**Exhibit 10.32**

** **

 

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

 

 

**COLLABORATIONAND LICENSE AGREEMENT**

 

 

By and Between

 

 

PHARMACOPEIA, INC.

 

 

and

 

 

SCHERING-PLOUGH LTD.

 

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Table of Contents

 

 

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**COLLABORATIONAND LICENSE AGREEMENT**

 

This COLLABORATION ANDLICENSE AGREEMENT (the “Agreement”), dated as of the latest date of signatureappearing below (the “Execution Date”) and to be effective as of the EffectiveDate (as defined below), is made by and among: Pharmacopeia, Inc., a Delawarecorporation having its principal place of business at 3000 Eastpark Boulevard,Cranbury, New Jersey 08512, (hereinafter referred to as “Pharmacopeia”); andSchering-Plough Ltd., a Swiss corporation having its principal place ofbusiness at Toepferstrasse 5, CH 6004 Lucerne, Switzerland, (hereinafterreferred to as “SPL”).  Pharmacopeia andSPL are sometimes referred to herein individually as a Party and collectivelyas the Parties.  References to “SPL” and“Pharmacopeia” shall include their respective Affiliates (as hereinafterdefined).

 

WHEREAS, SPL andPharmacopeia desire to collaborate to design and conduct medicinal chemistryoptimization programs against SPL’s biological targets based upon leadcompounds selected by SPL; and

 

WHEREAS, SPL andPharmacopeia also desire for Pharmacopeia to conduct a separate program toidentify new lead compounds by screening certain of its internal compoundlibraries for activity against biological targets selected by SPL; and

 

WHEREAS, Pharmacopeia andSPL’s Affiliate Schering Corporation have entered into a collaboration andlicense agreement relating to the United States of even date herewith; and

 

WHEREAS, SPL andPharmacopeia wish to modify and amend certain terms of the existing 1998Agreements (as defined below) between the Parties related to OptimizationLibraries (as defined in the 1998 Agreements);

 

NOW, THEREFORE, inconsideration of the covenants, conditions, and undertakings herein contained,SPL and Pharmacopeia hereby agree as follows:

 

# **ARTICLE IDEFINITIONS**

# ** **

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

 

## 1.1                                 “Acceptance”shall mean, with respect to an IND, NDA or HRD submitted by or on behalf of SPLor its Affiliate or Sublicensee, notice by the FDA (or an analogous regulatoryauthority in another country) that the IND, NDA or HRD has been accepted forreview by the FDA (or analogous regulatory authority).  In the event that the FDA (or analogousregulatory authority) is not required to provide such a notice of acceptance ofan IND, NDA or HRD, then “Acceptance” shall be deemed to occur: (i) in the caseof an IND, thirty (30) days following the date of submission, or if previouslyrejected any resubmission, of such IND; or (ii) in the case of an NDA or HRD,sixty (60) days following the date of submission, or if previously rejected anyresubmission, of such NDA or HRD, unless in each case SPL or its Affiliates orSublicensee receives notice from the FDA (or analogous regulatory authority),during the applicable thirty (30) or sixty (60) day period, that the NDA or HRDis not acceptable for review.

##  

## 1.2                                 “ActivityCriteria” shall mean the threshold criteria to be agreed upon by theParties for identifying compounds having activity against the relevantScreening Target.

##  

## 1.3                                 “Affiliate”shall mean any individual or entity directly or indirectly controlling,controlled by or under common control with, a Party to this Agreement.  For purposes of this Agreement, the director indirect ownership of fifty percent (50%) or more of the outstanding votingsecurities of an entity, or the right to receive fifty percent (50%) or more ofthe profits or earnings of an entity shall be deemed to constitute control, orif not meeting the preceding requirements, any company owned or controlled byor owning or controlling Pharmacopeia or SPL at the maximum control orownership right permitted in a country where such company exists.  Such other relationship as in fact resultsin actual control over the management, business and affairs of an entity shallalso be deemed to constitute control. *.

 

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## 1.4                                 “AgreementCompound” shall mean any Lead Compound or Derivative Compound, as wellas *

##  

## 1.5                                 “AgreementProduct” shall mean any product containing an Agreement Compound,including, without limitation, products for the therapeutic or prophylactictreatment or prevention of diseases and conditions in human beings or animals.

##  

## 1.6                                 “CarryoverPrograms” shall have the meaning set forth in Section 2.02.

##  

## 1.7                                 “Collaboration”shall mean the Optimization Programs and Screening Programs to be performed atPharmacopeia’s facilities by SPL or Pharmacopeia under this Agreement todiscover Agreement Compounds for further development by SPL.

##  

## 1.8                                 “CollaborationCommittee” shall have the meaning set forth in Section 3.1.

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## 1.9                                 “CollaborationResearch Plan” shall have the meaning set forth in Section 2.1.

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## 1.10                           “CollaborationTarget-Specific Technology” shall mean Collaboration Technology relating toassays, compound screening methods and biological research tools, in each casewhich are discovered and developed through Collaboration research directed to aspecific Target, or a small number of closely related Targets (e.g. a family ofbiological receptor subtypes), and are not readily applicable to other types ofTargets; provided, however, that Collaboration Target-SpecificTechnology shall not include any rights in or to any Schering Technology(including, without limitation, SPL’s proprietary Targets) or any AgreementCompounds.

##  

## 1.11                           “CollaborationTechnology” shall mean Collaboration Patent Rights and CollaborationKnow-How.

##  

### 1.11.1                  “CollaborationPatent Rights” shall mean: (i) all patents and patent applicationsclaiming any invention or discovery made by or on behalf of Pharmacopeia inperformance of the Collaboration (including, without limitation, the synthesisand composition of matter of any Agreement Compound, or method of use thereof);and (ii) any divisions, continuations, continuations-in-part, reissues,reexaminations, extensions or other governmental actions which extend any ofthe subject matter of the patent applications or patents in (i) above, and anysubstitutions, confirmations, registrations, revalidations, or additions of anyof the foregoing, in each case, which is owned or controlled, in whole or part,by license, assignment or otherwise by Pharmacopeia during the term of thisAgreement; provided, however, that Collaboration Patent Rightsshall not include any patents or patent applications which are ScheringTechnology or Pharmacopeia Technology.

###  

### 1.11.2                  “CollaborationKnow-How” shall mean all proprietary ideas, inventions, data, know-how,instructions, processes, formulas, materials, expert opinion and information(including, without limitation, (i) biological, chemical, physical andanalytical data and information relating to Agreement Compounds, and (ii) anystructure-function data related to Lead Compounds or Derivative Compounds), ineach case which is developed by Pharmacopeia in performance of theCollaboration; provided, however, that Collaboration Know-Howshall not include Collaboration Patent Rights, Schering Technology orPharmacopeia Technology.

###  

## 1.12                           “CombinationProduct” shall mean an Agreement Product which comprises two (2) or moreactive therapeutic ingredients at least one (1) of which is an AgreementCompound.

##  

## 1.13                           “DerivativeCompound” shall mean any compound derived by Pharmacopeia in theperformance of the Collaboration, in each case from one or more Lead Compounds,and having activity against the same Target as such Lead Compound(s).  As used herein, a compound shall be deemedto have been “derived from” a Lead Compound if it *

##  

## 1.14                           “DevelopmentCandidate” shall mean a Lead Compound, Derivative Compound or ScheringDerivative which possesses the desirable properties of a therapeutic agent forthe prevention or treatment of a clinical condition, in the absence of requiredsafety trials necessary to begin human testing.

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## 2

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## 1.15                           “EffectiveDate” shall have the meaning set forth in Section 2.01.

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## 1.16                           “ExcludedCompound” shall have the meaning set forth in Section 2.9.3.

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## 1.17                           “FDA”shall mean the United States Food and Drug Administration or any correspondingforeign registration or regulatory authority.

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## 1.18                           “FirstCommercial Sale” shall mean, with respect to any Agreement Product, thefirst sale for end use of such Agreement Product in the Territory after receiptof the requisite Regulatory Approval.

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## 1.19                           “FTE”shall mean a full-time employee dedicated to the conduct of the Collaborationor, in the case of less than full-time dedication, a full-time equivalentperson-year, based on a total of forty-six and one-fourth (46.25) weeks or onethousand eight hundred fifty (1,850) hours per year, of work on or directly relatedto the Collaboration.

##  

## 1.20                           “Hit”shall mean a Pharmacopeia Compound identified by Pharmacopeia during the termand in performance of the Collaboration as meeting the Activity Criteria withrespect to the given Screening Target.

##  

## 1.21                           “HRD”shall mean a health registration dossier or its equivalent covering anAgreement Product filed in any country outside the United States and which isanalogous to an NDA and including, where applicable, applications for pricing,pricing reimbursement approval, labeling and Regulatory Approval.

##  

## 1.22                           “IND”shall mean an Investigational New Drug application, as defined in the U.S.Food, Drug and Cosmetic Act and the regulations promulgated thereunder forinitiating clinical trials in the United States, or any corresponding foreignapplication, registration or certification.

##  

## 1.23                           “LeadCompound” shall mean any Hit or Schering Compound with respect towhich the Parties agree to initiate a program of medicinal chemistry toidentify a Development Candidate based upon the structure of such Hit orSchering Compound.

##  

## 1.24                           “MajorMarket” shall mean Japan or any three (3) of the following countries;France, Germany, Italy, Spain or the United Kingdom.

##  

## 1.25                           “NDA”shall mean a New Drug Application, Product License Application, or BiologicLicense Application, as defined in the U.S. Food, Drug and Cosmetics Act andregulations promulgated thereunder, or the equivalent filed with the FDAseeking approval to market and sell an Agreement Product in the United States.

##  

## 1.26                           “NetSales” shall mean, with respect to each country in the Territory, theinvoice price billed by SPL or its Affiliates, or their respectiveSublicensees, to Third Parties (whether an end-user, a distributor orotherwise) for the sale of Agreement Products, and exclusive of intercompanytransfers or sales among SPL, its Affiliates and/or Sublicensees in theTerritory, less the reasonable and customary deductions from such gross amountsincluding:  (i) normal and customarytrade, cash and quantity discounts, allowances and credits;  (ii) credits or allowances actually grantedfor damaged goods, returns or rejections of Agreement Product and retroactiveprice reductions;  (iii) sales or similartaxes (including duties or other governmental charges levied on, absorbed orotherwise imposed on the sale of Agreement Product including, withoutlimitation, value added taxes or other governmental charges otherwise measuredby the billing amount, when included in billing);  (iv) freight, postage, shipping, customs duties and insurancecharges,****whenincluded in billing; (v) charge back payments and rebates granted to managedhealth care organizations or their agencies, and purchasers and reimbursers orto trade customers, including but not limited to, wholesalers and chain and pharmacybuying groups;  (vi) commissions paid toThird Parties other than sales personnel and sale representatives or salesagents; and  (vii) rebates (orequivalents thereof) granted to or charged by national, state or localgovernmental authorities in a country in the Territory. ** **Indetermining Net Sales of an Agreement Product any of the above discounts shallbe accounted for and apportioned based on the list price of each such AgreementProduct.

 

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In the event that anAgreement Product is sold in the form of a Combination Product, Net Sales forsuch Combination Product will be calculated by multiplying actual Net Sales ofsuch Combination Product by the fraction A/(A+B) where: A is the invoiceprice of the Agreement Product contained in the Combination Product if soldseparately by SPL, an Affiliate or Sublicensee; and B is the invoice priceof any other active therapeutic ingredients in the Combination Product if soldseparately by SPL, an Affiliate or Sublicensee.  In the event that the Agreement Product is sold in the form of aCombination Product containing one or more active therapeutic ingredients otherthan an Agreement Product and one or more such active therapeutic ingredientsof the Combination Product are not sold separately, then the above formulashall be modified such that A shall be the fully allocated manufacturingcost to SPL, its Affiliates or Sublicensee of the Agreement Product and B shallbe the fully allocated manufacturing cost to SPL, its Affiliate or Sublicenseeof any other active therapeutic ingredients in the combination, in each case,determined in accordance with the schedule of fully allocatedmanufacturing costs set forth in Exhibit C.

 

## 1.27                           “OptimizationProgram” shall mean a medicinal chemistry research program to discover oneor more Development Candidates with respect to a given Target based upon one ormore Lead Compounds.

##  

## 1.28                           “PharmacopeiaChange in Control” shall mean any of the following:  (i) a reorganization, merger orconsolidation of Pharmacopeia with a Major Pharmaceutical Company if theshareholders of Pharmacopeia (determined immediately prior to thereorganization, merger or consolidation taking effect) hold, directly orindirectly, less than fifty percent (50%) of the surviving corporation(determined immediately after such reorganization, merger or consolidationtakes effect); (ii) an acquisition by a Major Pharmaceutical Company ofdirect or indirect beneficial ownership of voting stock of Pharmacopeia representingmore than fifty percent (50%) of the total current voting power of Pharmacopeiathen issued and outstanding; (iii) a sale of all or substantially all theassets of Pharmacopeia’s Drug Discovery division to a Major PharmaceuticalCompany; or (iv) a liquidation or dissolution of Pharmacopeia.  As used in this Section 1.28, the term“Major Pharmaceutical Company” shall mean any entity (including anycorporation, joint venture, partnership or unincorporated entity), as well asany Affiliates or division(s) of such entity, that is engaged in the research,development, manufacturing, registration and/or marketing of drug products thatare approved under NDAs, HRDs, ANDAs or Biologics License Applications, havingannual sales of pharmaceutical products of *.

##  

## 1.29                           “PharmacopeiaCompound” shall mean a compound synthesized and characterized byPharmacopeia and which is contained in one of Pharmacopeia’s proprietaryinternal compound libraries.

##  

## 1.30                           “PharmacopeiaTechnology” shall mean Existing Pharmacopeia Patent Rights, ExistingPharmacopeia Know-How, and Pharmacopeia Improvements.

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### 1.30.1                  “ExistingPharmacopeia Patent Rights” shall mean (i) all patents and patentapplications existing as of the Effective Date that claim the synthesis orcomposition of matter of a Lead Compound which is a Hit (and/or any other Hitsfrom the same Screening Program as such Lead Compound) or a correspondingDerivative Compound, or the method of use thereof, and (ii) any divisions,continuations, continuations-in-part, reissues, reexaminations, extensions orother governmental actions which extend any of the subject matter of the patentapplications or patents in (i) above, and any substitutions, confirmations,registrations, revalidations, or additions of any of the foregoing, in eachcase, which is owned or controlled, in whole or part, by license, assignment orotherwise by Pharmacopeia during the term of this Agreement, and subject to anylimitations and prohibitions of such license or sublicense.

###  

### 1.30.2                  “ExistingPharmacopeia Know-How” shall mean all ideas, inventions, data, know-how,instructions, processes, formulas, expert opinion and information, including,without limitation, biological, chemical, physical and analytical data andinformation, existing as of the Effective Date, owned or controlled in whole orpart by Pharmacopeia by license, assignment or otherwise, which is necessaryfor the discovery, development, manufacture or use of Lead Compounds based onHits (and/or any other Hits from the same Screening Program as such LeadCompound) or corresponding Derivative Compounds and/or the discovery,development, manufacture, use, sale or commercialization of correspondingAgreement Products, in each case, to the extent Pharmacopeia has the right tolicense or sublicense the same, and subject to any limitations and prohibitionsof such license or sublicense.

 

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### 1.30.3                  “PharmacopeiaImprovements” shall mean all patentable inventions conceived and reduced topractice, solely or jointly, by Pharmacopeia or SPL in the conduct of theCollaboration that are within the scope of a claim of an issued patent withinthe Existing Pharmacopeia Patent Rights (i) which patent issued prior tothe Effective Date or (ii) which claim has an effective filing date priorto the Effective Date; provided, however, that PharmacopeiaImprovements shall not include Pharmacopeia Independent Technology (as definedin Section 2.10.1).

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## 1.31                           “PhaseIII” shall mean Phase III clinical trials as prescribed by applicableFDA regulations, regardless of whether such trials are conducted in the UnitedStates or elsewhere.

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## 1.32                           “RegulatoryApproval” shall mean any applications or approvals, including any INDs,NDAs, supplements, amendments, pre- and post-approvals, marketingauthorizations based upon such approvals (including any prerequisitemanufacturing approvals or authorizations related thereto) and labelingapproval(s), technical, medical and scientific licenses, registrations orauthorizations of any national, regional, state or local regulatory agency,department, bureau, commission, council or other governmental entity, necessaryfor the manufacture, distribution, use, import, export or sale of AgreementProduct(s) in the Territory.

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## 1.33                           “ScheringCompound” shall mean a compound which is independently discovered by or onbehalf of SPL, without the use of Collaboration Technology or PharmacopeiaTechnology as demonstrated by documented evidence created at the time of suchdiscovery, and which is active against a specific Target.

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## 1.34                           “ScheringDerivative” shall mean any compound derived by SPL during the term of theCollaboration or for a period of * the expiration or earlier terminationof the Collaboration, in each case from any Derivative Compound(s) or from a LeadCompound which is a Hit, and having as its primary mode of action *As usedherein, a compound shall be deemed to have been “derived from” such a LeadCompound or a Derivative Compound if it*.

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## 1.35                           “ScheringTechnology” shall mean Schering Patent Rights, Schering Know-How andSchering Improvements.

