**Exhibit 10.33**

** **

 

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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 CORPORATION

 

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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 Corporation, a New Jersey corporation having its principal place ofbusiness at 2000 Galloping Hill Road, Kenilworth, New Jersey 07033, U.S.A.,(hereinafter referred to as “Schering”). Pharmacopeia and Schering are sometimes referred to herein individuallyas a Party and collectively as the Parties. References to “Schering” and “Pharmacopeia” shall include theirrespective Affiliates (as hereinafter defined).

 

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

 

WHEREAS, Schering and Pharmacopeiaalso desire for Pharmacopeia to conduct a separate program to identify new leadcompounds by screening certain of its internal compound libraries for activityagainst biological targets selected by Schering; and

 

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

 

WHEREAS, Schering 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,Schering and Pharmacopeia hereby agree as follows:

 

# **ARTICLE IDEFINITIONS**

# ** **

As used in thisAgreement, the following capitalized terms, whether used in the singular orplural, 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 ofSchering or its Affiliate or Sublicensee, notice by the FDA (or an analogousregulatory authority in another country) that the IND, NDA or HRD has beenaccepted for review 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 Schering or itsAffiliates or Sublicensee receives notice from the FDA (or analogous regulatoryauthority), during the applicable thirty (30) or sixty (60) day period, thatthe NDA or HRD is 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 Schering at the maximum

 

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## control or ownershipright 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.  *

##  

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

##  

## 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 Schering or Pharmacopeia under this Agreement todiscover Agreement Compounds for further development by Schering.

##  

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

##  

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

##  

## 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, Schering’s proprietary Targets) or anyAgreement Compounds.

##  

## 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 *

 

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## 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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## 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 directlyrelated to 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 an AgreementProduct filed in any country outside the United States and which is analogousto an NDA and including, where applicable, applications for pricing, pricingreimbursement 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                           “InternationalAgreement” shall mean that certain Collaboration and License Agreemententered into by and between Pharmacopeia and Schering-Plough, Ltd. of even dateherewith.

##  

## 1.24                           “LeadCompound” shall mean any Hit or Schering Compound with respect to which theParties agree to initiate a program of medicinal chemistry to identify aDevelopment Candidate based upon the structure of such Hit or ScheringCompound.

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

##  

## 1.26                           “NDA”shall mean a New Drug Application, Product License Application, or 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.

##  

## 1.27                           “NetSales” shall mean, with respect to each country in the Territory, theinvoice price billed by Schering or its Affiliates, or their respective Sublicensees,to Third Parties (whether an end-user, a distributor or otherwise) for the saleof Agreement Products, and exclusive of intercompany transfers or sales amongSchering, its Affiliates and/or Sublicensees in the Territory, less thereasonable and customary deductions from such gross amounts including:  (i) normal and customary trade, cash andquantity discounts, allowances and credits; (ii) credits or allowances actually granted for damaged goods, returnsor rejections of Agreement Product and retroactive price reductions;  (iii) sales or similar taxes (includingduties or other governmental charges levied on, absorbed or otherwise imposedon the sale of Agreement Product including, without limitation, value addedtaxes or other governmental charges otherwise measured by the billing amount,when included in billing);  (iv)freight, postage, shipping, customs duties and insurance charges,****whenincluded in billing; (v) charge back payments and rebates granted to managedhealth 

 

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## care organizations ortheir agencies, and purchasers and reimbursers or to trade customers, includingbut not limited to, wholesalers and chain and pharmacy buying groups;  (vi) commissions paid to Third Parties otherthan sales personnel and sale representatives or sales agents; and  (vii) rebates (or equivalents thereof)granted to or charged by national, state or local governmental authorities in acountry 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.

##  

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 Schering, an Affiliate or Sublicensee; and B is the invoiceprice of any other active therapeutic ingredients in the Combination Product ifsold separately by Schering, an Affiliate or Sublicensee.  In the event that the Agreement Product issold in the form of a Combination Product containing one or more activetherapeutic ingredients other than an Agreement Product and one or more suchactive therapeutic ingredients of the Combination Product are not soldseparately, then the above formula shall be modified such that A shall bethe fully allocated manufacturing cost to Schering, its Affiliates orSublicensee of the Agreement Product and B shall be the fully allocatedmanufacturing cost to Schering, its Affiliate or Sublicensee of any otheractive therapeutic ingredients in the combination, in each case, determined inaccordance with the schedule of fully allocated manufacturing costs setforth in Exhibit C.

 

## 1.28                           “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.

##  

## 1.29                           “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 consolidation takeseffect); (ii) an acquisition by a Major Pharmaceutical Company of director 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 1.29, 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, havingtotal annual sales of pharmaceutical products of at least *

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## 1.30                           “PharmacopeiaCompound” shall mean a compound synthesized and characterized by Pharmacopeiaand which is contained in one of Pharmacopeia’s proprietary internal compoundlibraries.

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

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### 1.31.1                  “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.

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### 1.31.2                  “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 

 

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### Pharmacopeia by license,assignment or otherwise, which is necessary for the discovery, development,manufacture or use of Lead Compounds based on Hits (and/or any other Hits fromthe same Screening Program as such Lead Compound) or corresponding DerivativeCompounds and/or the discovery, development, manufacture, use, sale orcommercialization of corresponding Agreement Products, in each case, to theextent Pharmacopeia has the right to license or sublicense the same, andsubject to any limitations and prohibitions of such license or sublicense.

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### 1.31.3                  “PharmacopeiaImprovements” shall mean all patentable inventions conceived and reduced topractice, solely or jointly, by Pharmacopeia or Schering 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 Pharmacopeia Improvementsshall not include Pharmacopeia Independent Technology (as defined inSection 2.10.1).

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## 1.32                           “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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## 1.33                           “RegulatoryApproval” shall mean any applications or approvals, including any INDs,NDAs, supplements, amendments, pre- and post-approvals, marketingauthorizations based upon such approvals (including any prerequisite manufacturingapprovals or authorizations related thereto) and labeling approval(s),technical, medical and scientific licenses, registrations or authorizations ofany national, regional, state or local regulatory agency, department, bureau,commission, council or other governmental entity, necessary for themanufacture, distribution, use, import, export or sale of Agreement Product(s)in the Territory.

##  

## 1.34                           “ScheringCompound” shall mean a compound which is independently discovered by or onbehalf of Schering, 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.

##  

## 1.35                           “ScheringDerivative” shall mean any compound derived by Schering during the term ofthe Collaboration or for a period of * after the expiration or earliertermination of the Collaboration, in each case from any Derivative Compound(s)or from a Lead Compound which is a Hit, and having as its primary mode of action*.  As used herein, a compound shall bedeemed to have been “derived from” such a Lead Compound or a DerivativeCompound if it *

##  

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

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### 1.36.1                  “ScheringPatent Rights” shall mean (i) all existing patents and patentapplications owned or controlled in whole or in part by Schering or itsAffiliates as of the Effective Date (including, without limitation, those whichclaim the synthesis or composition of matter of a Lead Compound or DerivativeCompound, or the method of use thereof, or which relate to any Target or anyassay provided by Schering for use in the Collaboration or the correspondingTargets for such assays), (ii) all patents and patent applications claiming anyinvention or discovery made by or behalf of Schering or its Affiliates, otherthan in performance of the Collaboration, in connection with the discoveryand/or development of any Agreement Compounds and/or Schering Compounds, and/orthe development and commercialization of any Agreement Product, and(iii) any divisions, continuations, continuations-in-part, reissues,reexaminations, extensions or other governmental actions which extend any ofthe subject matter of the patent applications or patents in (i) or (ii) above,and any substitutions, confirmations, registrations, revalidations, oradditions of any of the foregoing.

###  

### 1.36.2                  “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 bySchering by license, assignment or otherwise, which is necessary for thediscovery, development, manufacture, use, sale or commercialization ofAgreement Products, in each case, to the extent Schering 

 

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### has the right to licenseor sublicense the same, and subject to any limitations and prohibitions of suchlicense or sublicense; provided, however, that Schering Know-Howdoes not include Schering Patent Rights.

###  

### 1.36.3                  “ScheringImprovements” shall mean all patentable inventions conceived and reduced topractice solely or jointly by Schering 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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## 1.37                           “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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## 1.38                           “ScreeningTarget” shall mean a Target agreed to by the Parties pursuant toSection 2.1.2.

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## 1.39                           “Sublicensee”shall mean with respect to a particular Agreement Product, a Third Party towhom Schering has granted a sublicense under the applicable PharmacopeiaTechnology, Schering Technology or Collaboration Technology to make, use and/orsell such Agreement Product.  As used inthis Agreement, it is understood that “Sublicensee” shall also include a ThirdParty or Third Parties to whom Schering has granted the right to distributesuch Agreement Product, provided that such Third Party or parties has (have)the primary responsibility for marketing and promotion at its (their) expenseof such Agreement Product within the field or territory for which suchdistribution rights are granted, which marketing and promotional activities arenot subsidized directly or indirectly by Schering.

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## 1.40                           “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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## 1.41                           “Territory”shall mean the United States and its territories, possessions andcommonwealths.

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## 1.42                           “ThirdParty” shall mean any Party other than Pharmacopeia and its Affiliates,Schering and its Affiliates, Schering-Plough, Ltd. and its Affiliates, andtheir permitted assigns.

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

 

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

 

1.44                           “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.  Schering and Pharmacopeiahave signed this Agreement on the Execution Date as evidence of their mutualdesire to 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 Schering’s remaining obligations to provide researchfunding for Pharmacopeia FTEs under Sections 2.4 and 5.2 of the 1998Agreements, and 

 

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## all of Pharmacopeia’sremaining obligations to provide FTEs under Section 2.5.1 of the 1998Agreements, shall terminate.  Inaddition, as of the Effective Date, any and all ongoing research programs atPharmacopeia * shall continue to be performed using the Pharmacopeia FTEs to beprovided under this Agreement, as determined by the CollaborationCommittee.  As of the Effective Date,any and all such ongoing programs (hereinafter “Carryover Programs”) shall betreated under this Agreement as Optimization Programs; provided, however,that notwithstanding 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 or obligations withrespect to * shall be governed by the terms and conditions of the 1998Agreements, and Schering shall have no milestone or royalty payment obligationsunder this Agreement with respect thereto.  Except as expressly modified and amended by this Agreement, all otherterms and conditions of the 1998 Agreements shall remain in full force andeffect.

