Document:

Exhibit
10.3

 

EMPLOYEE MATTERS
AGREEMENT

 

dated as of

 

April 30,
2004

 

between

 

PHARMACOPEIA, INC.

 

and

 

PHARMACOPEIA DRUG
DISCOVERY, INC.

 

 

TABLE OF CONTENTS

 

 

	
  ARTICLE I DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  ARTICLE II EMPLOYEES AND ALLOCATIONS OF
  LIABILITIES

  	
   

  
	
   

  	
   

  
	
  2.1 Identification
  and Employment.

  	
   

  
	
  2.2
  Spinco Assumption of Liabilities.

  	
   

  
	
   

  	
   

  
	
  ARTICLE III SAVINGS PLANS

  	
   

  
	
   

  	
   

  
	
  3.1 Transition Period

  	
   

  
	
  3.2 Establishment of and Transfer to
  the Spinco Savings Plan.

  	
   

  
	
   

  	
   

  
	
  ARTICLE IV WELFARE PLANS

  	
   

  
	
   

  	
   

  
	
  4.1 Continuation in Supplier Welfare
  Plans

  	
   

  
	
  4.2 Establishment of Welfare Plans.

  	
   

  
	
  4.3 Vacation and Sick Pay Liabilities.

  	
   

  
	
  4.4 Medical Spending/Dependent Care
  Accounts.

  	
   

  
	
  4.5 Severance.

  	
   

  
	
  4.6 Workers’ Compensation and
  Unemployment Compensation.

  	
   

  
	
  4.7
  HIPAA Business Associate Provisions.

  	
   

  
	
   

  	
   

  
	
  ARTICLE V EXECUTIVE COMPENSATION
  PROGRAMS

  	
   

  
	
   

  	
   

  
	
  5.1 Supplier Non-Qualified Plan.

  	
   

  
	
  5.2 Bonus Plans.

  	
   

  
	
   

  	
   

  
	
  ARTICLE VI STOCK INCENTIVE PLANS

  	
   

  
	
   

  	
   

  
	
  6.1 Stock Option Awards.

  	
   

  
	
  6.2 Employee Stock Purchase Plan.

  	
   

  
	
   

  	
   

  
	
  ARTICLE VII FOREIGN PLANS

  	
   

  
	
   

  	
   

  
	
  7.1 Foreign Retirement Plans.

  	
   

  
	
  7.2 Foreign Welfare Plans.

  	
   

  
	
   

  	
   

  
	
  ARTICLE VIII ACCOUNTING

  	
   

  
	
   

  	
   

  
	
  8.1 Payment of and Accounting Treatment for
  Expenses.

  	
   

  
	
  8.2 Accounting Adjustments.

  	
   

  
	
   

  	
   

  
	
  ARTICLE IX AUDITS; INFORMATION SHARING

  	
   

  
	
   

  	
   

  
	
  9.1
  Audits.

  	
   

  
	
  9.2 Sharing of Participant Information.

  	
   

  

 

i

 

	
  ARTICLE X GENERAL

  	
   

  
	
   

  	
   

  
	
  10.1 Notices.

  	
   

  
	
  10.2 Amendment and Waiver.

  	
   

  
	
  10.3 Entire Agreement.

  	
   

  
	
  10.4 Parties in Interest.

  	
   

  
	
  10.5 No Third-Party Beneficiaries; No
  Termination of Employment.

  	
   

  
	
  10.6
  Right to Amend or Terminate Any Plans.

  	
   

  
	
  10.7 Effect if Distribution Does Not
  Occur.

  	
   

  
	
  10.8 Relationship of Parties.

  	
   

  
	
  10.9 Affiliates.

  	
   

  
	
  10.10 Further Assurances and Consents

  	
   

  
	
  10.11 Severability.

  	
   

  
	
  10.12 Governing Law.

  	
   

  
	
  10.13 Counterparts.

  	
   

  
	
  10.14 Disputes.

  	
   

  
	