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### 1.35.1                  “ScheringPatent Rights” shall mean (i) all existing patents and patentapplications owned or controlled in whole or in part by SPL or its Affiliatesas of the Effective Date (including, without limitation, those which claim thesynthesis or composition of matter of a Lead Compound or Derivative Compound,or the method of use thereof, or which relate to any Target or any assayprovided by SPL for use in the Collaboration or the corresponding Targets forsuch assays), (ii) all patents and patent applications claiming any inventionor discovery made by or behalf of SPL or its Affiliates, other than inperformance of the Collaboration, in connection with the discovery and/ordevelopment of any Agreement Compounds and/or Schering Compounds, and/or thedevelopment and commercialization of any Agreement Product, and (iii) anydivisions, continuations, continuations-in-part, reissues, reexaminations,extensions or other governmental actions which extend any of the subject matterof the patent applications or patents in (i) or (ii) above, and anysubstitutions, confirmations, registrations, revalidations, or additions of anyof the foregoing.

###  

### 1.35.2                  “ScheringKnow-How” shall mean all ideas, inventions, data, know-how, instructions,processes, formulas, materials, expert opinion and information, including,without limitation, biological, chemical, pharmacological, toxicological,pharmaceutical, physical and analytical, clinical, safety, manufacturing andquality control data and information (except for any of the above arising inperformance of the Collaboration) owned or controlled in whole or part by SPLby license, assignment or otherwise, which is necessary for the discovery,development, manufacture, use, sale or commercialization of Agreement Products,in each case, to the extent SPL has the right to license or sublicense thesame, and subject to any limitations and prohibitions of such license orsublicense; provided, however, that Schering Know-How does notinclude Schering Patent Rights.

###  

### 1.35.3                  “ScheringImprovements” shall mean all patentable inventions conceived and reduced topractice solely or jointly by SPL or Pharmacopeia in the conduct of theCollaboration that are within the scope of the claims of any issued patentwithin the Schering Patent Rights (i) which patent issued prior to theEffective Date or (ii) which claim has an effective filing date prior to theEffective Date.

 

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## 1.36                           “ScreeningProgram” shall mean a program to screen Pharmacopeia’s internal compoundlibraries for activity against one or more Screening Targets for the purpose ofidentifying Hits.

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## 1.37                           “ScreeningTarget” shall mean a Target agreed to by the Parties pursuant toSection 2.1.2.

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## 1.38                           “Sublicensee”shall mean with respect to a particular Agreement Product, a Third Party towhom SPL has granted a sublicense under the applicable Pharmacopeia Technology,Schering Technology or Collaboration Technology to make, use and/or sell suchAgreement Product.  As used in thisAgreement, it is understood that “Sublicensee” shall also include a Third Partyor Third Parties to whom SPL has granted the right to distribute such AgreementProduct, provided that such Third Party or parties has (have) the primaryresponsibility for marketing and promotion at its (their) expense of suchAgreement Product within the field or territory for which such distributionrights are granted, which marketing and promotional activities are notsubsidized directly or indirectly by SPL.

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## 1.39                           “Target”shall mean a biomolecular entity (including, without limitation, receptors,enzymes, nucleic acids and proteins, and/or fragments thereof) that a smallmolecule is screened against in order to determine whether the small moleculedemonstrates a specific biochemical or pharmaceutical effect.

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## 1.40                           “Territory”shall mean all of the countries and territories in the world, except for theUnited States and its territories, possessions and commonwealths.

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## 1.41                           “ThirdParty” shall mean any Party other than Pharmacopeia and its Affiliates, SPLand its Affiliates, Schering Corporation and its Affiliates, and theirpermitted assigns.

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1.42                           “1994Agreements” shall have the meaning set forth in Section 11.17.

 

1.43                           “1998Agreements” shall have the meaning set forth in Section 11.17.

 

## 1.44                           “USAgreement” shall mean that certain Collaboration and License Agreemententered into by and between Pharmacopeia and Schering Corporation of even dateherewith.

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1.45                           “ValidClaim” shall mean a composition-of-matter or method-of-use claim of anissued and unexpired patent included within the Collaboration Patent Rights orPharmacopeia Patent Rights, and in each case which has not been revoked or heldunenforceable or invalid by a decision of a court or other governmental agencyof competent jurisdiction, unappealable or unappealed within the time allowedfor appeal, and which has not been disclaimed, denied or admitted to be invalidor unenforceable through reissue or disclaimer or otherwise.

 

# **ARTICLE IICOLLABORATION**

# ** **

## 2.0                                 EffectiveDate; 1998 Agreements.

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## 2.01                           EffectiveDate.  SPL and Pharmacopeia havesigned this Agreement on the Execution Date as evidence of their mutual desireto establish a collaborative alliance to discover and develop AgreementProducts effective against certain Targets. *

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## 2.02                           Relationshipto 1998 Agreements.  As of theEffective Date, all of SPL’s remaining obligations to provide research fundingfor Pharmacopeia FTEs under Sections 2.4 and 5.2 of the 1998 Agreements, andall of Pharmacopeia’s remaining obligations to provide FTEs underSection 2.5.1 of the 1998 Agreements, shall terminate.  In addition, as of the Effective Date, anyand all ongoing research programs at Pharmacopeia *shall continue to beperformed using the Pharmacopeia FTEs to be provided under this Agreement, asdetermined by the Collaboration Committee. As of the Effective Date, any and all such ongoing programs (hereinafter“Carryover Programs”) shall be

 

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## treated under thisAgreement as Optimization Programs; provided, however, thatnotwithstanding anything herein to the contrary, the provisions of thisAgreement related to diligence, milestone payments, royalties, ownership,exclusivity, patent related activities and any and all other rights orobligations with respect to *shall be governed by the terms and conditionsof the 1998 Agreements, and SPL shall have no milestone or royalty paymentobligations under this Agreement with respect thereto.   Except as expressly modified and amended bythis Agreement, all other terms and conditions of the 1998 Agreements shallremain in full force and effect.

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## 2.1                                 CollaborationResearch Programs.

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## 2.1.1                        OptimizationPrograms.  Within thirty (30) daysof the Effective Date, the Collaboration Committee shall agree upon a writtenoverall plan for each of the Optimization Programs to be conducted by theParties (the “Collaboration Research Plan”). The Collaboration Research Plan shall be periodically revised and updated(at least annually) by the Collaboration Committee during the term of theCollaboration.  The CollaborationResearch Plan shall set forth the responsibilities of each of the Parties withrespect to performance of the Optimization Programs.  The Collaboration Committee shall have responsibility formonitoring the performance of Optimization Programs against the currentCollaboration Research Plan. Notwithstanding the foregoing, the Parties acknowledge and agree thatSPL, in its sole discretion, shall have primary responsibility and decisionmaking authority with respect to the selection of the Targets and LeadCompounds and the specific Optimization Programs to be conducted during theCollaboration; provided that Pharmacopeia shall not be obligated to undertakean Optimization Program for a Target selected by SPL if Pharmacopeia reasonablydetermines that the performance of an Optimization Program based upon thatTarget would constitute a breach one or more of Pharmacopeia’s existingcontractual obligations to Third Parties; and providedfurther,that Pharmacopeia’s obligation to undertake such an Optimization Program shallbe subject to Section 2.12.

##  

2.1.2                        ScreeningPrograms.  Within thirty (30) daysafter the Effective Date, SPL shall notify Pharmacopeia in writing of theidentity of*Screening Targets.  Suchnotice shall include the applicable Activity Criteria recommended by SPL foreach proposed Screening Target, which Activity Criteria shall constituteSchering Know-How.  Such ActivityCriteria shall include, without limitation, *Pharmacopeia shall have theright to reject any proposed Targets as Screening Targets if: (i) it has apre-existing contractual obligation to any Third Party that provides forexclusivity and/or non-compete obligations with respect to such Target; or (ii)Pharmacopeia has previously screened one or more Pharmacopeia Compounds againstthe same Target and there are less than two million (2,000,000) PharmacopeiaCompounds that have not previously been screened against the Target; or (iii)in accordance with the terms of Section 2.12.  In addition, in the event that Pharmacopeia reasonably believes(based upon objective scientific information) that the Activity Criteriarecommended by SPL for a proposed Screening Target are not reasonablyattainable, then the Collaboration Committee shall promptly meet to agree ingood faith upon mutually acceptable Activity Criteria.  Pharmacopeia shall promptly notify inwriting whether it accepts or rejects each such Target as a ScreeningTarget.  SPL shall have the right topropose a replacement Target for each Target rejected by Pharmacopeia, whichreplacement Target may be accepted or rejected by Pharmacopeia, as describedabove.  The Parties shall use reasonableefforts to agree on *SPL shall propose*additional Targets for acceptanceby Pharmacopeia as Screening Targets for Screening Programs.  Pharmacopeia shall have the right to acceptor reject such Targets, as described above, and the Parties shall usereasonable efforts to agree on *new Screening Targets for ScreeningPrograms to be conducted by Pharmacopeia *To the extent that SPL will befunding *the Parties shall use reasonable efforts to agree upon *newTargets (to be proposed by SPL *as Screening Targets for ScreeningPrograms to be conducted by Pharmacopeia *

 

## 2.2                                 CollaborationTerm.  The term of the Collaborationshall be *and, unless extended pursuant to Section 2.2.1, or earlierterminated pursuant to Section 2.2.2 or Article X, shall expire onthe third anniversary of the Effective Date.

##  

### 2.2.1                        Extensionof Collaboration Term.  In the eventthat SPL continues to fund the Collaboration *in accordance withSection 2.5.2, then the Collaboration may be extended for *asprovided below.  The first *shallbe effective upon agreement by SPL *shall be effective upon agreement bySPL *Each of the *shall become effective upon written notice by SPLto Pharmacopeia that it agrees to the *in accordance withSection 2.8.3. * shall be at SPL’s sole discretion and shall be forthe purpose of completing any Optimization Programs which are still in progressat the end *The *extension, if any, shall be effective upon writtennotice by SPL to Pharmacopeia at least * If SPL does not provide such notice, the Collaboration shall expireon *.

 

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2.2.2                        WindDown Period.  The partiesacknowledge that*of the Collaboration is intended to serve as a wind downperiod during which any then ongoing Optimization Programs can becompleted.  Thus, if SPL does not electto *during the *shall be the wind down period.  In the event that SPLis *during *of the Collaboration and SPL does not agreeto *during *of the Collaboration based upon one or more *then theCollaboration shall continue for a wind down period of *to enable theParties to complete and wind down any remaining Optimization Programs thenongoing.  SPL’s funding obligationsduring the *period shall be governed by the terms of Section 2.5.2*,2.5.4*, or 2.5.3*, as applicable.

 

### 2.2.3                        Terminationof Collaboration Upon Pharmacopeia Change in Control.  In the event of a Pharmacopeia Change inControl during the term of the Collaboration, SPL shall have the right, in itsdiscretion, (i) to terminate the Agreement pursuant toSection 10.4.1, below, or (ii) to terminate the Collaboration and notthe Agreement upon ninety (90) days written notice to Pharmacopeia after suchChange in Control expressly stating its intention to terminate theCollaboration.  In the event that SPLelects to terminate the Collaboration and not the Agreement, then (a) SPLwill not be obligated to make the payments set forth in Section 5.2 forthe period after the effective date of such termination, (b) Pharmacopeia shallnot be obligated to conduct any Collaboration research activities after the effectivedate of such termination, and (c) the remaining terms and conditions ofthis Agreement, including without limitation the licenses and royaltyobligations set forth herein, shall remain in full force and effect until theAgreement expires or is terminated as set forth in Article X, below.

###  

2.2.4                        EarlyTermination of Screening Programs. In the event that Pharmacopeia fails to identify any Hits meeting theapplicable Activity Criteria from any of the Screening Programs conductedduring * then SPL shall have the right to terminate all furtherobligations with regard to Screening Programs in *This right shall beexercisable by SPL, in its sole discretion, by providing written notice to thateffect to Pharmacopeia within *In the event that the Screening Programsare terminated pursuant to this Section 2.2.4, then Pharmacopeia shall notconduct any further Screening Programs under this Agreement during theremaining term of the Collaboration.  Inaddition, notwithstanding anything herein to the contrary: (i) theCollaboration shall be limited to a total *being a wind down year in whichSPL shall only be obligated to fund *chemists, as provided inSection 2.5.2; and (ii) the number of FTEs to be funded during *consisting of*chemistry FTEs and*biology FTEs, to conduct the OptimizationPrograms *In the event that following such early termination of theScreening Programs by SPL, or during any other wind down period underSection 2.2.2, Pharmacopeia undertakes any new Optimization Programs basedupon Lead Compounds which are Schering Compounds (“Wind Down Programs”), thennotwithstanding anything herein to the contrary, Pharmacopeia shall be entitledto receive milestone payments with respect to any new Agreement Compoundsresulting from such Wind Down Programs under Section 5.4.1(a), but shallnot be entitled to receive any royalty payments under Section 5.5 on salesof any Agreement Products containing an Agreement Compound resulting from suchWind Down Programs or with respect to any pharmaceutical products containing aSchering Compound having primary activity against the Target which was thesubject of the Wind Down Program.

 

## 2.3                                 PharmacopeiaResponsibilities.  Pharmacopeiashall use commercially reasonable efforts to provide:

##  

#### (i)                           thenumber of scientist FTEs agreed to by the Parties, as set forth inSection 2.5, and such additional scientists as may be mutually agreed toin writing by the Parties and paid for by SPL, for performance of theCollaboration during each year of the Collaboration (it being understood andagreed that FTEs provided by Pharmacopeia for the Collaboration under the USAgreement shall also be deemed to be provided to this Collaboration forpurposes of determining the number of FTEs provided by Pharmacopeia hereunder);

####  

#### (ii)                        researchfacilities, laboratories and equipment sufficient to enable the Collaborationscientists (including Pharmacopeia employees and one (1) SPL employee to beprovided pursuant to Section 2.4(i)) to perform the Collaboration in afashion similar to the operation of Pharmacopeia’s own operations.  The chemistry FTEs shall work in dedicatedlaboratories at Pharmacopeia’s research facilities in New Jersey; and

####  

#### (iii)                     administrativeservices necessary to conduct the business of the Collaboration in a mannercomparable to that of Pharmacopeia**’**s own business activities.

 

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It is understoodand agreed that, except as may be mutually agreed by the Parties, Pharmacopeiashall not be obligated hereunder to conduct research or development activitiesin the Collaboration which are outside the scope of the Collaboration ResearchPlan or the Screening Programs.

 

## 2.4                                 SPLResponsibilities.  SPL shall provideresearch funding for the Collaboration as set forth in Section 5.2 andshall use commercially reasonable efforts to provide:

##  

#### (i)                           onescientific director provided by SPL, in combination with Schering Corporation,to work full-time on the Collaboration managing the day-to-day operations ofthe Collaboration (the “Collaboration Director”);

####  

#### (ii)                        additionalsupport for Collaboration research projects, including, without limitation,scientists, facilities and materials to perform biological research to identifyTargets, assay development, compound screening, medicinal chemical research andanalytical support services; and

####  

#### (iii)                     the researchmaterials, procedures and Schering Know-How necessary to conduct the ScreeningPrograms, as provided in Section 2.8.

####  

## 2.5                                 CollaborationStaffing.

##  

### 2.5.1                        PharmacopeiaInitial FTE Commitments. During *Pharmacopeia will provide *FTEs, consistingof *synthetic/medicinal chemists *and the remaining *biologyFTEs to be allocated, as determined by the Collaboration Committee, betweenbioassay support for Optimization Programs and performance of Screening Programs.  The Parties agree that the CollaborationCommittee shall have the right to (i) increase or decrease the total number ofFTEs to be provided by Pharmacopeia and funded by SPL during any year of theCollaboration, and/or (ii) to adjust the allocation of the total number of FTEsworking on the Collaboration between chemistry and biology FTEs, in each caseas necessary to carry out the Collaboration Research Plan; provided, however,that any such adjustments must be agreed upon by the Collaboration Committee inadvance in writing, shall not be made more than once in any given quarter, andshall not *or *in any wind down year.  Pharmacopeia’s obligation to provide FTEs during*as well asduring any extension of the Collaboration pursuant to Section 2.2.1 orwind down period pursuant to Section 2.2.2, shall be determined inaccordance with Sections 2.5.2, 2.5.3 or 2.5.4, as applicable.  All of the Pharmacopeia chemistry FTEsassigned to work on the Collaboration *On or before the Effective Date,Pharmacopeia will provide to SPL a list individually identifying thosePharmacopeia chemistry FTEs assigned to the Collaboration, which list shall beupdated from time to time during the term of the Collaboration as FTEs assignedto work exclusively for the Collaboration are added, removed and/orreplaced.   During the term of theCollaboration, upon initiating each Optimization Program, Pharmacopeia willalso individually identify a biology FTE as the primary contact at Pharmacopeiafor the performance of assays and other biology related activities for suchOptimization Program, it being understood that such individuals may haveresponsibility for more than one Optimization Program.  It is understood that, in the aggregate, theeducation, training and experience levels of all Pharmacopeia FTEs assigned tothe Collaboration will be reasonably representative of Pharmacopeia employeesworking on Pharmacopeia’s internal research programs.  Within fifteen (15) business days after the Effective Date,Pharmacopeia will provide SPL with: (i) a copy of the****Collaboration BusinessConduct Policy (as described in Section 7.6) to be observed by allPharmacopeia FTEs assigned to work on the Collaboration; and (ii)Pharmacopeia’s written representation and warranty that all such FTEs assignedto the Collaboration have read and understand the terms of the****CollaborationBusiness Conduct Policy.