##  

## 2.1                                 CollaborationResearch Programs.

##  

## 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 andupdated (at least annually) by the Collaboration Committee during the term ofthe Collaboration.  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 thatSchering, in its sole discretion, shall have primary responsibility anddecision making 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 toundertake an Optimization Program for a Target selected by Schering ifPharmacopeia reasonably determines that the performance of an OptimizationProgram based upon that Target would constitute a breach one or more of Pharmacopeia’sexisting contractual 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, Schering shall notify Pharmacopeia in writing of theidentity of * Screening Targets.  Suchnotice shall include the applicable Activity Criteria recommended by Scheringfor each proposed Screening Target, which Activity Criteria shall constituteSchering Know-How.  Such ActivityCriteria shall include, without limitation, * Pharmacopeia shall have the rightto 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 Schering 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.  Schering shall have the rightto propose 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 * Schering shall propose * additional Targets foracceptance by 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 Screening Programsto be conducted by Pharmacopeia * To the extent that Schering will be funding *the Parties shall use reasonable efforts to agree upon * new Targets (to beproposed by Schering * as Screening Targets for Screening Programs to beconducted 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.

 

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### 2.2.1                        Extensionof Collaboration Term.  In the eventthat Schering continues to fund the Collaboration *in accordance withSection 2.5.2, then the Collaboration may be extended for *as providedbelow.  The first *shall be effectiveupon agreement by Schering *shall be effective upon agreement by Schering *Eachof the *shall become effective upon written notice by Schering to Pharmacopeiathat it agrees to the *in accordance with Section 2.8.3.  *shall be at Schering’s sole discretion andshall be for the purpose of completing any Optimization Programs which arestill in progress at the end *The *extension, if any, shall be effective uponwritten notice by Schering to Pharmacopeia at least*  If Schering does not provide such notice, the Collaboration shallexpire on *

###  

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

 

### 2.2.3                        Terminationof Collaboration Upon Pharmacopeia Change in Control.  In the event of a Pharmacopeia Change inControl during the term of the Collaboration, Schering shall have the right, inits discretion, (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 such Changein Control expressly stating its intention to terminate the Collaboration.  In the event that Schering elects toterminate the Collaboration and not the Agreement, then (a) Schering willnot be obligated to make the payments set forth in Section 5.2 for theperiod after the effective date of such termination, (b) Pharmacopeia shall notbe obligated to conduct any Collaboration research activities after theeffective date of such termination, and (c) the remaining terms andconditions of this Agreement, including without limitation the licenses androyalty obligations set forth herein, shall remain in full force and effectuntil the Agreement expires or is terminated as set forth in Article X,below.

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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 Schering shall have the right to terminate all furtherobligations with regard to Screening Programs in *.  This right shall be exercisable by Schering, in its solediscretion, by providing written notice to that effect to Pharmacopeia within *In the event that the Screening Programs are terminated pursuant to thisSection 2.2.4, then Pharmacopeia shall not conduct any further ScreeningPrograms under this Agreement during the remaining term of theCollaboration.  In addition,notwithstanding anything herein to the contrary: (i) the Collaboration shall belimited to a total *of three (3) years with the third year being a wind downyear in which Schering shall only be obligated to fund * chemists, as providedin Section 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 the ScreeningPrograms by Schering, 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 Schering, for performance of theCollaboration during each year of the Collaboration (it being understood andagreed that FTEs provided by Pharmacopeia for the Collaboration under theInternational Agreement shall also be deemed to be provided to thisCollaboration for purposes of determining the number of FTEs provided byPharmacopeia hereunder);

 

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#### (ii)                        researchfacilities, laboratories and equipment sufficient to enable the Collaborationscientists (including Pharmacopeia employees and one (1) Schering employee tobe provided 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.

####  

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                                 ScheringResponsibilities.  Schering shallprovide research funding for the Collaboration as set forth in Section 5.2and shall use commercially reasonable efforts to provide:

##  

#### (i)                           onescientific director provided by Schering, in combination with Schering-Plough,Ltd., to work full-time on the Collaboration managing the day-to-day operationsof the 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, consisting of synthetic/medicinal chemists *and the remaining * biology FTEs to be allocated, as determined by theCollaboration Committee, between bioassay support for Optimization Programs andperformance of Screening Programs.  TheParties agree that the Collaboration Committee shall have the right to (i)increase or decrease the total number of FTEs to be provided by Pharmacopeiaand funded by Schering during any year of the Collaboration, and/or (ii) toadjust the allocation of the total number of FTEs working on the Collaborationbetween chemistry and biology FTEs, in each case as necessary to carry out theCollaboration Research Plan; provided, however, that any suchadjustments must be agreed upon by the Collaboration Committee in advance inwriting, shall not be made more than once in any given quarter, and shall not *or * in any wind down year. Pharmacopeia’s obligation to provide FTEs during * as well as during anyextension of the Collaboration pursuant to Section 2.2.1 or wind downperiod pursuant to Section 2.2.2, shall be determined in accordance withSections 2.5.2, 2.5.3 or 2.5.4, as applicable. All of the Pharmacopeia chemistry FTEs assigned to work on theCollaboration * On or before the Effective Date, Pharmacopeia will provide toSchering a list individually identifying those Pharmacopeia chemistry FTEsassigned to the Collaboration, which list shall be updated from time to timeduring the term of the Collaboration as FTEs assigned to work exclusively forthe Collaboration are added, removed and/or replaced.   During the term of the Collaboration, upon initiating eachOptimization Program, Pharmacopeia will also individually identify a biologyFTE as the primary contact at Pharmacopeia for the performance of assays andother biology related activities for such Optimization Program, it beingunderstood that such individuals may have responsibility for more than oneOptimization Program.  It is understoodthat, in the aggregate, the education, training and experience levels of allPharmacopeia FTEs assigned to the Collaboration will be reasonablyrepresentative of Pharmacopeia employees working on Pharmacopeia’s internalresearch programs.  Within fifteen (15)business days after the Effective Date, Pharmacopeia will provide Scheringwith: (i) a copy of the****Collaboration Business Conduct Policy (asdescribed in Section 7.6) to be observed by all Pharmacopeia FTEs assignedto work on the Collaboration; and (ii) Pharmacopeia’s written representationand warranty that all such FTEs assigned to the Collaboration have read andunderstand the terms of the****Collaboration Business Conduct Policy.

 

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### 2.5.2                        PharmacopeiaFTE Commitments for *.  In the eventthat during *the Parties have initiated, or Schering has agreed to initiate, *Optimization Programs * then Pharmacopeia shall continue to provide, andSchering will continue to fund, * FTEs during *If at least * then Scheringshall have the right (in its sole discretion) to reduce the number of FTEs tobe provided by Pharmacopeia and funded by Schering; provided that thenumber of Pharmacopeia FTEs to be funded by Schering during the third year ofthe Collaboration shall be * FTEs; and providedfurther that allsuch FTEs shall be chemistry FTEs dedicated to work full time on theCollaboration.

###  

2.5.3                        PharmacopeiaFTE Commitments During *.  If theterm of the Collaboration is * pursuant to Section 2.2.1, Schering shallcontinue to fund and Pharmacopeia shall continue to provide * FTEs during *, ifapplicable.  If Schering extends theCollaboration for * pursuant to Section 2.2.1, then the level of FTEsupport to be provided by Pharmacopeia and funded by Schering shall bedetermined by the Parties based * to be completed during *.

 

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

 

### 2.5.5                        ScheringFTE Commitments.  During the term ofthe Collaboration Schering shall, in combination with Schering-Plough Ltd.under the International Agreement, provide a single scientific director as setforth in Section 2.4(i).  Suchdirector shall be subject to Pharmacopeia’s confidentiality restrictions suchas limited access to laboratories and access only to data that specificallyrelate to the Collaboration.  It isunderstood that the scientific director shall remain an employee of Schering,and that Schering shall remain responsible for, and indemnify Pharmacopeia forany claims arising from or relating to, the conduct, activities, salary andbenefits of such director, except to the extent caused by the gross negligenceor willful misconduct of Pharmacopeia. In addition, Schering shall provide such additional FTEs located atSchering’s research facilities as Schering determines, in its sole discretion,are reasonably necessary to support the ongoing research programs of theCollaboration, 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,Schering shall be responsible (at its expense) for the purchase of suchspecialized equipment, 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 Schering. Pharmacopeia shall have the right to utilize the specialized equipment inperformance 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 Schering under thisSection 2.6, including without limitation, any utility costs and the costsof  reagents, solvents or other suppliesnecessary for the operation of the specialized equipment.  Pharmacopeia shall ensure that allPharmacopeia employees operating the specialized equipment have been properlytrained in its use and shall use the specialized equipment in accordance withthe instructions and operating procedures to ensure its proper use.  Pharmacopeia shall be responsible (at itsexpense) for any damage (excluding ordinary wear and tear) to any of Schering’sspecialized equipment provided to Pharmacopeia pursuant to thisSection 2.6 resulting from Pharmacopeia’s use of the specializedequipment.  Upon expiration or earliertermination of the Collaboration, Pharmacopeia shall fully cooperate withSchering to promptly return the specialized equipment to Schering.  Alternatively, the Parties may decide topermit Pharmacopeia to retain the specialized equipment following theexpiration or termination of the Collaboration, in which case the Parties shallarrange for the purchase and transfer of ownership of the specialized equipmentto Pharmacopeia on financial terms to be agreed to by the Parties based upon thethen current fair market value of the specialized equipment.

