selection.


 


4.4                               Assistance;
Updates.  The parties shall
reasonably assist each other in their efforts to obtain NDA approvals and any
additional Regulatory Approvals with respect to Development Candidates in the
Field or in the Animal Health Field; provided that no party shall be required
to incur costs in providing such assistance that would significantly increase
those costs to be incurred by such party in accordance with the other terms of
this Agreement.  Cypress shall keep
Organon fully informed of the registration process of Development Candidates in
the Field in the Shared Territory through the Joint Development Committee.  Organon shall provide reasonable updates as
requested on the progress of seeking registration of Development Candidates in
the Field in the Rest of the World.


 


4.5                               Regulatory
Matters in the Shared Territory. 
Organon will hold the IND for each Development Candidate that contains
the [...***...] Enantiomer as the [...***...] in the Field in the Shared
Territory. Cypress will hold the IND for all other Development Candidates in
the Field in the Shared Territory.  If
Organon has not exercised the Organon Option, Organon will hold each NDA for
each Approved Product in the Field in the Shared Territory, and Cypress will
provide reasonable assistance to Organon to facilitate Organon holding the NDA
for each Approved Product.  If Cypress
exercises the Cypress Option, Cypress will transfer the IND for each
Development Candidate in the Field in the Shared Territory to Organon promptly
upon exercise of the Cypress Option.  If
Organon exercises the Organon Option, Organon will transfer the NDA for each
Approved Product in the Field in the Shared Territory to Cypress promptly upon
exercise of the Organon Option or at such earlier time as determined by the
Joint Development Committee.


 


(a)                                  Regulatory
Oversight.  The parties shall be
jointly involved in reviewing, discussing, approving and coordinating all
material regulatory actions, communications and filings with and submissions,
including filings and submissions of supplements and amendments thereto, to
regulatory authorities with respect to each Development Candidate in the Field,
with Cypress having Operational Control with regard to such matters in the
Shared Territory, provided that Cypress has not exercised the Cypress Option,
and in the Rest of the World if


 










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Organon has exercised the Organon Option, and Organon being solely
responsible with regard to such matters in the Rest of the World, provided that
Organon has not exercised the Organon Option, and in the Shared Territory if
Cypress has exercised the Cypress Option. 
Each party shall give the other a reasonable opportunity for prior
review of and comment on all such substantive communications, filings and
submissions with or to regulatory authorities with respect to each Development
Candidate in the Field and shall incorporate those of such comments as can
reasonably be incorporated into such communications, filings and submissions,
with all such final substantive communications, filings and submissions to be
in a form mutually agreed by the parties.


 


(b)                                  Regulatory
Meetings and Correspondence.  The
parties shall be jointly responsible for interfacing, corresponding and meeting
with Regulatory Authorities with respect to Development Candidates in the Field
in the Shared Territory.  Both parties
will be entitled to attend all meetings and telephone conferences with
Regulatory Authorities in which substantive matters with regard to Development
Candidates in the Field are discussed.


 


4.6                               Material
Transfer.  Either party may provide
to the other party certain material Controlled by the supplying party for use
by the other party in furtherance of this Agreement, which material shall be
referred to as “Program Materials.”  All such Program Materials shall be
considered Confidential Information of the supplying party.  All such Program Materials delivered to the
other party shall remain the sole property of the supplying party, shall be used
only in furtherance of and in compliance with this Agreement and solely under
the control of the other party and its Affiliates, shall not be used or
delivered to or for the benefit of any Third Party without the prior written
consent of the supplying party and shall not be used in research or testing
involving human subjects unless first approved by the supplying party or
expressly permitted under this Agreement. 
The Program Materials supplied under this Section must be used with
prudence and appropriate caution in any experimental work, because not all of
their characteristics may be known.  THE
PROGRAM MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY
THAT THE USE OF THE PROGRAM MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT
OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.


 


4.7                               Activities
in the Rest of the World.  Organon
shall be responsible, at its own discretion and its own expense, for developing
and obtaining Regulatory Approval of Development Candidates in the Field in the
Rest of the World, beyond any of the development activities conducted in the
Shared Territory pursuant to this Section 4 that may be useful for such
purpose.


 


4.8                               Rights
Outside the Field.  Cypress shall
offer to Organon a first right to negotiate co exclusive joint research and
development of Development Candidates and Approved Products in any field,
outside the Field, with the exception of the Animal Health Field, for which
Cypress Controls Patents claiming the use of Development Candidates or Approved
Products in such field on terms and subject to conditions to be separately
negotiated by the parties.  In the event
that [...***...] Cypress shall offer


 










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the terms for such collaboration to Organon before offering such
opportunity to any Third Party.  Organon
shall have 60 days in which to respond to such offer.  If Organon provides written notice to Cypress
expressing interest in such rights during such 60 day period, the parties shall
negotiate the terms for any such collaboration in good faith; provided,
however, that, if the parties have not reached agreement on the principal terms
of such collaboration within [...***...] after Organon’s notice expressing its
interest, then Cypress shall have no further obligation to Organon with respect
to research and development of Development Candidates and Approved Products in
such field and may pursue such activities alone or with one or more Third
Parties.


 


4.9                               [...***...]  Within 60 days of receiving approval to [...***...]
the [...***...] with a [...***...] in any country in the Shared Territory, the
parties will meet to discuss in good faith fair and reasonable financial
compensation by Organon to Cypress taking into account whether the development
or commercialization of the [...***...] in the Field has required or shall
require the [...***...]  If the parties
are unable to reach agreement within [...***...] after the launch of the [...***...]
in the [...***...] in any country in the Shared Territory, the parties shall submit
the matter for final and binding resolution by a panel of three experts with
relevant industry experience.  Each party
shall promptly select one person to serve on such panel, and the two persons
selected by the parties shall select the third member of the panel within 15
days of their appointment.  Within 15
days after the third member of the panel is selected, each party shall submit
to the panel and the other party its final proposal for fair and reasonable
financial compensation by Organon to Cypress for the [...***...] in the Shared
Territory.  The panel will make a
decision within 30 days after receiving both parties’ proposals.  The arbitrators’ decision will be limited to
choosing one of the two final proposals and will be final, binding and
non-appealable.


 


5.                                      COMMERCIALIZATION


 


5.1                               Commercialization
Activities in the Rest of the World. 
Organon shall have the option, by itself or through its sublicensees, at
its own expense, to manufacture, launch, promote, market and sell Approved
Products in the Field in the Rest of the World.


 


5.2                               Commercialization
in the Shared Territory.  Organon, by
itself or through its sublicensees, shall undertake, and have sole
responsibility for, the manufacture, launch, promotion, marketing and sale of
Approved Products in the Field in the Shared Territory, subject to the Cypress
Participation Right and provided that Organon has not exercised the Organon
Option.  Unless Organon has exercised the
Organon Option, all sales shall be booked on the account of Organon.  In the event that, within [...***...] after
the commencement of the first Phase III Clinical Trial with respect to a
Development Candidate in the Field in the Shared Territory, either party may
provide the other party with written notice of its offer to enter into an
agreement for the joint commercialization of such Approved Product in the Field
in the Shared Territory.  The other party
shall have the right to accept such offer and enter into such commercialization
agreement, which is expected to occur within [...***...] following such notice.


 










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5.3                               Launch,
Promoting and Marketing Plans in the Shared Territory.


 


(a)                                  Launch
Efforts.  The NDA holder will use
Diligent Effort to launch the first Approved Product in the United States
within no more than [...***...] following Regulatory Approval of such Approved
Product in the United States if the parties agree that the Approved Product has
met the launch criteria for commercialization adopted by the Joint
Commercialization Committee in the Marketing Plan.  Organon will use Diligent Efforts to prepare
for, to launch and to market Approved Products in the Field in the Shared
Territory.


 


(b)                                  Marketing
Plans.


 


(i)                                    No
later than the date of submission of the NDA for the first Approved Product in
any country in the Shared Territory, the parties shall prepare, subject to
review, comment and approval by the Joint Commercialization Committee, a
rolling [...***...] plan for marketing and commercialization of Approved
Products in the Field in the Shared Territory (the “Marketing
Plan”) that will include (1) marketing strategy, (2) the
Budget for Allowable Commercialization Expenses, including, without limitation,
amounts budgeted for expenditures on sales and sales management, physician
promotion and medical education for Approved Product in the Shared Territory in
such year (3) the aggregate number of detailing calls with respect to
Approved Product that are projected in such year, (4) the criteria for
commercial launch of an Approved Product and (5) other activities with
respect to Approved Product to be conducted by the parties in such year,
including professional and consumer education activities and studies of
Approved Product in the Field conducted after obtaining Regulatory
Approval.  The parties shall endeavor to
have the ratio of the value of their respective efforts under the Marketing
Plan be equivalent to the Sharing Ratio. 
The Marketing Plan shall be updated on an annual basis by the Joint
Commercialization Committee three to six months in advance of the beginning of
the next applicable Calendar Year.


 


(ii)                                Each
Marketing Plan will be in writing and shall set forth with reasonable
specificity the commercialization objectives, priorities, strategies,
activities, budgets, personnel requirements, other resources and allocations of
responsibilities between the parties with respect to the Approved Products in
the Shared Territory for the period covered by such Marketing Plan in a manner
consistent with the terms of this Agreement including, without limitation, the
terms and conditions set forth in this Section 5.  The Marketing Plan(s) shall cover all aspect
of commercialization of the Approved Products in the Field in the Shared
Territory, and shall include, with reasonable specificity, the
commercialization, marketing and sales activities to be performed by each party
and the commercialization, marketing and sales activities, if any, to be
performed by subcontractors and/or any other Third Party.


 


(iii)                            The
Marketing Plan will set forth the division of promotional effort by Cypress and
Organon with respect to Approved Products in the Field in the Shared Territory
in each year, which shall take into account following factors (which shall be
assigned a value for purposes of computing the Level of Effort of each Party by
the Joint Commercialization Committee based on the activity performed):  (A) number of detail calls to be made by
or on behalf of each party in which Approved Product is in the “P1” position; (B) number
of detail calls to be made by or on behalf of each party in which Approved Product
is in the “P2” position; (C) the effort regarding marketing or promotional
activities with respect to Approved Product


 










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made by or on behalf of each party, including, without limitation,
professional and consumer education activities with respect to Approved Product
in the Field, and studies of Approved Product in the Field conducted after
obtaining Regulatory Approval.  [...***...]  Furthermore, the Marketing Plan will set
forth the activities and allocation of internal and external FTEs related to
the commercialization of the Approved Product in the Field in the Shared
Territory in each year.  Each party’s
detailing and promotional efforts with respect to Approved Products in the
Field in the Shared Territory in a given year as a percentage of total
detailing and promotional efforts of the parties shall be known as the “Level of Effort.”


 


(iv)                               The
Level of Effort between the parties will be designed to achieve a 50/50 Split
of detailing and promotional efforts. 
Organon may, [...***...] by written notice to Cypress, instead provide
for a Level of Effort between the parties designed to achieve a 60/40 Split of
detailing and promotional efforts.  The
ratio of the Level of Effort of Organon to the Level of Effort of Cypress in a
given year is referred to as (the “Sharing Ratio”).  For example, if the Level of Effort of
Organon is 60% and the Level of Effort of Cypress is 40%, the Sharing Ratio
would be 60%/40%.  The Sharing Ratio for
a given year shall be set forth in the Marketing Plan for that year.  The Joint Commercialization Committee will
establish procedures for determining the timing and level of change in the
Sharing Ratio.  Any change in the Sharing
Ratio would occur on a year-to-year basis, not within a year.  During the course of the year, the parties
will cooperate and coordinate to assure that the actual Sharing Ratio
determined using the actual Level of Effort of each party for that year will be
as close as possible to the Sharing Ratio established in the Marketing Plan.


 


(v)                                   Cypress
will have the Cypress Participation Right to perform up to 50% of the total
detailing and promotional efforts with the Cypress Sales Force for Approved
Products in the Field in the Shared Territory in each year on a per physician
basis pursuant to the Marketing Plan. 
Organon will supply to Cypress copies of Organon marketing materials for
use in such promotion efforts by Cypress, the cost of which shall be included
in the Allowable Commercialization Expenses. 
Cypress shall have the option to request that Organon sales
representatives act on behalf of Cypress to perform some or all of the
detailing or promotional efforts allocated to Cypress as reflected in the Level
of Effort of Cypress specified in the Marketing Plan for a given year.  Cypress shall be required to exercise this
option to perform any Level of Effort in excess of 25% of the total Level of
Effort for any given year.  Cypress will
notify Organon of its request no less than [...***...] in advance for a given
year in connection with the preparation of the Marketing Plan for that
year.  Organon will make available to
Cypress the Organon sales representatives so requested by Cypress, unless
Organon elects to allow Cypress the right to contract with Third Party for such
services pursuant to Section 7.4(a)(i)(2). 
Cypress shall pay Organon for Organon sales representatives that perform
detailing or promotional efforts for Approved Product on behalf of Cypress, as
requested by Cypress, at the price [...***...] provided that, if Cypress
provides written documentation (from a reputable industry source such as IMS)
that the then-current average price for the applicable sales representative
activities in the industry is less than the price then charged by Organon for
the Organon sales representatives, then Cypress shall instead pay Organon such
average price for applicable sales representative


 










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activities performed by the Organon sales representatives.  In the case that Organon would decide to
sublicense out its commercialization rights to a Third Party pursuant to Section 7.4(a)(ii)(3),
or would decide to make use of a Third Party to perform all or part of the
detailing, in the Shared Territory, Organon may transfer (in whole but not in
part) its right to perform 25% of the total detailing effort for Cypress as
described above to such Third Party. 
Cypress may also contract with any Third Party to perform some or all of
the detailing or promotional efforts allocated to Cypress (with respect to
which Cypress is not required to use Organon sales representatives) as
reflected in the Level of Effort of Cypress specified in the Marketing Plan for
a given year; provided that the cost to Cypress of such Third Party’s services
are not more than the price that Organon would have charged for such services;
and further provided that such Third Party services are comparable in quality
to those offered by Organon based on factors such as market share gained on
launch of new products and number and experience of available sales
representatives.


 


5.4                               Sharing
of Allowable Commercialization Expenses and Shared Revenue.  All Allowable Commercialization Expenses and
Shared Revenue in the Shared Territory will be shared by the parties in
accordance with Sections 8.5 and 8.6. 
All costs of Organon or Cypress for the launch, promotion, marketing,
distribution and sale of Approved Product in the Field in the Shared Territory,
other than Allowable Commercialization Expenses shared by the parties in
accordance with Section 8.5, shall be borne by the party that incurred
such costs.


 


5.5                               Determination
of Where to Commercialize Approved Products.  The parties agree that the determination
whether to commercialize Approved Products in countries in the Shared Territory
is important and will depend upon a variety of commercial factors to be
considered jointly by the parties.  The
decision of whether to commercialize Approved Products in a country in the
Shared Territory other than the United States shall be made by the Joint
Commercialization Committee.