###  

### 2.5.2                        PharmacopeiaFTE Commitments for *In the event that during *the Parties haveinitiated, or SPL has agreed to initiate, *Optimization Programs *thenPharmacopeia shall continue to provide, and SPL will continue tofund, *FTEs during *If at least *then SPL shall have the right(in its sole discretion) to reduce the number of FTEs to be provided byPharmacopeia and funded by SPL; provided that the number of PharmacopeiaFTEs to be funded by SPL during the third year of the Collaboration shallbe *FTEs; and providedfurther that all such FTEs shall bechemistry FTEs dedicated to work full time on the Collaboration.

###  

2.5.3                        PharmacopeiaFTE Commitments During *If the term of the Collaborationis *pursuant to Section 2.2.1, SPL shall continue to fund andPharmacopeia shall continue to provide *FTEs during * ifapplicable.  If 

 

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SPL extends the Collaboration *pursuantto Section 2.2.1, then the level of FTE support to be provided byPharmacopeia and funded by SPL shall be determined by the Partiesbased *to be completed during*

 

2.5.4                        PharmacopeiaFTE Commitments *SPL shall have the right (in its sole discretion) todecrease the level of FTE support to be provided by Pharmacopeia and funded bySPL during*as determined pursuant to Section 2.2.2) *providedthat the number of Pharmacopeia FTEs to be funded by SPL during *shallbe *nd providedfurther that all such FTEs shall bechemistry FTEs dedicated to work full time on the Collaboration.

 

### 2.5.5                        SPL FTECommitments.  During the term of theCollaboration SPL shall, in combination with Schering Corporation under the USAgreement, provide a single scientific director as set forth inSection 2.4(i).  Such directorshall be subject to Pharmacopeia’s confidentiality restrictions such as limitedaccess to laboratories and access only to data that specifically relate to theCollaboration.  It is understood that thescientific director shall remain an employee of Schering Corporation, and thatSPL shall remain responsible for, and indemnify Pharmacopeia for any claimsarising from or relating to, the conduct, activities, salary and benefits ofsuch director, except to the extent caused by the gross negligence or willfulmisconduct of Pharmacopeia.  Inaddition, SPL shall provide such additional FTEs located at SPL’s researchfacilities as SPL determines, in its sole discretion, are reasonably necessaryto support the ongoing research programs of the Collaboration, including,without limitation, assay development, screening, medicinal chemistry,analytical services and animal testing services.

###  

## 2.6                                 CapitalExpenditures.  In the event that theParties reasonably determine that one or more Optimization Programs to beperformed at Pharmacopeia, as identified in the applicable CollaborationResearch Plan, will require capital expenditures to provide Pharmacopeia withaccess to specialized equipment needed to perform such Optimization Program,SPL shall be responsible (at its expense) for the purchase of such specializedequipment, and for purchasing, or reimbursing Pharmacopeia for theout-of-pocket costs of, any specialized consumables that are uniquely necessaryfor the proper operation of such specialized equipment.  The Parties will make arrangements for thedelivery and installation of such specialized equipment at Pharmacopeia’sfacilities; provided that the specialized equipment is and shall remain thesole and exclusive property of SPL. Pharmacopeia shall have the right to utilize the specialized equipmentin performance of Optimization Programs and shall not use the specializedequipment for any other activities or programs whatsoever.  Pharmacopeia shall be responsible (at itsown expense) for all routine operating costs incurred in connection with theuse of any specialized equipment provided by SPL under this Section 2.6,including without limitation, any utility costs and the costs of reagents,solvents or other supplies necessary for the operation of the specializedequipment.  Pharmacopeia shall ensurethat all Pharmacopeia employees operating the specialized equipment have beenproperly trained in its use and shall use the specialized equipment inaccordance with the instructions and operating procedures to ensure its properuse.  Pharmacopeia shall be responsible(at its expense) for any damage (excluding ordinary wear and tear) to any ofSPL’s specialized equipment provided to Pharmacopeia pursuant to this Section 2.6resulting from Pharmacopeia’s use of the specialized equipment.  Upon expiration or earlier termination ofthe Collaboration, Pharmacopeia shall fully cooperate with SPL to promptlyreturn the specialized equipment to SPL. Alternatively, the Parties may decide to permit Pharmacopeia to retainthe specialized equipment following the expiration or termination of theCollaboration, in which case the Parties shall arrange for the purchase andtransfer of ownership of the specialized equipment to Pharmacopeia on financialterms to be agreed to by the Parties based upon the then current fair marketvalue of the specialized equipment.

##  

## 2.7                                 RecordKeeping and Inspection of Records. Each of SPL and Pharmacopeia, and their respective Affiliates, shallmaintain records of its Collaboration activities (or cause such records to bemaintained) in sufficient detail and in good scientific manner appropriate forpatent and regulatory purposes as will properly reflect all work performed andthe results achieved in performance of the Collaboration.  SPL shall also maintain analogous records ofits development activities with respect to Agreement Compounds and AgreementProducts.  Such records may includebooks, records, reports, research notes, charts, graphs, comments,computations, analyses, recordings, photographs, computer programs anddocumentation thereof, computer information storage media, samples of materialsand other graphic or written data generated in connection with theCollaboration, including any data required to be maintained pursuant to allrequirements of applicable laws, rules and regulations, or as directed by theCollaboration Committee.  Pharmacopeia**’**srecords shall also document by name which individuals assigned to theCollaboration pursuant to Section 2.5 are working on each specificCollaboration research project (identifying the Target(s) involved).  During the Collaboration and for five (5)years thereafter, each of SPL and Pharmacopeia shall have the right, upon atleast five (5)

 

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## business days**’**prior notice, to inspect all such records of the other Party (or legible copiesthereof) during normal business hours. Each Party’s rights under this Section 2.7 shall be limited to one(1) inspection in any calendar year.  Ineach case, the Party conducting the inspection shall maintain such records andthe information disclosed therein in confidence in accordance withSection 7.1, and shall use such information solely for purposes of thisAgreement.  Upon request and tender ofpayment for the actual cost in providing copies, Pharmacopeia and/or SPL, asappropriate, shall provide to the requesting Party copies of such records.

##  

## 2.8                                 Performanceof Screening Programs.  With respectto each Screening Target, the Parties agree that promptly following theacceptance by Pharmacopeia of each Screening Target in accordance withSection 2.1.2, SPL will provide Pharmacopeia (free of charge) withreasonable quantities of the Screening Target protein and any of SPL’s otherproprietary reagents required to perform assays to identify compounds havingactivity against such Screening Target. All such proteins and other reagents are and shall remain the propertyof SPL, shall be used by Pharmacopeia solely in performance of the ScreeningProgram, and shall not be transferred or otherwise made available to any ThirdParty without SPL’s prior written consent (which consent may be granted orwithheld in SPL’s sole discretion.)  Uponreceipt of such *Pharmacopeia shall use diligent efforts to initiate andconduct a Screening Program to identify Pharmacopeia Compounds having activityagainst such Screening Target.  Suchefforts shall include any assay development work or assay modificationsnecessary to enable Pharmacopeia to perform the relevant assays to determinewhether or not the applicable Activity Criteria are met for such ScreeningTarget.  Except as otherwise provided inSection 2.6, Pharmacopeia shall be solely responsible *Effective uponacceptance by Pharmacopeia of each Screening Target under Section 2.1.2,Pharmacopeia shall not conduct any screening of Pharmacopeia Compounds, eitherfor itself or for any Third Party, against the same Target as such ScreeningTarget (as determined pursuant to Section 2.11.1) for the period *

##  

## 2.8.1                        Hits.  Any Pharmacopeia Compound(s) identified asmeeting the Activity Criteria against a Screening Target through screening ofthe Pharmacopeia Compounds by Pharmacopeia during the term of theCollaboration, shall be designated a Hit.  Upon completion by Pharmacopeia of the Screening Program for agiven Screening Target, Pharmacopeia shall promptly notify SPL of all Hitsidentified with respect to that Screening Target, which notice shall identifythe Screening Target and the available data generated by Pharmacopeiaregarding*but shall not disclose the chemical structure of the Hits, or in theevent that no Hits are identified from the Screening Program, Pharmacopeiashall notify SPL to that effect. *information and samples of Hits solelyfor the purpose of confirming that such Pharmacopeia Compound meets theActivity Criteria for the Screening Target. This will include the performance by SPL of any tests necessary toconfirm *SPL agrees, however, not to conduct, or have conducted, *

##  

## 2.8.2                        *Within *SPL shall notify Pharmacopeia in writing of those compounds whichSPL has confirmed are Hits *Promptly after receipt of such notice,Pharmacopeia shall disclose to SPL *Upon receipt of the *SPL shallensure that those employees having access to the*shall only use suchinformation for *

##  

2.8.3                        LeadCompounds from Screening Programs. *SPL shall notify Pharmacopeiawhich (if any) of those confirmed Hits are acceptable to SPL as Lead Compoundsfor initiation of new Optimization Programs. Following notice from SPL that one or more Hits are acceptable as LeadCompounds, the Parties shall, as soon as reasonably practicable, initiate a newOptimization Program based upon such Lead Compound(s) in accordance withSection 2.9.  The Partiesacknowledge and agree that if SPL notifies Pharmacopeia that at least one Hitis acceptable to SPL as a Lead Compound for a given Screening Target, then thelicenses granted to SPL under Article 4 with respect to such Lead Compoundshall also include *The restrictions set forth in Section 2.8.2regarding disclosure, access and use of structural information with respect toconfirmed Hits shall no longer apply following notice of acceptance by SPL ofone or more such Hits as a Lead Compound pursuant to this Section 2.8.3.  Upon acceptance by SPL of one or more Hits asa Lead Compound pursuant to this Section 2.8.3, the duration of therestriction on screening by Pharmacopeia against the relevant Screening Target,as set forth in the last sentence of Section 2.8, *

 

2.8.4                        Hits NotAccepted by SPL.  In the event thatSPL does not accept any of the Hits identified by Pharmacopeia with respect toa given Screening Target as Lead Compounds for an Optimization Program,Pharmacopeia shall have the right to *In the event that Pharmacopeiadecides to *Following receipt of any*by SPL, the Parties agree thatfor *

 

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2.9                                 Performanceof Optimization Programs.  The firstOptimization Programs to be performed under this Agreement are the ongoingresearch programs for Optimization Libraries (as defined in the 1998Agreements) listed in Exhibit D, which shall be subject to the terms andconditions of Section 2.0.  All newOptimization Programs to be initiated by the Parties after the Effective Dateshall be programs based upon Lead Compounds selected under the terms andconditions of this Agreement and Section 2.0 shall not apply to any suchnew Optimization Programs. It is anticipated that the Parties will generallyseek to maintain *ongoing Optimization Programs during each year of theCollaboration in which SPL is funding research at the full level of *FTEsin accordance with Section 2.5; provided, however, that theParties acknowledge that the actual number of ongoing Optimization Programs atany given time may vary and shall be subject in part to Pharmacopeia’s successin identifying Hits from Screening Programs. If the Parties are unable to maintain *of Optimization Programsbased upon Lead Compounds which are Hits from Screening Programs, SPL will usecommercially reasonable efforts to approve and initiate new OptimizationPrograms based upon Lead Compounds which are Schering Compounds as necessary inorder maintain a reasonable number of ongoing Optimization Programs based uponthe available Pharmacopeia FTEs working on the Collaboration; provided, however,failure by SPL to provide Lead Compounds which are Schering Compounds shall notconstitute a breach under this Agreement. If SPL ceases funding the Collaboration at the full level in *inaccordance with Sections 2.5.2, 2.5.3 and 2.5.4, then SPL will not be obligatedto initiate any new Optimization Programs *The Collaboration Committeeshall be responsible for allocation of the FTEs and other resources among thevarious Optimization Programs selected by SPL. This will include allocation of the medicinal chemistry FTEs, as well asadditional FTEs to provide bioassay support, as necessary, for eachOptimization Program to generate primary assay data for Lead Compounds andDerivative Compounds.  In the event thatall FTEs are fully allocated among the various ongoing Optimization Programs,any new Optimization Programs will be initiated as resources become availablewithin the Collaboration, based upon prioritization determined by SPL.  Any delay in initiating an OptimizationProgram based upon a Lead Compound which is a Hit from a Screening Programshall not have any effect on the acceptance of such Hit as a Lead Compound andPharmacopeia shall not acquire any *.

 

2.9.1                        Preparationof Derivative Compounds.  Inperforming each Optimization Program, Pharmacopeia shall undertake thesynthesis of analogs and other Derivative Compounds based upon the relevantLead Compounds.  Pharmacopeia will alsoconduct primary screening assays of all such Derivative Compounds to determineactivity against the applicable Target. Pharmacopeia will provide the Collaboration Committee with regular (atleast quarterly) written reports of the data and results generated in performanceof each Optimization Program.  Suchreports will identify the chemical structure of any and all DerivativeCompounds prepared by Pharmacopeia in performance of the Optimization Program(whether or not such compounds are identified as active against the Target),and all test data with respect thereto.

 

2.9.2                        *

 

2.9.3                        *  Notwithstanding the provisions ofSection 2.9.2, in the event

 

*2.9.4                 Leads Based UponSchering Compounds.  SPL shall notbe obligated to disclose the structure of any Schering Compound(s) proposed asLead Compounds unless and until Pharmacopeia has agreed, pursuant toSection 2.1.1, to conduct an Optimization Program against the relevantTarget.  Upon Pharmacopeia’s agreementto conduct an Optimization Program based upon one or more Lead Compounds whichare Schering Compounds, SPL shall disclose to Pharmacopeia the structure ofsuch Schering Compounds.  Effective uponthe date Pharmacopeia agrees to perform an Optimization Program based upon oneor more Lead Compounds which are Schering Compounds, *for the periodextending from

 

*2.10                    PharmacopeiaIndependent Research Activities.

 

2.10.1                  ActivitiesOutside the Collaboration.  TheParties acknowledge that during and after the term of the CollaborationPharmacopeia may (either alone or in collaboration with one or more Third Parties)perform independent research and development activities with respect to Targets(including, without limitation, to identify, develop and commercializeproducts), which activities are not within the scope of this Agreement; providedthat Pharmacopeia shall not use any Schering Technology, and except asotherwise expressly set forth in this Agreement shall not use any CollaborationTechnology, in connection with any such independent research and developmentactivities.

 

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Any data, information,materials, compounds, products or other technology resulting from suchindependent research and development activities is the property of Pharmacopeia(“Pharmacopeia Independent Technology”). The Parties further acknowledge that Pharmacopeia Independent Technologymay include technology independently acquired, discovered or developed byPharmacopeia (as demonstrated by documented evidence created at the time ofsuch acquisition, discovery or development) and which coincidentally issubstantially the same as technology within the scope of CollaborationTechnology and/or Schering Technology. SPL shall have no rights or licenses whatsoever to any PharmacopeiaIndependent Technology.

 

2.11                           SPL’sScreening Programs.  The Partiesacknowledge that SPL shall have the right to conduct its own independentscreening programs against any and all Targets, and that except as expresslyset forth in this Section 2.11, *resulting from such independentscreening programs.  SPL shall have theright *The Parties acknowledge and agree that any pharmaceutical productsdiscovered, developed and commercialized as a result of *are and shall betreated as Agreement Products and shall be subject to *but shall not besubject to *

 

2.11.1                  Differentiationof Targets.  A Target willencompass *

 

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

# **ARTICLE IIICOLLABORATION MANAGEMENT**

# ** **

## 3.1                                 CollaborationCommittee.  The Parties shallestablish a Collaboration Committee to oversee, review and coordinate theconduct of the Collaboration.  TheCollaboration Committee shall be comprised of three (3) representatives fromeach of SPL and Pharmacopeia, or such other equal number of representatives asthe Parties may agree, each Party’s members selected by that Party.  Each of Pharmacopeia and SPL may replace itsCollaboration Committee representatives at any time upon written notice to theother Party.  The Collaboration Committeeshall be chaired by the Collaboration Director appointed by SPL, unless otherwiseagreed by the Parties.  From time totime the Collaboration Committee may establish various subcommittees,constituted as agreed by the Collaboration Committee, to oversee particularprojects or activities within the Collaboration.

##  

## 3.2                                 CollaborationCommittee Meetings.  During the termof the Collaboration, including as it may be extended, the CollaborationCommittee shall meet at least four (4) times per year, or more often as agreedby the Parties, at such locations as the Parties shall agree.  At such meetings the CollaborationCommittee’s responsibilities will include: (i) formulating and reviewing theCollaboration objectives with respect to each Optimization Program; (ii)monitoring the progress of the Collaboration toward those objectives; (iii)evaluating Hits identified by Pharmacopeia from Screening Programs; (iv)initially reviewing recommendations by Pharmacopeia to SPL for Hits proposed tobe accepted as Lead Compounds for new Optimization Programs; and (v) takingsuch other actions as may be specified under this Agreement or which theParties deem appropriate.  TheCollaboration Committee may designate a patent 

 

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## committee comprised ofemployees or representatives of the Parties to oversee the patent prosecutionand/or enforcement activities described in Article VI, and to facilitatecommunication and agreement between the Parties regarding inventorship ofinventions made in the Collaboration and the classification of such inventions(e.g., as Schering Improvements, Pharmacopeia Improvements, CollaborationTechnology, etc.).  Additionalnon-voting representatives or consultants from either Party may from time totime be invited by SPL or Pharmacopeia to attend and participate in CollaborationCommittee meetings (e.g., to evaluate and advise on business or scientificissues) subject to compliance with the confidentiality provisions ofSection 7.1.  Each Party shall beresponsible for its own expenses in connection with the Collaboration Committee.