##  

## 2.7                                 RecordKeeping and Inspection of Records. Each of Schering and Pharmacopeia, and their respective Affiliates,shall maintain records of its Collaboration activities (or cause such records tobe maintained) in sufficient detail and in good scientific manner appropriatefor patent and regulatory purposes as will properly reflect all work 

 

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## performed and the resultsachieved in performance of the Collaboration. Schering shall also maintain analogous records of its developmentactivities with respect to Agreement Compounds and Agreement Products.  Such records may include books, records,reports, research notes, charts, graphs, comments, computations, analyses,recordings, photographs, computer programs and documentation thereof, computerinformation storage media, samples of materials and other graphic or writtendata generated in connection with the Collaboration, including any data requiredto be maintained pursuant to all requirements of applicable laws, rules andregulations, or as directed by the Collaboration Committee.  Pharmacopeia**’**s records shall alsodocument by name which individuals assigned to the Collaboration pursuant toSection 2.5 are working on each specific Collaboration research project(identifying the Target(s) involved). During the Collaboration and for five (5) years thereafter, each ofSchering and Pharmacopeia shall have the right, upon at least five (5) businessdays**’**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 Schering,as appropriate, 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, Schering will provide Pharmacopeia (free of charge) withreasonable quantities of the Screening Target protein and any of Schering’sother proprietary reagents required to perform assays to identify compoundshaving activity against such Screening Target. All such proteins and other reagents are and shall remain the propertyof Schering, shall be used by Pharmacopeia solely in performance of theScreening Program, and shall not be transferred or otherwise made available toany Third Party without Schering’s prior written consent (which consent may begranted or withheld in Schering’s sole discretion.)  Upon receipt of such * Pharmacopeia shall use diligent efforts toinitiate and conduct a Screening Program to identify Pharmacopeia Compoundshaving activity against such Screening Target. Such efforts shall include any assay development work or assaymodifications necessary to enable Pharmacopeia to perform the relevant assaysto determine whether or not the applicable Activity Criteria are met for suchScreening Target.  Except as otherwiseprovided in Section 2.6, Pharmacopeia shall be solely responsible *Effective upon acceptance by Pharmacopeia of each Screening Target underSection 2.1.2, Pharmacopeia shall not conduct any screening ofPharmacopeia Compounds, either for itself or for any Third Party, against thesame Target as such Screening Target (as determined pursuant toSection 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 a givenScreening Target, Pharmacopeia shall promptly notify Schering of all Hitsidentified with respect to that Screening Target, which notice shall identifythe Screening Target and the available data generated by Pharmacopeia regarding*but shall not disclose the chemical structure of the Hits, or in the eventthat no Hits are identified from the Screening Program, Pharmacopeia shallnotify Schering to that effect.  *information and samples of Hits solely for the purpose of confirming that suchPharmacopeia Compound meets the Activity Criteria for the ScreeningTarget.  This will include theperformance by Schering of any tests necessary to confirm *  Schering agrees, however, not to conduct, orhave conducted, *

##  

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

##  

2.8.3                        LeadCompounds from Screening Programs. * Schering shall notify Pharmacopeiawhich (if any) of those confirmed Hits are acceptable to Schering as LeadCompounds for initiation of new Optimization Programs.  Following notice from Schering that one ormore Hits are acceptable as Lead Compounds, the Parties shall, as soon asreasonably practicable, initiate a new Optimization Program based upon suchLead Compound(s) in accordance with Section 2.9.  The Parties acknowledge and agree that if Schering notifiesPharmacopeia that at least one Hit is acceptable to Schering as a Lead Compoundfor a given Screening Target, then the licenses granted to Schering underArticle 4 with respect to such Lead Compound shall also include * Therestrictions set forth in Section 2.8.2 

 

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regarding disclosure,access and use of structural information with respect to confirmed Hits shallno longer apply following notice of acceptance by Schering of one or more suchHits as a Lead Compound pursuant to this Section 2.8.3.  Upon acceptance by Schering of one or moreHits as a Lead Compound pursuant to this Section 2.8.3, the duration ofthe restriction on screening by Pharmacopeia against the relevant ScreeningTarget, as set forth in the last sentence of Section 2.8, *

 

2.8.4                        Hits NotAccepted by Schering.  In the eventthat Schering does not accept any of the Hits identified by Pharmacopeia withrespect to a given Screening Target as Lead Compounds for an OptimizationProgram, Pharmacopeia shall have the right to * In the event that Pharmacopeiadecides to * Following receipt of any * by Schering, the Parties agree that for*

 

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 Schering 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 Programs basedupon Lead Compounds which are Hits from Screening Programs, Schering 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 Schering to provide Lead Compounds which are Schering Compoundsshall not constitute a breach under this Agreement.  If Schering ceases funding the Collaboration at the full level in* in accordance with Sections 2.5.2, 2.5.3 and 2.5.4, then Schering will not beobligated to initiate any new Optimization Programs *.  The Collaboration Committee shall beresponsible for allocation of the FTEs and other resources among the variousOptimization Programs selected by Schering. 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 bySchering.  Any delay in initiating anOptimization Program based upon a Lead Compound which is a Hit from a ScreeningProgram shall not have any effect on the acceptance of such Hit as a LeadCompound and Pharmacopeia 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 inperformance of each Optimization Program. Such reports will identify the chemical structure of any and allDerivative Compounds prepared by Pharmacopeia in performance of theOptimization Program (whether or not such compounds are identified as activeagainst the Target), and all test data with respect thereto.

 

2.9.2                        * .

 

2.9.3                        *Notwithstanding the provisions of Section 2.9.2, *

 

2.9.4                        LeadsBased Upon Schering Compounds. Schering shall not be obligated to disclose the structure of anySchering Compound(s) proposed as Lead Compounds unless and until Pharmacopeiahas agreed, pursuant to Section 2.1.1, to conduct an Optimization Programagainst the relevant Target.  UponPharmacopeia’s agreement to conduct an Optimization Program based upon one ormore Lead Compounds which are Schering Compounds, Schering shall disclose toPharmacopeia the structure of such Schering Compounds.  Effective upon the 

 

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date Pharmacopeia agreesto perform an Optimization Program based upon one or more Lead Compounds whichare Schering Compounds, for the period extending 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 ThirdParties) perform independent research and development activities with respectto Targets (including, without limitation, to identify, develop andcommercialize products), which activities are not within the scope of thisAgreement; provided that Pharmacopeia shall not use any ScheringTechnology, and except as otherwise expressly set forth in this Agreement shallnot use any Collaboration Technology, in connection with any such independentresearch and development activities. Any data, information, materials, compounds, products or othertechnology resulting from such independent research and development activitiesis the property of Pharmacopeia (“Pharmacopeia Independent Technology”).  The Parties further acknowledge thatPharmacopeia Independent Technology may include technology independentlyacquired, discovered or developed by Pharmacopeia (as demonstrated bydocumented evidence created at the time of such acquisition, discovery ordevelopment) and which coincidentally is substantially the same as technologywithin the scope of Collaboration Technology and/or Schering Technology.  Schering shall have no rights or licenseswhatsoever to any Pharmacopeia Independent Technology.

 

2.11                           Schering’sScreening Programs.  The Partiesacknowledge that Schering 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.  Schering shall havethe right * 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 *

 

2.11.1                  Differentiationof Targets.  A Target will encompass*

 

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 Schering obtains a license for Pharmacopeia, or grants Pharmacopeia asublicense under a license held by Schering, to conduct such program orresearch activities, Pharmacopeia’s failure to conduct such program or researchactivities shall not constitute a breach of this Agreement.  Pharmacopeia shall promptly inform Scheringin the event that Pharmacopeia determines in accordance with thisSection 2.12 that it will be unable to undertake any proposed ScreeningProgram, Optimization Program or research activities due to Third Partypatents. *

 

# **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 Schering and Pharmacopeia, or such other equal number ofrepresentatives as the Parties may agree, each Party’s members selected by thatParty.  Each of Pharmacopeia and Scheringmay replace its Collaboration Committee representatives at any time uponwritten notice to the other Party.  TheCollaboration Committee shall be chaired by the Collaboration Directorappointed by Schering, unless otherwise agreed by the Parties.  

 

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## From time to time theCollaboration Committee may establish various subcommittees, constituted asagreed by the Collaboration Committee, to oversee particular projects oractivities 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 Schering for Hitsproposed to be accepted as Lead Compounds for new Optimization Programs; and(v) taking such other actions as may be specified under this Agreement or whichthe Parties deem appropriate.  TheCollaboration Committee may designate a patent committee comprised of employeesor representatives of the Parties to oversee the patent prosecution and/orenforcement 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 Schering or Pharmacopeia to attend and participate inCollaboration Committee meetings (e.g., to evaluate and advise on business orscientific issues) subject to compliance with the confidentiality provisions ofSection 7.1.  Each Party shall beresponsible for its own expenses in connection with the CollaborationCommittee.

##  

## 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 Schering**’**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 in pharmaceuticalproduct development, and the decision of the arbitrator shall be renderedwithin 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 Schering; provided, however,that notwithstanding the foregoing, Pharmacopeia shall not be obligated to (i)perform any action that would violate its obligations to any Third Party 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) knowinglyprepare or deliver to Schering any compounds previously licensed to any ThirdParty.  Notwithstanding the foregoing,Schering, in its sole discretion, shall have complete and final control overSchering’s research, development and commercialization of Schering Compounds,Agreement Compounds and/or Agreement Product(s) in accordance with the termsand conditions of this Agreement.

##  

## 3.4                                 DevelopmentStatus; Notice of Sale of Agreement Products.  During the term of this Agreement, Schering shall providePharmacopeia written annual reports within thirty (30) days after the first andeach subsequent 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 Schering;(ii) the status of all patent applications claiming any Library Compoundsor Derivative Compounds, and (iii) copies of all such patent applications whichhave published during the relevant twelve (12) month period and were notpreviously provided to Pharmacopeia. Such reports shall contain information sufficient to allow Pharmacopeiato monitor the status of Schering’s efforts with respect to the accomplishmentof the milestones set forth in Section 5.3; provided, however,that nothing hereunder shall be construed as requiring Schering to providePharmacopeia with any specific research data or results, including, withoutlimitation, information relating to Targets or data obtained from screeningprograms being conducted at Schering. Until the First Commercial Sale of each Agreement Product by or onbehalf of Schering hereunder, Schering shall keep Pharmacopeia reasonablyinformed as to the status of the pre-clinical, clinical and commercialdevelopment of such Agreement Product by providing Pharmacopeia with annualwritten reports summarizing such activities with respect to each potentialAgreement Product under development during the term of this Agreement.  Within thirty (30) days of the FirstCommercial Sale of any Agreement Product, Schering shall give Pharmacopeiawritten notice thereof, which notice 

 

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## shall describe therelevant Agreement Product, identify the active ingredients in such AgreementProduct, and identify the specific Target(s) which led to the development ofsuch Agreement Product.