  10.15 Assignment.

  	
   

  
	
  10.16 Interpretation.

  	
   

  
	
  10.17 Headings.

  	
   

  

 

ii

 

EMPLOYEE MATTERS
AGREEMENT

 

THIS IS AN EMPLOYEE
MATTERS AGREEMENT, dated as of April 30, 2004 (the “Agreement”),
by and between Pharmacopeia, Inc., a Delaware corporation (together with its
successors and permitted assigns, “Supplier”), and Pharmacopeia Drug
Discovery, Inc., a Delaware corporation (together with its successors and
permitted assigns, “Spinco”) (collectively, the “Parties” or
individually, a “Party”).

 

Background

 

WHEREAS, the Board of Directors of Supplier
has authorized a distribution of Spinco’s common stock to all holders of
outstanding stock of the Supplier (the “Distribution”).

 

WHEREAS, in connection with the
Distribution, Supplier and Spinco will enter into a number of agreements that
will govern certain matters relating to the Distribution and the relationship
of Supplier and Spinco and their respective subsidiaries and affiliates
following the Distribution.

 

WHEREAS, this Agreement sets forth the
arrangements between the Parties relating to certain employee benefit and
compensation matters.

 

NOW, THEREFORE, in consideration of the
foregoing and the respective covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:

 

ARTICLE I

DEFINITIONS

 

The following words and
phrases used in this Agreement shall have the meanings set forth below unless a
different meaning is plainly required by the context.

 

1.1                               “Active
Spinco Employee” means:

 

(a)                                  Any
Employee who is performing services for Spinco on the Distribution Date,
including any such Employee who is not actively performing such service as a
result of sick leave, workers’ compensation leave, short-term disability or
other authorized leave of absence; and

 

(b)                                 Any
Employee of Supplier who is designated by Supplier and Spinco as an Employee to
whom Spinco offers employment beginning on or before the Distribution Date and
who has accepted such offer.

 

1.2                               “ASO
Contract” means an administrative services only contract or
other contract with a third-party administrator or service provider that
pertains to any Supplier Welfare Plan or Spinco Welfare Plan.

 

 

1.3                               “Beneficiary”
means the individual(s) designated by an Employee, former Employee, by
operation of law or otherwise, as the party entitled to compensation, benefits,
insurance coverage or any other goods or services under any Plan.

 

1.4                               “COBRA”
means the Consolidated Omnibus Budget Reconciliation Act of 1986

 

1.5                               “Code”
means the Internal Revenue Code of 1986, as amended.

 

1.6                               “Distribution
Agreement” means the Master Separation and Distribution
Agreement between Supplier and Spinco of even date herewith.

 

1.7                               “Distribution
Date” means the date upon which Supplier completes the
distribution of Spinco’s Common Stock.

 

1.8                               “Employee”
means any individual who performs services pursuant to a common-law
employer-employee relationship.

 

1.9                               “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

1.10                        “Foreign
Plan,” when immediately preceded by “Supplier,” means a Plan
maintained by Supplier or when immediately preceded by “Spinco,” a Plan
maintained by Spinco, in either case for the benefit of Employees who perform
services and/or are compensated under a payroll that is administered outside
the United States, its territories and possessions, and the District of
Columbia.

 

1.11                        “Former
Spinco Employee” means an Employee whose employment with Spinco
terminated for any reason (including retirement or long-term disability) before
the Distribution Date and who, as of the Distribution Date, is not employed by
Supplier or an affiliate of Supplier; provided, however, that any Employee who
terminated employment at any time prior to the Distribution Date and subsequently
became employed by Supplier after such termination (and did not return to
employment with Spinco), shall not be a Former Spinco Employee for any purpose
hereunder.

 

1.12                        “Governmental
Authority” means any federal, state or local court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority, including, without limitation, the
United States Department of Labor (“DOL”), and the Internal Revenue
Service (“IRS”).

 

1.13                        “Group
Insurance Policy” means a group insurance policy issued under
any Supplier Welfare Plan or any Spinco Welfare Plan, as applicable.