 


5.6                               Commercialization
in the Shared Territory by Joint Marketing/Development Collaborators.  In the event the Joint Commercialization
Committee (or if the Joint Commercialization Committee has not yet been formed,
then the parties by mutual agreement) determines that a particular Approved
Product should be commercialized entirely by or through one or more Third
Parties (each, a “Joint Marketing/Development Collaborator”)
throughout the Shared Territory or in one or more particular countries or
regions, then the parties may, in their respective sole discretion, enter into
a definitive agreement with the applicable Joint Marketing/Development
Collaborator(s) granting rights under such Patents and Information Controlled
by such party, including Joint Patents, as necessary to enable such Joint
Marketing/Development Collaborator(s) to develop, make, have made, use, sell,
offer for sale and import Approved Products in the Field in the Shared
Territory or in such country, countries or region(s), as applicable.


 


5.7                               Rights
if Organon Option is Exercised.  To
the extent Organon exercises the Organon Option, Cypress, by itself or through
its sublicensees, shall, at its sole expense, undertake, and have sole
responsibility for the launch, promotion, marketing and sale of Approved
Products in the Field, and royalties shall be paid by Cypress to Organon
pursuant to Section 8.3(a). 
Development Expenses and Allowable Commercialization Expenses incurred
prior to the exercise of the Organon Option shall be shared pursuant to
Sections 8.4 and 8.5,


 


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respectively.  Organon shall
maintain its rights to manufacture pursuant to the Clinical Supply Agreement
and the Manufacturing Agreement in the event that it exercises the Organon
Option.


 


5.8                               Rights
if Cypress Option is Exercised.  To
the extent Cypress exercises the Cypress Option, Organon, by itself or through
its sublicensees, shall, at its sole expense, undertake, and have sole
responsibility for the manufacture, launch, promotion, marketing and sale of
Approved Products in the Field in the Shared Territory, and royalties shall be
paid by Organon to Cypress pursuant to Section 8.3(b).  Development Expenses and Allowable
Commercialization Expenses incurred prior to the exercise of the Cypress Option
shall be shared pursuant to Sections 8.4 and 8.5, respectively.


 


5.9                               Compliance
with Laws.  The parties shall comply,
and shall cause their respective sales forces and all other employees, agents
and representatives to comply, with all applicable laws, regulations and
guidelines in connection with the manufacturing, launch, promotion, marketing
and sale of Approved Products.


 


5.10                        Sales and
Marketing Diligence.  Organon, by
itself or through its sublicensees, shall use Diligent Efforts to promote,
market and sell Approved Products in the Field in the Shared Territory in
accordance with the Marketing Plan.  Cypress,
by itself or through its sublicensees, shall use Diligent Efforts to promote
Approved Products in the Field in the Shared Territory in accordance with the
Marketing Plan. If a party’s actual Level of Effort during any Calendar Year
varies by any significant percentage from the Level of Effort of such party
specified in the Marketing Plan for such Calendar Year or there are concerns
regarding the detailing and promotional efforts of a party, the Joint
Commercialization Committee will discuss and determine how to address the
matter with the intent of resolving such matter as expeditiously as possible.


 


5.11                        Product
Recall.  In the event that either
party determines that an event, incident or circumstance has occurred that may
result in the need for a recall or other removal of any Approved Product, or
any lot or lots thereof, from a market in the Shared Territory, it shall advise
and consult with the other party with respect thereto.  The owner of the relevant Regulatory Approval
(or proposed Regulatory Approval), shall make the final determination to recall
or otherwise remove the Approved Product or any lot or lots thereof from the
market.


 


5.12                        Notice of
Adverse Reactions.  Each party shall
advise the other as promptly as reasonably practical by facsimile or overnight
delivery service addressed to the attention of its Vice President, Regulatory
Affairs (or equivalent), of any adverse drug reaction that has been brought to
that party’s attention.  The parties
intend to enter into a pharmacovigilance agreement, in mutually acceptable
form, to set forth in further detail matters related to product recall, adverse
event reporting and related matters.


 


6.                                      OPT
OUT OPTIONS


 


6.1                               Organon
Option.  Organon shall have the
option (the “Organon Option”), in its
discretion, to discontinue shared participation in the development and
commercialization of Development Candidates and Approved Products, but not
before the decision by the Joint Development Committee to proceed with
commencement of the first Phase III Clinical Trial.  To 


 


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exercise the Organon Option, Organon shall provide at least [...***...]
prior written notice to Cypress if such exercise occurs prior to Regulatory
Approval of an Approved Product, or at least [...***...] prior written notice
if such exercise occurs after Regulatory Approval.  If Organon exercises the Organon Option, then
during [...***...] as applicable, following Organon’s written notice of such
exercise, the applicable Joint Committee will meet and, if Cypress determines
that it also wishes to discontinue the development and commercialization of
Development Candidates and Approved Products, then instead of the exercise of
the Organon Option, the applicable Joint Committee will be deemed to have
determined to cease development of all Development Candidates in the Field or
commercialization of all Approved Products in the Field, as applicable,
resulting in termination of this Agreement pursuant to Section 15.2(c).  If Organon elects to exercise the Organon
Option and Cypress does not decide to discontinue the development and
commercialization of Development Candidates and Approved Products as provided
in the immediately preceding sentence, Organon will cooperate with Cypress to
transfer to Cypress any required approvals, licenses and documentation
regarding the Development Candidate in the Field that are in the name of
Organon or any of its Affiliates.  Upon
exercise of the Organon Option, the Cypress Option shall terminate.


 


6.2                               Cypress
Option.  Cypress shall have the
option (the “Cypress Option”), in its
discretion, to discontinue shared participation in the development and
commercialization of Development Candidates and Approved Products, but not
before the decision by the Joint Development Committee to proceed with
commencement of the first Phase III Clinical Trial; provided that, in the event
that Organon has selected the Selected Enantiomer pursuant to Section 4.3
after completion of the resolution procedures described therein, Cypress may exercise
the Cypress Option on or after Development Candidate selection.  To exercise the Cypress Option, Cypress shall
provide at least [...***...] prior written notice to Organon if such exercise
occurs prior to Regulatory Approval of an Approved Product, or at least one
year’s prior written notice if such exercise occurs after Regulatory
Approval.  If Cypress exercises the
Cypress Option, then during [...***...] as applicable, following Cypress’
written notice of such exercise, the applicable Joint Committee will meet and,
if Organon determines that it also wishes to discontinue the development and
commercialization of Development Candidates and Approved Products, then instead
of the exercise of the Cypress Option, the applicable Joint Committee will be deemed
to have determined to cease development of all Development Candidates in the
Field or commercialization of all Approved Products in the Field, as
applicable, resulting in termination of this Agreement pursuant to Section 15.2(c).  If Cypress elects to exercise the Cypress
Option and Organon does not decide to discontinue the development and
commercialization of Development Candidates and Approved Products as provided
in the immediately preceding sentence, Cypress will cooperate with Organon to
transfer to Organon any required approvals, licenses and documentation
regarding the Development Candidate in the Field in the Shared Territory that
are in the name of Cypress.  Upon
exercise of the Cypress Option, the Organon Option shall terminate.  In case Organon explicitly has waived its
right to manufacture, the right is automatically transferred to Cypress.


 










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7.                                      LICENSE
GRANTS.


 


7.1                               Licenses
Granted to Cypress.


 


(a)                                  In
the Field.  Subject to the terms and
conditions of this Agreement, Organon grants to Cypress a worldwide license or
sublicense, as applicable, with the right to sublicense under the terms described
in Section 7.4, under the Organon Technology, the Joint Data and the Joint
Patents to research, develop, make, have made, use, and import Development
Candidates and Approved Products in the Field. 
Subject to the terms and conditions of this Agreement, Organon grants to
Cypress a worldwide license or sublicense, as applicable, with the right to
sublicense under the terms described in Section 7.4, under the Organon
Technology, the Joint Data and the Joint Patents to sell and offer for sale
Approved Products in the Field in the Shared Territory.  The licenses granted under this Section shall
be co exclusive between Cypress and Organon and shall be effective during the
License Term; provided, however, that, subject to Section 7.5, these
licenses (i) shall automatically become exclusive (even as to Organon)
upon the date that Organon exercises the Organon Option and continue to be
effective during the License Term, (ii) shall automatically become
exclusive (even as to Organon) in the Specific Country as provided in Section 7.1(b),
and (iii) shall automatically terminate upon the date that Cypress
exercises the Cypress Option.  The
co-exclusive licenses mean that only Cypress and Organon may practice under
such licenses except to the extent sublicenses are permitted under Section 7.4.  The parties agree that these licenses shall
not be construed to include the right to manufacture for commercial
distribution, the rights for which are provided in Section 9, unless
Organon waives such manufacturing rights or grants such rights to Cypress under
terms included in the Manufacturing Agreement. 
To the extent that Organon, now or in the future, shall be required to
obtain consent for a sublicense from a Third Party to make this grant of rights
effective, Organon shall use commercially reasonable efforts to obtain such
consent.


 


(b)                                  Specific
Country.  The term “Specific Country” shall mean each
country in the Rest of the World in which Organon, in its sole discretion, is
not interested in commercializing Approved Products.  Organon shall promptly notify Cypress in
writing of which countries are Specific Countries, if requested by
Cypress.  Organon may respond to any
request by Cypress by indicating that it has not yet decided whether it wishes
to commercialize Approved Products in particular countries in the Rest of the
World.  The exclusivity of the licenses
granted under Section 7.1(a) in the Specific Country shall be
effective beginning on the date that Cypress provides written notice to Organon
that it wishes to obtain such license in a Specific Country and continuing
during the License Term.


 


(c)                                  Restrictions
on Licenses Granted to Cypress. 
Cypress acknowledges that certain rights granted by Organon to Cypress
under this Section 7.1 with respect to the Organon Technology are licensed
to Organon by the [...***...] 
Specifically, the rights granted are subject to the applicable terms and
conditions of the [...***...] Agreement, including the following restrictions:


 


(i)                                    Organon
has agreed to ensure that any sublicensee, in this case, Cypress, shall agree
to be bound by, and subject to the [...***...] Agreement for the benefit of the
[...***...] including without limitation the provisions of Articles 11.2
through 11.4.


 










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(ii)                                Cypress
acknowledges that that termination date of the [...***...] Agreement occurs
upon the earlier of (A) Approved Products are no longer manufactured,
used, sold or are the subject of research by Organon or its Affiliates or
sublicensees, or (B) such Approved Products are no longer embraced within
any valid claim of the Patent Rights and Program Intellectual Property Rights
are publicly known (as such capitalized terms are defined in the [...***...]
Agreement), unless earlier terminated in accordance with Article 11 of the
[...***...] Agreement, but subject to the right of Cypress to continue its
sublicense in full force and effect, with the [...***...] as the sublicensor,
as provided in Section 3.3.b. of the [...***...] Agreement.


 


(iii)                            Organon
has agreed to ensure that any sublicense, in this case, to Cypress, shall
include the obligation of the sublicensee to account for and report its net
Sales of Approved Products and provide that [...***...] shall have audit rights
on the same basis as if such sales were Net Sales of Products by Organon under
the [...***...] Agreement.


 


7.2                               Licenses
Granted to Organon.


 


(a)                                  In
the Shared Territory.  Subject to the
terms and conditions of this Agreement, Cypress grants to Organon a license or
sublicense, as applicable, under the Cypress Technology, the Joint Data and the
Joint Patents to research, develop, make, have made, use and import Development
Candidates and Approved Products in the Field in the Shared Territory, subject
to Section 7.2(d) and the Cypress Participation Right.  Subject to the terms and conditions of this
Agreement, Cypress grants to Organon a license or sublicense, as applicable,
under the Cypress Technology, the Joint Data and the Joint Patents to sell and
offer for sale Approved Products in the Field in the Shared Territory, subject
to Section 7.2(d) and the Cypress Participation Right.  The licenses granted under this Section (i) shall
be co exclusive between Cypress and Organon and shall be effective during the
License Term, (ii) shall, subject to Section 7.5, automatically
become exclusive (even as to Cypress) upon the date that Cypress exercises the
Cypress Option and continue to be effective during the License Term, and (iii) shall
automatically terminate upon the date that Organon exercises the Organon
Option.  The co-exclusive licenses means
that only Cypress and Organon may practice under such licenses except to the
extent sublicenses are permitted under Section 7.4.  To the extent that Cypress, now or in the
future, shall be required to obtain consent for a sublicense from a Third Party
to make this grant of rights effective, Cypress shall use commercially
reasonable efforts to obtain such consent.


 


(b)                                  In
the Rest of the World.  Subject to
the terms and conditions of this Agreement, Cypress hereby grants to Organon a
license or sublicense, as applicable, with the right to sublicense under the
terms described in Section 7.4, under the Cypress Technology, the Joint
Data and the Joint Patents to develop, make, have made, use and import
Development Candidates and Approved Products in the Field in the Rest of the
World.  Subject to the terms and
conditions of this Agreement, Cypress hereby grants to Organon a license or
sublicense, as applicable, with the right to sublicense under the terms
described in Section 7.4, under the Cypress Technology, the Joint Data and
the Joint Patents to sell and offer for sale Approved Products in the Field in
the Rest of the World.  The licenses
granted under this Section (i) shall, subject to Section 7.5, be
exclusive (even as to Cypress) and shall be effective during the License 


 










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Term, and (ii) shall automatically terminate upon the date that
Organon exercises the Organon Option.  To
the extent that Cypress, now or in the future, shall be required to obtain
consent for a sublicense from a Third Party to make this grant of rights
effective, Cypress shall use commercially reasonable efforts to obtain such
consent.


 


(c)                                  In
the Animal Health Field.  Subject to
the terms and conditions of this Agreement, Cypress grants to Organon an
exclusive worldwide license or sublicense, as applicable, under the Cypress
Technology, Joint Data and the Joint Patents to research, develop, make, have
made and use Development Candidates (and Development Candidates that are
Approved Products in humans) in the Animal Health Field; provided that Organon
shall not conduct research or development with any Development Candidate being
developed by the parties pursuant to this Agreement or included in any Approved
Product being commercialized pursuant to this Agreement unless agreed in
writing by the parties).  Organon shall not
have the right to launch a product for use in the Animal Health Field unless
the parties shall have agreed on a commercialization agreement in such field
providing for the payment of industry-appropriate royalties to Cypress and
other appropriate terms and conditions. 
This license shall automatically terminate upon the date that Organon
exercises the Organon Option.  To the
extent that Cypress, now or in the future, shall be required to obtain consent
for a sublicense from a Third Party to make this grant of rights effective,
Cypress shall use commercially reasonable efforts to obtain such consent.


 


(d)                                  Restrictions
on Licenses Granted to Organon. 
Organon acknowledges that certain rights granted by Cypress to Organon
under this Section 7.1 with respect to the Cypress Technology are licensed
to Cypress by Third Parties, including by [...***...] and [...***...] and such
rights are subject to the restrictions imposed upon Cypress under such Third
Party licenses.  Specifically, with
respect to [...***...] the rights granted are subject to the applicable terms
and conditions of the [...***...] Agreement, including without limitation the
following restrictions from Sections 2.02(b) and (c) of the [...***...]
Agreement:


 


(i)                                    Under
the [...***...] Agreement, Cypress has agreed not to develop, market or sell,
directly or indirectly, a product under the Cypress Technology licensed to
Cypress under the [...***...] Agreement that is a combination of [...***...]
that includes [...***...]


 


(ii)                                Under
the [...***...] Agreement, Cypress has agreed not to [...***...] a product
under the Cypress Technology licensed to Cypress under the [...***...]
Agreement for [...***...] but Cypress may [...***...]