##  

## 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 Schering.  Schering shall use reasonable good faithefforts to discover and develop Agreement Compounds, and to discover, developand commercialize Agreement Products; provided, however, thatSchering shall have no quotas or other minimum diligence obligations withregard to number of Agreement Compounds and Agreement Products to be developedand commercialized hereunder.  Suchdecision making and/or reasonable good faith efforts shall be expended bySchering, as determined in its reasonable commercial judgement, based upon thefacts and circumstances in existence and reasonably available to Schering atthat time, and shall be exercised in a manner consistent with the discovery,development and commercialization of Schering’s other products of comparablecommercial value, potential and stage of development.  All of Schering’s diligence obligations hereunder are expresslyconditioned upon the continuing absence of any adverse condition or event whichwarrants a delay in commercialization of an Agreement Product including, butnot limited to, an adverse condition or event relating to the safety orefficacy of the Agreement Product or unfavorable pricing, pricingreimbursement, labeling or lack of Regulatory Approval, and Schering shall haveno obligation to develop or market any such Agreement Product so long as inSchering’s opinion any such condition or event exists; provided thatSchering shall use commercially reasonable efforts to overcome any unfavorablepricing or pricing reimbursement with respect to Agreement Products beingcommercialized under this Agreement. The Parties acknowledge and agree that none of the diligence obligationsin this Section 3.5 shall apply to any Schering Compounds, the discovery,development and commercialization of which are the sole and exclusiveresponsibility of Schering.

##  

# **ARTICLE IVLICENSES AND EXCLUSIVITY**

# ** **

## 4.1                                 Licenseto Schering.

##  

### 4.1.1                        License toPharmacopeia Technology.  Subject tothe terms of Section 4.4.1, Pharmacopeia agrees to grant, and herebygrants to Schering an exclusive license under the Pharmacopeia Technology(exclusive even as to Pharmacopeia and its Affiliates) in the Territory, tomake, have made, use, sell, offer to sell, import and export Agreement Productscontaining a Lead Compound which is a Hit or a corresponding DerivativeCompound as an active ingredient.  It isunderstood that such licenses shall include the right to conduct drug researchand development, and the exclusive right to discover, develop, make, have madeand use such Lead Compounds and corresponding Derivative Compounds, during theterm of this Agreement.

###  

### 4.1.2                        License toCollaboration Technology.  Pharmacopeiaagrees to grant, and hereby grants to Schering an exclusive license underPharmacopeia’s interest in the Collaboration Technology (exclusive even as toPharmacopeia and its Affiliates), to make, have made, use, sell, offer to sell,import and export Agreement Products in the Territory.  It is understood that such licenses 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 Schering anexclusive license (exclusive even as to Pharmacopeia and its Affiliates), underall of Pharmacopeia**’**s interest in the****CollaborationTarget-Specific Technology for any and all purposes****in the Territory, includingthe right to grant sublicenses.

 

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### 4.1.4                        *

###  

## 4.2                                 Sublicenses.  Schering shall have the right to sublicensethe rights granted in Section 4.1 above. Each such sublicense shall be consistent with all the terms andconditions of this Agreement.  Scheringshall remain 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 shall providefor its continuation following early termination of the license rights ofSchering hereunder and its assignment to Pharmacopeia.  Promptly following the execution of eachsublicense requiring Pharmacopeia’s consent hereunder, Schering shall givePharmacopeia written notice of the existence and identity of each Sublicenseeand identify the Agreement Product(s) sublicensed to such Sublicensee.

##  

## 4.3                                 DirectAffiliate Licenses.  WheneverSchering shall reasonably demonstrate to Pharmacopeia that, in order tofacilitate direct royalty payments by an Affiliate, it is desirable that aseparate license agreement be entered into between Pharmacopeia and suchAffiliate, Pharmacopeia will grant such licenses directly to such Affiliate bymeans of an agreement which shall be consistent with all of the provisionshereof and Schering shall guarantee the Affiliate’s obligations thereunder andotherwise provide to Pharmacopeia assurances of performance satisfactory toPharmacopeia.  Schering shall reimbursePharmacopeia for its reasonable attorneys’ fees and costs incurred inconnection with any such separate 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 Schering’s rights under thisArticle IV.  Notwithstanding thelicenses granted to Schering under Sections 4.1.1 and 4.1.4 above, it ispossible that a Third Party already has or may acquire rights from Pharmacopeiawith respect to one or more compounds of which Pharmacopeia is a sole or jointowner, which compounds were made and designed independently of Pharmacopeia’s activitiesin the Collaboration; accordingly, Pharmacopeia’s grant of rights underSections 4.1.1 and 4.1.4 are limited to the extent that (i) a ThirdParty (either alone or jointly with Pharmacopeia) has filed a patentapplication with respect to such a compound prior to the filing by Schering(either alone or jointly with Pharmacopeia) of a patent application withrespect to such a compound, or (ii) Pharmacopeia has previously granted aThird Party a license, an option to acquire a license, a right of first negotiation,field exclusivity, or a non-competition covenant with respect to such acompound, and are 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 Schering, or jointly owned bySchering and Pharmacopeia hereunder. Pharmacopeia shall use reasonable efforts to avoid such conflict, whichefforts shall be comparable to those used by Pharmacopeia in performing similarobligations under its agreements with Third Parties.  It is understood that, unless Schering is damaged as a proximateresult of a material breach by Pharmacopeia of any of the representations andwarranties in Article VIII, then Pharmacopeia shall have no liabilityunder this Agreement with respect to any such conflict.

###  

### 4.4.3                        PharmacopeiaReports to Schering 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 bySchering concerning a Pharmacopeia license to a Third Party of a patentapplication owned or co-owned by Pharmacopeia, Pharmacopeia shall, to the extentit may do so without breaching any contractual or other legal obligation,provide Schering with a statement explaining why the invention(s) claimed inthe patent application or technology licensed to such Third Party isindependent of Pharmacopeia’s activities in the Collaboration.  Such statement shall be supported by writtenrecords kept in the ordinary course of business consistent with pharmaceuticalindustry standards, provided that such records need not be provided to Scheringat the time of providing such statement, but may have to be 

 

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### provided pursuant toSection 11.3.  Such informationshall be deemed Confidential Information of Pharmacopeia pursuant to thisAgreement.

###  

## 4.5                                 CollaborationResearch Activities.  Scheringagrees to grant, and hereby grants, to Pharmacopeia a royalty-free,non-exclusive license under (i) Schering’s interest in the CollaborationTechnology, and (ii) any Schering Technology which Schering, in its solediscretion, reasonably determines is necessary or useful for Pharmacopeia’sperformance of the Collaboration, in each case to use during the term of theCollaboration and solely in performance of the Collaboration.  Pharmacopeia will not be required to pay anyfees to use such intellectual property, but will as a condition precedent tosuch use execute any consents or sublicenses required by any Scheringlicensor.  Pharmacopeia shall not berequired to execute any unreasonable consents or licenses and will not be inbreach of this Agreement for failure to do so.

##  

4.6                                 *

 

4.7                                 NoOther Products.  Neither Scheringnor its Affiliates or Sublicensees shall commercialize any Hit, Lead Compoundwhich is a Hit, Derivative Compound, Schering Derivative or other compositionof matter claimed in a Collaboration Patent Right, other than as an AgreementProduct in accordance 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 Schering herein, Scheringagrees to pay to Pharmacopeia the amounts set forth in Sections 5.2, 5.3,5.4 and 5.5.  *

##  

## 5.2                                 CollaborationFunding.

##  

### 5.2.1                        FundingDuring Year One.  Schering shall payto Pharmacopeia 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.  Scheringshall pay to Pharmacopeia research funding for the Collaboration at an adjustedrate per 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 *

 

### 5.2.3                        Manner ofPayment.  As noted inSection 5.1, with respect to each Pharmacopeia FTE, * Research funding forthe 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 Schering fifteen(15) business days prior to the end of the preceding quarter, and Scheringshall pay such invoiced amounts.  It isunderstood that in the case of the first calendar quarter of the first year ofthe Collaboration, Pharmacopeia shall send an invoice to Schering as soon aspracticable after the Effective Date. Each invoice will indicate the number of Pharmacopeia FTEs to beassigned to the Collaboration for such quarter and any adjustment from theprior quarter as determined in accordance with Section 5.2.4.  Schering will use commercially reasonableefforts during each calendar year during the term of the Collaboration to payits first calendar quarter Collaboration funding payments to Pharmacopeia on orbefore the first (1st) day of January; provided, however, that inthe event Schering is unable to complete such payment, payment by Schering onor before the seventh (7th) day of January in such calendar year shall notconstitute a breach or default by Schering.

###  

### 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 the actualnumber of FTEs provided by Pharmacopeia and the number prepaid bySchering.  Any overpayment orunderpayment 

 

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### shall be reflected as acredit or additional charge, as the case may be, in the next quarterly invoiceas per Section 5.2.3, and in the event that no further quarterly paymentsare due under this Section 5.2, then (i) any underpayment shall bepaid by Schering to Pharmacopeia within fifteen (15) business days of receivingnotice and invoice therefor, or (ii) Pharmacopeia shall within thirty (30) daysreimburse Schering for any overpayment. For purposes of clarity and avoidance of doubt, the Parties acknowledgeand agree that nothing in this Section 5.2.4 shall be construed asobligating Schering to pay for any Pharmacopeia FTEs actually working in theCollaboration during a given year of the Collaboration in excess of the numberof FTEs specifically provided for in Section 2.2 during such year, unlesssuch increased FTE support is agreed to in advance in writing by Schering.