##  

## 3.3                                 CollaborationCommittee Decisions.  Decisions ofthe Collaboration Committee shall be based upon the consensus of all themembers.  In the event that theCollaboration Committee cannot or does not, after good faith efforts, reachagreement on an issue, such issue shall be referred to the President of SPL**’**sAffiliate, the Schering-Plough Research Institute (“SPRI”), and the Presidentand Chief Operating Officer of Pharmacopeia Drug Discovery for resolution.  In the event that these officers are unableto resolve the issue within fifteen (15) business days after submission of theissue to them, then the unresolved issue may be submitted by either Party tobinding arbitration pursuant to Section 11.3 of this Agreement, exceptthat the decision shall be made by one (1) arbitrator with expertise inpharmaceutical product development, and the decision of the arbitrator shall berendered within six (6) months****of initiation of the arbitration.  During the pendency of any such arbitrationproceedings, the Parties shall proceed with performance of the Collaborationfollowing the course of conduct determined by SPL; provided, however,that notwithstanding the foregoing, Pharmacopeia shall not be obligated to (i)perform any action that would violate its obligations to any Third Party orcontravene Section 2.12, (ii) spend or forego receiving any amountsof money (except as necessary in connection with the fulfillment ofPharmacopeia’s responsibilities under Section 2.3), or (iii) knowingly prepareor deliver to SPL any compounds previously licensed to any Third Party.  Notwithstanding the foregoing, SPL, in itssole discretion, shall have complete and final control over SPL’s research,development and commercialization of Schering Compounds, Agreement Compoundsand/or Agreement Product(s) in accordance with the terms and conditions of thisAgreement.

##  

## 3.4                                 DevelopmentStatus; Notice of Sale of Agreement Products.  During the term of this Agreement, SPL shall provide Pharmacopeiawritten annual reports within thirty (30) days after the first and eachsubsequent anniversary of the Effective Date, which reports shall provide:(i) a brief report summarizing the development status of each LeadCompound and/or Development Candidate under development at SPL; (ii) the statusof all patent applications claiming any Library Compounds or DerivativeCompounds, and (iii) copies of all such patent applications which havepublished during the relevant twelve (12) month period and were not previouslyprovided to Pharmacopeia.  Such reportsshall contain information sufficient to allow Pharmacopeia to monitor thestatus of SPL’s efforts with respect to the accomplishment of the milestonesset forth in Section 5.3; provided, however, that nothinghereunder shall be construed as requiring SPL to provide Pharmacopeia with anyspecific research data or results, including, without limitation, informationrelating to Targets or data obtained from screening programs being conducted atSPL.  Until the First Commercial Sale ofeach Agreement Product by or on behalf of SPL hereunder, SPL shall keepPharmacopeia reasonably informed as to the status of the pre-clinical, clinicaland commercial development of such Agreement Product by providing Pharmacopeiawith annual written reports summarizing such activities with respect to eachpotential Agreement Product under development during the term of thisAgreement.  Within thirty (30) days ofthe First Commercial Sale of any Agreement Product, SPL shall give Pharmacopeiawritten notice thereof, which notice shall describe the relevant AgreementProduct, identify the active ingredients in such Agreement Product, andidentify the specific Target(s) which led to the development of such AgreementProduct.

##  

## 3.5                                 Diligence.  The Parties acknowledge and agree that allbusiness decisions regarding research, development and commercialization ofAgreement Products (including, without limitation, decisions relating to thedevelopment and manufacture of Agreement Compounds, or to the design,development, manufacture, sale, price, distribution, marketing and promotion ofAgreement Products under this Agreement) and the decision whether to develop(or cease developing) a particular Agreement Compound, or to develop andcommercialize (or cease developing and commercializing) a particular AgreementProduct, shall be within the sole discretion of SPL.  SPL shall use reasonable good faith efforts to discover anddevelop Agreement Compounds, and to discover, develop and commercializeAgreement Products; provided, however, that SPL shall have noquotas or other minimum diligence obligations with regard to number ofAgreement Compounds and Agreement Products to be developed and 

 

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## commercializedhereunder.  Such decision making and/orreasonable good faith efforts shall be expended by SPL, as determined in itsreasonable commercial judgement, based upon the facts and circumstances inexistence and reasonably available to SPL at that time, and shall be exercisedin a manner consistent with the discovery, development and commercialization ofSPL’s other products of comparable commercial value, potential and stage ofdevelopment.  All of SPL’s diligenceobligations hereunder are expressly conditioned upon the continuing absence ofany adverse condition or event which warrants a delay in commercialization ofan Agreement Product including, but not limited to, an adverse condition orevent relating to the safety or efficacy of the Agreement Product orunfavorable pricing, pricing reimbursement, labeling or lack of RegulatoryApproval, and SPL shall have no obligation to develop or market any suchAgreement Product so long as in SPL’s opinion any such condition or eventexists; provided that SPL shall use commercially reasonable efforts toovercome any unfavorable pricing or pricing reimbursement with respect toAgreement Products being commercialized under this Agreement.  The Parties acknowledge and agree that noneof the diligence obligations in this Section 3.5 shall apply to any ScheringCompounds, the discovery, development and commercialization of which are thesole and exclusive responsibility of SPL.

##  

# **ARTICLE IV**                          LICENSES AND EXCLUSIVITY

# ** **

## 4.1                                 Licenseto SPL.

##  

### 4.1.1                        License toPharmacopeia Technology.  Subject tothe terms of Section 4.4.1, Pharmacopeia agrees to grant, and herebygrants to SPL an exclusive license under the Pharmacopeia Technology (exclusiveeven as to Pharmacopeia and its Affiliates) in the Territory, to make, havemade, use, sell, offer to sell, import and export Agreement Products containinga Lead Compound which is a Hit or a corresponding Derivative Compound as anactive ingredient.  It is understoodthat such licenses shall include the right to conduct drug research anddevelopment, and the exclusive right to discover, develop, make, have made anduse such Lead Compounds and corresponding Derivative Compounds, during the termof this Agreement.

###  

### 4.1.2                        License toCollaboration Technology. Pharmacopeia agrees to grant, and hereby grants to SPL an exclusive licenseunder Pharmacopeia’s interest in the Collaboration Technology (exclusive evenas to Pharmacopeia and its Affiliates), to make, have made, use, sell, offer tosell, import and export Agreement Products in the Territory.  It is understood that such licenses shallinclude the right to conduct drug research and development, and the exclusiveright to discover, develop, make, have made and use Agreement Compounds, duringthe term of this Agreement.

###  

### 4.1.3                        License toCollaboration Target-Specific Technology. Pharmacopeia agrees to grant, and hereby grants, to SPL an exclusivelicense (exclusive even as to Pharmacopeia and its Affiliates), under all ofPharmacopeia**’**s interest in the****Collaboration Target-Specific Technologyfor any and all purposes****in the Territory, including the right togrant sublicenses.

###  

### 4.1.4                        *

###  

## 4.2                                 Sublicenses.  SPL shall have the right to sublicense therights granted in Section 4.1 above. Each such sublicense shall be consistent with all the terms andconditions of this Agreement.  SPL shallremain responsible to Pharmacopeia for all of each such Sublicensee’sapplicable financial and other obligations due under this Agreement.  Such Sublicensee shall not have the right togrant further sublicenses, and such sublicenses may not be assigned ortransferred to any Third Party without the prior written consent ofPharmacopeia.  Each sublicense shallprovide for its continuation following early termination of the license rightsof SPL hereunder and its assignment to Pharmacopeia.  Promptly following the execution of each sublicense requiringPharmacopeia’s consent hereunder, SPL shall give Pharmacopeia written notice ofthe existence and identity of each Sublicensee and identify the AgreementProduct(s) sublicensed to such Sublicensee.

 

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## 4.3                                 DirectAffiliate Licenses.  Whenever SPLshall reasonably demonstrate to Pharmacopeia that, in order to facilitatedirect royalty payments by an Affiliate, it is desirable that a separatelicense agreement be entered into between Pharmacopeia and such Affiliate,Pharmacopeia will grant such licenses directly to such Affiliate by means of anagreement which shall be consistent with all of the provisions hereof and SPLshall guarantee the Affiliate’s obligations thereunder and otherwise provide toPharmacopeia assurances of performance satisfactory to Pharmacopeia.  SPL shall reimburse Pharmacopeia for itsreasonable attorneys’ fees and costs incurred in connection with any suchseparate license agreement.

##  

## 4.4                                 ThirdParty Rights.

##  

### 4.4.1                        PharmacopeiaThird Party Activities.  It isunderstood that as of the Effective Date Pharmacopeia may have already granted,or on or after the Effective Date may grant, to Third Parties rights to acquirelicenses for Pharmacopeia Compounds similar to SPL’s rights under thisArticle IV.  Notwithstanding thelicenses granted to SPL under Sections 4.1.1 and 4.1.4 above, it is possiblethat a Third Party already has or may acquire rights from Pharmacopeia withrespect to one or more compounds of which Pharmacopeia is a sole or jointowner, which compounds were made and designed independently of Pharmacopeia’sactivities in the Collaboration; accordingly, Pharmacopeia’s grant of rightsunder Sections 4.1.1 and 4.1.4 are limited to the extent that (i) aThird Party (either alone or jointly with Pharmacopeia) has filed a patentapplication with respect to such a compound prior to the filing by SPL (eitheralone or jointly with Pharmacopeia) of a patent application with respect tosuch a compound, or (ii) Pharmacopeia has previously granted a Third Partya license, an option to acquire a license, a right of first negotiation, fieldexclusivity, or a non-competition covenant with respect to such a compound, andare subject to any such grant of rights to a Third Party.

###  

### 4.4.2                        NoLiability.  It is understood andagreed that, even if Pharmacopeia complies with its obligations under thisAgreement, compounds provided to Third Parties in the course of Pharmacopeia’sother business activities may result in Third Party patent applications andpatents, including patent applications and patents owned by such Third Parties,or owned jointly by Pharmacopeia and such Third Parties, which could conflictwith patent applications and patents owned by SPL, or jointly owned by SPL andPharmacopeia hereunder.  Pharmacopeiashall use reasonable efforts to avoid such conflict, which efforts shall becomparable to those used by Pharmacopeia in performing similar obligationsunder its agreements with Third Parties. It is understood that, unless SPL is damaged as a proximate result of amaterial breach by Pharmacopeia of any of the representations and warranties inArticle VIII, then Pharmacopeia shall have no liability under thisAgreement with respect to any such conflict.

###  

### 4.4.3                        PharmacopeiaReports to SPL On Third Party Rights. During the period from the Effective Date until the First CommercialSale of an Agreement Product, within thirty (30) days of a written demand bySPL concerning a Pharmacopeia license to a Third Party of a patent applicationowned or co-owned by Pharmacopeia, Pharmacopeia shall, to the extent it may doso without breaching any contractual or other legal obligation, provide SPLwith a statement explaining why the invention(s) claimed in the patentapplication or technology licensed to such Third Party is independent ofPharmacopeia’s activities in the Collaboration.  Such statement shall be supported by written records kept in theordinary course of business consistent with pharmaceutical industry standards,provided that such records need not be provided to SPL at the time of providingsuch statement, but may have to be provided pursuant to Section 11.3.  Such information shall be deemed ConfidentialInformation of Pharmacopeia pursuant to this Agreement.

###  

## 4.5                                 CollaborationResearch Activities.  SPL agrees togrant, and hereby grants, to Pharmacopeia a royalty-free, non-exclusive licenseunder (i) SPL’s interest in the Collaboration Technology, and (ii) any ScheringTechnology which SPL, in its sole discretion, reasonably determines isnecessary or useful for Pharmacopeia’s performance of the Collaboration, ineach case to use during the term of the Collaboration and solely in performanceof the Collaboration.  Pharmacopeia willnot be required to pay any fees to use such intellectual property, but will asa condition precedent to such use execute any consents or sublicenses requiredby any SPL licensor.  Pharmacopeia shallnot be required to execute any unreasonable consents or licenses and will notbe in breach of this Agreement for failure to do so.

##  

4.6                                 *

 

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4.7                                 NoOther Products.  Neither SPL nor itsAffiliates or Sublicensees shall commercialize any Hit, Lead Compound which isa Hit, Derivative Compound, Schering Derivative or other composition of matterclaimed in a Collaboration Patent Right, other than as an Agreement Product inaccordance with this Agreement.

 

# **ARTICLE VPAYMENTS**

# ** **

## 5.1                                 PaymentsBy Schering.  In partialconsideration for Pharmacopeia’s conducting research activities in theCollaboration and the rights and licenses granted to SPL herein, SPL agrees topay to Pharmacopeia the amounts set forth in Sections 5.2, 5.3, 5.4 and5.5. *

##  

## 5.2                                 CollaborationFunding.

##  

### 5.2.1                        Funding DuringYear One.  SPL shall pay toPharmacopeia research funding for the Collaboration at a rate of * per FTEper year during the first year of the Collaboration based upon the actualnumber of Pharmacopeia FTEs assigned to the Collaboration as set forth inSection 2.5.1, plus any additional FTEs (if any) agreed upon by theParties under Section 2.3(i).

###  

### 5.2.2                        FundingDuring Subsequent Years.  SPL shallpay to Pharmacopeia research funding for the Collaboration at an adjusted rateper FTE during the second year and each subsequent year of the Collaboration,based upon the actual number of Pharmacopeia FTEs assigned to the Collaborationin such year in accordance with Sections 2.5.2, 2.5.3 or 2.5.4 (as applicable),plus any additional FTEs (if any) agreed upon by the Parties underSection 2.3(i).  The adjusted rateto be applied in each such year shall be* Notwithstanding the foregoing, in the event that the adjusted rate for FTEfunding determined based upon*

###  

### 5.2.3                        Manner ofPayment.  As noted inSection 5.1, with respect to each Pharmacopeia FTE, *Research fundingfor the Collaboration under this Section 5.2 shall be payable quarterly inadvance on the first day of each calendar quarter.  Pharmacopeia shall send an invoice therefor to SPL fifteen (15)business days prior to the end of the preceding quarter, and SPL shall pay suchinvoiced amounts.  It is understood thatin the case of the first calendar quarter of the first year of theCollaboration, Pharmacopeia shall send an invoice to SPL as soon as practicableafter the Effective Date.  Each invoicewill indicate the number of Pharmacopeia FTEs to be assigned to theCollaboration for such quarter and any adjustment from the prior quarter asdetermined in accordance with Section 5.2.4.  SPL will use commercially reasonable efforts during each calendaryear during the term of the Collaboration to pay its first calendar quarterCollaboration funding payments to Pharmacopeia on or before the first (1st) dayof January; provided, however, that in the event SPL is unable tocomplete such payment, payment by SPL on or before the seventh (7th) day ofJanuary in such calendar year shall not constitute a breach or default bySPL.

###  

### 5.2.4                        QuarterlyAdjustment.  At the conclusion ofeach quarter, Pharmacopeia will calculate the actual number of FTEs provided byPharmacopeia during that quarter and calculate any difference between theactual number of FTEs provided by Pharmacopeia and the number prepaid bySPL.  Any overpayment or underpaymentshall be reflected as a credit or additional charge, as the case may be, in thenext quarterly invoice as per Section 5.2.3, and in the event that nofurther quarterly payments are due under this Section 5.2, then(i) any underpayment shall be paid by SPL to Pharmacopeia within fifteen(15) business days of receiving notice and invoice therefor, or (ii)Pharmacopeia shall within thirty (30) days reimburse SPL for anyoverpayment.  For purposes of clarityand avoidance of doubt, the Parties acknowledge and agree that nothing in thisSection 5.2.4 shall be construed as obligating SPL to pay for anyPharmacopeia FTEs actually working in the Collaboration during a given year ofthe Collaboration in excess of the number of FTEs specifically provided for inSection 2.2 during such year, unless such increased FTE support is agreedto in advance in writing by SPL.

 

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## 5.3                                 LeadCompound Milestone.  SPL shall payto Pharmacopeia a milestone payment of *for each new Optimization Programinitiated or agreed to by SPL with respect to a Screening Target based upon oneor more Lead Compound(s) accepted by SPL in accordance with Section 2.8that are Hits arising from Screening Programs conducted by Pharmacopeia.  No such milestone shall be payable with respectto any Optimization Programs initiated or agreed to based upon Lead Compoundswhich are Schering Compounds.  Suchmilestone payment shall be due within thirty (30) days after SPL notifiesPharmacopeia pursuant to Section 2.8.3 that it has accepted one or morePharmacopeia Compounds as Lead Compounds. The milestone payment under this Section 5.3 shall only bepayable *Further, it is understood and agreed that all amounts payableunder this Section 5.3 are in addition to any milestone payments that maybe due to Pharmacopeia under the corresponding provisions of the USAgreement.  For the avoidance of doubt,it is understood and agreed that, for each new Optimization Program conductedby Pharmacopeia, Pharmacopeia shall be entitled to receive the milestonepayment under this Section 5.3 and the milestone payment from ScheringCorporation under the corresponding provision of the US Agreement.