 


(e)                                  No
Implied Licenses.  No right or
license under any Patents or Information of either party is granted or shall be
granted by implication.  All such rights
or licenses are or shall be granted only as expressly provided in this
Agreement.


 










***Confidential Treatment Requested


 


31





















 


7.3                               Trademark
License.


 


(a)                                  Use
of Trademarks.  Approved Products
sold for use in the Field will be sold exclusively under the Trademarks.  The Trademarks shall be chosen by mutual
agreement of the parties and shall be owned by Organon.  Organon shall be responsible for all
maintenance and costs associated with the Trademarks.


 


(b)                                  Trademark
License.  Subject to the terms and
conditions of this Agreement, Organon hereby grants to Cypress during the
License Term a non-exclusive, sublicensable worldwide license, to use the
Trademarks solely in connection with the promotion, marketing, distribution and
support of the Approved Products.


 


(c)                                  Limitations.  Trademarks can only be used in the form
permitted hereunder, and not in combination with any other word, symbol or
design unless approved in advance by the Joint Development Committee.


 


(d)                                  Assignment.  Organon shall assign to Cypress all rights in
and to the Trademarks and associated goodwill, which assignment shall be
effective only if Organon exercises the Organon Option, and, upon such assignment,
the provisions of Sections 2.2(a), (b) and (c) shall terminate.


 


7.4                               Sublicense
Rights.


 


(a)                                  Right
to Sublicense.


 


(i)                                    Cypress
shall have the right to grant sublicenses of the rights granted to it by
Organon under this Agreement, which sublicenses shall permit the further grant
of sublicenses, only with the prior written approval of Organon, which approval
shall not be unreasonably withheld or delayed.


 


(1)                                 No
approval shall be required for Cypress to use contract research organizations
in performing development activities under this Agreement.


 


(2)                                 Organon
may not withhold approval of a sublicense by Cypress of the Cypress
Participation Rights to any Third Party if Cypress has first discussed having
Organon perform such detailing or promotion activities, the proposed Third
Party to whom Cypress wishes to grant such Cypress Participation Rights has
marketing capabilities comparable to those of Organon (taking into account,
among other things, factors such as market share gained on launch of new
products and number of available sales representatives), such Third Party has
offered to perform such detailing or promotion activities at a price that is
less than the price Organon would charge to perform such detailing or promotion
activities, and Organon has not agreed to perform such detailing or promotion
activities on behalf of Cypress at a price no more than the price for such
activities offered by such Third Party. 
Notwithstanding the foregoing, in the event that Organon exercises the
Organon Option, Cypress shall have the right to grant sublicenses of the rights
granted to it by Organon under this Agreement, which sublicenses shall permit
the further grant of sublicenses, without the approval of Organon.


 


32





















 


(ii)                                Organon
shall have the right to grant sublicenses of the rights granted to it by
Cypress under this Agreement, which sublicenses shall permit the further grant
of sublicenses, only with the prior written approval of Cypress, which consent
shall not be unreasonably withheld or delayed.


 


(1)                                 No
approval shall be required for Organon to use contract research organizations
in performing development activities under this Agreement.


 


(2)                                 No
approval shall be required for Organon to sublicense the rights of Organon in
the Animal Health Field.


 


(3)                                 Cypress
may not withhold approval of a sublicense by Organon of its commercialization
rights under Section 7.2 to any Third Party if the proposed Third Party to
whom Organon wishes to grant such sublicense rights has marketing capabilities
comparable to those of Organon (taking into account, among other things,
factors such as market share gained on launch of new products, number of
available sales representatives and sales expertise and infrastructure).


 


(b)                                  Sublicense
Terms.  Any sublicense granted under
this Agreement shall be subject and subordinate to, and consistent with, the
terms and conditions of this Agreement. 
The party granting a sublicense of the rights granted to it by the other
party under this Agreement shall use commercially reasonable efforts to enforce
the terms of such sublicense.  The party
granting such a sublicense hereunder shall provide such other party with prompt
written notice of the grant of such sublicense and a copy of any such sublicense
agreement within 14 days of execution of each such sublicense.  The party granting such a sublicense
hereunder shall also remain responsible for all obligations under this
Agreement that have been so sublicensed. 
All sublicenses shall be assigned to, and become direct licenses with,
the party granting the original license hereunder in the event of the
termination of this Agreement.  In the
event of a material default by any sublicensee under a sublicense agreement,
the parties will notify each other as soon as they have knowledge of such
default, and the sublicensing party shall take such action as necessary or
appropriate to cure such default.


 


7.5                               Condition
to Exclusive License.  In the event
that compliance with the notification and waiting period requirements of the
Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder is required at the time that any license
granted under this Section 7 becomes exclusive, then such license shall
automatically become exclusive only upon satisfaction of such requirements, and
the parties will take such actions as may be necessary or appropriate promptly
to satisfy such requirements.


 


8.                                      PAYMENTS


 


8.1                               Upfront
Fee.  In partial consideration of the
rights and licenses granted hereunder, upon execution of this Agreement,
Cypress will issue to Organon a warrant (the “Warrant”)
to purchase that number of shares of Cypress Common Stock equal in value as of
the Effective Date to $1,000,000, based on an exercise price per share of 120%
of the closing bid price of the Cypress Common Stock for trading day
immediately preceding the Effective Date. 
The Warrant shall be in the form attached hereto as Exhibit D.


 


33





















 


8.2                               Milestone
Payments.


 


(a)                                  If
Organon has exercised the Organon Option in accordance with Section 6.1
prior to submission of the first NDA for a Development Candidate in the Field,
then Cypress shall pay Organon the following non-refundable, non-creditable
milestone payments:


 


(i)                                    a
milestone payment of [...***...] within 30 days after achievement by Cypress or
its sublicensees of [...***...] with the first Development Candidate in the
Field, where [...***...]


 


(ii)                                a
milestone payment of [...***...] within [...***...]


 


The milestone
payments set forth in this Section 8.2(a) shall be made only once
with respect to the first Development Candidate to achieve the first occurrence
of each such milestone event.  The
milestone payments set forth in this Section 8.2(a) shall not be due
or payable if the Organon Option is exercised under the circumstances described
in Section 4.3(b).


 


(b)                                  If
Cypress has exercised the Cypress Option in accordance with Section 6.2
prior to [...***...] then within [...***...] other than [...***...] Organon
shall pay Cypress a non-refundable, non-creditable milestone payment of [...***...]  The milestone payment set forth in this Section 8.2(b) shall
be made only once with respect to the first Development Candidate or Approved
Product to achieve the first occurrence of such milestone event.


 


8.3                               Royalties.


 


(a)                                  Royalties
Payable to Organon if Organon Option is Exercised.  If Organon exercises the Organon Option,
Cypress shall pay to Organon a royalty at the applicable percentage set forth
in Exhibit E on Net Sales of the
Approved Product in the Shared Territory and at the applicable percentage set
forth in Exhibit H on Net Sales of the
Approved Product in the Field in the Rest of the World.  This obligation shall remain, on a country by
country basis, as long as the Approved Product or its manufacture or use is
covered by the claims of valid and enforceable issued Patent within the Cypress
Patents, Organon Patents or Joint Patents in the applicable country.


 


(b)                                  Royalties
Payable to Cypress if Cypress Option is Exercised.  If Cypress exercises the Cypress Option,
Organon shall pay to Cypress a royalty at the applicable percentage set forth
in Exhibit F on Net Sales of the
Approved Product.  This obligation shall
remain, on a country by country basis, as long as the Approved Product or its
manufacture or use is covered by the claims of valid and enforceable issued
Patent within the Cypress Patents, Organon Patents or Joint Patents in the
applicable country in the Shared Territory.


 










***Confidential Treatment Requested


 


34





















 


(c)                                  Royalties
Payable to Cypress in the Rest of the World.  Organon shall pay to Cypress a royalty at the
applicable percentage set forth in Exhibit G
on Net Sales of the Approved Product in the Rest of the World.  This obligation shall remain, on a country by
country basis, as long as the Approved Product or its manufacture or use is
covered by the claims of valid and enforceable issued Patent within the Cypress
Patents, Organon Patents or Joint Patents in the applicable country.


 


8.4                               Sharing
of Development Expenses.  Unless and
until Organon exercises the Organon Option or Cypress exercises the Cypress
Option,  Organon and Cypress shall share
all Development Expenses up to the amount of Development Expenses set forth in
the applicable Budget under the Development Plan after selection of the first
Development Candidate pursuant to Section 4.3.  Within 30 days after the end of each Calendar
Quarter, each party shall provide the other party with a statement detailing
its Development Expenses for such Calendar Quarter, provided that such
Development Expenses may not exceed the amount of the Development Expenses set
forth in the applicable Budget under the Development Plan.  The receiving party has to confirm the report
within two weeks of receipt or submit an objection containing all relevant
details for such objection.  Any
Development Expenses that exceed the amount of the Development Expenses in the
applicable Budget shall be borne by the party incurring such Development
Expenses, unless the Joint Development Committee determines otherwise.  Following confirmation of the reports of the
parties for a given Calendar Quarter, the party which incurred more costs will
invoice to the other party 50% (or either 60% or 40%, as applicable, if the
60/40 Split has been elected under Section 5.3(b)(iv)) of the costs above
the amount incurred by the other party in order to reach an equal share of both
parties in the costs (e.g. if the 50/50 Split applies and Organon spent 100 and
Cypress 80, Organon will invoice to Cypress 10 resulting in a sharing of costs
of 90 by both parties).


 


8.5                               Sharing
of Allowable Commercialization Expenses. 
Unless and until Organon exercises the Organon Option or Cypress exercises
the Cypress Option, Organon and Cypress shall share all Allowable
Commercialization Expenses up to the amount of Allowable Commercialization
Expenses set forth in the applicable Budget under the Marketing Plan in the
same proportion as the Sharing Ratio. 
Within 45 days after the end of each Calendar Quarter, each party shall
provide the other party with a statement detailing its Allowable
Commercialization Expenses for each Approved Product, provided that such Allowable
Commercialization Expenses may not exceed the amount of the Allowable
Commercialization Expenses set forth in the applicable Budget under the
Marketing Plan.  Any such Allowable
Commercialization Expenses that exceed the amount of the Allowable Commercialization
Expenses shall be borne by the party incurring such Allowable Commercialization
Expenses, unless otherwise determined by the Joint Commercialization Committee.


 


8.6                               Sharing
of Shared Revenue; Payment to Cypress.


 


(a)                                  Sharing
of Shared Revenue.  Unless and until
Organon exercises the Organon Option or Cypress exercises the Cypress Option,
Organon and Cypress shall share any Shared Revenue in the same proportion as
the Sharing Ratio.  Within 45 days after
the end of each Calendar Quarter in which there are Shared Revenue with respect
to a Approved Product, Organon shall provide Cypress with a statement detailing
the Shared Revenue for such Approved Product for such Calendar Quarter in the
Shared Territory, which statement shall set forth in


 


35





















 


reasonable detail the components of Shared Revenue for such Approved
Product.  Within 60 days after the end of
such Calendar Quarter, Organon shall make a payment to Cypress equal to its
portion of the Shared Revenue for such Calendar Quarter based on the Sharing
Ratio.


 


(b)                                  Payment
to Cypress in the Event of a Sharing Ratio Other than a 50/50 Split or 60/40
Split.  If the parties share Shared
Revenue with respect to an Approved Product under Section 8.5(a), and the
Sharing Ratio for a Calendar Year is not the 50/50 Split (or the 60/40 Split as
applicable), then, within 60 days after the end of such Calendar Year, Organon
shall make a payment to Cypress determined as provided below.


 


(i)                                    The
parties shall agree in good faith to an appropriate percentage for such
Calendar Year under the circumstances, [...***...]


 


(ii)                                The
payment to be made to Cypress shall equal the percentage agreed to by the
parties for such Calendar Year as determined under Section 8.6(b)(i) multiplied
by an amount equal to the difference between [...***...]


 


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


 


8.7                               Payments
to Third Parties.


 


(a)                                  Organon
will be responsible for any milestone or royalty payments that it is obligated
to make under the [...***...] Agreement with respect to Approved Products in
the Rest of the World and for any milestone or royalty payments that Cypress is
obligated to make under agreements with Third Parties from whom it licenses
rights with respect to Approved Products in the Rest of the World, including
under the [...***...]  In the event that
total royalties payable by Organon to Cypress and to Third Parties with respect
to Approved Products in Europe [...***...]


 


(b)                                  In
the event that Organon has exercised the Organon Option, Cypress will be
responsible for any milestone or royalty payments that it is obligated to make
under agreements with Third Parties from whom it licenses rights with respect
to Approved Products in the Shared Territory, including under the [...***...]
and for any milestone or royalty payments that Organon is obligated to make
under the [...***...] with respect to Approved Products in the Shared
Territory.


 


(c)                                  In
the event that Cypress has exercised the Cypress Option, Organon will be
responsible for any milestone or royalty payments that it is obligated to make
under the [...***...]


 










***Confidential Treatment Requested


 


36





















 


[...***...] with respect to Approved Products in the Shared Territory
and for any milestone or royalty payments that Cypress is obligated to make
under agreements with Third Parties from whom it licenses rights with respect
to Approved Products in the Shared Territory, including under the [...***...]


 


9.                                      MANUFACTURING
AND SUPPLY


 


9.1                               Designation
of Manufacturing Party.


 


(a)                                  Manufacture
of Approved Products by Organon.


 


(i)                                    Manufacture
of Development Candidates and Approved Products for Development.  Unless otherwise agreed by the Joint
Commercialization Committee, Organon or its Affiliate(s) shall manufacture and
supply all quantities of a Development Candidate or Approved Product necessary
for development; provided that Organon may decline to manufacture and supply
such quantities of a Approved Product for [...***...] by giving Cypress written
notice to such effect no later than [...***...] after the Joint Development
Committee’s selection designation of such Development Candidate in accordance
with Section 4.3.  Unless otherwise
agreed by the Joint Development Committee, by December 31, 2005, the
parties shall enter into a Clinical Supply Agreement under which Organon or its
Affiliate(s) shall be responsible for the manufacture and supply of all
quantities of Development Candidates for use in development activities pursuant
to this Agreement.


 


(ii)                                Manufacture
of Approved Products for Commercialization. 
Unless otherwise agreed by the Joint Commercialization Committee within
180 days after enrollment of the first patient in the first Phase III Clinical
Trial with respect to any Development Candidate, the parties shall enter into a
Manufacturing Agreement under which Organon or its Affiliate(s) shall be
responsible for the manufacture and supply of all quantities of Approved
Product necessary for commercialization; provided that Organon may decline to
enter into such agreement for any reason by giving Cypress written notice to
such effect no later than 60 days after the beginning of such 180-day
period.  In case Organon has exercised
the Organon Option and has elected to manufacture for Cypress pursuant to Section 5.6,
the price to be charged by Organon to Cypress will be  subject to reasonable negotiation with
Cypress and subject to the Manufacturing Agreement.