###  

## 5.3                                 LeadCompound Milestone.  Schering shallpay to Pharmacopeia a milestone payment of * for each new Optimization Programinitiated or agreed to by Schering with respect to a Screening Target basedupon one or more Lead Compound(s) accepted by Schering in accordance withSection 2.8 that are Hits arising from Screening Programs conducted byPharmacopeia.  No such milestone shallbe payable with respect to any Optimization Programs initiated or agreed tobased upon Lead Compounds which are Schering Compounds.  Such milestone payment shall be due withinthirty (30) days after Schering notifies Pharmacopeia pursuant toSection 2.8.3 that it has accepted one or more Pharmacopeia Compounds asLead Compounds.  The milestone paymentunder this Section 5.3 shall only be payable * Further, it is understoodand agreed that all amounts payable under this Section 5.3 are in additionto any milestone payments that may be due to Pharmacopeia under thecorresponding provisions of the International Agreement.  For the avoidance of doubt, it is understoodand agreed that, for each new Optimization Program conducted by Pharmacopeia,Pharmacopeia shall be entitled to receive the milestone payment under thisSection 5.3 and the milestone payment from Schering-Plough Ltd. under thecorresponding provision of the International Agreement.

##  

## 5.4                                 MilestonePayments.

##  

### 5.4.1                        Events andAmounts.

###  

##### (a)                                  Milestonesfor Optimization Programs based upon Schering Compounds.  Schering agrees to pay to Pharmacopeia thefollowing amounts upon attainment, by or on behalf of Schering, its Affiliatesor Sublicensees, 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 DerivativeCompounds):

#####  

###### (i)                         *upon nomination of a Development Candidate;

######  

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

######  

###### (iii)                   *upon initiation of treatment of the first patient in a Phase III clinicalstudy;

######  

###### (iv)                  *upon filing and Acceptance of an NDA with the FDA; and

######  

###### (v)                     *upon Regulatory Approval in the Territory.

######  

##### (b)                                 Milestonesfor Optimization Programs based upon Hits. Schering agrees to pay to Pharmacopeia the following amounts uponattainment, by or on behalf of Schering, its Affiliates or Sublicensees, of theindicated milestones with respect to an Agreement Compound/Agreement Productarising from an Optimization Program based upon one or more Lead Compoundswhich are Hits, (i.e., any such Lead Compounds, related Hits, DerivativeCompounds resulting from such Optimization Program and/or Schering Derivativesderived from such Lead Compounds, Hits or Derivative Compounds):

#####  

###### (i)                         *upon nomination of a Development Candidate;

######  

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

 

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###### (iii)                   *upon initiation of treatment of the first patient in a Phase III clinicalstudy;

######  

###### (iv)                  *upon filing and Acceptance of an NDA with the FDA; and

######  

###### (v)                     *upon Regulatory Approval in the Territory.

######  

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 International 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)Schering (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 clinicaltrials.  Within thirty (30) days afterthe nomination of a Development Candidate, Schering shall notify Pharmacopeiathereof.

###  

### 5.4.3                        Manner ofPayment.  All payments made toPharmacopeia by Schering 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 Schering with respect to Targets which are notthe subject 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 Schering hereunder,Schering shall pay royalties to Pharmacopeia based upon the sales of AgreementProducts in the Territory.  The partiesacknowledge and agree that, except as expressly set forth herein, Schering’sobligation to pay such royalties is not conditioned upon the existence ofpatent protection for the Agreement Products.

##  

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

###  

###### (i)                         *of Net Sales of Agreement Products where the Agreement Compound in suchAgreement Product is (1) a Lead Compound which is a Hit, or (2) a DerivativeCompound discovered by Pharmacopeia in an Optimization Program based upon aLead Compound 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 Scheringas a result of an independent screening program conducted by Schering pursuantto Section 2.11 against a Target which was not the subject of a ScreeningProgram or Optimization Program under this Agreement; or

 

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

 

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discoveredby Pharmacopeia in an Optimization Program based upon a Lead Compound which isa Schering Compound.

 

### 5.5.2                        RoyaltyTerm for Agreement Products. Schering’s obligation to pay royalties to Pharmacopeia underSections 5.5.1(i), 5.5.1(ii), 5.5.1(iii) or 5.5.1(iv), as applicable,shall continue for each Agreement Product until the date which is the later of*

###  

### 5.5.3                        SingleRoyalty; Non-Royalty Sales.  Noroyalty shall be payable under Section 5.5.1 above with respect to salesof Agreement Products among Schering, its Affiliates and Sublicensees forresale; however, a royalty shall be payable upon such resale by Schering’sAffiliates and Sublicensees to any Third Party.  In no event shall more than one royalty be due hereunder withrespect to any Agreement Product unit even if covered by more than one patentincluded in the Pharmacopeia Technology or Collaboration Technology.  For purposes of clarity and avoidance ofdoubt, the Parties acknowledge and agree that under no circumstances will anyroyalty ever be payable under Sections 5.5.1(i) or 5.5.1(ii) with respect tosales of any Agreement Product resulting from an independent screening programsconducted by Schering pursuant to Section 2.11.  No royalties shall accrue on the disposition of any AgreementProduct in reasonable quantities by Schering, its Affiliates or its Sublicensesas (i) samples (promotional or otherwise), (ii) donations (for example, tonon-profit institutions or government agencies for a non-commercial purpose),(iii) for use in clinical studies, or (iv) free of charge in compassionate useand/or indigent care programs.

###  

### 5.5.4                        ThirdParty Royalties.

###  

##### (a)                                  ScheringResponsibilities.  Schering 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 Schering, 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 Schering shall consult regarding whether a license should betaken from such Third Party.  IfPharmacopeia and Schering agree that such a license is required, Schering, itsAffiliates or Sublicensees may, with respect to sales of such AgreementProduct, pay royalties directly (or indirectly through Pharmacopeia) to theThird Party whose patents may be infringed by such sales.  Schering may reduce any royalty duePharmacopeia under Section 5.5.1 to reimburse Schering for any suchroyalties actually paid to Third Parties; provided that the amount ofthe reduction shall be equal to * of the royalty actually paid to such ThirdParties with respect to sales of the Agreement Product in such country; provided,however, that in no event shall the royalty due Pharmacopeia for anycalendar quarter, with respect to any such Agreement Product, be therebyreduced to * of the royalty due Pharmacopeia under Section 5.5.1 withrespect to Net Sales in such country. If the Parties cannot promptly reach agreement they shall appoint anindependent patent counsel reasonably acceptable to each of them to give anopinion, which will be binding as between the Parties, and the parties shallhave no further recourse to dispute such opinion (including, withoutlimitation, the provisions of Section 11.3, which shall not apply).  If it is the independent patent counsel’sopinion that the patent is valid and infringed by the sale of such AgreementProduct due to use of the Pharmacopeia Technology, Schering may settle thematter in its sole discretion on such terms as it deems appropriate, providedthat such settlement does not contain an admission or acknowledgment ofinfringement 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 Scheringpays Pharmacopeia royalties in excess of the amounts due underSection 5.5.1 herein, Schering shall promptly notify Pharmacopeiaproviding a written explanation of 

 

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### the amount ofoverpayment.  Any such overpayment shallbe fully creditable against royalties subsequently due hereunder.

###  

## 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 bySchering, its Affiliate or Sublicensees hereunder, Schering shall makequarterly written reports to Pharmacopeia within sixty (60) days after theend of each calendar quarter, stating in each such report separately forSchering and each of its Affiliates and Sublicensees the number, description,and aggregate Net Sales by country of each Agreement Product sold during thecalendar quarter upon which a royalty is payable under Section 5.5above.  Subject to any reductionspermitted pursuant to the express terms of this Agreement, concurrently withthe making of such reports, Schering shall pay to Pharmacopeia royalties at therates specified in 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 Schering or its designated Affiliates will, from timeto time, deal with such monies as Pharmacopeia may lawfully direct at noadditional out-of-pocket expense to Schering. 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 Schering shall beobligated to deposit the royalties in a bank account in such country in thename of Pharmacopeia.

###  

## 5.7                                 Maintenanceof Records; Audits.

##  

### 5.7.1                        Records;Inspection.  Schering and itsAffiliates shall keep complete, true and accurate books of account and recordsfor the purpose of determining the royalty amounts payable under thisAgreement, which books and records shall be maintained in accordance withSchering’s records retention policies. Upon prior written notice fromPharmacopeia, Schering shall, within a period not to exceed forty-five (45)days, permit an independent certified public accounting firm of nationally recognizedstanding selected by Pharmacopeia and reasonably acceptable to Schering, atPharmacopeia’s expense, to have access during normal business hours to examinepertinent books and records of Schering and/or its Affiliates as may bereasonably necessary to verify the accuracy of the royalty reportshereunder.  The examination shall belimited to pertinent books and records for any calendar year ending not morethan thirty-six (36) months prior to the date of such request.  Such inspections may be made no more thanonce each calendar year.  In the eventthat the accounting firm correctly concludes that a variation or error hasoccurred resulting in an underpayment of royalties by Schering of five percent(5)% or more of the amount actually due for the period covered by theinspection, Schering shall pay to Pharmacopeia such additional amounts, as wellas the costs relating to the inspection, within thirty (30) days of receipt ofan invoice for such amounts.  Any overpaymentof royalties by Schering discovered through such audit shall be fullycreditable against royalties subsequently due hereunder.  Schering may designate competitivelysensitive information 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 Schering as acondition precedent to their inspection. Schering shall include in each sublicense granted by it pursuant to thisAgreement a provision requiring the Sublicensee to make reports to Schering, tokeep and maintain 

 

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### records of sales madepursuant to such sublicense and to grant access to such records byPharmacopeia’s independent accountant to the same extent required of Scheringunder this Agreement.  Upon expirationof the thirty-six (36) month period immediately following the receipt byPharmacopeia of Schering’s fourth quarter royalty report for a given calendar yearin accordance with Section 5.6.1, the calculation of royalties payablewith respect to such year shall be binding and conclusive upon Pharmacopeia,and Schering, its Affiliates and its Sublicensees shall be released from anyliability or accountability with respect to royalties for such year, except forinstances of fraud or other intentional misconduct by Schering.