##  

## 5.4                                 MilestonePayments.

##  

### 5.4.1                        Events andAmounts.

###  

##### (a)                                  Milestonesfor Optimization Programs based upon Schering Compounds.  SPL agrees to pay to Pharmacopeia thefollowing amounts upon attainment, by or on behalf of SPL, its Affiliates orSublicensees, of the indicated milestones with respect to any new AgreementCompounds/Agreement Products discovered by Pharmacopeia in performance of anOptimization Program based upon one or more Lead Compounds which are ScheringCompounds (i.e., any Derivative Compounds resulting from such OptimizationProgram and/or any Schering Derivatives derived from such Derivative Compounds):

#####  

###### (i)                         *uponnomination of a Development Candidate;

######  

###### (ii)                      *uponthe filing and Acceptance of an IND or its equivalent;

######  

###### (iii)                   *uponinitiation of treatment of the first patient in a Phase III clinical study;

######  

###### (iv)                              *uponfiling and Acceptance of an HRD with the applicable regulatory authority in aMajor Market; and

######  

###### (v)                     *uponRegulatory Approval in a Major Market.

######  

##### (b)                                 Milestonesfor Optimization Programs based upon Hits. SPL agrees to pay to Pharmacopeia the following amounts upon attainment,by or on behalf of SPL, its Affiliates or Sublicensees, of the indicatedmilestones with respect to an Agreement Compound/Agreement Product arising froman Optimization Program based upon one or more Lead Compounds which are Hits,(i.e., any such Lead Compounds, related Hits, Derivative Compounds resultingfrom such Optimization Program and/or Schering Derivatives derived from suchLead Compounds, Hits or Derivative Compounds):

#####  

###### (i)                                     *uponnomination of a Development Candidate;

######  

###### (ii)                      *upon thefiling and Acceptance of an IND or its equivalent;

######  

###### (iii)                   *uponinitiation of treatment of the first patient in a Phase III clinical study;

######  

###### (iv)                  *uponfiling and Acceptance of an HRD with the applicable regulatory authority in aMajor Market; and

######  

(v)                                 *uponRegulatory Approval in a Major Market.

 

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It is understoodand agreed that all amounts payable under this Section 5.3.1 are inaddition to any milestone payments that may be due to Pharmacopeia under theterms of the US Agreement.

 

### 5.4.2                        DevelopmentCandidate.  A Development Candidateshall have been deemed to have been nominated upon the earlier of the date (i)the Schering-Plough Research Institute Project Assessment Committee or itssuccessor approves proceeding with full development of such compound, or (ii)SPL (or its Affiliate) initiates in vivo toxicology trials necessary,and meeting U.S. FDA (or corresponding European or Japanese) standards, forobtaining approval for use of such Agreement Compound in human clinical trials.  Within thirty (30) days after the nominationof a Development Candidate, SPL shall notify Pharmacopeia thereof.

###  

### 5.4.3                        Manner ofPayment.  All payments made toPharmacopeia by SPL pursuant to Section 5.4.1(a) or (b) shall be duewithin thirty (30) days after the achievement of the corresponding milestoneand shall be nonrefundable and not creditable against other amounts due toPharmacopeia.  The payments provided forunder this Section 5.4 shall only be payable once upon the firstachievement of the indicated milestone with respect to an Agreement Compoundand/or Agreement Product developed against a particular Target and noadditional payments shall be due on subsequent or repeated achievement of thesame milestone for another Agreement Compound and/or Agreement Productdeveloped against the same Target.  Nomilestones shall be payable under this Section 5.4 with respect to anycompounds or products other than Agreement Compounds and Agreement Products,nor shall any payments be due under this Section 5.4 with respect to anyAgreement Products discovered by SPL with respect to Targets which are not thesubject of a Screening Program and/or Optimization Program, as provided inSection 2.11.

###  

## 5.5                                 Royalties.  In partial consideration for the know-howlicenses, patent licenses and other rights granted to SPL hereunder, SPL shallpay royalties to Pharmacopeia based upon the sales of Agreement Products in theTerritory.  The parties acknowledge andagree that, except as expressly set forth herein, SPL’s obligation to pay suchroyalties is not conditioned upon the existence of patent protection for theAgreement Products.

##  

### 5.5.1                        BaseRoyalty.  SPL shall pay toPharmacopeia running royalties on Net Sales of Agreement Products by SPL, itsAffiliates and Sublicensees in the Territory, as follows:

###  

###### (i)                         *ofNet Sales of Agreement Products where the Agreement Compound in such AgreementProduct is (1) a Lead Compound which is a Hit, or (2) a Derivative Compounddiscovered by Pharmacopeia in an Optimization Program based upon a LeadCompound which is a Hit, or (3) a corresponding Schering Derivative; or

######  

###### (ii)                      *of Net Sales of Agreement Products where the Agreement Compound in suchAgreement Product is a Derivative Compound discovered by Pharmacopeia in anOptimization Program based upon a Lead Compound which is a Schering Compound;

######  

(iii)                   *of Net Salesof Agreement Products where the Agreement Compound in such Agreement Product is(1) a Lead Compound which is a Hit, or (2) a Derivative Compound, and in eachcase where such Agreement Product was developed and commercialized by SPL as aresult of an independent screening program conducted by SPL pursuant toSection 2.11 against a Target which was not the subject of a ScreeningProgram or Optimization Program under this Agreement; or

 

### (iv)                              *ofnet sales (to be determined in the same manner as Net Sales) of apharmaceutical product containing as an active ingredient a Schering Derivativederived from a Derivative Compound discovered by Pharmacopeia in anOptimization Program based upon a Lead Compound which is a Schering Compound.

###  

### 5.5.2                        RoyaltyTerm for Agreement Products.  SPL’sobligation to pay royalties to Pharmacopeia under Sections 5.5.1(i),5.5.1(ii), 5.5.1(iii) or 5.5.1(iv), as applicable, shall continue for eachAgreement Product, on a country-by country basis, until the date which is thelater of *

 

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### 5.5.3                        SingleRoyalty; Non-Royalty Sales.  Noroyalty shall be payable under Section 5.5.1 above with respect to salesof Agreement Products among SPL, its Affiliates and Sublicensees for resale;however, a royalty shall be payable upon such resale by SPL’s Affiliates andSublicensees to any Third Party.  In noevent shall more than one royalty be due hereunder with respect to anyAgreement Product unit even if covered by more than one patent included in thePharmacopeia Technology or Collaboration Technology.  For purposes of clarity and avoidance of doubt, the Partiesacknowledge and agree that under no circumstances will any royalty ever bepayable under Sections 5.5.1(i) or 5.5.1(ii) with respect to sales of anyAgreement Product resulting from an independent screening programs conducted bySPL pursuant to Section 2.11.  Noroyalties shall accrue on the disposition of any Agreement Product inreasonable quantities by SPL, its Affiliates or its Sublicenses as (i) samples(promotional or otherwise), (ii) donations (for example, to non-profitinstitutions or government agencies for a non-commercial purpose), (iii) foruse in clinical studies, or (iv) free of charge in compassionate use and/orindigent care programs.

###  

### 5.5.4                        ThirdParty Royalties.

###  

##### (a)                                  SPLResponsibilities.  SPL shall beresponsible for the payment of any royalties due to licenses obtained fromThird Parties relating to the manufacture, use, marketing, sale or distributionof Agreement Products by SPL, its Affiliates or Sublicensees under theCollaboration Technology or Schering Technology.

#####  

##### (b)                                 ThirdParty Royalty Offset. Notwithstanding Section 5.5.4(a) above, if a Third Party allegesthat the manufacture, use or sale of an Agreement Product infringes itspatents, based solely on the practice of the Pharmacopeia Technology,Pharmacopeia and SPL shall consult regarding whether a license should be takenfrom such Third Party.  If Pharmacopeiaand SPL agree that such a license is required, SPL, its Affiliates orSublicensees may, with respect to sales of such Agreement Product, payroyalties directly (or indirectly through Pharmacopeia) to the Third Partywhose patents may be infringed by such sales. SPL may reduce any royalty due Pharmacopeia under Section 5.5.1 toreimburse SPL for any such royalties actually paid to Third Parties; providedthat the amount of the reduction shall be equal to * of the royalty actuallypaid to such Third Parties with respect to sales of the Agreement Product insuch country; provided, however, that in no event shall theroyalty due Pharmacopeia for any calendar quarter, with respect to any suchAgreement Product, be thereby reduced to * of the royalty due Pharmacopeiaunder Section 5.5.1 with respect to Net Sales in such country.  If the Parties cannot promptly reachagreement they shall appoint an independent patent counsel reasonablyacceptable to each of them to give an opinion, which will be binding as betweenthe Parties, and the parties shall have no further recourse to dispute suchopinion (including, without limitation, the provisions of Section 11.3,which shall not apply).  If it is theindependent patent counsel’s opinion that the patent is valid and infringed bythe sale of such Agreement Product due to use of the Pharmacopeia Technology,SPL may settle the matter in its sole discretion on such terms as it deemsappropriate, provided that such settlement does not contain an admission oracknowledgment of infringement or invalidity.

#####  

### 5.5.5                        CompulsoryRoyalty Reductions.  If theroyalties set forth herein are higher than the maximum royalties permitted bythe law or regulation in any country or territory or possession thereof in theworld, the royalty payable for sales in such country, territory or possessionshall be equal to the maximum permitted royalty under such law or regulations.

###  

### 5.5.6                        RoyaltyOverpayment.  In the event SPL paysPharmacopeia royalties in excess of the amounts due under Section 5.5.1herein, SPL shall promptly notify Pharmacopeia providing a written explanationof the amount of overpayment.  Any suchoverpayment shall be fully creditable against royalties subsequently duehereunder.

###  

## 5.6                                 Reports;Payment of Royalty; Payment Exchange Rate and Currency Conversions.

##  

### 5.6.1                        RoyaltyReports and Payments.  After theFirst Commercial Sale of an Agreement Product on which royalties are payable bySPL, its Affiliate or Sublicensees hereunder, SPL shall make quarterly writtenreports to Pharmacopeia within sixty (60) days after the end of eachcalendar quarter, stating in each such report separately for SPL and each ofits Affiliates and Sublicensees the number, description, and aggregate NetSales by country of each Agreement Product sold during the calendar quarterupon which a royalty is payable under Section 5.5 above.  Subject to 

 

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### any reductions permittedpursuant to the express terms of this Agreement, concurrently with the makingof such reports, SPL shall pay to Pharmacopeia royalties at the rates specifiedin Section 5.5.1.

###  

### 5.6.2                        PaymentMethod.  All payments due under thisAgreement shall be made by bank wire transfer in immediately available funds toan account designated by Pharmacopeia. All payments hereunder shall be made in U.S. dollars.  Any payments that are not paid on the datesuch payments are due under this Agreement shall bear interest, calculated onthe number of days such payment is delinquent, at the lesser of: (i) the primerate as reported by the Chase Manhattan Bank, New York, New York, on the datesuch payment is due, plus an additional two percent (2%), or (ii) the maximumrate permitted by applicable law.

###  

### 5.6.3                        Place ofRoyalty Payment and Currency Conversions. Royalties shall be deemed payable by the entity making the Net Salesfrom the country in which earned in local currency and subject to foreignexchange regulations then prevailing. Royalty payments shall be made in United States dollars to the extentthat free conversion to United States dollars is permitted.  The rate of exchange to be used in any suchconversion from the currency in the country where such Net Sales occurs shallbe in accordance with the policy set forth in Exhibit A hereto.  If, due to restrictions or prohibitionsimposed by national or international authority, payments cannot be made asaforesaid, the Parties shall consult with a view to finding a prompt andacceptable solution, and SPL or its designated Affiliates will, from time totime, deal with such monies as Pharmacopeia may lawfully direct at noadditional out-of-pocket expense to SPL. Notwithstanding the foregoing, if royalties in any country cannot beremitted to Pharmacopeia for any reason within six (6) months after the end ofthe calendar quarter during which they are earned, then SPL shall be obligatedto deposit the royalties in a bank account in such country in the name ofPharmacopeia.

###  

## 5.7                                 Maintenanceof Records; Audits.

##  

### 5.7.1                        Records;Inspection.  SPL and its Affiliatesshall keep complete, true and accurate books of account and records for thepurpose of determining the royalty amounts payable under this Agreement, whichbooks and records shall be maintained in accordance with SPL’s records retentionpolicies. Upon prior written notice from Pharmacopeia, SPL shall, within aperiod not to exceed forty-five (45) days, permit an independent certifiedpublic accounting firm of nationally recognized standing selected byPharmacopeia and reasonably acceptable to SPL, at Pharmacopeia’s expense, tohave access during normal business hours to examine pertinent books and recordsof SPL and/or its Affiliates as may be reasonably necessary to verify theaccuracy of the royalty reports hereunder. The examination shall be limited to pertinent books and records for anycalendar year ending not more than thirty-six (36) months prior to the date ofsuch request.  Such inspections may bemade no more than once each calendar year. In the event that the accounting firm correctly concludes that avariation or error has occurred resulting in an underpayment of royalties bySPL of five percent (5)% or more of the amount actually due for the periodcovered by the inspection, SPL shall pay to Pharmacopeia such additionalamounts, as well as the costs relating to the inspection, within thirty (30)days of receipt of an invoice for such amounts.  Any overpayment of royalties by SPL discovered through such auditshall be fully creditable against royalties subsequently due hereunder.  SPL may designate competitively sensitiveinformation which such auditor may not disclose to Pharmacopeia; provided,however, that such designation shall not encompass the auditor’sconclusions.  The accounting firm shalldisclose to Pharmacopeia only whether the royalty reports are correct orincorrect and the specific details concerning any discrepancies.  No other information shall be provided toPharmacopeia.  The accounting firmemployees shall sign confidentiality agreements acceptable to SPL as acondition precedent to their inspection. SPL shall include in each sublicense granted by it pursuant to thisAgreement a provision requiring the Sublicensee to make reports to SPL, to keepand maintain records of sales made pursuant to such sublicense and to grantaccess to such records by Pharmacopeia’s independent accountant to the sameextent required of SPL under this Agreement. Upon expiration of the thirty-six (36) month period immediatelyfollowing the receipt by Pharmacopeia of SPL’s fourth quarter royalty reportfor a given calendar year in accordance with Section 5.6.1, thecalculation of royalties payable with respect to such year shall be binding andconclusive upon Pharmacopeia, and SPL, its Affiliates and its Sublicenseesshall be released from any liability or accountability with respect toroyalties for such year, except for instances of fraud or other intentionalmisconduct by SPL.

###  

## 5.8                                 CoordinationWith Payments under US Agreement. The milestones and royalties payable by SPL under Sections 5.3, 5.4 and5.5 are in consideration for the rights and licenses granted to SPL under thisAgreement and are in addition to any amounts payable to Pharmacopeia under theUS Agreement.  It is understood andagreed that, with 

 

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## respect to the specificmilestones payable under Sections 5.4.1(a)(i)-(iii) and 5.4.1(b)(i)-(iii), theoccurrence of the same milestone event will result in milestone paymentobligations under both this Agreement and the corresponding provisions of theUS Agreement.  However, the specificmilestones payable under Sections 5.4.1(a)(iv) and (v) and Sections5.4.1(b)(iv) and (v) under this Agreement and the analogous milestones under theUS Agreement shall be paid, respectively, upon occurrence of the relevantmilestone event specified in this Agreement or the US Agreement.

##  

## 5.9                                 TaxMatters.

##  

### 5.9.1                        WithholdingTaxes.  All royalty amounts requiredto be paid to Pharmacopeia pursuant to this Agreement shall be paid withdeduction for withholding for or on account of any taxes (other than taxesimposed on or measured by net income) or similar governmental charge imposed bya jurisdiction other than the United States (“Withholding Taxes”) to the extentPharmacopeia and/or its Affiliates or their successors has the lawful rights toutilize the Withholding Taxes paid by SPL as a credit against Pharmacopeia’sand/or its Affiliates regular U.S. tax liability.  SPL shall provide Pharmacopeia documentation evidencing paymentof any Withholding Taxes hereunder in a manner that is satisfactory forpurposes of the U.S. Internal Revenue Service. Any Withholding Taxes paid when due hereunder shall be for the accountof Pharmacopeia and shall not be included in the calculation of Net Sales.  Payments of Withholding Taxes made by SPLpursuant to this Section 5.9.1 shall be made based upon financialinformation provided to SPL by Pharmacopeia, and to the extent that suchinformation is incorrect Pharmacopeia shall be liable for any deficiency, and anyfine, assessment or penalty imposed by any taxing authority in the Territoryfor any deficiency in the amount of any such Withholding Taxes, or the failureto make payment of Withholding Taxes, based upon such incorrect information.  If SPL is required to pay any suchdeficiency, or any fine, assessment or penalty for any such deficiency basedupon such incorrect information (except to the extent caused by SPL’s grossnegligence or willful misconduct), Pharmacopeia shall promptly reimburse SPLfor such payments, which shall not be included in the calculation of Net Sales.

###  

## 5.10                           ProductDevelopment Costs.  SPL shall, atSPL’s expense, be responsible for conducting all development of AgreementCompounds, Agreement Products, Schering Compounds, and all commercialization ofAgreement Products.

##  

# **ARTICLE VIPATENTS AND INVENTIONS**

# ** **

## 6.1                                 Ownershipof Schering Technology and Pharmacopeia Technology.  It is understood and agreed that (i) SPLshall own all Schering Technology including, without limitation, Schering Improvements,and (ii) Pharmacopeia shall own all Pharmacopeia Technology including,without limitation, Pharmacopeia Improvements.

##  

## 6.2                                 Ownershipof Collaboration Technology.  TheParties anticipate that the Collaboration may result in new inventions, discoveriesand innovations, as well as improvements to existing technologies, whetherpatentable or not, within the Collaboration Technology.  Ownership of Collaboration Technology shallbe determined based upon U.S. Patent Laws and the following guidelines; provided,however, that ownership rights to all Collaboration Technology shall besubject to the applicable licenses and other rights granted underArticle IV of this Agreement.

##  

##### (a)                                  Inventionsby SPL Employees. Title to all Collaboration Technology invented solely byemployees of SPL working on the Collaboration at Pharmacopeia, together withany Derivative Compounds synthesized by Pharmacopeia pursuant toSection 2.9, shall be deemed to be owned by SPL.

#####  

##### (b)                                 Inventionsby Pharmacopeia Employees. Title to all Collaboration Technology inventedsolely by employees of Pharmacopeia shall be deemed to be owned byPharmacopeia.