 


(b)                                  Manufacture
of Approved Products by Third Parties. 
In the event that the Joint Development Committee or Joint
Commercialization Committee determines that it is in the best interests of the
parties for any one or more manufacturing activities with respect to an
Approved Product to be undertaken by an identified Third Party (whether as a
result of a decision by Organon in accordance with Section 9.1(a) not
to undertake such manufacturing activities or otherwise), the negotiations with
such Third Party relating to such manufacturing activities shall be led by
Organon; provided that (A) Organon shall keep Cypress informed of the
substance and status of such negotiations, and allow Cypress to participate in
such negotiations, (B) Organon shall take into account in such
negotiations the reasonable commercial interests of Cypress and the best
interests of both parties, and (C) the final agreement with the Third
Party shall be subject to mutual agreement of the parties.  The parties each agree to grant such licenses
or sublicenses under the Cypress Technology, Organon Technology, Joint Data and
Joint Patents 


 










***Confidential Treatment Requested


 


37





















 


to any such Third Party as may be reasonably necessary for such Third
Party to manufacture the Approved Product.


 


9.2                               Certain
Covenants.  Organon and its
Affiliate(s) agree and covenant that, in the event that it manufactures a
Development Candidate pursuant to the Clinical Supply Agreement or an Approved
Product pursuant to the Manufacturing Agreement, it will (a) use Diligent
Efforts to avoid shortfalls of supply based on the forecasts provided to it pursuant
to the Clinical Supply Agreement or Manufacturing Agreement, as applicable,
shall promptly notify the parties in the event it becomes aware of any probable
shortfall and shall use Diligent Efforts to remedy any shortfall of supply as
soon as practicable; (b) be responsible for manufacturing, filling,
packaging and warehousing of the Development Candidate or Approved Product in
conformity with applicable cGMP requirements and the Specifications, and in
accordance, in all material respects, with all other applicable laws, rules and
regulations; (c) maintain or cause to be maintained all records necessary
and appropriate to demonstrate compliance with applicable cGMP requirements and
the applicable Specifications; and (d) grant Cypress the right, on ten (10) days
advance notice and during normal business hours during the term of this
Agreement, to have its personnel or representatives with quality control or
quality assurance responsibilities inspect and audit the facilities and
operations directly related to the manufacture and supply of the Development
Candidate or Approved Product in order to confirm compliance with the covenants
contained in this Section; provided that the foregoing inspection and audit
right shall be limited to one such visit for per Calendar Year and two such
personnel or representatives per visit; and provided, further, that such
personnel or representatives shall be subject to Organon’s prior approval, such
approval not to be unreasonably withheld, provided that  any regulatory audit from a governmental
authority shall have precedence for scheduling.


 


10.                               PAYMENT;
RECORDS; AUDITS


 


10.1                        Payment;
Reports.  Reports regarding sales of
Approved Products and payments thereon in accordance with this Agreement shall
be calculated and reported for each Calendar Quarter.  All payments between the parties shall be
arranged by invoice, which shall be payable within 45 days of invoice date,
unless otherwise specifically provided herein. 
Each payment shall be accompanied by a report of Development Expenses,
Allowable Commercialization Expenses, Net Sales or Shared Revenue in sufficient
detail to permit confirmation of the accuracy of the payment made, including
without limitation and on a country-by-country basis, the number of Approved
Products sold, Net Sales of Approved Products or Shared Revenue for Approved
Products, as applicable (including the calculation of Net Sales), the amount
payable, the method used to calculate the payment and the exchange rates used.


 


10.2                        Exchange
Rate; Manner and Place of Payment. 
All payments due and payable under this Agreement by one party to the
other party shall be payable in United States dollars.  With respect to each Calendar Quarter, for
countries other than the United States, whenever conversion of payments from
any foreign currency shall be required, such conversion shall be made at the
rate of exchange reported in The Wall Street Journal
for the last business day applicable to such Calendar Quarter.  All payments owed under this Agreement shall
be made by wire transfer to a bank and account designated in writing by the
party entitled to receive such payment, unless otherwise specified in writing
by such party.  Invoices to Organon or
Cypress shall be sent by mail to the applicable address set forth below:


 


38





















 


Organon  (Ireland) Ltd.


Attn. Controller


Churerstrasse 158,


Pfaffikon 8808,


Switzerland


 


 


Cypress Bioscience, Inc.


Attn. Chief Financial
Officer


4350 Executive Drive, Suite 325


San Diego, CA 92121  USA


 


10.3                        Withholding
of Taxes.  The party receiving
payments under this Agreement will pay any and all taxes levied on account of
such payment.  If any taxes are required
to be withheld by the paying party, it will (a) deduct such taxes from the
remitting payment, (b) timely pay the taxes to the proper taxing
authority, and (c) send proof of payment to the other party and certify
its receipt by the taxing authority within 60 days following such payment.


 


10.4                        Records.  All research and development conducted by or
on behalf of each party pursuant to this Agreement shall be completely and
accurately recorded, in reasonable detail and in good scientific manner, in
separate laboratory notebooks. On reasonable notice, and at reasonable
intervals, each party shall have the right to inspect and copy all such records
of the other party reflecting the applicable Cypress Technology, Organon
Technology, Joint Data or Joint Patents 
or work done under this Agreement, to the extent reasonably required to
carry out its respective obligations and to exercise its respective rights
hereunder.  Notwithstanding the
definition of “Confidential Information,” all such records shall constitute
Confidential Information of the party owning such records.


 


10.5                        Audits.  Each party shall keep complete and accurate
records as are required by applicable administrative, regulatory and legal
requirements.  During the License Term
for three years after the end of the License Term, the parties shall also maintain
sufficient records to permit the other party to confirm the accuracy of all
payments due and efforts made hereunder, including without limitation, records
pertaining to gross sales and Net Sales of Approved Products, Shared Revenue,
Development Expenses and Allowable Commercialization Expenses, if
applicable.  The party receiving payment
or making payment shall have the right, during the three year period following
the date that such payment is received or made, to cause an independent,
certified public accountant reasonably acceptable to the other party to audit
such records of such other party to confirm the accuracy of the payments
made.  Such audits may be exercised
during normal business hours upon reasonable prior written notice to the
audited party.  Prompt adjustments shall
be made by the parties to reflect the results of such audit.  The party causing such audit shall bear the
full cost of such audit unless such audit discloses a variance of more than 5%
from the amount of the payments due under this Agreement for the benefit of the
party that requested the audit.  In the
case of such a variance of more than 5%, the audited party shall bear the full
cost of such audit.  In the event of
underpayment, the audited party shall


 


39





















 


promptly remit to the other party the amount of any underpayment.  The Trustees of the University of Illinois
shall have audit rights with respect to Cypress as Organon has under this Section 10.5
with respect to Approved Products that use any intellectual property rights
subject to the UIC Agreement.


 


10.6                        Prohibited
Payments.  Notwithstanding any other
provision of this Agreement, if a party is prevented from paying any payments
due hereunder by virtue of the statutes, laws, codes or governmental
regulations of the country from which the payment is to be made, then such
payments may be paid by depositing funds in the currency in which accrued to
the other party account in a bank acceptable to such other party in the country
whose currency is involved.


 


10.7                        Late Payments.  In the event that any payment due hereunder
is not made when due, the payment shall accrue interest from the date due at
the rate of 1.5% per month; provided, however, that in no event shall such rate
exceed the maximum legal annual interest rate; provided further that no such
interest shall accrue until the other party has provided additional written
reminder notice of such late payment or during any period that any dispute with
respect to a payment is being diligently pursued in good faith by the party
from whom such payment is claimed.  The
payment of such interest shall not limit a party from exercising any other
rights it may have as a consequence of the lateness of any payment.


 


11.                               OWNERSHIP
OF INFORMATION AND ACCESS TO INFORMATION


 


11.1                        Cypress
Information.  Cypress Information
derived from development, marketing and other permitted activities under and
during the License Term with respect to Development Candidates and Approved
Products in the Field and all intellectual property rights therein, if any,
including without limitation, the Cypress Patents, shall be the sole property
of Cypress, subject only to the license rights granted to Organon under this
Agreement.  The interest of Cypress in
the Cypress Information shall automatically be deemed included in the rights
licensed under this Agreement to Organon. 
Cypress shall make Cypress Information existing as of the Effective Date
available to Organon promptly following the Effective Date, Organon shall have
reasonable access, upon request, to updated Cypress Information and all related
intellectual property rights, and Cypress agrees to regularly provide Organon
with such Cypress Information through the Joint Development Committee or Joint
Commercialization Committee.


 


11.2                        Organon
Information.  Organon Information
derived from development, marketing and other permitted activities under and
during the License Term with respect to Development Candidates and Approved
Products in the Field and all intellectual property rights therein, if any,
including without limitation, the Organon Patents, shall be the sole property
of Organon, subject only to the license rights granted to Cypress under this
Agreement.  The interest of Organon in
the Organon Information shall automatically be deemed included in the rights
licensed under this Agreement to Cypress. 
Organon shall make Organon Information existing as of the Effective Date
available to Cypress promptly following the Effective Date, Cypress shall have
reasonable access, upon request, to updated Organon Information and all related
intellectual property rights, and Organon shall regularly provide Cypress with
such Organon Information through the Joint Development Committee or Joint
Commercialization Committee.


 


40





















 


11.3                        Joint
Data.  Joint Data generated in the
course of development, marketing and other permitted activities under and
during the License Term with respect to Development Candidates and Approved
Products in the Field and all intellectual property rights therein, shall be
jointly owned by Cypress and Organon, subject only to the license rights
granted to Cypress and Organon under this Agreement.  The parties hereby make such assignment or
other transfer of rights in the Joint Data as necessary to enable the parties
to own the Joint Data jointly.  The
interest of Cypress and Organon in the Joint Data shall automatically be deemed
included in the rights licensed by each party to the other party under this
Agreement.  Each party shall have
reasonable access, upon request to the other party, to updated Joint Data and
all related intellectual property rights, and each party shall regularly
provide the other party with such Joint Data through the Joint Development
Committee or Joint Commercialization Committee. 
Neither party may use any Joint Data for any purpose other than for
research, development, manufacture and commercialization of Development
Candidates and Approved Products in the Field, except as otherwise mutually
agreed by the parties in writing.


 


12.                               INTELLECTUAL
PROPERTY


 


12.1                        Patent
Prosecution and Maintenance of Organon Patents and Joint Patents.  Organon (or its licensor) shall be
responsible for prosecution and maintenance of all Organon Patents and Joint
Patents at its own expense.  Organon shall
keep Cypress informed of progress with regard to the prosecution, maintenance,
enforcement and defense of the Organon Patents and Joint Patents by providing
Cypress with copies of official actions, amendments and responses with respect
to such prosecution prior to filing with reasonable advance notice to allow for
review and comment.  If Organon exercises
the Organon Option, then Organon will follow the requests and suggestions of
Cypress with respect to strategies for prosecution and maintenance of all
Organon Patents and Joint Patents.  If
Organon elects not to file, prosecute or maintain any particular Joint Patent
in one or more countries, it shall promptly notify Cypress.  In that case, Cypress may undertake the
responsibility for filing, prosecuting or maintaining such Joint Patent at its
own expense, and if it does so, Organon shall assign to Cypress all its right,
title and interest to any such Joint Patent(s) in such country or countries,
and upon such assignment such Joint Patent(s) shall become the sole property of
Cypress in such territories.


 


12.2                        Patent
Prosecution and Maintenance of Cypress Patents.  Cypress (or its licensor) shall be
responsible for prosecution and maintenance of all Cypress Patents at its own
expense.  Cypress shall keep Organon
informed of progress with regard to the prosecution, maintenance, enforcement
and defense of the Cypress Patents by providing Organon with copies of official
actions, amendments and responses with respect to such prosecution prior to
filing with reasonable advance notice to allow for review and comment.


 


12.3                        Cooperation
of the Parties.  Each party agrees to
cooperate fully in the prosecution of Patents subject to licenses under this
Agreement.


 


12.4                        Infringement
by Third Parties of Patents.


 


(a)                                  Organon
and Cypress shall promptly notify the other in writing of any alleged or
threatened infringement or any challenge to the validity of the Organon Patents
or Cypress Patents of which they become aware.


 


41





















 


(b)                                  Organon
shall have the first right to bring and control any action or proceeding with
respect to infringement of any of the Organon Patents and, so long as Organon
has not exercised the Organon Option, the Joint Patents at its own expense and
by counsel of its own choice.  In
connection with such action or proceeding brought and controlled by Organon,
Cypress may elect to share the costs of such action or proceeding and any
recovery realized as a result of such action or proceeding as part of a cost-sharing
arrangement, to be determined by mutual agreement of the parties in good faith,
taking into account the relative economic interests of the parties.  Organon shall keep Cypress updated regarding
the status and costs of such action or proceeding.  If Organon fails to bring an action or
proceeding within (a) 120 days following the notice of alleged
infringement or (b) 10 days before the time limit, if any, set forth in
the appropriate laws and regulations for the filing of such actions, whichever
comes first, then, subject to the terms of any license agreement under which
Organon has licensed any Organon Patents, Cypress shall have the right to bring
and control any such action at its own expense and by counsel of its own
choice, and Organon shall have the right, at its own expense, to be represented
in any such action by counsel of its own choice.


 


(c)                                  Cypress
shall have the first right to bring and control any action or proceeding with
respect to infringement of any of the Cypress Patents at its own expense and by
counsel of its own choice.  In connection
with such action or proceeding brought and controlled by Cypress, Organon may
elect to share the costs of such action or proceeding and any recovery realized
as a result of such action or proceeding as part of a cost-sharing arrangement,
to be determined by mutual agreement of the parties in good faith, taking into
account the relative economic interests of the parties.  Cypress shall keep Organon updated regarding
the status and costs of such action or proceeding.  If Cypress fails to bring an action or
proceeding within (a) 120 days following the notice of alleged
infringement or (b) 10 days before the time limit, if any, set forth in
the appropriate laws and regulations for the filing of such actions, whichever
comes first, then, subject to the terms of any license agreement under which
Cypress has licensed any Cypress Patents, Organon shall have the right to bring
and control any such action at its own expense and by counsel of its own
choice, and Cypress shall have the right, at its own expense, to be represented
in any such action by counsel of its own choice.


 


(d)                                  In
the event a party brings an infringement action, the other party shall
cooperate fully, including if required to bring such action, the furnishing of
a power of attorney.  Both parties shall
use their commercially reasonable efforts in cooperating with each other to
terminate such infringement without litigation, if appropriate.  Neither party shall have the right to settle
any infringement litigation under this Section 12.4 without the prior
written consent of the other party. 
Except as otherwise agreed to by the parties as part of a cost-sharing
arrangement, and except as otherwise provided in Section 12.4(b) or
12.4(c), any recovery realized as a result of such litigation, after
reimbursement of any litigation expenses of Organon and Cypress, shall be
retained by the party that brought and controlled such litigation.


 


12.5                        Infringement
of Third Party Rights.


 


(a)                                  Each
party shall promptly notify the other in writing of any allegation by a Third
Party that the activity of either of the parties or their Affiliates, licensees
or sublicensees pursuant to this Agreement infringes or may infringe the
intellectual property rights of such Third Party.


 


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(b)                                  Unless
and until Organon exercises the Organon Option and subject to Section 12.5(c),
Organon shall have the first right to control any defense of any such claim
alleging that the sale of Approved Products in the Field infringes any Third
Party rights, at its own expense and by counsel of its own choice, and Cypress
shall have the right, at its own expense, to be represented in any such action
by counsel of its own choice.  If Organon
fails to proceed in a timely fashion with regard to such defense, Cypress shall
have the right to control any such defense of such claim at its own expense and
by counsel of its own choice, and Organon shall have the right, at its own
expense, to be represented in any such action by counsel of its own
choice.  If Organon has exercised the
Organon Option, Cypress shall have the sole right to control any defense of any
such claim alleging that the sale of Approved Products in the Field infringes
any Third Party rights, at its own expense and by counsel of its own choice,
and Organon shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice.