###  

## 5.8                                 CoordinationWith Payments under International Agreement.  The milestones and royalties payable by Schering under Sections5.3, 5.4 and 5.5 are in consideration for the rights and licenses granted toSchering under this Agreement and are in addition to any amounts payable toPharmacopeia under the International Agreement.  It is understood and agreed that, with respect to the specific milestonespayable under Sections 5.4.1(a)(i)-(iii) and 5.4.1(b)(i)-(iii), the occurrenceof the same milestone event will result in milestone payment obligations underboth this Agreement and the corresponding provisions of the InternationalAgreement.  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 underthe International Agreement shall be paid, respectively, upon occurrence of therelevant milestone event specified in this Agreement or the InternationalAgreement.

##  

## 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 taxes imposedon or measured by net income) or similar governmental charge imposed by ajurisdiction 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 Schering as a credit againstPharmacopeia’s and/or its Affiliates regular U.S. tax liability.  Schering shall provide Pharmacopeiadocumentation evidencing payment of any Withholding Taxes hereunder in a mannerthat is satisfactory for purposes of the U.S. Internal Revenue Service.  Any Withholding Taxes paid when duehereunder shall be for the account of Pharmacopeia and shall not be included inthe calculation of Net Sales.  Paymentsof Withholding Taxes made by Schering pursuant to this Section 5.9.1 shallbe made based upon financial information provided to Schering by Pharmacopeia,and to the extent that such information is incorrect Pharmacopeia shall beliable for any deficiency, and any fine, assessment or penalty imposed by any taxingauthority in the Territory for any deficiency in the amount of any suchWithholding Taxes, or the failure to make payment of Withholding Taxes, basedupon such incorrect information.  IfSchering is required to pay any such deficiency, or any fine, assessment orpenalty for any such deficiency based upon such incorrect information (exceptto the extent caused by Schering’s gross negligence or willful misconduct),Pharmacopeia shall promptly reimburse Schering for such payments, which shallnot be included in the calculation of Net Sales.

###  

## 5.10                           ProductDevelopment Costs.  Schering shall,at Schering’s expense, be responsible for conducting all development ofAgreement Compounds, Agreement Products, Schering Compounds, and allcommercialization of Agreement Products.

##  

# **ARTICLE VIPATENTS AND INVENTIONS**

# ** **

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

##  

## 6.2                                 Ownershipof Collaboration Technology.  TheParties anticipate that the Collaboration may result in new inventions,discoveries and innovations, as well as improvements to existing technologies,whether patentable or not, within the Collaboration Technology.  Ownership of Collaboration Technology shallbe determined based upon U.S. 

 

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## Patent Laws and thefollowing guidelines; provided, however, that ownership rights toall Collaboration Technology shall be subject to the applicable licenses andother rights granted under Article IV of this Agreement.

##  

##### (a)                                  Inventionsby Schering Employees. Title to all Collaboration Technology inventedsolely by employees of Schering working on the Collaboration at Pharmacopeia,together with any Derivative Compounds synthesized by Pharmacopeia pursuant toSection 2.9, shall be deemed to be owned by Schering.

#####  

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

#####  

##### (c)                                  JointInventions. Title to all Collaboration Technology invented jointly by one ormore employees of Schering working on the Collaboration at Pharmacopeia, andone or more employees of Pharmacopeia shall be deemed to be jointly owned bySchering and Pharmacopeia.

#####  

## 6.3                                 Filing,Prosecution and Maintenance of Patents.

##  

### 6.3.1                        CollaborationTechnology.  Schering 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 Schering’s request and expense.  Schering shall provide Pharmacopeia withcopies of any new patent applications claiming Collaboration Technology whichare proposed to be filed by Schering, as provided in Section 6.4.1.  In the event that Schering does not file apatent or patent application claiming an invention within such CollaborationTechnology, or if it ceases to so prosecute, maintain, conduct anyinterferences, re-examinations, reissues, oppositions or requests for patentterm extension or governmental equivalents thereto relating to such aninvention, Pharmacopeia shall have the right, in its sole discretion, toundertake such activities at its own expense, and Schering shall givereasonable cooperation in connection therewith, at Pharmacopeia’s expense.

###  

### 6.3.2                        ScheringTechnology.  Schering 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 Schering’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 Schering 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 Schering shall provide the other Partyreasonable assistance to prepare, file, prosecute and maintain patents andpatent applications covering any Collaboration Technology, ScheringImprovements or Pharmacopeia Improvements which the requesting Party has theright to file.  Reasonable assistanceshall include, without limitation, providing the requesting Party withnecessary or useful data and information relating to the CollaborationTechnology, Schering Improvements or Pharmacopeia Improvements, as the case maybe, and reasonable access to the inventors of said inventions, as well ascausing the execution of required patent assignments and/or otherdocuments.  With respect to all patentapplications claiming Collaboration Technology, or any Derivative Compounds,Lead Compounds which are Hits, or Schering Derivatives, the filing Party shallgive the non-filing Party an opportunity to review the text of such patentapplications before filing, shall consult with the non-filing Party withrespect thereto, and shall supply the non-filing Party with a

 

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### copy of the applicationsas filed, together with notice of its filing date and serial number.  Schering will identify to Pharmacopeia anyof Schering’s proprietary information contained in such documents to beprovided to Pharmacopeia to ensure that Pharmacopeia will protect Schering’sproprietary information, including without limitation, information relating toTargets.  In addition, with respect toapplications which do not include Pharmacopeia inventors, Schering may redactor provide in coded form any information contained in such documents to beprovided to Pharmacopeia to the extent necessary (in Schering’s opinion) toprotect Schering’s proprietary information, including without limitation,information relating to Targets. Pharmacopeia and Schering shall each keep the other Party advised of thestatus of the actual and prospective patents and patent applications within theCollaboration Patent Rights for which it is responsible, and upon the writtenrequest of the other Party, will provide advance copies of any substantivepapers related to the filing, prosecution and maintenance of such CollaborationPatent Rights.

###  

## 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.  Schering 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), Schering doesnot take such action against a commercially significant infringement,Pharmacopeia shall, in its sole discretion, have the right, but not theobligation to take such 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 Schering 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 Scheringrecovers 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 Schering, its Affiliates orSublicensees of the relevant Agreement Products corresponding to such lostprofits.  If Schering, in its solediscretion, agrees to settle any such infringement action by granting asublicense to the Third Party infringer, and such Third Party, but for thegrant of such sublicense, would be infringing a claim of an issued patent inthe Collaboration Technology, or a composition-of-matter claim of an issuedpatent in the Schering Technology, Schering shall be entitled to receive allconsideration payable by such Third Party for the grant of the license; provided,however, that net sales of such Third Party products in the Territory onwhich Schering receives such consideration (including, without limitation,running royalties or lump sum payments) shall be treated as Net Sales forpurposes of this Agreement, and further provided that, notwithstanding anythingherein to the contrary, Schering’s royalty obligations to Pharmacopeia withrespect to such Third Party sales in any calendar quarter shall not exceedfifty percent (50%) of the royalties received by Schering from such Third Partyfor 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 Schering (or their respective Affiliatesor Sublicensees), 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; 

 

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## provided,however, it shall not enter into any settlement which admits or concedesthat any aspect of (i) the Schering Technology or Collaboration Technology inthe case of Pharmacopeia, and (ii) the Pharmacopeia Technology or CollaborationTechnology in the case of Schering, is invalid or unenforceable without theprior written consent of such other Party. The Party subject to the claim shall keep the other Party heretoreasonably informed of all material developments in connection with any suchclaim, suit or proceeding.

##  

## 6.7                                 Certificationunder Drug Price Competition and Patent Restoration Act.  Pharmacopeia and Schering each shallimmediately give written notice to the other of any certification of which theybecome aware filed pursuant to 21 U.S.C.§§355(b)(2)(A)(iv) and355(j)(2)(A)(vii) claiming that Collaboration Patent Rights do not cover theuse or sale of any product(s) equivalent to an existing Agreement Product(s) bya Third Party.  Schering shall have theright to bring an infringement action, in its sole discretion and at its ownexpense, in its own name and/or in the name of Pharmacopeia, subject toSection 6.5 above.  The provisionsof Section 6.5.4 shall apply to any such infringement action.

##  

## 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”)furnished to it by the disclosing Party hereto pursuant to this Agreementexcept to the extent that it can be established by the receiving Party bycompetent proof that such information:

##  

#### (i)                           wasalready known to the receiving Party, other than under an obligation ofconfidentiality, 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 receiving Partyin 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 anyinstitutional review board of any entity conducting clinical trials withAgreement Compound(s) and/or Agreement Product(s), or to any governmental orother regulatory agency, in order to gain approval to conduct clinical trialsor to market 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 clinicaltrials, or making a permitted sublicense or otherwise exercising license rightsexpressly granted to it by the other Party pursuant to the terms

 

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## 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.

##  

## 7.4                                 Nondisclosureof Terms.  Each of the Partieshereto agrees not to disclose to any Third Party the existence or the terms ofthis Agreement without the prior written consent of each other Party hereto,except to such Party’s attorneys, advisors, investors and others on a need toknow basis under circumstances that reasonably ensure the confidentialitythereof, 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 Schering may each disclose toThird Parties the information contained in such press release and Q&Awithout the need for further approval by the other.  In addition, Pharmacopeia may make public statements regardingprogress with respect to the development and commercialization of AgreementCompounds and/or Agreement Products, including announcement of the achievementof milestones, following consultation with Schering and with the writtenconsent of Schering.  Nothing in thisSection 7.4 shall prohibit a Party from making such disclosures to theextent reasonably required under applicable federal or state securities laws orany rule or regulation 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 Schering or Pharmacopeiaor their 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 after consultationthat no patentable invention exists, or (iii) one hundred and eighty (180) daysafter receipt by the disclosing Party of the receiving Party’s written noticeof the receiving Party’s desire to file such patent application, or such otherperiod as is reasonable for seeking patent protection.  Further, if such scientific results containthe information of the receiving Party that is subject to use and nondisclosurerestrictions under this Article 7, the disclosing Party agrees to removesuch 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 for anybreach of the Collaboration Business Conduct Policy and/or these non-competeobligations by its employees.  *,Pharmacopeia shall use reasonably diligent efforts to ensure that its employeesworking on the Collaboration do not disclose or provide access to anyCollaboration Target-Specific Technology, Schering Technology, or the resultsof any screening or other Target specific research performed at Pharmacopeia inthe Collaboration, to any Pharmacopeia 

 

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## employees not working onthe Collaboration (except to the extent reasonably necessary for Pharmacopeiato ensure its compliance with its exclusivity obligations hereunder) or to anyThird Parties.