 

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##### (c)                                  JointInventions. Title to all Collaboration Technology invented jointly by oneor more employees of SPL working on the Collaboration at Pharmacopeia, and oneor more employees of Pharmacopeia shall be deemed to be jointly owned by SPLand Pharmacopeia.

#####  

## 6.3                                 Filing,Prosecution and Maintenance of Patents.

##  

### 6.3.1                        CollaborationTechnology.  SPL shall have theright to prepare, file, prosecute and maintain in such countries as it deemsappropriate in its discretion, at its own expense and upon appropriateconsultation with Pharmacopeia, patent applications and patents, and to conductany interferences, re-examinations, reissues, oppositions or requests forpatent term extension or governmental equivalents thereto within theCollaboration Technology, and Pharmacopeia shall give reasonable cooperation inconnection therewith, at SPL’s request and expense.  SPL shall provide Pharmacopeia with copies of any new patentapplications claiming Collaboration Technology which are proposed to be filedby SPL, as provided in Section 6.4.1. In the event that SPL does not file a patent or patent applicationclaiming an invention within such Collaboration Technology, or if it ceases toso prosecute, maintain, conduct any interferences, re-examinations, reissues,oppositions or requests for patent term extension or governmental equivalentsthereto relating to such an invention, Pharmacopeia shall have the right, inits sole discretion, to undertake such activities at its own expense, and SPLshall give reasonable cooperation in connection therewith, at Pharmacopeia’sexpense.

###  

### 6.3.2                        ScheringTechnology.  SPL shall have theright to prepare, file, prosecute and maintain in such countries as it deemsappropriate in its discretion, at its own expense, patent applications andpatents, and to conduct any interferences, re-examinations, reissues,oppositions or requests for patent term extension or governmental equivalentsthereto within the Schering Technology and Pharmacopeia shall give reasonablecooperation in connection therewith, at SPL’s request and expense.

###  

### 6.3.3                        PharmacopeiaTechnology.  Pharmacopeia shall havethe right to prepare, file, prosecute and maintain in such countries as itdeems appropriate in its discretion, at its own expense, patent applicationsand patents, and to conduct any interferences, re-examinations, reissues,oppositions or requests for patent term extension or governmental equivalentsthereto within the Pharmacopeia Technology, and SPL shall give reasonablecooperation in connection therewith, at Pharmacopeia’s request and expense.

###  

## 6.4                                 Cooperation.

##  

### 6.4.1                        Cooperation.  Upon request, and at the requesting Party**’**sexpense, each of Pharmacopeia and SPL shall provide the other Party reasonableassistance to prepare, file, prosecute and maintain patents and patentapplications covering any Collaboration Technology, Schering Improvements orPharmacopeia Improvements which the requesting Party has the right tofile.  Reasonable assistance shallinclude, without limitation, providing the requesting Party with necessary oruseful data and information relating to the Collaboration Technology, ScheringImprovements or Pharmacopeia Improvements, as the case may be, and reasonableaccess to the inventors of said inventions, as well as causing the execution ofrequired patent assignments and/or other documents.  With respect to all patent applications claiming CollaborationTechnology, or any Derivative Compounds, Lead Compounds which are Hits, orSchering Derivatives, the filing Party shall give the non-filing Party anopportunity to review the text of such patent applications before filing, shallconsult with the non-filing Party with respect thereto, and shall supply thenon-filing Party with a copy of the applications as filed, together with noticeof its filing date and serial number. SPL will identify to Pharmacopeia any of SPL’s proprietary informationcontained in such documents to be provided to Pharmacopeia to ensure thatPharmacopeia will protect SPL’s proprietary information, including withoutlimitation, information relating to Targets. In addition, with respect to applications which do not includePharmacopeia inventors, SPL may redact or provide in coded form any informationcontained in such documents to be provided to Pharmacopeia to the extentnecessary (in SPL’s opinion) to protect SPL’s proprietary information,including without limitation, information relating to Targets.  Pharmacopeia and SPL shall each keep theother Party advised of the status of the actual and prospective patents andpatent applications within the Collaboration Patent Rights for which it isresponsible, and upon the written request of the other Party, will provideadvance copies of any substantive papers related to the filing, prosecution andmaintenance of such Collaboration Patent Rights.

 

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## 6.5                                 Enforcement.

##  

### 6.5.1                        Notice.  Each Party shall promptly notify the otherof its knowledge of any actual or potential infringement of the CollaborationTechnology by a Third Party.

###  

### 6.5.2                        CollaborationTechnology.  SPL shall have theinitial right, but not the obligation, to take reasonable legal action toenforce against infringements by Third Parties or defend any declaratoryjudgment action relating to any patent within the Collaboration Technology atits sole cost and expense.  If, withinsix (6) months following receipt of notice of such infringement fromPharmacopeia (or written notice of a declaratory judgment action alleginginvalidity or unenforceability of such Collaboration Technology), SPL does nottake such action against a commercially significant infringement, Pharmacopeiashall, in its sole discretion, have the right, but not the obligation to takesuch action at its sole expense.

###  

### 6.5.3                        ScheringTechnology and Pharmacopeia Technology. It is understood and agreed that Pharmacopeia shall have the sole right,but not the obligation, to initiate and conduct legal proceedings to enforcethe Pharmacopeia Technology against any actual or threatened infringement ormisappropriation or defend any declaratory judgment action relating thereto, atits sole expense, and that SPL shall have the sole right, but not theobligation, to initiate and conduct legal proceedings to enforce the ScheringTechnology against any actual or threatened infringement or misappropriation ordefend any declaratory judgment action relating thereto, at its sole expense.

###  

### 6.5.4                        Cooperation;Costs and Recoveries.  Each Partyagrees to render such reasonable assistance as the enforcing Party may request,and at the enforcing Party’s expense. Costs of maintaining any such action shall be paid by the Party bringingthe action and any damages or settlements recovered therefrom shall belong tosuch Party.  To the extent that SPLrecovers any lost profits or other recovery based upon Third Party sales ofinfringing products, Pharmacopeia shall receive an equitable share of suchrecovery, as determined based upon the royalties Pharmacopeia would have beenentitled to under this Agreement on Net Sales by SPL, its Affiliates orSublicensees of the relevant Agreement Products corresponding to such lost profits.  If SPL, in its sole discretion, agrees tosettle any such infringement action by granting a sublicense to the Third Partyinfringer, and such Third Party, but for the grant of such sublicense, would beinfringing a claim of an issued patent in the Collaboration Technology, or acomposition-of-matter claim of an issued patent in the Schering Technology, SPLshall be entitled to receive all consideration payable by such Third Party forthe grant of the license; provided, however, that net sales ofsuch Third Party products in the Territory on which SPL receives suchconsideration (including, without limitation, running royalties or lump sumpayments) shall be treated as Net Sales for purposes of this Agreement, andfurther provided that, notwithstanding anything herein to the contrary, SPL’sroyalty obligations to Pharmacopeia with respect to such Third Party sales inany calendar quarter shall not exceed fifty percent (50%) of the royaltiesreceived by SPL from such Third Party for the same quarter.

###  

## 6.6                                 InfringementClaims.  If the manufacture, sale oruse of any Agreement Product pursuant to this Agreement because of the practiceof the Pharmacopeia Technology, Collaboration Technology or ScheringTechnology, results in any claim, suit or proceeding alleging patentinfringement against Pharmacopeia or SPL (or their respective Affiliates orSublicensees), such Party shall promptly notify the other Party hereto inwriting setting forth the facts of such claim in reasonable detail.  The Party subject to such claim shall havethe exclusive right and obligation to defend and control the defense of anysuch claim, suit or proceeding, at its own expense, using counsel of its ownchoice; provided, however, it shall not enter into any settlementwhich admits or concedes that any aspect of (i) the Schering Technology orCollaboration Technology in the case of Pharmacopeia, and (ii) the PharmacopeiaTechnology or Collaboration Technology in the case of SPL, is invalid orunenforceable without the prior written consent of such other Party.  The Party subject to the claim shall keepthe other Party hereto reasonably informed of all material developments inconnection with any such claim, suit or proceeding.

##  

## 6.7                                 Certificationunder Drug Price Competition and Patent Restoration Act.  Pharmacopeia and SPL each shall immediatelygive written notice to the other of any certification of which they becomeaware filed pursuant to 21 U.S.C.§§355(b)(2)(A)(iv) and 355(j)(2)(A)(vii)claiming that Collaboration Patent Rights do not cover the use or sale of anyproduct(s) equivalent to an existing Agreement Product(s) by a ThirdParty.  SPL shall have the right tobring an infringement action, in its sole discretion and at its own expense, inits own name and/or in the name of Pharmacopeia, subject to Section 6.5above.  The provisions ofSection 6.5.4 shall apply to any such infringement action.

 

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## 6.8                                 PatentTerm Restoration.  The Partieshereto shall give reasonable cooperation to each other in obtaining patent termrestoration or supplemental protection certificates or their equivalents in anycountry in the Territory where applicable to the Collaboration Technology.

##  

# **ARTICLE VIICONFIDENTIALITY**

# ** **

## 7.1                                 ConfidentialInformation.  Except as expresslyprovided herein, the Parties agree that, *, the receiving Party shall notdisclose and except as expressly provided in this Article 7, shall not usefor any purpose any confidential information (“Confidential Information”) furnishedto it by the disclosing Party hereto pursuant to this Agreement except to theextent that it can be established by the receiving Party by competent proofthat such information:

##  

#### (i)                           wasalready known to the receiving Party, other than under an obligation of confidentiality,at the time of disclosure;

####  

#### (ii)                        wasgenerally available to the public or otherwise part of the public domain at thetime of its disclosure to the receiving Party;

####  

#### (iii)                     becamegenerally available to the public or otherwise part of the public domain afterits disclosure and other than through any act or omission of the receivingParty in breach of this Agreement;

####  

#### (iv)                    wasindependently developed by the receiving Party as demonstrated by documentedevidence prepared contemporaneously with such independent development; or

####  

#### (v)                       wassubsequently lawfully disclosed to the receiving Party, other than under a dutyof confidentiality, by a Third Party that had the right to make suchdisclosure.

####  

## 7.2                                 PermittedUse and Disclosures.  Each Partyhereto may use or disclose Confidential Information disclosed to it by theother Party to the extent such information is included in the PharmacopeiaTechnology, Schering Technology or Collaboration Technology, as the case maybe, and to the extent (i) such use or disclosure is reasonably necessaryand permitted in the exercise of the rights granted hereunder in filing orprosecuting patent applications, prosecuting or defending litigation,(ii) such disclosure is reasonably required to be made to any institutionalreview board of any entity conducting clinical trials with AgreementCompound(s) and/or Agreement Product(s), or to any governmental or otherregulatory agency, in order to gain approval to conduct clinical trials or tomarket Agreement Compound(s) and/or Agreement Products, (iii) suchdisclosure is required by law, regulation, rule, act or order of anygovernmental authority, court, or agency, or is made in connection withsubmitting required information to tax or other governmental authorities, or (iv)such disclosure or use is reasonably required in conducting clinical trials, ormaking a permitted sublicense or otherwise exercising license rights expresslygranted to it by the other Party pursuant to the terms of this Agreement; ineach case, provided that if a Party is required to make any such disclosure ofanother Party’s Confidential Information, other than pursuant to aconfidentiality agreement, it will give reasonable advance notice to the otherParty of such disclosure and, save to the extent inappropriate in the case ofpatent applications, will use its reasonable diligent efforts to secureconfidential treatment of such Confidential Information in consultation withthe other Party prior to its disclosure (whether through protective orders orotherwise) and disclose only the minimum necessary to comply with suchrequirements.

##  

## 7.3                                 Returnof Confidential Information. Following termination of this Agreement, at any time upon request of thedisclosing Party, the receiving Party will return all documents, and copiesthereof, containing the disclosing Party**’**s Confidential Information that are stillin the receiving Party’s possession or control; however, the receiving Partymay retain one copy of such documents in a secure location solely for thepurpose of determining its obligations hereunder, to comply with any applicableregulatory requirements, or to defend against any product liability claims.

 

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## 7.4                                 Nondisclosureof Terms.  Each of the Parties heretoagrees not to disclose to any Third Party the existence or the terms of thisAgreement without the prior written consent of each other Party hereto, exceptto such Party’s attorneys, advisors, investors and others on a need to knowbasis under circumstances that reasonably ensure the confidentiality thereof,or to the extent required by law. Notwithstanding the foregoing, the Parties will agree upon a pressrelease to announce the effectiveness of this Agreement, together with acorresponding Q&A outline for use in responding to inquiries about theAgreement; and in such event, Pharmacopeia and SPL may each disclose to ThirdParties the information contained in such press release and Q&A without theneed for further approval by the other. In addition, Pharmacopeia may make public statements regarding progresswith respect to the development and commercialization of Agreement Compoundsand/or Agreement Products, including announcement of the achievement ofmilestones, following consultation with SPL and with the written consent ofSPL.  Nothing in this Section 7.4shall prohibit a Party from making such disclosures to the extent reasonablyrequired under applicable federal or state securities laws or any rule orregulation of any nationally recognized securities exchange.  In such event, however, the disclosing Partyshall use good faith efforts to notify and consult with the other Party priorto such disclosure and, where applicable, shall diligently seek confidentialtreatment to the extent available.

##  

## 7.5                                 Publication.  Any manuscript by SPL or Pharmacopeia ortheir Affiliates describing Agreement Products shall be subject to the priorreview of the other Party at least ninety (90) days prior to submission.  Further, to avoid loss of patent rights as aresult of premature public disclosure of patentable information, the receivingParty shall notify the disclosing Party in writing within thirty (30) daysafter receipt of a disclosure whether the receiving Party desires to file apatent application on any invention disclosed in such scientific results.  In the event that the receiving Partydesires to file such a patent application, the disclosing Party shall withholdpublication or disclosure of such scientific results until the earlier of (i) apatent application is filed thereon, or (ii) the Parties determine afterconsultation that no patentable invention exists, or (iii) one hundred andeighty (180) days after receipt by the disclosing Party of the receivingParty’s written notice of the receiving Party’s desire to file such patentapplication, or such other period as is reasonable for seeking patentprotection.  Further, if such scientificresults contain the information of the receiving Party that is subject to useand nondisclosure restrictions under this Article 7, the disclosing Partyagrees to remove such information from the proposed publication or disclosure.

##  

## 7.6                                 PharmacopeiaEmployees.  All Pharmacopeiaemployees assigned to work exclusively on Collaboration research projectspursuant to Section 2.5, shall be required to have read and understood theCollaboration Business Conduct Policy. Any Pharmacopeia employees assigned to work exclusively on Collaborationresearch projects shall also be subject to non-compete obligations, as setforth below, with respect to any Target with respect to which Collaborationresearch efforts directed to such Target are performed at Pharmacopeia(including, without limitation, the design and synthesis of DerivativeCompounds based on Lead Compounds). None of the individual Pharmacopeia chemists participating in Targetspecific collaboration research shall *Pharmacopeia shall be liable forany breach of the Collaboration Business Conduct Policy and/or thesenon-compete obligations by its employees. * Pharmacopeia shall usereasonably diligent efforts to ensure that its employees working on theCollaboration do not disclose or provide access to any CollaborationTarget-Specific Technology, Schering Technology, or the results of anyscreening or other Target specific research performed at Pharmacopeia in theCollaboration, to any Pharmacopeia employees not working on the Collaboration(except to the extent reasonably necessary for Pharmacopeia to ensure itscompliance with its exclusivity obligations hereunder) or to any Third Parties.

##  

# **ARTICLE VIII**                  REPRESENTATIONS, WARRANTIES AND COVENANTS

# ** **

## 8.1                                 SPL.  SPL warrants, represents and covenants onbehalf of itself and its Affiliates that: (i) it has the legal right and powerto extend the rights granted in this Agreement; (ii) it has the legalpower, authority and right to enter into this Agreement, and to perform all itsobligations hereunder, and (iii) it has not previously granted, and duringthe term of this Agreement will not knowingly make any commitment or grant anyrights which in any material way conflict with the rights and licenses grantedherein.

 

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## 8.2                                 Pharmacopeia.  Pharmacopeia represents, warrants andcovenants on behalf of itself and its Affiliates that:  (i) it has the legal right and power toextend the rights granted in this Agreement; (ii) it has the legal power,authority and right to enter into this Agreement, and to perform all itsobligations hereunder; (iii) it has not previously granted, and during the termof this Agreement will not knowingly make any commitment or grant any rightswhich in any material way conflict with the rights and licenses granted herein;(iv) to the best of its knowledge as of the Effective Date, there are noexisting or threatened actions, suits or claims pending against it with respectto the Pharmacopeia Technology; (v) to the best of its knowledge as of theEffective Date, it is not aware of any Existing Pharmacopeia Know-How which isnot available for use for all purposes contemplated by this Agreement; and (vi)to the best of its knowledge as of the Effective Date, it owns or controls allof the Pharmacopeia Technology, and has the rights to grant the licenses orsublicenses granted to SPL hereunder with respect thereto.

##  

## 8.3                                 Compliancewith Agreement and Laws.  Each Partyshall comply in all material respects with the terms of this Agreement and withall laws, rules and regulations applicable to the discovery, development,manufacture, distribution, import and export and sale of pharmaceuticalproducts pursuant to this Agreement.