 

1.14                        “HIPAA”
means the Health Insurance Portability and Accountability Act of
1996, as amended (“HIPAA”),

 

1.15                        “HMO”
means a health maintenance organization that provides benefits under the
Supplier Welfare Plans or the Spinco Welfare Plans.

 

2

 

1.16                        “HMO
Agreements” means contracts, letter agreements, practices and
understandings with HMOs that provide medical services under the Supplier
Welfare Plans or Spinco Welfare Plans.

 

1.17                        “Key
Recipient” means the holders of Supplier Options set forth on
Schedule I, attached hereto and made a part hereof.

 

1.18                        “Liabilities”
means any and all losses, claims, charges, compensation, benefits, debts,
demands, actions, costs and expenses (including, without limitation,
administrative and related costs and expenses of any Plan, program or
arrangement), of any nature whatsoever, whether absolute or contingent, matured
or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising.

 

1.19                        “Person”
means an individual, a general or limited partnership, a corporation, a trust,
a joint venture, an unincorporated organization, a limited liability entity or
any other entity.

 

1.20                        “Plan”
means any plan, policy, program, payroll practice or other arrangement, whether
written or unwritten, providing benefits to Employees or former Employees of
Supplier or Spinco.

 

1.21                        “Spinco
Common Stock” means the shares of common stock, par value $0.01
per share, of Spinco.

 

1.22                        “Spinco
Welfare Plans” means the welfare benefit plans, programs, and
policies that are sponsored by Spinco for all periods after the Distribution
Date.

 

1.23                        “Subsidiary”
means, with respect to any specified Person, any corporation or other legal
entity of which such Person or any of its Subsidiaries owns or controls,
directly or indirectly, more than 50% of the stock or other equity interest
entitled to vote on the election of members to the board of directors or
similar governing body.

 

1.24                        “Supplier
Common Stock” means the shares of common stock, par value
$0.0001 per share, of Supplier.

 

1.25                        “Supplier
Non-Qualified Plan” means the Pharmacopeia, Inc. Non-Qualified
Defined Compensation Plan.

 

1.26                        “Supplier
Savings Plans” means the Employees Tax-Deferred Savings Plan of
Pharmacopeia, Inc.

 

1.27                        “Supplier
Stock Incentive Plans” means, collectively, the Pharmacopeia,
Inc. 1994 Incentive Stock Plan, the Pharmacopeia, Inc. 2000 Stock Option Plan
and the Pharmacopeia, Inc. 1994 Director Option Plan.

 

1.28                        “Supplier
Welfare Plans,” means the welfare benefit plans, programs, and
policies listed that are sponsored by Supplier.

 

3

 

1.29                        “Transition
End Date” means December 31, 2004, or such other date as
the parties mutually agree in writing. 
The Transition End Date may be different for different plans, programs
or arrangements if the Parties so provide in writing.

 

1.30                        “Transition
Period” means the period beginning on the Distribution Date and
ending on the Transition End Date.  The
Transition Period may be different for different plans, programs or
arrangements if the Parties so provide in writing.

 

ARTICLE II

EMPLOYEES AND ALLOCATIONS OF LIABILITIES

 

2.1                               Identification and Employment.  Effective as of the Distribution Date,
Supplier and Spinco shall jointly compile a list by name, social security
number, job title and assigned location of all Active Spinco Employees.  Effective as of the Distribution Date,
Spinco shall employ all such identified Active Spinco Employees.  Effective as of the Distribution Date,
Supplier and Spinco shall jointly compile a list by name and social security
number of all Former Spinco Employees who are identifiable at such time.  An individual who would be classified as a
Former Spinco Employee shall be treated as such for all purposes of this
Agreement notwithstanding that such individual is not on the list provided for
in the preceding sentence.