##  

# **ARTICLE VIIIREPRESENTATIONS, WARRANTIES AND COVENANTS**

# ** **

## 8.1                                 Schering.  Schering warrants, represents and covenantson behalf of itself and its Affiliates that: (i) it has the legal right andpower to extend the rights granted in this Agreement; (ii) it has thelegal power, authority and right to enter into this Agreement, and to performall its obligations hereunder, and (iii) it has not previously granted,and during the term of this Agreement will not knowingly make any commitment orgrant any rights which in any material way conflict with the rights andlicenses granted herein.

##  

## 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 Schering 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.  Schering and Pharmacopeia expressly disclaimany representation, warranty or guaranty that the Collaboration will besuccessful.  EXCEPT AS OTHERWISEEXPRESSLY SET FORTH IN THIS AGREEMENT, PHARMACOPEIA AND SCHERING 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 Schering.  Schering shallindemnify, defend and hold harmless Pharmacopeia and its Affiliates, and eachof its and their respective employees, officers, directors and agents (the“Pharmacopeia Indemnitees”) from and against any and all liability, loss,claims, damage, cost, and expense (including reasonable attorneys**’**and professionals’ fees and other expenses of litigation) (collectively, a“Liability”) arising out of or in connection with Third Party claims relatingto (i) the discovery, development, manufacture, use, testing, marketing, saleor other disposition of Agreement Products by or on behalf of Schering or itsAffiliates or Sublicensees, (ii) performance of the Collaboration by Schering,(iii) any injury, illness or disease suffered by any Schering employees inconnection 

 

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## with the performance ofthe Collaboration, (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 Schering 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 Schering and its Affiliates, and each ofits and their respective employees, officers, directors and agents (the“Schering Indemnitees”) from and against any Liability (as defined above)arising out of or in connection with Third Party claims relating to (i) theperformance of the Collaboration by Pharmacopeia except to the extent directlyrelated to the use of Targets, (ii) any injury, illness or disease suffered byany Pharmacopeia employees in connection with the performance of theCollaboration, (iii) any product based upon a Pharmacopeia Compound developed,manufactured, used, sold or otherwise distributed by or on behalf ofPharmacopeia, its Affiliates or Licensees, as permitted under this Agreement(including, without limitation, product liability and patent infringementclaims), (iv) any breach of Pharmacopeia’s contractual obligations to ThirdParties, or (v) any breach by Pharmacopeia of its representations andwarranties made under this Agreement, except, in each case, to the extent suchLiabilities result from the gross negligence or willful misconduct of Schering,its Affiliates, or any of their respective employees, officers, directors oragents.

##  

## 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 orliability covered by this Article IX. Neither Party may settle a claim or action related to a Liability forwhich it or the other Party seeks indemnification hereunder without the consentof the other Party, if such settlement would impose any monetary obligation onthe other Party or require the other Party to submit to an injunction orotherwise limit the other Party**’**s rights under this Agreement.  Any payment made by a Party to settle anysuch claim or action shall 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 Schering and itsAffiliates and Sublicensees have no further obligation to pay royalties underArticle V hereof in a country, at which time the Agreement shall expire inits entirety in such country and the Parties shall have no further paymentobligations or other financial obligations to each other with respect to thecontinuing use in such country of Pharmacopeia Technology, Schering Technologyand/or Collaboration 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 

 

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## such country, Schering,its Affiliates and Sublicensees, shall no longer have any remaining paymentobligations hereunder with respect to such Agreement 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 the expirationof the sixty (60) day period or has commenced activities reasonably expected tocure such breach within such sixty (60) day period and thereafter uses diligentefforts 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 Schering upon the filing of bankruptcy or insolvency of Scheringor the appointment of a receiver for the assets of Schering, or the making bySchering of an assignment for the benefit of creditors, or the institution ofany proceedings against Schering under any bankruptcy law.  Termination shall be effective upon the datespecified in such notice.  The rights ofSchering under this Agreement shall not terminate in the event of a bankruptcyof Pharmacopeia, unless Schering elects to terminate this Agreement inaccordance with the following provisions of this Section 10.3.  In the event that (i) Pharmacopeia shallmake an assignment for the benefit of creditors, file a petition in bankruptcy,petition or apply to any tribunal for the appointment of custodian, receiver orany trustee for it or a substantial part of its assets, or shall commence anycase or proceeding under any bankruptcy, reorganization, arrangement,readjustment of debt, dissolution or liquidation law or statute of anyjurisdiction, whether now or hereafter in effect; or (ii) if there shall havebeen filed any such bona fide petition or application, or any suchproceeding shall have been commenced against it, in which an order for reliefis entered or which remains undismissed for a period of sixty (60) days ormore; or (iii) if Pharmacopeia by any act or omission of act shall indicate itsconsent to, approval of or acquiescence in any such bona fide petition,application, or proceeding or order for relief or the appointment of acustodian, receiver or trustee for it or any substantial part of its property,or shall suffer any such custodianship, receivership or trusteeship to continueundischarged for a period of sixty (60) days or more (each such event a“Pharmacopeia Bankruptcy Event”), then Schering shall have the followingrights.  Schering shall have the right,in its sole discretion, to elect to terminate this Agreement by giving writtennotice of such termination to Pharmacopeia. In the event that Schering does not elect to terminate this Agreement,then notwithstanding any rejection of this Agreement by Pharmacopeia (which,for purposes of this Section 10.3, includes any debtor in possession,trustee or other entity that may succeed Pharmacopeia) pursuant to 11 U.S.C.§365, Schering shall retain all of its rights, benefits, licenses, protectionsand privileges under this Agreement and shall be entitled to all of the rights,benefits and protections of a licensee under 11 U.S.C. 365(n).  Schering will have the right (including,without limitation, the right and ability to cure any and all defaults byPharmacopeia under this Agreement, any agreement supplementary hereto, and anyagreement with a Third Party affecting or comprising all or a part of thePharmacopeia Technology, and to take any other actions, to oppose a rejectionpursuant to 11 U.S.C. §365 of this Agreement, and to contract directly withThird Parties, if any, involved in contracted arrangements with Pharmacopeiawith respect to performance of the Collaboration), provided that Schering’sobligations to make payments to Pharmacopeia under this Agreement shallautomatically be reduced by the amount of all out-of-pocket costs and expensesincurred by Schering in exercising such rights.  The Parties acknowledge and agree that all information, data andother intellectual property referred to in this Section 10.3 (including,without limitation, Pharmacopeia Technology) and all Agreement Compounds,Agreement Products, Collaboration Technology and any other intellectualproperty that is licensed, or is the subject of any other right, benefit,protection or privilege that is granted, transferred or otherwise afforded, toSchering hereunder is “intellectual property” within the meaning 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, Scheringshall have the right to terminate this Agreement upon ninety (90) days writtennotice after such Pharmacopeia Change in Control.  In such event, the provisions of Sections 10.6.1, 10.6.2, 10.6.3and 10.6.4(d) shall apply, but none of the provisions of Section 10.6.5shall be applicable.

 

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## 10.4.2                  Termination ofthe Collaboration.  In the eventthat such Pharmacopeia Change in Control occurs during the term of theCollaboration, Schering may, in its discretion, elect to terminate theCollaboration (but not the Agreement) on ninety (90) days written notice as setforth in Section 2.2.3.  Uponreceipt of written notice from Schering of its decision to terminate the Collaboration(but not the Agreement) pursuant to this Section 10.4.2 andSection 2.2.3, Pharmacopeia (or its successor in interest as a result ofthe Pharmacopeia Change in Control) shall have the option (exercisable in itssole discretion) to provide to Schering within thirty (30) days after receiptof such notice a written certification signed by a senior corporate officer ofPharmacopeia (or such successor) setting forth written representations andwarranties 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;

##  

## (iii)                               thatit will implement such additional safeguards as may be required (and which arereasonably acceptable to Schering) to ensure that all of Schering’sConfidential Information will be protected from unauthorized disclosure or useby Pharmacopeia (or such successor) and its Affiliates; and

##  

## (iv)                              thatit will take such other actions as are reasonably necessary to providereasonable assurances to Schering that the results of the Collaboration,including without limitation, any Agreement Compounds and CollaborationTechnology, will only be used by Pharmacopeia (or such successor) and itsAffiliates in furtherance of the Collaboration or as otherwise expresslypermitted under the terms and conditions 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 Schering’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 Schering’s receipt of suchcertification from Pharmacopeia (or such successor) pursuant to thisSection 10.4.2, Schering shall have the right to rescind its notice oftermination of the Collaboration by providing written notice to Pharmacopeiawithin thirty (30) days after receipt of such written certification.  If following receipt of such certification,Schering provides written notice rescinding its decision to terminate theCollaboration within such thirty (30) day period, then none of the provisionsof Section 10.6 shall apply and the Collaboration shall continue under theterms and conditions of this Agreement as if Schering had never provided anynotice of termination under Section 10.4.2.  However, if following receipt of such certification, Schering doesnot provide written notice rescinding its decision to terminate theCollaboration within such thirty (30) day period, then the Collaboration shallterminate upon expiration of the ninety (90) day period following Schering’snotice of termination under Section 10.4.2, and the provisions of Section 10.6.5(i)and (ii) shall apply, but the provisions of Section 10.6.5(iii) shall notapply.  For purposes of clarity andavoidance of doubt, the Parties agree that written notice provided bySchering–Plough Ltd. rescinding a decision by Schering-Plough Ltd. to terminatethe Collaboration under the corresponding provisions of the InternationalAgreement shall also be deemed notice by Schering under this Agreement.

##  

## 10.5                           ConcurrentTermination with the International Agreement.  In the event of any termination of the International Agreement byeither Pharmacopeia or Schering-Plough Ltd. under the provisions of Sections10.2, 10.3 or 10.4 thereof, as applicable, this Agreement shall automaticallyterminate concurrently under the corresponding Section 10.2, 10.3 or 10.4of this Agreement.