##  

## 8.4                                 Disclaimer.  SPL and Pharmacopeia expressly disclaim anyrepresentation, warranty or guaranty that the Collaboration will besuccessful.  EXCEPT AS OTHERWISEEXPRESSLY SET FORTH IN THIS AGREEMENT, PHARMACOPEIA AND SPL AND THEIRRESPECTIVE AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES ORCONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THEPHARMACOPEIA TECHNOLOGY, THE SCHERING TECHNOLOGY, THE COLLABORATION TECHNOLOGY,LEAD COMPOUNDS, DERIVATIVE COMPOUNDS, AGREEMENT COMPOUNDS OR AGREEMENTPRODUCTS, OR INFORMATION DISCLOSED PURSUANT TO ARTICLE VII, AND EXPRESSLYDISCLAIM ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,VALIDITY OF THE PHARMACOPEIA TECHNOLOGY, COLLABORATION TECHNOLOGY OR SCHERINGTECHNOLOGY (IN EACH CASE, WHETHER PATENTED OR UNPATENTED), OR NONINFRINGEMENTOF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

##  

# **ARTICLE IXINDEMNIFICATION**

# ** **

## 9.1                                 Indemnificationby SPL.  SPL shall indemnify, defendand hold harmless Pharmacopeia and its Affiliates, and each of its and theirrespective employees, officers, directors and agents (the “PharmacopeiaIndemnitees”) from and against any and all liability, loss, claims, damage,cost, and expense (including reasonable attorneys**’** and professionals’ fees andother expenses of litigation) (collectively, a “Liability”) arising out of orin connection with Third Party claims relating to (i) the discovery,development, manufacture, use, testing, marketing, sale or other disposition ofAgreement Products by or on behalf of SPL or its Affiliates or Sublicensees,(ii) performance of the Collaboration by SPL, (iii) any injury, illness ordisease suffered by any SPL employees in connection with the performance of theCollaboration, (iv) the use of any and all Targets with respect to whichresearch activities are conducted in the Collaboration, including withoutlimitation claims in connection with materials relating to such Target, or (v)any breach by SPL of its representations and warranties made under thisAgreement, except, in each case, to the extent such Liabilities result from thegross negligence or willful misconduct of Pharmacopeia, its Affiliates, or anyof their respective employees, officers, directors or agents.

##  

## 9.2                                 Indemnificationby Pharmacopeia.  Pharmacopeia shallindemnify, defend and hold harmless SPL and its Affiliates, and each of its andtheir respective employees, officers, directors and agents (the “SPLIndemnitees”) from and against any Liability (as defined above) arising out ofor in connection with Third Party claims relating to (i) the performance of theCollaboration by Pharmacopeia except to the extent directly related to the useof Targets, (ii) any injury, illness or disease suffered by any Pharmacopeiaemployees in connection with the performance of the Collaboration, (iii) anyproduct based upon a Pharmacopeia Compound developed, manufactured, used, soldor otherwise distributed by or on behalf of Pharmacopeia, its Affiliates or Licensees,as permitted under this Agreement (including, without limitation, productliability and patent infringement claims), (iv) any breach of Pharmacopeia’scontractual obligations to Third Parties, or (v) any breach by Pharmacopeia ofits representations and warranties made 

 

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## under this Agreement,except, in each case, to the extent such Liabilities result from the grossnegligence or willful misconduct of SPL, its Affiliates, or any of theirrespective employees, officers, directors or agents.

##  

## 9.3                                 NoConsequential Damages.  Except withrespect to Third Party claims as provided for under Sections 9.1 and 9.2, in noevent shall any Party to this Agreement have any claims against or liability tothe other Party for any special, consequential or incidental damages arisingunder this Agreement under any theory of liability.

##  

## 9.4                                 Procedure.  In the event that any Indemnitee intends toclaim indemnification under this Article IX, it shall promptly notify theother Party in writing of any such alleged Liability.  The indemnifying Party shall have the right to control thedefense thereof with counsel of its choice; provided, however,that any Indemnitee shall have the right to retain its own counsel, with thefees and expenses to be paid by the indemnifying Party, if representation ofsuch Indemnitee by the counsel retained by the indemnifying Party would beinappropriate due to actual or potential differing interests between suchIndemnitee and any other Party represented by such counsel in suchproceeding.  The affected Indemniteesshall cooperate reasonably with the indemnifying Party and its legalrepresentatives in the investigation and defense of any action, claim or liabilitycovered by this Article IX.  NeitherParty may settle a claim or action related to a Liability for which it or theother Party seeks indemnification hereunder without the consent of the otherParty, if such settlement would impose any monetary obligation on the otherParty or require the other Party to submit to an injunction or otherwise limitthe other Party**’**s rights under this Agreement.  Any payment made by a Party to settle any such claim or actionshall be at its own cost and expense.

##  

## 9.5                                 Insurance.  Each Party shall obtain and maintainthroughout the term of this Agreement statutory Workers’ Compensation andEmployer’s Liability insurance covering all employees engaged in theperformance of work under this Agreement. Each Party shall provide the other Party with evidence of such insuranceand/or self-insurance program, upon request.

##  

# **ARTICLE XTERM AND TERMINATION**

# ** **

## 10.1                           Termand Expiration.  This Agreementshall be effective as of the Effective Date and unless terminated earlier asprovided in this Article X or by mutual written agreement of the Parties,the term of this Agreement shall continue in full force and effect, on acountry-by-country and product-by-product basis, until SPL and its Affiliatesand Sublicensees have no further obligation to pay royalties under Article Vhereof in a country, at which time the Agreement shall expire in its entiretyin such country and the Parties shall have no further payment obligations orother financial obligations to each other with respect to the continuing use insuch country of Pharmacopeia Technology, Schering Technology and/orCollaboration Technology, as the case may be, in the manner licensedherein.  As royalty payment obligationsfor an Agreement Product expire in a country, even if the Agreement thereafterremains in effect in such country, SPL, its Affiliates and Sublicensees, shallno longer have any remaining payment obligations hereunder with respect to suchAgreement Product in that country.

##  

## 10.2                           Terminationfor Cause.  This Agreement may beterminated by written notice by either Party at any time during the term ofthis Agreement if the other Party (the “Breaching Party”) is in material breachor default of any of its material obligations hereunder (including, withoutlimitation, any payment obligations), as follows:  (i) the terminating Party shall send written notice of thebreach or default to the Breaching Party; and (ii) if such default or breachthereafter continues for sixty (60) days after written notice thereof wasprovided to the Breaching Party, then the termination shall become effective atthe end of such sixty (60) day period, unless the Breaching Party (or any otherparty on its behalf) has cured any such breach or default prior to theexpiration of the sixty (60) day period or has commenced activities reasonably expectedto cure such breach within such sixty (60) day period and thereafter usesdiligent efforts to complete the cure as soon as practicable.

##  

## 10.3                           TerminationUpon Bankruptcy or Insolvency.  ThisAgreement may be terminated by Pharmacopeia giving written notice oftermination to SPL upon the filing of bankruptcy or insolvency of SPL or theappointment of a 

 

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## receiver for the assetsof SPL, or the making by SPL of an assignment for the benefit of creditors, orthe institution of any proceedings against SPL under any bankruptcy law.  Termination shall be effective upon the datespecified in such notice.  The rights ofSPL under this Agreement shall not terminate in the event of a bankruptcy ofPharmacopeia, unless SPL elects to terminate this Agreement in accordance withthe following provisions of this Section 10.3.  In the event that (i) Pharmacopeia shall make an assignmentfor the benefit of creditors, file a petition in bankruptcy, petition or apply toany tribunal for the appointment of custodian, receiver or any trustee for itor a substantial part of its assets, or shall commence any case or proceedingunder any bankruptcy, reorganization, arrangement, readjustment of debt,dissolution or liquidation law or statute of any jurisdiction, whether now orhereafter in effect; or (ii) if there shall have been filed any such bonafide petition or application, or any such proceeding shall have beencommenced against it, in which an order for relief is entered or which remainsundismissed for a period of sixty (60) days or more; or (iii) if Pharmacopeiaby any act or omission of act shall indicate its consent to, approval of oracquiescence in any such bona fide petition, application, or proceeding ororder for relief or the appointment of a custodian, receiver or trustee for itor any substantial part of its property, or shall suffer any suchcustodianship, receivership or trusteeship to continue undischarged for aperiod of sixty (60) days or more (each such event a “Pharmacopeia BankruptcyEvent”), then SPL shall have the following rights.  SPL shall have the right, in its sole discretion, to elect toterminate this Agreement by giving written notice of such termination toPharmacopeia.  In the event that SPLdoes not elect to terminate this Agreement, then notwithstanding any rejectionof this Agreement by Pharmacopeia (which, for purposes of thisSection 10.3, includes any debtor in possession, trustee or other entitythat may succeed Pharmacopeia) pursuant to 11 U.S.C. §365, SPL shall retain allof its rights, benefits, licenses, protections and privileges under thisAgreement and shall be entitled to all of the rights, benefits and protectionsof a licensee under 11 U.S.C. 365(n). SPL will have the right (including, without limitation, the right andability to cure any and all defaults by Pharmacopeia under this Agreement, anyagreement supplementary hereto, and any agreement with a Third Party affectingor comprising all or a part of the Pharmacopeia Technology, and to take anyother actions, to oppose a rejection pursuant to 11 U.S.C. §365 of thisAgreement, and to contract directly with Third Parties, if any, involved incontracted arrangements with Pharmacopeia with respect to performance of theCollaboration), provided that SPL’s obligations to make payments toPharmacopeia under this Agreement shall automatically be reduced by the amountof all out-of-pocket costs and expenses incurred by SPL in exercising suchrights.  The Parties acknowledge andagree that all information, data and other intellectual property referred to inthis Section 10.3 (including, without limitation, Pharmacopeia Technology)and all Agreement Compounds, Agreement Products, Collaboration Technology andany other intellectual property that is licensed, or is the subject of anyother right, benefit, protection or privilege that is granted, transferred orotherwise afforded, to SPL hereunder is “intellectual property” within themeaning of 11 U.S.C. §365.

##  

## 10.4                           Terminationfor Pharmacopeia Change in Control.

##  

## 10.4.1                  Termination ofEntire Agreement.  In the event ofany Pharmacopeia Change in Control during the term of this Agreement, SPL shallhave the right to terminate this Agreement upon ninety (90) days written noticeafter such Pharmacopeia Change in Control. In such event, the provisions of Sections 10.6.1, 10.6.2, 10.6.3 and10.6.4(d) shall apply, but none of the provisions of Section 10.6.5 shallbe applicable.

##  

## 10.4.2                  Termination ofthe Collaboration.  In the eventthat such Pharmacopeia Change in Control occurs during the term of theCollaboration, SPL may, in its discretion, elect to terminate the Collaboration(but not the Agreement) on ninety (90) days written notice as set forth inSection 2.2.3. Upon receipt of written notice from SPL of its decision toterminate the Collaboration (but not the Agreement) pursuant to thisSection 10.4.2 and Section 2.2.3, Pharmacopeia (or its successor ininterest as a result of the Pharmacopeia Change in Control) shall have theoption (exercisable in its sole discretion) to provide to SPL within thirty(30) days after receipt of such notice a written certification signed by asenior corporate officer of Pharmacopeia (or such successor) setting forthwritten representations and warranties by Pharmacopeia (or such successor):

##  

## (i)                                     thatit is committed to continuing in good faith to perform the Collaboration underthe terms of this Agreement;

##  

## (ii)                                  thatit will continue to provide at least the same level and quality of personnel,facilities and resources for the performance of the Collaboration as existedprior to the Pharmacopeia Change in Control;

 

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## (iii)                               thatit will implement such additional safeguards as may be required (and which arereasonably acceptable to SPL) to ensure that all of SPL’s ConfidentialInformation will be protected from unauthorized disclosure or use byPharmacopeia (or such successor) and its Affiliates; and

##  

## (iv)                              thatit will take such other actions as are reasonably necessary to providereasonable assurances to SPL that the results of the Collaboration, includingwithout limitation, any Agreement Compounds and Collaboration Technology, willonly be used by Pharmacopeia (or such successor) and its Affiliates in furtheranceof the Collaboration or as otherwise expressly permitted under the terms andconditions of this Agreement.

##  

## If Pharmacopeia (or suchsuccessor) does not provide a certification under this Section 10.4.2within such thirty (30) day period, then the Collaboration shall terminate uponexpiration of the ninety (90) period following SPL’s notice of terminationunder this Section 10.4.2, and all of the provisions ofSection 10.6.5 shall apply.

##  

## If Pharmacopeia (or suchsuccessor) does provide a certification under this Section 10.4.2 withinsuch thirty (30) day period, then following SPL’s receipt of such certificationfrom Pharmacopeia (or such successor) pursuant to this Section 10.4.2, SPLshall have the right to rescind its notice of termination of the Collaborationby providing written notice to Pharmacopeia within thirty (30) days afterreceipt of such written certification. If following receipt of such certification, SPL provides written noticerescinding its decision to terminate the Collaboration within such thirty (30)day period, then none of the provisions of Section 10.6 shall apply andthe Collaboration shall continue under the terms and conditions of thisAgreement as if SPL had never provided any notice of termination underSection 10.4.2.  However, iffollowing receipt of such certification, SPL does not provide written noticerescinding its decision to terminate the Collaboration within such thirty (30)day period, then the Collaboration shall terminate upon expiration of theninety (90) day period following SPL’s notice of termination underSection 10.4.2, and the provisions of Section 10.6.5(i) and (ii)shall apply, but the provisions of Section 10.6.5(iii) shall notapply.  For purposes of clarity andavoidance of doubt, the Parties agree that written notice provided by ScheringCorporation rescinding a decision by Schering Corporation to terminate theCollaboration under the corresponding provisions of the US Agreement shall alsobe deemed notice by SPL under this Agreement.

##  

## 10.5                           ConcurrentTermination with the US Agreement. In the event of any termination of the US Agreement by eitherPharmacopeia or Schering Corporation under the provisions of Sections 10.2,10.3 or 10.4 thereof, as applicable, this Agreement shall automatically terminateconcurrently under the corresponding Section 10.2, 10.3 or 10.4 of thisAgreement.

##  

## 10.6                           Effectof Termination.

##  

### 10.6.1                  AccruedObligations.  Termination of thisAgreement for any reason shall not relieve the Parties from any liability whichat the time of such termination has already accrued to the other Party, orwhich is attributable to a period prior to such termination, nor precludeeither Party from pursuing all rights and remedies it may have hereunder or atlaw or in equity with respect to any breach of this Agreement.

###  

### 10.6.2                  Return ofMaterials.  Upon any termination ofthis Agreement, SPL and Pharmacopeia shall promptly return to the other Partyall Confidential Information (including without limitation all ExistingSchering Know-How or Existing Pharmacopeia Know-How, as the case may be) as setforth in Section 7.3.

###  

### 10.6.3                  Effect onAgreement Products.  In the eventthat two (2) or more Agreement Compounds and/or Agreement Products are beingdeveloped and/or commercially exploited by SPL, its Affiliates or Sublicenseesunder this Agreement and a breach entitling Pharmacopeia to terminate thisAgreement occurs which relates solely to a single Agreement Compound orAgreement Product, then Pharmacopeia shall have the option to terminate thisAgreement only with respect to the applicable Agreement Compound or AgreementProduct, and in which case all of the terms of this Agreement shall remain infull force and effect with regard to the other Agreement Compounds and/orAgreement Products being developed and commercialized.  In the event this Agreement is terminatedwith respect to a given Agreement Product, SPL shall have the right to continueto sell its remaining inventory of such Agreement Product 

 

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### for a period of up to six(6) months after the date of termination, provided that SPL continues to payroyalties to Pharmacopeia with respect to such sales.

###  

### 10.6.4                  Licenses.

###  

##### (a)                                  Terminationby Pharmacopeia Pursuant to Section 10.2.  In the event of termination by Pharmacopeia underSection 10.2, the licenses granted hereunder relating to any AgreementProduct with respect to which there has been a material breach, shallterminate, and the licenses granted to Pharmacopeia hereunder shall remain in effect,subject to the terms and conditions of this Agreement; provided, however,a breach shall have no effect on SPL’s licenses hereunder other than withrespect to the Agreement Product (together with any Hits, Lead Compounds whichare Hits, and/or Derivative Compounds discovered by Pharmacopeia in performanceof Screening Programs and/or Optimization Programs against the same Target assuch Agreement Product) to which the breach specifically relates, and theremaining licenses granted hereunder shall remain in effect, subject to theterms and conditions of this Agreement.

#####  

##### (b)                                 Terminationby SPL Pursuant to Sections 10.2 or 10.3.  In the event of any termination by SPL pursuant toSection 10.2 or 10.3 above, any licenses granted by SPL hereunder shallterminate concurrently, and any licenses granted by Pharmacopeia shall remainin effect, subject to the terms and conditions of this Agreement.

#####  

##### (c)                                  Terminationby Pharmacopeia Pursuant to Section 10.3.  In the event of any termination by Pharmacopeia pursuant to Section 10.3above, any licenses granted by Pharmacopeia hereunder shall terminateconcurrently, and any licenses granted by SPL shall remain in effect, subjectto the terms and conditions of this Agreement.

#####  

##### (d)                                 Terminationby SPL Pursuant to Section 10.4.  In the event of any termination by SPL pursuant toSection 10.4 above, any licenses granted by Pharmacopeia to SPL, and bySPL to Pharmacopeia, shall remain in effect, except for the licenses underSection 4.5, which shall terminate concurrently.