 

2.2                               Spinco Assumption
of Liabilities.  Except as
specifically provided otherwise in this Agreement, Spinco shall, on behalf of
itself and its Subsidiaries, assume (i) all Liabilities related to Active
Spinco Employees and Former Spinco Employees incurred in connection with their
employment by Spinco or Supplier prior to the Distribution Date; (ii) all
Liabilities related to Active Spinco Employees and Former Spinco Employees
arising on or after the Distribution Date relating to employment with any affiliate
of Spinco; and (iii) all other Liabilities related to, arising out of, or
resulting from obligations, liabilities and responsibilities assumed or
retained by Spinco under this Agreement or a Plan sponsored or maintained by
Spinco.

 

ARTICLE III

SAVINGS PLANS

 

3.1                               Transition
Period

 

(a)                                  Spinco
will take all such actions as are necessary to adopt the Supplier Savings Plan,
effective as of the Distribution Date, as another participating “Employer,”
within the meaning of the Supplier Savings Plan; such adoption shall be limited
by this Agreement and shall solely relate to the Spinco Employees and any new
employees of Spinco who become eligible to participate in the Supplier Savings
Plan.  Supplier hereby consents to the
adoption of the Plan by Spinco and agrees to take all such actions as are
reasonably necessary to facilitate the adoption of the Plan by Spinco.  Supplier and Spinco agree to cooperate and
share the costs on a pro rata basis (determined by number of participants in
the Savings Plan who are Active or Former Spinco or Supplier Employees) of (i)
communicating with the trustee, recordkeepers and all other providers with
respect to the Supplier Savings Plan, and (ii) communicating with Supplier
Savings Plan participants, including providing any summary of material
modifications necessary under ERISA.

 

4

 

(b)                                 Spinco
and Supplier acknowledge and understand that the Supplier Savings Plan will be
a “multiple employer plan” within the meaning of section 413(c) of the
Code for the period that both Spinco and Supplier participate in the Plan
simultaneously.

 

(c)                                  Spinco
hereby agrees to: (i) to withhold all elective deferrals, and make any required
matching contributions as described in the Supplier Savings Plan, and deliver
them to the trustee of the Supplier Savings Plan; (ii) in its discretion,
make any other contributions (such as qualified non-elective or qualified
matching contributions) as described in the Supplier Savings Plan, and deliver
them to the Trustee of the Plan; (iii) provide Spinco Employees who are
participants in the Supplier Savings Plan (or become participants) with access
to their accounts and opportunity to make investment fund elections in
accordance with the terms of the Plan; and (iv) account for all hours of
service earned under the Supplier Savings Plan, hirings, terminations and
attainment of eligibility under the Supplier Savings Plan, and communicate such
events as necessary with the recordkeeper or trustee of the Supplier Savings
Plan.

 

(d)                                 Supplier,
as the primary employer under the Supplier Savings Plan, hereby agrees to
retain sole responsibility for (i) amending the Supplier Savings Plan for
purposes of maintaining tax-qualification under the Code and compliance with
the provisions of ERISA; (ii) communicating with the recordkeeper, trustee,
custodian and other similar service providers for the Supplier Savings Plan
(except as set forth above); and (iii) (A) correcting any qualification
failures or plan document failures (as described in the IRS Employee Plans
Compliance Resolution System), and (B) correcting any fiduciary violations with
the DOL (including corrections under the Voluntary Fiduciary Compliance
Program).  Supplier shall share a pro
rata portion (relating to the period after adoption by Supplier with respect to
Supplier’s employees and former employees who participate or participated in
the Supplier Savings Plan due to their employment with Supplier) of the costs
and expenses associated with each of the foregoing provisions, except paragraph
(iii). The costs of paragraph (iii) shall be borne by the party at fault (and
shared based upon fault if both parties are at fault).