##  

## 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 

 

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### attributable to a periodprior to such termination, nor preclude either Party from pursuing all rightsand remedies it may have hereunder or at law or in equity with respect to anybreach of this Agreement.

###  

### 10.6.2                  Return ofMaterials.  Upon any termination ofthis Agreement, Schering and Pharmacopeia shall promptly return to the otherParty all 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 Schering, its Affiliates orSublicensees under this Agreement and a breach entitling Pharmacopeia toterminate this Agreement occurs which relates solely to a single AgreementCompound or Agreement Product, then Pharmacopeia shall have the option toterminate this Agreement only with respect to the applicable Agreement Compoundor Agreement Product, and in which case all of the terms of this Agreementshall remain in full force and effect with regard to the other AgreementCompounds and/or Agreement Products being developed and commercialized.  In the event this Agreement is terminatedwith respect to a given Agreement Product, Schering shall have the right tocontinue to sell its remaining inventory of such Agreement Product for a periodof up to six (6) months after the date of termination, provided that Scheringcontinues to pay royalties to Pharmacopeia with respect to such sales.

###  

### 10.6.4                  Licenses.

###  

##### (a)          Termination by Pharmacopeia Pursuant toSection 10.2.  In the event oftermination by Pharmacopeia under Section 10.2, the licenses grantedhereunder relating to any Agreement Product with respect to which there hasbeen a material breach, shall terminate, and the licenses granted toPharmacopeia hereunder shall remain in effect, subject to the terms andconditions of this Agreement; provided, however, a breach shallhave no effect on Schering’s licenses hereunder other than with respect to theAgreement Product (together with any Hits, Lead Compounds which are Hits,and/or Derivative Compounds discovered by Pharmacopeia in performance ofScreening Programs and/or Optimization Programs against the same Target as suchAgreement Product) to which the breach specifically relates, and the remaininglicenses granted hereunder shall remain in effect, subject to the terms andconditions of this Agreement.

#####  

##### (b)         Termination by Schering Pursuant toSections 10.2 or 10.3.  In theevent of any termination by Schering pursuant to Section 10.2 or 10.3above, any licenses granted by Schering hereunder shall terminate concurrently,and any licenses granted by Pharmacopeia shall remain in effect, subject to theterms and conditions of this Agreement.

#####  

##### (c)          Termination by Pharmacopeia Pursuant toSection 10.3.  In the event ofany termination by Pharmacopeia pursuant to Section 10.3 above, anylicenses granted by Pharmacopeia hereunder shall terminate concurrently, andany licenses granted by Schering shall remain in effect, subject to the termsand conditions of this Agreement.

#####  

##### (d)         Termination by Schering Pursuant toSection 10.4.  In the event ofany termination by Schering pursuant to Section 10.4 above, any licensesgranted by Pharmacopeia to Schering, and by Schering to Pharmacopeia, shallremain in effect, except for the licenses under Section 4.5, which shallterminate concurrently.

#####  

### 10.6.5                  Effect ofTermination of the Collaboration for Pharmacopeia Change in Control.  In the event that the Collaboration (but notthe Agreement) is terminated by Schering 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 Schering in accordance with Section 10.4.2, theParties further 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;

 

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(ii)                                  tothe extent that Schering contracts with one or more Third Parties to completeany Optimization Program which was ongoing at the time the Collaboration wasterminated, Schering 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 toSchering in accordance with Section 10.4.2, Pharmacopeia (or suchsuccessor) *

 

### 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.

###  

# **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 nopresumption shall exist or be implied against the Party which drafted suchterms and provisions.

 

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## 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.  Schering andPharmacopeia both agree that, during the Collaboration Term and forone (1) year thereafter, without the express prior written consent of theother Party, they will not knowingly induce or attempt to induce, directly orindirectly, any scientific or technical personnel then employed by the otherParty to accept employment or affiliation with the inducing Party or itsAffiliates.

##  

## 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 technical informationfrom the United States of America which may be imposed upon or related toPharmacopeia or Schering from time to time by the government of the UnitedStates of America.  Furthermore,Schering 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.  Schering agrees to markand have its Affiliates and Sublicensees mark all Agreement Products soldpursuant to this Agreement in accordance with the applicable statute orregulations relating to patent marking in the country or countries ofmanufacture and sale thereof.

##  

## 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

 

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## If to Schering, to:

##  

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

##  

## with copies to:

##  

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

 

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

 

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

 

## 11.13                     Force Majeure.  Failure of any Party to perform 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.

 

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## 11.17                     CompleteAgreement.  This Agreement with itsExhibits, together with the International Agreement, constitutes the entireagreement between the Parties with respect to the subject matter hereof, andall prior agreements respecting the subject matter hereof, either written ororal, expressed or implied, shall be abrogated, canceled, and are null and voidand of 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 Collaboration Agreementsbetween Pharmacopeia and each of Schering Corporation and Schering-Plough Ltd.,effective as of October 29, 1998, each as amended (the “1998Agreements”).  No amendment,modification, supplement, change or addition to this Agreement (or the Exhibitsattached hereto) shall be effective or binding on either of the Parties heretounless reduced to writing and executed by the respective duly authorizedrepresentatives of Pharmacopeia and Schering.

##  

11.18                     Relationshipof Prior Agreements.  For purposes ofclarity 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 anddeveloped under this Agreement shall not be subject to any milestone payment orroyalty obligations set forth in the 1994 Agreements or the 1998 Agreements.

 

## 11.19                     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, registeringor notifying.  The Parties acknowledgethat this Agreement may be notified by either Party to the European Communityfor compliance with applicable laws.

##  

## 11.20                     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 CORPORATION    |
|--------------------|-------------------------|
|               |                    |
|               |                    |
| By:                | /s/ Stephen A. Spearman |   | By: | /s/ David Poorvin |   |
|               |                    |
| Title:             | EVP                     |   | Title: | Vice President |   |
|               |                    |
| Date:              | 7/9/03                  |   | Date: | 7/9/03 |   |
|                    |                         |  |  |  |  |  |  |  |  |

 

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# **EXHIBITA**

# ** **

**CURRENCYCONVERSION**

 

----

 

*

 

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**EXHIBITC**

 

Elements of Fully Allocated Manufacturing Costs

 

The following expensesare included in manufacturing costs:

 

1.                                       DirectMaterials

 

Materials used in themanufacturing process that are traced directly to the completed product, suchas:

 

•                                                                                          Inertraw materials or excipients

 

•                                                                                          Activesubstances/ingredients

 

•                                                                                          Packagingcomponents such as bottles, caps, labels, etc.

 

2.                                       DirectLabor

 

The cost of employeesengaged in production activities that are directly identifiable with productcosts.  Excludes supervision, which isincluded in indirect labor, and production support activities such as inspection,plant and equipment maintenance labor, and material handling personnel.  Direct Labor cost includes:

 

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

 

•           Cost of employee fringe benefits such ashealth and life insurance, payroll taxes, welfare, pension, profit sharing andbonuses.

 

3.                                       IndirectManufacturing Costs

 

Costs which areultimately allocated to product based on an appropriate method such as standarddirect labor hours, tank hours, grams, vials, etc., of the operatingdepartments.  These costs include:

 

•           Indirect Production Labor - salariesof employees engaged in production activities who are not classified as directlabor, including supervision, clerical, etc.

 

•           Costs of Direct Labor - employees notutilized for the manufacturing of product such as training, downtime andgeneral duties.

 

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•                                                                                          IndirectMaterials - supplies and chemicals which are used in the manufacturingprocess and are not assigned to specific products but are included inmanufacturing overhead costs.  Includessupplies for which direct assignment to products is not practical.

 

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

 

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

 

•                                                                                          OtherServices - purchased outside services and rentals such as the cost ofsecurity, ground maintenance, etc.

 

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

 

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

 

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

 

•                                                                                          Costof manufacturing, service departments - such as:

 

(whereapplicable)

 

•                                          PackagingEngineering

 

•                                          ManufacturingMaintenance

 

•                                          IndustrialEngineering

 

•                                          Receivingand Warehousing

 

•                                          Purchasingand Accounting

 

•                                          ProductionScheduling

 

•                                          InventoryManagement

 

•                                          PlantMaterials Management

 

•                                          CentralWeigh

 

•                                          ManufacturingAdministration

 

•                                          RegulatoryAffairs direct support to manufacturing (not to exceed $80,000 per year for athree(3) year period)

 

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

 

•                                          Cafeteria

 

•                                          PersonnelOperations

 

•                                          Healthand Safety Services

 

•                                          DivisionEngineering and Operations Services

 

•                                          PlantServices (housekeeping)

 

•                                          ManufacturingInformation Systems

 

•                                          PlantPower

 

•                                          Officeof V.P. Manufacturing

 

Various bases are usedfor allocating these costs to manufacturing operating departments includingheadcount, square feet, metered utilities use, estimated services rendered, EDPcomputer hours, etc.

 

4.                                       QualityAssurance Costs

 

Direct labor and indirectcosts for Quality Assurance departments testing and approving materials used inmanufacturing and completed 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 expensesare not included in manufacturing costs:

 

a)                                      InventoryCarrying Costs

 

b)                                     RegulatoryAffairs Costs (except as set forth above)

 

c)                                      Pilotplant 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.

 

d)                                     Costsincurred by Manufacturing for special projects, or for Schering-Plough ResearchInstitute requests, to establish and certify new production processes, batchsizes and product line improvements, and new vendor certification of equipmentand primary materials components.  Thesecosts are expensed to R&D.

 

e)                                      Manufacturingstart-up costs and initial one-time extraordinary manufacturing costs incurredprior to plant operation and achievement of a normal production activitylevel.  Includes costs of training,testing, qualification/validation of new equipment and facilities and initialtrial batches.  These costs are deferredand then amortized to Other Production Costs over five years.

 

f)                                        Significantidle capacity is eliminated from factory overhead and product cost.  Idle or excess capacity costs are culled outof the Manufacturing Budget and expensed as a period cost to Other ProductionCosts.

 

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g)                                     Finishedgoods warehousing, shipping and other distribution costs.  These areincluded in distribution costs which are part of marketing expenses.

 

h)                                     Productliability and/or business interruption insurance expenses.

 

iv

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*

 

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