#####  

10.6.5                  Effect ofTermination of the Collaboration for Pharmacopeia  Change in Control. In the event that the Collaboration (butnot the Agreement) is terminated by SPL pursuant to Sections 10.4.2 and 2.2.3as a result of a Pharmacopeia Change in Control, and the decision to terminateis not rescinded by SPL in accordance with Section 10.4.2, the Partiesfurther agree that, effective as of *

 

(i)                                     thenon-solicitation provisions of Section 11.8 shall not apply with respectto any of the individual Pharmacopeia employees identified as working on theCollaboration under Section 2.5.1;

 

### (ii)                                  tothe extent that SPL contracts with one or more Third Parties to complete anyOptimization Program which was ongoing at the time the Collaboration wasterminated, SPL shall have the right to *

###  

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

###  

### 10.6.6                  SurvivingProvisions.  Articles VI, VII, VIII,IX and XI of this Agreement, as well as Sections 2.9.2, 2.9.3, 2.10, 2.11,4.1.3, 4.4, 4.7, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, and 10.6 shall survive theexpiration or termination of this Agreement for any reason and shall remain infull force and effect.

 

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# **ARTICLE XIMISCELLANEOUS**

# ** **

## 11.1                           Assignment.  This Agreement shall not be assigned, orassignable, by either Party hereto to any Third Party without the prior writtenconsent of the other Party, and any such attempted assignment shall be void andwithout force or effect; provided, however, that notwithstandingthe foregoing, either Party may, without such consent, assign this Agreementand its rights and obligations hereunder to an Affiliate or in connection withthe transfer or sale of all or substantially all of its business or assetsrelated to the subject matter to which this Agreement pertains, or in the eventof its merger, reorganization, acquisition, sale, consolidation or change incontrol or similar transaction.  ThisAgreement shall be binding upon, and inure to the benefit of, each Party, itsAffiliates, and its permitted successors and assigns.  Each Party shall be responsible for the compliance by itsAffiliates with the terms and conditions of this Agreement.

##  

## 11.2                           GoverningLaw.  This Agreement and any disputearising from the performance or breach hereof, shall be governed, interpretedand construed in accordance with the laws of the State of New Jersey, withoutgiving effect to conflict of law principles. The Parties expressly exclude application of the United NationsConvention for the International Sale of Goods.

##  

## 11.3                           DisputeResolution.  Except as set forth inSections 3.3 and 5.5.4, any dispute under this Agreement which is not settledby mutual consent shall be finally settled by binding arbitration, conducted inaccordance with the Commercial Arbitration Rules of the American ArbitrationAssociation by three arbitrators appointed in accordance with said rules.  The arbitration shall be held in New York,New York and at least one of the arbitrators shall be an independent expert inpharmaceutical product development (including clinical development andregulatory affairs).  Any writtenevidence originally in a language other than English shall be submitted inEnglish translation accompanied by the original or a true copy thereof.  The costs of the arbitration, includingadministrative and arbitrators’ fees, shall be shared equally by theParties.  Each Party shall bear its owncosts and attorneys’ and witness’ fees. A disputed performance or suspended performances pending the resolutionof the arbitration must be completed within thirty (30) days following thefinal decision of the arbitrators or such other reasonable period as thearbitrators determine in a written opinion. Any arbitration subject to this Section 11.3 shall be completedwithin one (1) year from the filing of notice of a request for sucharbitration.

##  

## 11.4                           NoImplied Licenses.  Only the licensesgranted pursuant to the express terms of this Agreement shall be of any legalforce or effect.  No license rightsshall be created by implication, estoppel or otherwise.

##  

## 11.5                           Representationby Legal Counsel.  Each Party heretorepresents that it has been represented by legal counsel in connection withthis Agreement and acknowledges that it has participated in the draftinghereof.  In interpreting and applyingthe terms and provisions of this Agreement, the Parties agree that no presumptionshall exist or be implied against the Party which drafted such terms andprovisions.

##  

## 11.6                           Waiver.  Any delay or failure in enforcing a Party**’**srights under this Agreement or any waiver as to a particular default or othermatter shall not constitute a waiver of such Party**’**s rights to the futureenforcement of its rights under this Agreement, nor operate to bar the exerciseor enforcement thereof at any time or times thereafter, excepting only as to anexpress written and signed waiver as to a particular matter for a statedduration.

##  

## 11.7                           IndependentContractors.  The relationship ofthe Parties hereto is that of independent contractors.  Nothing herein contained shall be deemed tocreate an employment, agency, joint venture or partnership relationship betweenthe Parties hereto or any of their agents or employees.  Neither Party shall have any power to enterinto any contracts or commitments or to incur any liabilities in the name of,or on behalf of, the other Party, or to bind the other Party in any respectwhatsoever.

##  

## 11.8                           Solicitationof Employees.  SPL and Pharmacopeiaboth agree that, during the Collaboration Term and for one (1) yearthereafter, without the express prior written consent of the other Party, theywill not knowingly induce or attempt to induce, directly or indirectly, anyscientific or technical personnel then employed by the other Party to acceptemployment or affiliation with the inducing Party or its Affiliates.

 

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## 11.9                           Compliancewith Laws.  In exercising theirrights under this license, the Parties shall fully comply with the requirementsof any and all applicable laws, regulations, rules and orders of anygovernmental body having jurisdiction over the exercise of rights under thislicense.

##  

## 11.10                     ExportControl.  This Agreement and theobligations of both Parties hereunder are made subject to, and limited by, allapplicable restrictions concerning the export of products or technicalinformation from the United States of America which may be imposed upon orrelated to Pharmacopeia or SPL from time to time by the government of theUnited States of America.  Furthermore,SPL agrees that it will not export, directly or indirectly, any technicalinformation acquired from Pharmacopeia under this Agreement or any productsusing such technical information to any country for which the United Statesgovernment or any agency thereof at the time of export requires an exportlicense or other governmental approval, without first obtaining the writtenconsent to do so from the Department of Commerce or other agency of the UnitedStates government when required by an applicable statute or regulation.

##  

## 11.11                     PatentMarking.  SPL agrees to mark andhave its Affiliates and Sublicensees mark all Agreement Products sold pursuantto this Agreement in accordance with the applicable statute or regulationsrelating to patent marking in the country or countries of manufacture and salethereof.

##  

## 11.12                     Notices.  Any notice required or permitted to be givenor sent under this Agreement shall be in writing and shall be hand delivered orsent by express delivery service or certified or registered mail, postageprepaid, or by facsimile transmission (with written confirmation copy byregistered first-class mail) to the Parties at the addresses and facsimilenumbers indicated below.

##  

## If to Pharmacopeia, to:

##  

## Pharmacopeia,Inc.3000 Eastpark BoulevardCranbury, New Jersey  08512Attn: Chief Executive OfficerFax No.: (609) 452-3672

##  

## with a copy to:

##  

## Pharmacopeia,Inc.3000 Eastpark BoulevardCranbury, New Jersey  08512Attn: General CounselFax No.: (609) 452-3655

##  

## If to SPL, to:

##  

Schering-PloughLtd.Toepferstrasse 5CH 6004 Lucerne, SwitzerlandAttention:  PresidentFacsimile No.: (011) 41 41 418 1630

 

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## with copies to:

##  

ScheringCorporation2000 Galloping Hill RoadKenilworth, New Jersey  07033Attention: Law Department, Senior Legal Director – LicensingFacsimile No.: (908) 298-2739

 

## ScheringCorporation2000 Galloping Hill RoadKenilworth, New Jersey  07033Attention: Vice President, Business DevelopmentFacsimile No.: (908) 298-5379

##  

Any such notice shall bedeemed to have been given when received. Either Party may change its address orits facsimile number by giving the other Party written notice, delivered inaccordance with this Section.

 

## 11.13                     Force Majeure.  Failure of any Party to perform itsobligations under this Agreement (except the obligation to make payments whenproperly due) shall not subject such Party to any liability or place them inbreach of any term or condition of this Agreement to the other Party to theextent (and only to the extent) that such failure is due to fire, explosion,flood, drought, war, terrorism, riot, sabotage, embargo, strikes or other labortrouble, failure of suppliers, a national health emergency, compliance with anyorder or regulation of any government entity acting with color of right, or anyother cause beyond the reasonable control of such non-performing Party and notcaused by the negligence, intentional conduct or misconduct of thenon-performing Party (such event or cause referred to as “force majeure”).  The Party affected shall promptly notify theother Party of the condition constituting force majeure as defined herein andshall exert reasonable efforts to eliminate, cure or overcome any such event offorce majeure and to resume performance of its obligations with all possiblespeed.  If a condition constitutingforce majeure as defined herein exists for more than ninety (90) consecutivedays, the Parties shall meet to negotiate a mutually satisfactory resolution tothe problem, if practicable.  Theforegoing notwithstanding, nothing herein shall require any Party to settle onterms unsatisfactory to such Party any strike, lock-out or other labordifficulty, any investigation or proceeding by any public authority or anylitigation by any Third Party.

##  

## 11.14                     Severability.  If any provision of this Agreement becomesor is declared by a court of competent jurisdiction to be illegal, invalid orunenforceable or void, it is mutually agreed that this Agreement shall remainin full force and effect without such provision, and the Parties will, in goodfaith, renegotiate the terms and conditions of this Agreement so as to lawfullyinclude the substance of such provision (to the extent possible) in order to asfully as possible realize the intent of the Parties and their commercialbargain.

##  

## 11.15                     Counterparts.  This Agreement may be executed in any numberof counterparts, each of which shall be an original as against either Partywhose signature appears thereon, but all of which taken together shallconstitute but one and the same instrument, and shall become effective on theEffective Date.

##  

## 11.16                     Captions.  The captions of this Agreement are solelyfor the convenience of reference and shall not affect its meaning orinterpretation.

##  

## 11.17                     CompleteAgreement.  This Agreement with itsExhibits, together with the US Agreement, constitutes the entire agreementbetween the Parties with respect to the subject matter hereof, and all prioragreements respecting the subject matter hereof, either written or oral,expressed or implied, shall be abrogated, canceled, and are null and void andof no effect; provided, however that except as expressly setforth in this Agreement, nothing herein shall affect the rights and obligationsof the Parties under: (i) the certain Collaboration Agreement and the certainRandom Library Agreement between Pharmacopeia, Schering Corporation andSchering-Plough Ltd. effective as of December 22, 1994, as amended (the“1994 Agreements”); or (ii) the certain contemporaneous CollaborationAgreements between Pharmacopeia and each of Schering Corporation andSchering-Plough Ltd., effective as of October 29, 1998, each as amended(the “1998 

 

34

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## Agreements”).  No amendment, modification, supplement,change or addition to this Agreement (or the Exhibits attached hereto) shall beeffective or binding on either of the Parties hereto unless reduced to writingand executed by the respective duly authorized representatives of Pharmacopeiaand SPL.

##  

11.18                     Relationshipof Prior Agreements.  For purposesof clarity and avoidance of doubt, the Parties acknowledge and agree that theterms and conditions of this Agreement shall not apply to any compounds orproducts discovered and developed by or on behalf of the Parties under the 1994Agreements or the 1998 Agreements.  Inparticular, the Parties acknowledge and agree that (i) no milestone payment orroyalty obligations set forth in this Agreement shall apply to any compoundsdiscovered and/or developed under the 1994 Agreements or the 1998 Agreements,and (ii) any Agreement Compounds and/or Agreement Products discovered and developedunder this Agreement shall not be subject to any milestone payment or royaltyobligations set forth in the 1994 Agreements or the 1998 Agreements.

 

11.19                     Relationshipto US Agreement; Controlling Provisions. The Parties acknowledge and agree that this Agreement together with theUS Agreement are intended to operate together as a single worldwide agreementgoverning the rights and obligations of Pharmacopeia, SPL and ScheringCorporation.  For purposes of clarityand avoidance of doubt, the parties agree that Article II andArticle III of this Agreement shall be subject to and governed by thecorresponding provisions of the US Agreement. The Parties further agree that SPL’s rights and obligations with respectto the filing, prosecution, maintenance and enforcement of patents and patentapplications under Article VI of this Agreement shall be exercised andperformed by the employees and/or agents of Schering Corporation havingresponsibility for Schering Corporation’s rights and obligations under Article VIof the US Agreement, and that all such activities will be performed in acoordinated manner.

 

## 11.20                     Recording.  Each Party shall have the right, at anytime, to record, register, or otherwise notify this Agreement in appropriategovernmental or regulatory offices anywhere in the world, and each Party shallprovide reasonable assistance to the other in effecting such recording,registering or notifying.  The Partiesacknowledge that this Agreement may be notified by either Party to the EuropeanCommunity for compliance with applicable laws.

##  

## 11.21                     FurtherActions.  Each Party agrees toexecute, acknowledge and deliver such further instruments, and to do all otheracts, as may be necessary or appropriate in order to carry out the purposes andintent of this Agreement including, without limitation, any filings with anyantitrust agency which may be required.

##  

 

IN WITNESS WHEREOF, thisAgreement has been executed by the duly authorized representatives of theParties as of the date set forth below.

 

 
| PHARMACOPEIA, INC. | SCHERING-PLOUGH LTD.           |
|--------------------|--------------------------------|
|               |                           |
|               |                           |
| By:                |  /s/ Stephen A.  Spearman |   | By: |  /s/ David Poorvin |   |
|               |                           |
| Title:             | EVP                            |   | Title: | Prokurist |   |
|               |                           |
| Date:              | 7/9/03                         |   | Date: | 7/9/03 |   |
|                    |                                |  |  |  |  |  |  |  |  |

 

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# **EXHIBITA**

# ** **

**CURRENCYCONVERSION**

 

----

 

# *****EXHIBIT C

# ** **

# **Elementsof Fully Allocated Manufacturing Costs**

# ** **

 

# **The following expenses are included in manufacturingcosts:**

# ** **

# **1.**                                       Direct Materials

# ** **

# **Materials used in the manufacturing process that aretraced directly to the completed product, such as:**

# ** **

# **•**                                                                                          Inert raw materials orexcipients

# **•**                                                                                          Activesubstances/ingredients

# **•**                                                                                          Packaging components suchas bottles, caps, labels, etc.

# ** **

# **2.**                                       Direct Labor

# ** **

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

 

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

 

# **•**                                                                                          Cost of employee fringebenefits such as health and life insurance, payroll taxes, welfare, pension,profit sharing and bonuses.

 

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# **3.**                                       Indirect Manufacturing Costs

# ** **

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

# ** **

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

 

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

# ** **

# **•**                                                                                          Indirect Materials - supplies and chemicalswhich are used in the manufacturing process and are not assigned to specificproducts but are included in manufacturing overhead costs.  Includes supplies for which directassignment to products is not practical.

# ** **

# **•**                                                                                          Utilities - expenses incurred forfuel, electricity and water in providing power for production and other plantequipment.

# ** **

# **•**                                                                                          Maintenance and Repairs - amount of expenseincurred in-house or purchased to provide services for plant maintenance andrepairs of facilities and equipment.

# ** **

# **•**                                                                                          Other Services - purchased outsideservices and rentals such as the cost of security, ground maintenance, etc.

# ** **

# **•**                                                                                          Depreciation - of plant and equipmentutilizing the straight-line method of calculation.

 

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# **•**                                                                                          Insurance - cost of inventoryinsurance, comprehensive insurance and other insurance necessary for thesafeguard of manufacturing plant and equipment.

 

# **•**                                                                                          Taxes - expense incurred fortaxes on real and personal property (manufacturing site, buildings and thefixed assets of equipment, furniture and fixtures, etc.). If manufacturing siteincludes other operations (marketing, R&D, etc.), taxes are allocated tomanufacturing on the basis of total real and personal property.

 

# ** **

# **•**                                                                                          Cost of manufacturing,service departments - such as:(where applicable)

# ** **

# **•**                                          Packaging Engineering

 

# **•**                                          Manufacturing Maintenance

 

# **•**                                          Industrial Engineering

 

# **•**                                          Receiving and Warehousing

 

# **•**                                          Purchasing and Accounting

 

# **•**                                          Production Scheduling

 

# **•**                                          Inventory Management

 

# **•**                                          Plant Materials Management

 

# **•**                                          Central Weigh

 

# **•**                                          ManufacturingAdministration

 

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

 

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# **•**                                                                                          Allocated costs ofservices provided to manufacturing including: (where applicable)

 

# **•**                                          Cafeteria

 

# **•**                                          Personnel Operations

 

# **•**                                          Health and Safety Services

 

# **•**                                          Division Engineering andOperations Services

 

# **•**                                          Plant Services(housekeeping)

 

# **•**                                          Manufacturing InformationSystems

 

# **•**                                          Plant Power

 

# **•**                                          Office of V.P.Manufacturing

# ** **

# **Various bases are used for allocating these costs tomanufacturing operating departments including headcount, square feet, meteredutilities use, estimated services rendered, EDP computer hours, etc.**

# ** **

# **4.**                                       Quality Assurance Costs

# ** **

# **Direct labor and indirect costs for QualityAssurance departments testing and approving materials used in manufacturing andcompleted manufacturing batches and finished products.  This includes all manufacturing in-processtesting and testing of finished materials. Excluded from product costs are QA costs related to research anddevelopment, stability testing, etc.**

# ** **

# **The following expenses are not included inmanufacturing costs:**

# ** **

# **a)**                                      Inventory Carrying Costs

 

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

 

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

 

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# **d)**                                     Costs incurred byManufacturing for special projects, or for Schering-Plough Research Instituterequests, to establish and certify new production processes, batch sizes andproduct line improvements, and new vendor certification of equipment andprimary materials components.  Thesecosts are expensed to R&D.

# ** **

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

# ** **

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

# ** **

# **g)**                                     Finished goodswarehousing, shipping and other  distributioncosts.  These are included indistribution costs which are part of marketing expenses.

# ** **

# **h)**                                     Product liability and/orbusiness interruption insurance expenses.

 

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*

 

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