 


(c)                                  In
any Specific Country with respect to which Organon has granted Cypress a
license under Section 7.2(a), Cypress shall have the first right to
control any defense of any such claim alleging that the sale of Approved
Products in such Specific Country infringes any Third Party rights in such
Specific Country, at its own expense and by counsel of its own choice, and
Organon shall have the right, at its own expense, to be represented in any such
action by counsel of its own choice.


 


(d)                                  Neither
party shall have the right to settle any patent infringement litigation under
this Section 12.5 relating to the manufacture or commercialization of
Development Candidates or Approved Products in any manner which could
negatively and materially affect the rights or liability of the other party
without the consent of such other party.


 


12.6                        Patent
Prosecution Strategy.  The parties
intend to establish, in each country worldwide where it is commercially
reasonable to do so, Patent rights that are as broad as reasonably practicable
with respect to Development Candidates and their manufacture or use in the
Field; provided that neither party is obligated to file, prosecute and maintain
any Patent unless there is mutual agreement between Cypress and Organon.  The parties agree to cooperate with each
other to achieve such intention, so as to maximize the commercial value of the
Approved Products by obtaining broad Patent-based exclusivity where available.


 


13.                               REPRESENTATIONS
AND WARRANTIES AND COVENANTS


 


13.1                        Mutual
Representations and Warranties.  Each
party represents and warrants to the other that:


 


(a)                                  Power.  It is duly organized and validly existing
under the laws of its jurisdiction of incorporation or formation, and has full
power and authority to enter into this Agreement and to carry out the
provisions hereof.


 


(b)                                  Due
Authorization.  It is duly authorized
to execute and deliver this Agreement and to perform its obligations hereunder,
and the person or persons executing this Agreement on its behalf has been duly
authorized to do so by all requisite action.


 


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(c)                                  Binding
Agreement.  This Agreement is legally
binding upon it, enforceable in accordance with its terms.  The execution, delivery and performance of
this Agreement by it does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any material law or regulation of any court, governmental
body or administrative or other agency having jurisdiction over it.


 


(d)                                  Grant
of Rights; Maintenance of Agreements. 
It has not, and will not during the License Term, grant any right to any
Third Party that would conflict with the rights granted to the other party
hereunder.  It has (or will have at the
time performance is due) maintained and will maintain and keep in full force
and effect all agreements (including license agreements) and filings (including
patent filings) necessary to perform its obligations hereunder.


 


(e)                                  Right
to Grant Licenses.  It has the right
to grant to the other party the rights granted hereunder.


 


13.2                        Intellectual
Property Representations.


 


(a)                                  As
of the Effective Date, Organon’s rights to the Organon Technology are not
subject to any royalty obligation to any Third Party (including for this
purpose, to officers, directors, employees or other consultants or agents of
Organon) and such rights are not subject to termination or limitation by any
Third Party, in each case other than such obligations as are expressly noted in
this Agreement.  To Organon’s knowledge,
the practice of the Organon Technology to develop or commercialize Development
Candidates or Approved Products in the Field does not infringe any issued
Patents of any Third Party and Organon has not received notice or communication
alleging that the practice of the Organon Technology infringes or may infringe
the rights of any Third Party, nor is Organon aware of any reasonable basis for
any such allegation, except as expressly provided in Exhibit J
hereto.  Organon shall take appropriate
steps to cause the invalidation of the patents (or patents issuing from the
patent applications) listed on Exhibit J
to the extent that the practice of such patents would be infringed by the
practice of the Organon Technology by Organon in accordance with this
Agreement.  Organon shall ensure that
Organon will be the sole assignee of all right, title and interest in [...***...]
and that the [...***...] will assign, or cause to be assigned, to Organon any
right, title or interest that the [...***...] or its faculties or employees may
have in such patents.


 


(b)                                  As
of the Effective Date, Cypress’ rights to the Cypress Technology are not
subject to any royalty obligation to any Third Party (including for this
purpose, to officers, directors, employees or other consultants or agents of
Cypress) and such rights are not subject to termination or limitation by any
Third Party, in each case other than such obligations as are expressly noted in
this Agreement.  To Cypress’ knowledge,
the practice of the Cypress Technology to develop or commercialize Development
Candidates or Approved Products in the Field does not infringe any issued
Patents of any Third Party and Cypress has not received notice or communication
alleging that the practice of the Cypress Technology infringes or may infringe
the rights of any Third Party, nor is Cypress aware of any reasonable basis for
any such allegation.


 










***Confidential Treatment Requested


 


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13.3                        Limitation
of Representations and Warranties. 
EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 13, NEITHER PARTY
MAKES ANY REPRESENTATION OR WARRANTY ANY KIND, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.  Without limiting the generality
of the foregoing, each party expressly disclaims any warranty regarding the
success of any development activities hereunder, or the safety or usefulness
for any purpose of the Development Candidates or Approved Products or any
Cypress Technology or Organon Technology.


 


14.                               CONFIDENTIALITY;
PUBLICATION


 


14.1                        Confidentiality.  Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing by the parties, the parties agree
that, during the License Term and for five years thereafter, the receiving
party shall keep confidential and shall not publish or otherwise disclose and
shall not use for any purpose other than as expressly provided for in this
Agreement any confidential information (including without limitation,
Information) furnished to it by the other party pursuant to this Agreement
(collectively, “Confidential Information”).  Confidential Information disclosed orally in
Joint Development Committee meetings shall be reduced to writing and sent to
the non-disclosing party within 30 days of first disclosure to retain its
status as Confidential Information.  All
other Confidential Information regarding research, development or
commercialization matters disclosed orally pursuant to this Agreement shall be
deemed Confidential Information, whether or not reduced to writing.  Each party agrees that Joint Data, Joint
Patents and this Agreement are the Confidential Information of each party.  Each party may use Confidential Information
of the other party only to the extent required to accomplish the purposes of
this Agreement.  Each party will promptly
notify the other upon discovery of any unauthorized use or disclosure of the
Confidential Information of which it is aware.


 


14.2                        Exceptions.  Confidential Information shall not include
any information that the receiving party can prove by competent written
evidence:


 


(a)                                  is
now, or hereafter becomes, through no act or failure to act on the part of the
receiving party, generally known or available;


 


(b)                                  is
known by the receiving party at the time of receiving such information, as
evidenced by its records; or


 


(c)                                  is
hereafter furnished to the receiving party by a Third Party, as a matter of
right and without restriction on disclosure.


 


14.3                        Authorized
Disclosure.  Each party may disclose
Confidential Information belonging to the other party to the extent such other
party provides written permission to disclose such Confidential Information, or
if such disclosure is reasonably necessary in the following instances:


 


(a)                                  prosecuting
Patents and Trademarks;


 


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(b)                                  regulatory
filings;


 


(c)                                  prosecuting
or defending litigation;


 


(d)                                  complying
with applicable court orders or governmental regulations or making available
clinical data through clinical trial registries or similar mechanism in
accordance with applicable policies; and


 


(e)                                  disclosure
to Affiliates, licensees or sublicensees (including potential licensees or
sublicensees), employees, consultants, agents or other Third Parties in
connection with due diligence or similar investigations by such Third Parties
or the performance of its obligations or exercise of its rights under this
Agreement, in each case who agree to be bound by similar terms of confidentiality
and non-use at least equivalent in scope to those set forth in this Section 14.


 


Notwithstanding the
foregoing, in the event a party is required to make a disclosure of the other
party’s Confidential Information pursuant to Section 14.3, it will, except
where impracticable, give reasonable advance notice to the other party of such
disclosure and, with respect to Section 14.3(c) or (d), use efforts
to secure confidential treatment of such information at least as diligent as
such party would use to protect its own confidential information, but in no
event less than reasonable efforts.  In
any event, the parties agree to take all reasonable action to avoid disclosure
of Confidential Information hereunder.


 


14.4                        Publications.  Each party to this Agreement recognizes that
the publication of papers containing results of and other information regarding
development of Development Candidates (except as provided hereinafter),
including oral presentations and abstracts, may be beneficial to both parties
provided such publications are subject to reasonable controls to protect
Confidential Information.  In particular,
it is the intent of the parties to maintain the confidentiality of any
Confidential Information included in any United States or foreign application until
such United States or foreign patent application has been published.  Accordingly, the other party shall have the
right and obligation to review and approve any paper proposed for publication
by the other party, including oral presentations and abstracts.  Before either party may submit any paper,
oral presentation or abstract for publication, the party proposing publication
shall deliver a complete copy of such materials to the other party at least 45
days prior to submitting the paper to a publisher or the date set for
presentation.  The other party shall
review any such paper and give its comments to the publishing party within 30
days of the delivery of such paper to the other party.  With respect to oral presentation materials,
the other party shall make reasonable efforts to expedite review of such
materials, and shall return such items as soon as practicable to the publishing
party with appropriate comments, if any, but in no event later than 30 days
from the date of delivery to the other party. 
With respect to abstracts, the other party shall make reasonable efforts
to expedite review of such abstracts, and shall return such items as soon as
practicable to the publishing party with appropriate comments, if any, but in
no event later than 10 days from the date of delivery to the other party.  The publishing party shall comply with the
other party’s request to delete references to the non-publishing party’s
Confidential Information in any such paper or other materials.  Notwithstanding anything to the contrary in
this Agreement, neither party shall have the right to 


 


46





















 


publish in any form any Confidential Information of the other party
without such other party’s prior written consent.


 


14.5                        Press Release.  It is understood that the parties intend to
issue a joint press release announcing the execution of this Agreement and
agree that each party may desire or be required to issue subsequent press
releases relating to this Agreement or activities thereunder.  The parties agree to consult with each other
reasonably and in good faith with respect to the text and timing of such press
releases prior to the issuance thereof, provided that a party may not
unreasonably withhold consent to such releases, and that either party may issue
such press releases as it determines, based on advice of counsel, are
reasonably necessary to comply with laws or regulations or for appropriate
market disclosure.  Each party agrees to
review each press release within 72 hours after receiving the press release
from the other party.  In addition,
following the initial joint press release announcing this Agreement, either
party shall be free to disclose, without the other party’s prior written
consent, the existence of this Agreement, the identity of the other party and
those terms of this Agreement that have already been publicly disclosed in
accordance herewith.


 


14.6                        SEC
Filings.  The parties will consult
with each other on the provisions of this Agreement to be redacted in any filings
made by the parties with the Securities and Exchange Commission or as otherwise
required by law.  The parties agree that
either party may make such disclosures pursuant to Form 8-K or otherwise
as it determines, based on advice of counsel, are reasonably necessary to
comply with laws or regulations or for appropriate market disclosure.  The parties shall consult with one another
before any such filing, and shall seek protection for any Confidential
Information.


 


15.                               TERM
AND TERMINATION


 


15.1                        Term.  The term of this Agreement shall commence on
the Effective Date and, unless earlier terminated pursuant to Sections 15.2 or
15.3, continue on a country-by-country and Approved Product-by-Approved Product
basis until the later of (a) the expiration of the last to expire of the
Cypress Patents, Organon Patents or Joint Patents that claim, disclose or cover
the Approved Product or its manufacture or use in such country, or (b) the
date that the Approved Product is no longer sold in such country (the “License Term”).


 


15.2                        Termination.  A party shall have the right to terminate
this Agreement upon [...***...] prior written notice to the other upon the
occurrence of any of the following:


 


(a)                                  the
bankruptcy, insolvency, dissolution or winding up of the other party; or


 


(b)                                  the
breach of any material provision of this Agreement by the other party if the
breaching party has not cured such breach within the [...***...] period
following the date of written notice of termination by the non-breaching party
or, if such breach is not susceptible of cure within such [...***...] the
breaching party has not taken appropriate steps to commence such cure during
such [...***...] and continued to diligently pursue such cure in a manner


 










***Confidential Treatment Requested


 


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reasonably assuring such cure within a reasonable period of time
thereafter; provided, however, that to the extent a
breach affects only a given country, termination shall apply only to such
country.  In addition, termination shall
not be permitted for a payment breach where the obligation to make payment is
being diligently contested in good faith by appropriate proceedings and any
required payment is promptly made following completion of dispute resolution as
contemplated hereby; or


 


(c)                                  in
the event that the Joint Development Committee or Joint Commercialization
Committee, as applicable, Organon (only in the event that Cypress has exercised
the Cypress Option) or Cypress (only in the event that Organon has exercised
the Organon Option) determines to cease development of all Development
Candidates in the Field or commercialization of Approved Products in the Field,
as applicable, and in fact permanently ceases all development of all
Development Candidates or commercialization of all Approved Products in the
Field; provided that, if Organon terminates this Agreement pursuant to this Section in
the event that Cypress has exercised the Cypress Option or Cypress terminates
this Agreement pursuant to this Section in the event that Organon has
exercised the Organon Option and such party subsequently recommences
development of any Development Candidate or commercialization of any Approved
Product in the Field then the provisions of this Agreement shall again apply to
such Development Candidate or Approved Product.


 


15.3                        Effect of
Expiration - Termination; Surviving Obligations.


 


(a)                                  License
Termination.  Upon expiration or
termination of this Agreement, all rights and obligations under this Agreement
shall terminate except as set forth in Section 15.3(b).


 


(b)                                  Obligations
that Survive.  Expiration or early
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination.  Except as set forth below or elsewhere in
this Agreement, the obligations and rights of the parties under the following
sections shall survive expiration or termination of this Agreement:  Sections 1; 4.6 (last sentence only); 10.4,
10.5, 11.1 (last sentence only); 11.2 (last sentence only); 11.3; 13; 14; 15;
16.1; 16.2; 17; and 18.


 


(c)                                  Return
of Confidential Information.  Within
30 days following the expiration or early termination of this Agreement, each
party shall deliver to the other party any and all Confidential Information of
the other party in its possession.


 


(d)                                  Cost
of Obsolete Inventory.  In the event
of termination of this Agreement by Organon pursuant to Section 15.2(a) or
(b) or pursuant to Section 15.2(c) upon determination by the
Joint Commercialization Committee or Cypress (in the event that Organon has
exercised the Organon Option) to cease commercialization of Approved Products
in the Field, all costs related to obsolete inventories of Approved Product
shall be shared between the parties.


 


15.4                        Damages;
Relief.  Termination of this
Agreement shall not preclude any party from claiming any other damages,
compensation or relief that it may be entitled to upon such termination.


 


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15.5                        Bankruptcy
Code.  All licenses granted under this
Agreement will be deemed licenses of rights to intellectual property for
purposes of Section 365(n) of the U.S. Bankruptcy Code and a licensee
under this Agreement will retain and may fully exercise all of its rights and
elections under the U.S. Bankruptcy Code.


 


16.                               INDEMNIFICATION


 


16.1                        Indemnification.


 


(a)                                  Organon
Indemnification.  Organon hereby
agrees to save, defend, indemnify and hold harmless Cypress and its officers,
directors, employees, consultants and agents, and Third Parties from whom Cypress
has licensed Cypress Technology, including, without limitation, [...***...] and
their respective officers, directors, trustees, employees, faculty members,
students and agents, from and against any and all losses, damages, liabilities,
expenses and costs, including reasonable legal expense and attorneys’ fees (“Indemnified Losses”), to which any
such Indemnitee may become subject as a result of any claim, demand, action or
other proceeding by any Third Party to the extent such Indemnified Losses arise
directly out of (i) the material breach by Organon of any representation
or warranty under Article 13, or (ii) the development, manufacture,
use, handling, storage, sale or other disposition of any Development Candidate
or Approved Products by Organon or any of its Affiliates or sublicensees (other
than Cypress and its Affiliates and sublicensees), except, in any case, to the
extent such Indemnified Losses result from the negligence or willful misconduct
of Cypress.  In addition, if the patents
(or patents issuing from the patent applications) listed on Exhibit J are not invalidated to the extent that the
practice of such patents would be infringed by the practice of the Organon
Technology by Organon in accordance with this Agreement, then Organon hereby
agrees to save, defend, indemnify and hold harmless Cypress and its officers,
directors, employees, consultants and agents, and Third Parties from whom
Cypress has licensed Cypress Technology, including, without limitation, [...***...]
and their respective officers, directors, trustees, employees, faculty members,
students and agents, from and against any Indemnified Losses to which any such
Indemnitee may become subject as a result of any claim or action brought by
Sumitomo or Sumika or their affiliated entities, successors or assigns against
Organon or its Affiliates, licensees or sublicensees based upon, arising out
of, or otherwise relating to an alleged infringement of a claim of any patent
or patent issued from, or that claims priority to, any patent application
referenced on Exhibit J because of the use
or practice of any Organon Technology by Organon in accordance with this
Agreement.  Organon shall hold Cypress
harmless from any claims related to license agreements entered into by Organon
prior to the Effective Date, except to the extent such claims result from the
negligence or willful misconduct of Cypress or the breach by Cypress of any
material term of this Agreement.


 


(b)                                  Cypress
Indemnification.  Cypress hereby
agrees to save, defend, indemnify and hold harmless Organon and its officers,
directors, employees, consultants and agents from and against any and all
Indemnified Losses to which such Indemnitee may become subject as a result of
any claim, demand, action or other proceeding by any Third Party to the extent
such Indemnified Losses arise directly out of (i) the material breach by
Cypress of any representation or warranty under Article 13 or (ii) the
development, manufacture, use, handling, storage, sale or other disposition of
any Development Candidate or Approved Product by 


 










***Confidential Treatment Requested


 


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Cypress or any of its Affiliates or sublicensees (other than Organon
and its Affiliates and sublicensees), except, in any case, to the extent such
Indemnified Losses result from the negligence or willful misconduct of
Organon.  Cypress shall hold Organon
harmless from any claims related to license agreements entered into by Cypress
prior to the Effective Date, except to the extent such claims result from the
negligence or willful misconduct of Organon or the breach by Organon of any
material term of this Agreement.


 


16.2                        Control of
Defense.  In the event an Indemnitee
seeks indemnification under Section 16.1, it shall inform the other party
(the “Indemnifying Party”) of a claim as
soon as reasonably practicable after it receives notice of the claim, shall
permit the Indemnifying Party to assume direction and control of the defense of
the claim (including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of the
Indemnifying Party) in the defense of the claim.


 


16.3                        Insurance.


 


(a)                                  Cypress
Insurance.  During the License Term,
Cypress, at its own expense, shall maintain (and shall cause any of its
sublicensees to maintain) in effect, with reputable insurance companies,
appropriate insurance policies, including, but not limited to a policy of
product liability insurance and a policy of general liability insurance, in
such amounts as is reasonably sufficient and commercially reasonable to protect
against liability contemplated by Section 16.1(b) above.  If requested, Cypress shall provide Organon
with a certificate of insurance (or evidence of self-insurance) evidencing such
coverage.


 


(b)                                  Organon
Insurance.  During the License Term,
Organon, at its own expense, shall maintain (and shall cause any of its
sublicensees to maintain) in effect, with reputable insurance companies,
appropriate insurance policies, including, but not limited to a policy of
product liability insurance and a policy of general liability insurance, in
such amounts as is reasonably sufficient and commercially reasonable to protect
against liability contemplated by Section 16.1(a) above.  If requested, Organon shall provide Cypress a
certificate of insurance (or evidence of self-insurance) evidencing such
coverage.


 


17.                               DISPUTE
RESOLUTION; ARBITRATION


 


17.1                        Dispute
Resolution.  Except as set forth in
Sections 3.3, 3.4, 4.3 and 4.9, any dispute arising under or relating to the
parties rights and obligations under this Agreement will be referred to the
Chief Executive Officer of Cypress and an appropriate senior executive of
Organon, for resolution.  In the event
the two representatives are unable to resolve such dispute within 30 days or
such dispute being referred to the officers, the dispute shall be subject to
arbitration, as provided in Section 17.2.


 


17.2                        Arbitration.


 


(a)                                  Claims.  Except as set forth in Section 4.9, any
claim, dispute, or controversy of whatever nature arising out of or relating to
this Agreement that is not resolved under Section 17.1 within the required
[...***...] including without limitation, any action or claim based on tort,
contract, or statute (including any claims of breach or violation of statutory
or common law protections from discrimination, harassment and hostile working


 










***Confidential Treatment Requested


 


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environment), or concerning the interpretation, effect, termination,
validity, performance and/or breach of this Agreement (“Claim”),
shall be resolved by final and binding arbitration before a panel of three
experts with relevant industry experience (the “Arbitrators”).  One Arbitrator shall be chosen by Cypress and
one Arbitrator shall be chosen by Organon within [...***...] from the notice of
initiation of arbitration.  The third
Arbitrator shall be chosen by mutual agreement of the Arbitrator chosen by
Cypress and the Arbitrator chosen by Organon within [...***...] of the date
that the last of such Arbitrators were appointed.  The Arbitrators shall be administered by JAMS
(the “Administrator”) in accordance with
its then existing arbitration rules or procedures regarding commercial or
business disputes.  The arbitration shall
be held in New York, New York.


 


(b)                                  Arbitrators’
Award.  The Arbitrators shall, within
[...***...] after the conclusion of the arbitration hearing, issue a written
award and statement of decision describing the essential findings and
conclusions on which the award is based, including the calculation of any
damages awarded.  The decision or award
rendered by the Arbitrators shall be final and non-appealable, and judgment may
be entered upon it in accordance with applicable law in the State of New York
or California, as applicable, or any other court of competent
jurisdiction.  The Arbitrators shall be
authorized to award compensatory damages, but shall NOT be authorized (i) to
award non-economic damages, such as for emotional distress, pain and suffering
or loss of consortium, (ii) to award punitive damages, or (iii) to
reform, modify or materially change this Agreement or any other agreements
contemplated hereunder; provided, however, that the damage limitations
described in parts (i) and (ii) of this sentence will not apply if
such damages are statutorily imposed.


 


(c)                                  Costs.  Each party shall bear its own attorney’s
fees, costs, and disbursements arising out of the arbitration, and shall pay an
equal share of the fees and costs of the arbitrators; provided,
however, the arbitrators shall be authorized to determine whether a
party is the prevailing party, and if so, to award to that prevailing party
reimbursement for its reasonable attorneys’ fees, costs and disbursements
(including, for example, expert witness fees and expenses, photocopy charges,
travel expenses, etc.), and/or the fees and costs of the Administrator and the
Arbitrators.


 


(d)                                  Compliance
with this Agreement.  Unless the
parties otherwise agree in writing, during the period of time that any arbitration
proceeding is pending under this Agreement, the parties shall continue to
comply with all those terms and provisions of this Agreement that are not the
subject of the pending arbitration proceeding.


 


(e)                                  Injunctive
or Other Equity Relief.  Nothing
contained in this Agreement shall deny any party the right to seek injunctive
or other equitable relief from a court of competent jurisdiction in the context
of a bona fide emergency or prospective irreparable harm, and such an action
may be filed and maintained notwithstanding any ongoing arbitration proceeding.


 










***Confidential Treatment Requested


 


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18.                               GENERAL
PROVISIONS


 


18.1                        Governing
Law.  This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York, excluding its conflicts of laws principles.


 


18.2                        Entire
Agreement; Modification.  This
Agreement is both a final expression of the parties’ agreement and a complete
and exclusive statement with respect to all of its terms.  The Exhibits referred to in this Agreement
are incorporated herein and made a part of this Agreement by this
reference.  This Agreement supersedes all
prior and contemporaneous agreements and communications, whether oral, written
or otherwise, concerning any and all matters contained herein.  No rights or licenses with respect to any
intellectual property of either party are granted or deemed granted hereunder
or in connection herewith, other than those rights expressly granted in this
Agreement.  No trade customs, courses of
dealing or courses of performance by the parties shall be relevant to modify,
supplement or explain any term(s) used in this Agreement.  This Agreement may not be modified or
supplemented by any purchase order, change order, acknowledgment, order
acceptance, standard terms of sale, invoice or the like.  This Agreement may only be modified or
supplemented in a writing expressly stated for such purpose and signed by the parties
to this Agreement.


 


18.3                        Relationship
Between the Parties.  The parties’
relationship, as established by this Agreement, is solely that of independent
contractors.  This Agreement does not
create any partnership, joint venture or similar business relationship between
the parties.  Neither party is a legal
representative of the other party, and neither party can assume or create any
obligation, representation, warranty or guarantee, express or implied, on
behalf of the other party for any purpose whatsoever.


 


18.4                        Non-Waiver.  The failure of a party to insist upon strict
performance of any provision of this Agreement or to exercise any right arising
out of this Agreement shall neither impair that provision or right nor
constitute a waiver of that provision or right, in whole or in part, in that
instance or in any other instance.  Any
waiver by a party of a particular provision or right shall be in writing, shall
be as to a particular matter and, if applicable, for a particular period of
time and shall be signed by such party.


 


18.5                        Limitation
of Damages.  Except for amounts
payable for breach of Section 14 or pursuant to Section 16.1, neither
party shall be liable to the other party for special, consequential or
incidental damages in connection with this Agreement.


 


18.6                        Assignment.  Except as expressly provided hereunder,
neither this Agreement nor any rights or obligations hereunder may be assigned
or otherwise transferred by either party without the prior written consent of
the other party; provided, however, that either party may assign this Agreement
and its rights and obligations hereunder without the other party’s consent (a) subject
to Section 18.13, in connection with the transfer or sale of all or
substantially all of the business of such party to which this Agreement relates
to a Third Party, whether by merger, sale of stock, sale of assets or otherwise
or (b) to an Affiliate.  In the
event of such transaction, however, intellectual property rights of the
acquiring party to such transaction shall not be included in the technology
licensed hereunder.  The rights and
obligations of the parties under 


 


52





















 


this Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties.  Any assignment not in accordance with this
Agreement shall be void.


 


18.7                        No Third
Party Beneficiaries.  This Agreement
is neither expressly nor impliedly made for the benefit of any party other than
those executing it except as provided in Section 16.1.


 


18.8                        Severability. If, for any reason, any part of this
Agreement is adjudicated invalid, unenforceable or illegal by a court of
competent jurisdiction, such adjudication shall not affect or impair, in whole
or in part, the validity, enforceability or legality of any remaining portions
of this Agreement.  All remaining
portions shall remain in full force and effect as if the original Agreement had
been executed without the invalidated, unenforceable or illegal part.


 


18.9                        Notices.  Any notice to be given under this Agreement
must be in writing and delivered either in person, by any method of mail
(postage prepaid) requiring return receipt, or by overnight courier or
facsimile confirmed thereafter by any of the foregoing, to the party to be
notified at its address(es) given below, or at any address such party has
previously designated by prior written notice to the other.  Notice shall be deemed sufficiently given for
all purposes upon the earlier of:  (a) the
date of actual receipt; (b) if mailed, three calendar days after the date
of postmark; or (c) if delivered by overnight courier or by facsimile, the
next business day the overnight courier regularly makes deliveries or on the
day after the facsimile has been sent.


 


If to Organon, notices
must be addressed to:


 


Organon  (Ireland) Ltd.


Churerstrasse 158,


Pfaffikon 8808,


Switzerland


Attention : General
Manager


 


with a copy to:


 


Director, Legal Affairs


Akzo Nobel Pharma


Wethouder van Eschstraat
1


5340 BH


Oss, The Netherlands


[...***...]


[...***...]


 










***Confidential Treatment Requested


 


53





















 


If to Cypress, notices
must be addressed to:


 


Cypress Bioscience, Inc.


4350 Executive Drive, Suite 325


San Diego, California
92121


United States of America


Attention: Chief
Executive Officer


Telephone: (858) 452-2323


Facsimile: (858) 452-1222


 


with a copy to:


 


Cooley Godward LLP


4401 Eastgate Mall


San Diego, California
92121


United States of America


Attention: Kay Chandler


[...***...]


[...***...]


 


18.10                 Force Majeure.  Except for the obligation to make payment
when due, each party shall be excused from liability for the failure or delay
in performance of any obligation under this Agreement by reason of any event
beyond such party’s reasonable control including but not limited to Acts of
God, fire, flood, explosion, earthquake, or other natural forces, war, civil
unrest, accident, destruction or other casualty, any lack or failure of
transportation facilities, any lack or failure of supply of raw materials, any
strike or labor disturbance, or any other event similar to those enumerated
above.  Such excuse from liability shall
be effective only to the extent and duration of the event(s) causing the
failure or delay in performance and provided that the party has not caused such
event(s) to occur.  Notice of a party’s
failure or delay in performance due to force majeure must be given to the other
party within 10 calendar days after its occurrence.  All delivery dates under this Agreement that
have been affected by force majeure shall be tolled for the duration of such
force majeure.  Notwithstanding the
foregoing, should the event(s) of force majeure suffered by a party extend
beyond a three month period, the other party may then terminate this Agreement
by written notice to the non-performing party, with the consequences of such
termination as set forth in Sections 15.3 and 15.4.


 


18.11                 Interpretation.


 


(a)                                  Captions &
Headings; Overview.  The captions and
headings of clauses contained in this Agreement preceding the text of the
articles, sections, subsections and paragraphs hereof and the overview provided
in Section 2 are provided solely for convenience and ease of reference
only and shall not constitute any part of this Agreement, or have any effect on
its interpretation or construction.


 


(b)                                  Singular &
Plural.  All references in this
Agreement to the singular shall include the plural where applicable, and all
references to gender shall include both genders and the neuter.


 










***Confidential Treatment Requested


 


54





















 


(c)                                  Articles,
Sections & Subsections. 
Unless otherwise specified, references in this Agreement to any article shall
include all sections, subsections, and paragraphs in such article; references
in this Agreement to any section shall include all subsections and
paragraphs in such sections; and references in this Agreement to any subsection shall
include all paragraphs in such subsection.


 


(d)                                  Days.  All references to days in this Agreement
shall mean calendar days, unless otherwise specified.


 


(e)                                  Ambiguities.  Ambiguities and uncertainties in this
Agreement, if any, shall not be interpreted against either party, irrespective
of which party may be deemed to have caused the ambiguity or uncertainty to
exist.


 


18.12                 Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original document, and all of
which, together with this writing, shall be deemed one instrument.


 


18.13                 Change in
Control.


 


(a)                                  Notice
of Change in Control.  Each party
agrees that it will provide notice of a potential Change in Control of such
party to the other party as promptly as possible following public announcement
of such Change in Control.


 


(b)                                  Reasonable
Assurances upon Change in Control. 
Upon any Change in Control of a party, the Acquirer will provide the
other party with reasonable assurances that it will comply with the obligations
of the acquired party under this Agreement, such assurances to be made prior to
and effective upon such Change in Control. 
In connection with a Change in Control of a party, the other party may
request that the Acquirer provide to such other party within 30 days of the
Change in Control a transition plan describing how the Acquirer plans to
conduct the activities of the party that was acquired pursuant to this
Agreement.


 


(c)                                  Change
in Control Prior to Development Candidate Selection.  To the extent that Change in Control occurs
with respect to Cypress prior to the selection of the Development Candidate
pursuant to Section 4.3, Organon shall have the right to make the final
selection of the Development Candidate.


 


(d)                                  Change
in Control During Development Phase. 
To the extent that Change in Control occurs with respect to Cypress
during the development phase of a Development Candidate Organon will have the
right to assume Operational Control of the research and development activities
with respect to Development Candidates in the Field in the Shared Territory
pursuant to the Development Plan in the event that either of the following
occurs:


 


(i)                                    the
Acquirer does not provide reasonable assurances to Organon pursuant to Section 18.13(b);
or


 


(ii)                                the
personnel that will conduct research and development activities for Cypress
pursuant to this Agreement immediately following such Change in Control (or 


 


55





















 


within [...***...] following such Change in Control) is substantially
different than the personnel that was conducting research and development
activities for Cypress pursuant to this Agreement immediately prior to such
Change in Control, the Acquirer provided a transition plan pursuant to Section 18.13(b) within
[...***...] of the Change in Control and Organon notifies the Acquirer in
writing that it reasonably believes, based on the Acquirer’s transition plan
and Organon’s own plan for research and development activities under this
Agreement, that such Change in Control and change in research and development
personnel would result in a delay in performance of the Development Plan that
would be greater than the delay if Organon were to perform such research and
development activities under the Development Plan.


 


(e)                                  Change
in Control in Which Acquirer Has Competitive Product.  To the extent that Change in Control occurs
and the Acquirer has [...***...] during any period in which there is Patent
exclusivity with respect to the Development Candidate, and the Acquirer does
not agree to divest such product within [...***...] following the Change in
Control (or does not in fact divest such product within [...***...] following
the Change in Control), the other party may, on behalf of the party being
acquired in the Change in Control, cause such party being acquired in the
Change in Control to exercise the Organon Option under Section 6.1 or the
Cypress Option under Section 6.2, as applicable.


 


(f)                                    Change
in Control in Which Acquirer Plans to Sublicense Rights.  Upon a Change of Control of a party, in the
event that the Acquirer (or the party that was acquired) determines to
sublicense its rights and obligations under this Agreement within [...***...]
of the effective date of the Change in Control, the Acquirer (or the party that
was acquired) shall so notify the other party in writing, and the other party
shall have the first right to negotiate with the Acquirer (or the party that
was acquired) for such a sublicense; provided, that, if mutually agreed upon
terms for such a sublicense are not reached within [...***...] following the
other party’s receipt of notice of such proposed sublicense, the Acquirer (or
the party that was acquired) will be free to enter grant such a with any Third
Party.


 


(g)                                 “Acquirer” means a Pharmaceutical Company that is a
party to a Change in Control with Cypress or Organon.


 


(h)                                 “Change in Control” means:


 


(i)                                    with
respect to Cypress, an event in which (A) any Pharmaceutical Company that
is not an Affiliate of Cypress acquires beneficial ownership of Voting Stock of
Cypress entitling the holder(s) thereof to more than 50% of the voting power of
the then outstanding Voting Stock of Cypress; or (b) Cypress sells in one
or more related transactions properties or assets representing all or
substantially all of the properties and assets of Cypress to any Pharmaceutical
Company that is not an Affiliate of Cypress.


 


(ii)                                with
respect to Organon, an event in which:


 


(1)                                 any
Pharmaceutical Company that is not an Affiliate of Organon acquires beneficial
ownership of Voting Stock of Organon entitling the holder(s) thereof to more
than 50% of the voting power of the then outstanding Voting Stock of Organon 


 










***Confidential Treatment Requested


 


56





















 


or Organon sells in one or more related transactions properties or
assets representing all or substantially all of the properties and assets of
Organon to any Pharmaceutical Company that is not an Affiliate of Organon;


 


(i)                                    Neither
a distribution by Akzo Nobel N.V. of any or all of the capital stock of the
Organon Group to the shareholders of Akzo Nobel N.V., nor the offering of any
shares of capital stock of the Organon Group to the public or similar demerger
or spin-off, nor the creation of so-called tracking stock shall be considered a
Change in Control for any purpose under this Agreement.


 


(j)                                    “Organon Group” means the group of Affiliates of Akzo
Nobel N.V., which constitute the Organon business unit of Akzo Nobel N.V. and
are consolidated as such in Akzo Nobel N.V.’s financial statements.


 


(k)                                “Pharmaceutical Company” means any of the leading 100
pharmaceutical companies as reported by IMS in the latest edition of the world
review of the pharmaceutical market or any other company more than 50% of the
revenues of which are from sales of pharmaceutical products in the Field.


 


(l)                                    “Voting Stock” means, with respect to any party, any
capital stock or other ownership interest in such party which entitles the
holder thereof to vote for the election of directors (or other comparable
persons) of such party.


 


57










 













 


IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement.


 


	
  CYPRESS
  BIOSCIENCE, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Jay Kranzler

  	
   

  
	
   

  
	
  Name:

  	
  Jay Kranzler

  	
   

  
	
   

  
	
  Title:

  	
  CEO

  	
   

  
	
   

  
	
   

  
	
  ORGANON
  IRELAND, LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Roland
  Huegli

  	
   

  
	
   

  
	
  Name:

  	
  Roland Huegli

  	
   

  
	
   

  
	
  Title:

  	
  Director

  	
   

  
	
   

  
	
   

  
	
  ORGANON
  IRELAND, LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Albin Fuchs

  	
   

  
	
   

  
	
  Name:

  	
  Albin Fuchs

  	
   

  
	
   

  
	
  Title:

  	
  Controller

  	
   

  
					



 





















 


EXHIBIT A


 


CYPRESS
PATENTS


 


[...***...]


 










***Confidential
Treatment Requested


 





















 


EXHIBIT B


 


ORGANON
PATENTS


 


[...***...]


 










***Confidential
Treatment Requested


 





















 


EXHIBIT C


 


SELECTION
CRITERIA


 


The parties shall agree on Selection Criteria within
ninety (90) days of the Effective Date.


 





















 


EXHIBIT D


 


FORM OF
WARRANT


 


THIS WARRANT AND THE UNDERLYING SECURITIES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO SUCH SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO CYPRESS THAT SUCH REGISTRATION IS NOT REQUIRED.


 


CYPRESS
BIOSCIENCE, INC.


 


WARRANT
TO PURCHASE COMMON STOCK


 


	
  No. CSW-301

  	
   

  	
  June 29,
  2005

  



 


Void
After June 28, 2010


 


THIS CERTIFIES THAT, for value received, ORGANON (IRELAND) LTD., with its principal office at
Churerstrasse 158, Pfaffikon 8808, Switzerland, or assigns (“Organon”), is
entitled to subscribe for and purchase at the Exercise Price (defined below)
from CYPRESS BIOSCIENCE, INC., a Delaware
corporation (“Cypress”),
with its principal office at 4350 Executive Drive, Suite 325 San Diego,
California 92121, the Exercise Shares (defined below).  This Warrant is being issued in connection
with the License and Collaboration Agreement, dated of even date herewith, by
and between Cypress and Organon (the “License Agreement”).


 


1.                                      DEFINITIONS.  As used herein, the following terms shall
have the following respective meanings:


 


(a)                                  “Common Stock”
shall mean the common stock, $0.001 par value, of Cypress.


 


(b)                                  “Effective Date” shall
be June 29, 2005.


 


(c)                                  “Exercise Period”
shall mean the period commencing with the Effective Date and ending five years later, unless sooner
terminated as provided below.


 


(d)                                  “Exercise Price”
shall be $15.96 per share, which is 120% of the Per Share Market Price of
Common Stock of Cypress for the trading day immediately preceding the Effective
Date.  The Exercise Price shall be
subject to adjustment pursuant to Section 6 below.


 


(e)                                  “Exercise Shares”
shall mean up to 62,656 shares of Common Stock of Cypress issuable upon exercise
of this Warrant, subject to adjustment pursuant to the terms herein, including
but not limited to adjustment pursuant to Section 6 below.


 


1





















 


(f)                                    “Per Share Market Price”
shall be determined based on the closing bid price of the Common Stock as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System.


 


(g)                                 “Securities Act” shall mean the Securities Act of 1933,
as amended.


 


2.                                      EXERCISE
OF WARRANT.  The rights represented by
this Warrant may be exercised in whole or in part at any time during the
Exercise Period, by delivery of the following to Cypress at its address set
forth above (or at such other address as it may designate by notice in writing
to Organon):


 


(a)                                  An
executed Notice of Exercise in the form attached hereto;


 


(b)                                  Payment
of the Exercise Price either in cash or by check; and


 


(c)                                  This
Warrant.


 


Upon the exercise of the
rights represented by this Warrant, a certificate or certificates for the
Exercise Shares so purchased, registered in the name of Organon or persons
affiliated with Organon, if Organon so designates, shall be issued and
delivered to Organon within a reasonable time after the rights represented by
this Warrant shall have been so exercised.


 


The person in whose name
any certificate or certificates for Exercise Shares are to be issued upon
exercise of this Warrant shall be deemed to have become the holder of record of
such shares on the date on which this Warrant was surrendered and payment of
the Exercise Price was made, irrespective of the date of delivery of such
certificate or certificates, except that, if the date of such surrender and
payment is a date when the stock transfer books of Cypress are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are
open.


 


3.                                      COVENANTS
OF CYPRESS.


 


3.1                               Covenants
as to Exercise Shares.  Cypress
covenants and agrees that all Exercise Shares that may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be
validly issued and outstanding, fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issuance thereof.  Cypress further covenants and agrees that
Cypress will at all times during the Exercise Period, have authorized and
reserved, free from preemptive rights, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.  If at any time during the
Exercise Period the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit exercise of this Warrant, Cypress will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.


 


3.2                               No
Impairment.  Except and to the extent
as waived or consented to by Organon, Cypress will not, by amendment of its
Amended and Restated Certificate
of Incorporation, as amended, or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to


 


2





















 


avoid the observance or performance of any of the terms to be observed
or performed hereunder by Cypress, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of
all such action as may be necessary or appropriate in order to protect the
exercise rights of Organon against impairment.


 


3.3                               Notices
of Record Date.  In the event of any
taking by Cypress of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, Cypress shall mail to Organon, at
least 10 days prior to the date specified herein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend or
distribution.


 


4.                                      REGISTRATION RIGHTS.


 


4.1                               Definitions.  As used in Section 4 of this Warrant the
following terms shall have the
following respective meanings:


 


“Exchange Act” means the Securities Exchange Act of 1934, as
amended.


 


“Holder”
means any person or entity owning of record Registrable Securities that have
not been sold to the public or any assignee of record of such Registrable Securities
in accordance with Section 4.9 hereof.


 


“Register,” “registered,”
and “registration” refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document.


 


“Registrable Securities”
means (i) the Exercise Shares; and (ii) any Common Stock of Cypress
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of the Exercise Shares.  Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor’s rights under Section 4 of
this Warrant are not assigned.


 


“Registration Expenses”
shall mean all expenses incurred by Cypress in complying with Section 4.2
hereof, including, without limitation, all registration and filing fees,
printing expenses, reasonable fees and disbursements of counsel for Cypress,
blue sky fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of Cypress which shall be paid in any event by Cypress).


 


“Selling Expenses”
shall mean all underwriting discounts and selling commissions applicable to the
sale and all fees and disbursements of counsel for the Holders in connection
with such sale.


 


4.2                               Form S-3 Registration.  After 18 months following the
Effective Date, in case Cypress shall receive from Organon a written request or
requests that Cypress effect a


 


3





















 


registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
Organon:


 


(a)                                  promptly
give written notice of the proposed registration, and any related qualification
or compliance, to all other Holders of Registrable Securities; and


 


(b)                                  as
soon as practicable, effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of Organon’s Registrable Securities as
are specified in such request; provided, however,
that Cypress shall not be obligated to effect any such registration, qualification
or compliance pursuant to this Section 4.2:


 


(i)                                    if
Form S-3 (or any successor or similar form) is not available for such
offering by Organon;


 


(ii)                                if
Organon, together with the holders of any other securities of Cypress permitted
by Organon to be included in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than US$500,000;


 


(iii)                            if
within 30 days of receipt of a written request from Organon pursuant to Section 4.2(a),
Cypress gives notice to the Holders of Cypress’ intention to make a public
offering within 90 days;


 


(iv)                               if
Cypress shall furnish to the Holders a certificate signed by the Chairman of
the Board of Directors of Cypress stating that in the good faith judgment of
the Board of Directors of Cypress, it would be seriously detrimental to Cypress
and its stockholders for such Form S-3 registration to be effected at such
time, in which event Cypress shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of Organon under this Section 4.2; provided,
that such right to delay a request shall be exercised by Cypress not more than
once in any 12 month period;


 


(v)                                   if
with respect to the Exercise Shares, Cypress has already effected one
registration on Form S-3 pursuant to this Section 4.2 with respect to
Registrable Securities; or


 


(vi)                               in
any particular jurisdiction in which Cypress would be required to qualify to do
business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.


 


Subject
to the foregoing, Cypress shall file a Form S-3 registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
Organon.


 


4.3                               Expenses of Registration.  All Registration Expenses incurred
in connection with any registration under Section 4.2 shall be borne by
Organon.  All Selling


 


4





















 


Expenses incurred in connection with any registrations hereunder, shall
be borne by the holders of the securities so registered pro rata
on the basis of the number of shares so registered.


 


4.4                               Obligations of Cypress.  Whenever required to effect the
registration of any Registrable Securities, Cypress shall, as expeditiously as
reasonably possible:


 


(a)                                  Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use all reasonable efforts to cause such registration statement
to become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to one year or, if earlier, until the Holder or Holders have
completed the distribution related thereto.


 


(b)                                  Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement.


 


(c)                                  Furnish
to the Holders such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.


 


(d)                                  Use
all reasonable efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that
Cypress shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.


 


(e)                                  In
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering. 
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.


 


(f)                                    Notify
each Holder of Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.


 


(g)                                 Furnish,
at the request of a majority of the Holders participating in the registration,
on the date that such Registrable Securities are delivered to the underwriters
for sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of the counsel representing Cypress for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and (ii) a letter dated as of such date, from the independent
certified public accountants of Cypress, in


 


5





















 


form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any.


 


(h)                                 Notwithstanding
the foregoing, if, at any time following the effectiveness of the Registration
Statement, Cypress shall have determined that it  may be required to disclose any material
corporate development, Cypress may suspend the effectiveness of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by Cypress and declared effective by the SEC or until
such time as Cypress has filed an appropriate report with the SEC pursuant to
the Exchange Act, which suspension shall be concluded as quickly as reasonably
possible by Cypress consistent with advice of counsel (a “Suspension Period”),
by giving notice to the Holders participating in the registration. Each Holder
agrees that, upon receipt of any notice from Cypress of a Suspension Period,
such Holder will not sell any Shares pursuant to the Registration Statement
until (i) such Holder is advised in writing by Cypress that the use of the
applicable prospectus may be resumed, (ii) such Holder has received copies
of any additional or supplemental or amended prospectus, if applicable, and (iii) such
Holder has received copies of any additional or supplemental filings which are
incorporated or deemed to be incorporated by reference in such prospectus.


 


4.5                               Termination
of Registration Rights.  All
registration rights granted to a Holder under this Section 4 shall
terminate and be of no further force and effect upon the earliest of: (i) the
sale of all of the Registrable Securities pursuant to a Form S-3
registration statement filed under Section 4.2, and (ii) the date
that all Registrable Securities held by and issuable to such Holder (and its
affiliates) may be sold under Rule 144 during any 90 day period.


 


4.6                               Furnishing
Information.  It shall be a condition precedent to
the obligations of Cypress  to take any
action pursuant to Section 4.2 that the selling Holders shall furnish to
Cypress such information regarding themselves, the Registrable Securities held
by them and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities.


 


4.7                               Delay of Registration.  No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the interpretation
or implementation of this Section 4.


 


4.8                               Indemnification.
 In the event any Registrable
Securities are included in a registration statement under Section 4.2:


 


(a)                                  To
the extent permitted by law, Cypress will indemnify and hold harmless each
Holder, the partners, officers, directors and legal counsel of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages,
expenses (including attorney fees) or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a “Violation”) by
Cypress: (i) any untrue statement or alleged untrue statement of a


 


6





















 


material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by Cypress of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement; and Cypress will reimburse
each such Holder, partner, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained
in this Section 4.8(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of Cypress, which consent shall not be
unreasonably withheld, nor shall Cypress be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, underwriter or
controlling person of such Holder.


 


(b)                                  To
the extent permitted by law, each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualifications or compliance is being effected, indemnify and hold harmless
Cypress, each of its directors, its officers, and legal counsel and each
person, if any, who controls Cypress within the meaning of the Securities Act,
any underwriter and any other Holder selling securities under such registration
statement or any of such other Holder’s partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages, expenses
(including attorney fees), or liabilities (joint or several) to which Cypress
or any such director, officer, counsel, controlling person, underwriter or
other such Holder, or partner, director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder under an instrument duly executed by such Holder and
stated to be specifically for use in connection with such registration; and
each such Holder will reimburse any legal or other expenses reasonably incurred
by Cypress or any such director, officer, counsel, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 4.8(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 4.8 exceed the proceeds from the offering
received by such Holder.


 


(c)                                  Promptly
after receipt by an indemnified party under this Section 4.8 of notice of
the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 4.8, deliver to the indemnifying
party a written notice of the commencement


 


7





















 


thereof and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 4.8, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 4.8.


 


(d)                                  If
the indemnification provided for in this Section 4.8 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid
or payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the Violation(s) that resulted in such loss, claim,
damage or liability, as well as any other relevant equitable
considerations.  The relative fault of
the indemnifying party and of the indemnified party shall be determined by a
court of law by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, that in no event
shall any contribution by a Holder hereunder exceed the proceeds from the
offering received by such Holder.


 


(e)                                  The
obligations of Cypress and Holders under this Section 4.8 shall survive
completion of any offering of Registrable Securities in a registration
statement.  No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.


 


4.9                               Assignment
of Registration Rights.  The rights
to cause Cypress to register Registrable Securities pursuant to this Section 4
(and related obligations) may be assigned by Organon to a subsidiary or
affiliate or, with the prior written consent of Cypress, which shall not be unreasonably
withheld, to a third party that acquires Registrable Securities; provided,
however, (A) the transferor shall, within 10 days after such transfer,
furnish to Cypress written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Warrant. 
Any assignee of rights under this Section 4.9 may not further
assign such rights.


 


8





















 


5.                                      REPRESENTATIONS
OF ORGANON.


 


5.1                               Accredited Investor.  Organon is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions
with respect to investments in shares presenting an investment decision like
that involved in the issuance of the Warrant and the Exercise Shares, and has
requested, received, reviewed and considered all information Organon deems
relevant in making an informed decision with respect to the investment in the
Warrant and the Exercise Shares.  Organon
is an “accredited investor” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act.


 


5.2                               Acquisition
of Warrant for Personal Account. 
Organon represents and warrants that it is acquiring the Warrant and the
Exercise Shares solely for its account for investment and not with a view to or
for sale or distribution of said Warrant or Exercise Shares or any part
thereof.  Organon also represents that
the entire legal and beneficial interests of the Warrant and Exercise Shares
Organon is acquiring is being acquired for, and will be held for, its account
only.


 


5.3                               Securities
Are Not Registered.


 


(a)                                  Organon
understands that the Warrant and the Exercise Shares have not been registered under
the Securities Act.  Organon realizes
that the basis for the exemption may not be present if, notwithstanding its
representations, Organon has a present intention of acquiring the securities
for a fixed or determinable period in the future, selling (in connection with a
distribution or otherwise), granting any participation in, or otherwise
distributing the securities.  Organon has
no such present intention.


 


(b)                                  Organon
recognizes that the Warrant and the Exercise Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. 
Organon recognizes that Cypress has no obligation to register the
Warrant or the Exercise Shares of Cypress except as provided in Section 4 of
this Warrant, or to comply with any exemption from such registration.


 


(c)                                  Organon
is aware that neither the Warrant nor the Exercise Shares may be sold pursuant
to Rule 144 adopted under the Securities Act unless certain conditions are
met, including, among other things, the existence of a public market for the
shares, the availability of certain current public information about Cypress,
the resale following the required holding period under Rule 144 and the
number of shares being sold during any three month period not exceeding
specified limitations.


 


5.4                               Disposition
of Warrant and Exercise Shares.


 


(a)                                  Organon
further agrees not to make any disposition of all or any part of the Warrant or
Exercise Shares in any event unless and until Organon shall have notified
Cypress of the proposed disposition and shall have furnished Cypress with a
detailed statement of the circumstances surrounding the proposed disposition,
and if reasonably requested by Cypress, Organon shall have furnished Cypress
with an opinion of counsel, reasonably satisfactory to Cypress, to the effect
that such disposition will not require registration of such Warrant or Exercise
Shares under the Securities Act or any applicable state securities laws;


 


9





















 


provided that it is agreed that Cypress will not require opinions of
counsel for transactions with respect to Exercise Shares made pursuant to Rule 144,
except in unusual circumstances.


 


(b)                                  Organon
understands and agrees that all certificates evidencing the shares to be issued
to Organon may bear the following legend:


 


THESE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO CYPRESS THAT SUCH REGISTRATION IS NOT REQUIRED.


 


6.                                      ADJUSTMENT
OF EXERCISE PRICE.  In the event of
changes in the outstanding Common Stock of Cypress by reason of dividends or
other distributions to holders of Common Stock (without payment therefor) of
Common Stock or other shares of stock or other securities convertible or
exercisable for Common Stock or rights or options to subscribe for or purchase
any of the foregoing, stock splits and reverse stock splits, split-ups,
recapitalizations, reclassifications, combinations or exchanges of shares,
reorganizations, liquidations, or the like, the number and class of shares available
under the Warrant in the aggregate and the Exercise Price shall be
appropriately and correspondingly adjusted to give Organon, on exercise of the
Warrant and for the same aggregate Exercise Price, the total number, class, and
kind of shares as Organon would have owned had the Warrant been exercised prior
to the event and had Organon continued to hold such shares until after the
event requiring adjustment; provided, however, that such adjustment shall not
be made with respect to, and this Warrant shall terminate if not exercised
prior to, the events set forth in Section 8 below.  The form of this Warrant need not be changed
because of any adjustment in the number of Exercise Shares subject to this
Warrant.


 


7.                                      FRACTIONAL
SHARES.  No fractional shares shall
be issued upon the exercise of this Warrant as a consequence of any adjustment
pursuant hereto.  All Exercise Shares
(including fractions) issuable upon exercise of this Warrant may be aggregated
for purposes of determining whether the exercise would result in the issuance
of any fractional share.  If, after
aggregation, the exercise would result in the issuance of a fractional share,
Cypress shall, in lieu of issuance of any fractional share, pay Organon a sum in
cash equal to the product resulting from multiplying the then current fair
market value of an Exercise Share by such fraction.


 


8.                                      EARLY
TERMINATION.  In the event of, at any
time during the Exercise Period, any capital reorganization, or any
reclassification of the capital stock of Cypress (other than a change in par
value or from par value to no par value or no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of Cypress with or into another corporation
(other than a merger solely to effect a reincorporation of Cypress into another
state), or the sale or other disposition of all or substantially all the
properties and assets of Cypress in its entirety to any other person, Cypress
shall provide to Organon 10 days advance written notice of such reorganization,
reclassification, consolidation, merger or sale or other disposition of Cypress’s
assets, and this Warrant shall


 


10





















 


terminate unless exercised prior to the date of the occurrence of such
reorganization, reclassification, consolidation, merger or sale or other
disposition of Cypress’s assets.


 


9.                                      MARKET
STAND-OFF AGREEMENT.  Organon shall
not sell, dispose of, transfer, make any short sale of, grant any option for
the purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any Common Stock (or other securities) of Cypress
held by Organon, for a period of time specified by the managing underwriter(s)
(not to exceed 180 days) following the effective date of a registration
statement of Cypress filed under the Securities Act.  Organon agrees to execute and deliver such
other agreements as may be reasonably requested by Cypress and/or the managing
underwriter(s) which are consistent with the foregoing or which are necessary
to give further effect thereto.  In order
to enforce the foregoing covenant, Cypress may impose stop-transfer
instructions with respect to such Common Stock (or other securities) until the
end of such period.  The underwriters of
Cypress’s stock are intended third party beneficiaries of this Section 9
and shall have the right, power and authority to enforce the provisions hereof
as though they were a party hereto.


 


10.                               NO
STOCKHOLDER RIGHTS.  This Warrant in
and of itself shall not entitle Organon to any voting rights or other rights as
a stockholder of Cypress.


 


11.                               TRANSFER
OF WARRANT.  Subject to applicable
laws and the restriction on transfer set forth on the first page of this
Warrant, this Warrant and all rights hereunder are transferable, by Organon in
person or by duly authorized attorney, upon delivery of this Warrant and the
form of assignment attached hereto to any transferee designated by
Organon.  The transferee shall sign an
investment letter in form and substance satisfactory to Cypress.


 


12.                               LOST,
STOLEN, MUTILATED OR DESTROYED WARRANT.  If
this Warrant is lost, stolen, mutilated or destroyed, Cypress may, on such
terms as to indemnity or otherwise as it may reasonably impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.  Any such new
Warrant shall constitute an original contractual obligation of Cypress, whether
or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at
any time enforceable by anyone.


 


13.                               NOTICES,
ETC.  All notices required or
permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient, if
not, then on the next business day, (c) five (5) days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.  All
communications shall be sent to Cypress and Organon at the addresses listed in
the introductory paragraph, or at such other address as Cypress or Organon may
designate by 10 days advance written notice to the other party hereto.


 


14.                               ACCEPTANCE.  Receipt of this Warrant by Organon shall
constitute acceptance of and agreement to all of the terms and conditions
contained herein.


 


11





















 


15.                               GOVERNING
LAW.  This Warrant and all rights,
obligations and liabilities hereunder shall be governed by the laws of the State
of New York, excluding its conflicts of laws principles.


 


IN WITNESS WHEREOF,
Cypress has caused this Warrant to be executed by its duly authorized officer
as of June 29, 2005.


 


 


	
   

  	
  CYPRESS BIOSCIENCE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Jay D. Kranzler

  
	
   

  	
   

  	
  Chief Executive Officer

  



 


12





















 


NOTICE
OF EXERCISE


 


TO: 
CYPRESS BIOSCIENCE, INC.


 


(1)                                 The
undersigned hereby elects to purchase                
shares of the Common Stock of Cypress Bioscience, Inc. (the “Company”) pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.


 


(2)                                 Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified below:


 




	
   

  
	
  (Name)

  
	
   

  
	
   

  
	
   

  
	
  (Address)

  






 


(3)                                 The undersigned
represents that (i) the aforesaid shares of Common Stock are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares; (ii) the
undersigned is aware of Cypress’s business affairs and financial condition and
has acquired sufficient information about Cypress to reach an informed and
knowledgeable decision regarding its investment in Cypress; (iii) the
undersigned is experienced in making investments of this type and has such
knowledge and background in financial and business matters that the undersigned
is capable of evaluating the merits and risks of this investment and protecting
the undersigned’s own interests; (iv) the undersigned understands that the
shares of Common Stock issuable upon exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the “Securities Act”), by
reason of a specific exemption from the registration provisions of the
Securities Act, which exemption depends upon, among other things, the bona fide
nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available; (v) the undersigned is
aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144
adopted under the Securities Act unless certain conditions are met and until
the undersigned has held the shares for the number of years prescribed by Rule 144,
that among the conditions for use of the Rule is the availability of
current information to the public about Cypress and Cypress has not made such
information available and has no present plans to do so; and (vi) the
undersigned agrees not to make any disposition of all or any part of the
aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement, or the


 





















 


undersigned has provided Cypress with an opinion of counsel
satisfactory to Cypress, stating that such registration is not required.


 


 


	
   

  	
   

  	
   

  	
   

  
	
  (Date)

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Print name)

  



 





















 


ASSIGNMENT
FORM


 


(To assign the
foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)


 


FOR VALUE RECEIVED,
the foregoing Warrant and all rights evidenced thereby are hereby assigned to


 


	
  Name:

  	
   

  	
   

  
	
   

  	
  (Please
  Print)

  	
   

  
	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
  (Please
  Print)

  	
   

  
	
   

  
	
  Dated:

  	
   

  	
  , 20

  	
   

  	
   

  
	
   

  
	
  Holder’s

  
	
  Signature:

  	
   

  	
   

  
	
   

  
	
  Holder’s

  
	
  Address:

  	
   

  	
   

  
										



 


 


NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatever.  Officers of corporations and those acting in
a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant.


 





















 


EXHIBIT E


 


ROYALTIES
PAYABLE TO ORGANON IN THE

SHARED TERRITORY UPON EXERCISE OF ORGANON OPTION


 


[...***...]


 


 










***Confidential
Treatment Requested


 





















 


EXHIBIT F


 


ROYALTIES
PAYABLE TO CYPRESS IN THE

SHARED TERRITORY UPON EXERCISE OF CYPRESS OPTION


 


[...***...]


 


 










***Confidential Treatment Requested


 





















 


EXHIBIT G


 


ROYALTIES
PAYABLE TO CYPRESS

IN THE REST OF THE WORLD


 


[...***...]


 


 










***Confidential
Treatment Requested


 





















 


EXHIBIT H


 


ROYALTIES
PAYABLE TO ORGANON IN THE

REST OF THE WORLD UPON EXERCISE OF ORGANON OPTION

OR IN SPECIFIC COUNTRIES


 


[...***...]


 


 










***Confidential Treatment Requested


 





















 


EXHIBIT I


 


SPECIFIED
COMBINATIONS


 


[...***...]


 


 










***Confidential
Treatment Requested


 





















 


EXHIBIT J


 


EXCEPTION
TO SECTION 13.2(a)


 


[...***...]


 


 










***Confidential
Treatment Requested