 

(e)                                  Effective
as of the Distribution Date, Supplier shall amend the Supplier Savings Plan to
provide that (i) any matching contributions to be made on or after the
Distribution Date with respect to Active Spinco Employees shall be made in
Spinco Common Stock, and (ii) any matching contributions to be made on or after
the Distribution Date with respect to any Supplier employees shall be made in
Supplier Common Stock; provided, however, that Supplier and Spinco shall be
permitted to exercise their discretion to permit the investment of matching
contributions in any other investment fund available under the Supplier Savings
Plan excluding the common stock fund of the other Party.

 

(f)                                    As
of the Distribution Date, any matching contributions or other amounts credited
to Spinco Employees’ accounts under the Supplier Savings Plan that are invested
in Supplier Common Stock, shall receive a distribution of Spinco Common Stock
in accordance with the Distribution Agreement. 
After the Distribution Date, such amounts shall be invested in
accordance with the terms of the Plan, as amended by either Party.

 

5

 

3.2                               Establishment of and
Transfer to the Spinco Savings Plan.

 

(a)                                  Spinco
shall only be an employer participating in the Plan with respect to the Spinco
Employees for the period beginning on the Distribution Date and ending on the
Transition End Date.  Effective as of
the Transition End Date, Spinco shall establish a separate savings plan for the
benefit of Spinco Employees (“Spinco Savings Plan”).

 

(b)                                 Effective
as of the Transition End Date, Spinco shall adopt the Spinco Savings Plan,
which shall provide benefits with respect to Active Spinco Employees, their
Beneficiaries and their respective alternate payees immediately after the
Transition End Date.  For purposes of
eligibility and vesting, all service recognized under the Supplier Savings Plan
(for periods immediately before the Transition End Date) shall, as of
immediately after the Distribution Date, be recognized and taken into account
under the Spinco Savings Plan.

 

(c)                                  Effective
as of the Transition End Date, Spinco shall establish or cause to be
established with respect to the Spinco Savings Plan, a trust, which shall be
exempt from taxation under Code section 501(a).

 

(d)                                 As
soon as practicable after the Transition End Date, but no later than 30 days
after the Transition End Date, Supplier shall cause the accounts (if any) of
the Active Spinco Employees and Former Spinco Employees, their Beneficiaries
and their respective alternate payees, if any, under the Supplier Savings Plan
that are held by its related trust to be transferred to the Spinco Savings Plan
and its related trust, and Spinco shall cause such transferred accounts to be
accepted by such plan and trust, in accordance with Section 414(l) of the
Code to the extent applicable.  The
transfer of such accounts shall be made: 
(A) in kind, to the extent the assets consist of investments in the
Spinco Common Stock Fund and (B) otherwise in cash, interests in mutual funds,
securities, or other property or in a combination thereof, as the Parties may
agree, but, to the extent practicable, shall be invested initially in
comparable investment options in the Spinco Savings Plan as such accounts were
invested immediately before the date of transfer.  Any outstanding loan balances under any Supplier Savings Plans to
Active Spinco Employees and Former Spinco Employees shall also be transferred
with the underlying accounts.  After the
transfer, (i) Active and Former Spinco Employees will be able to sell the
Supplier Common Stock held in their account under the Spinco Savings Plan, and
(ii) Active and Former Supplier Employees will be able to sell the Spinco
Common Stock held in their account under the Supplier Savings Plan.

 

(e)                                  Spinco
shall apply to the IRS for favorable determination letters with respect to the
tax-qualified status of the Spinco Savings Plan as soon as practicable after
the Transition End  Date, and Spinco, consistent with the
terms of this Agreement, shall make such amendments to such Savings Plans as
may be required by the IRS in order for Spinco to receive favorable
determination letters with respect to these Plans.

 

(f)                                    After
the Transition End Date, all beneficiary designations made by Active Spinco
Employees or their respective alternate payees with respect to the Supplier
Savings Plan shall be transferred to and be in full force and effect under the
Spinco Savings Plans until such beneficiary designations are replaced or
revoked by the individual who made such beneficiary designation.

 

6

 

3.3                               Governmental
Filings.  Supplier and Spinco
shall cooperate to make any and all filings required with respect to the
Supplier Savings Plans and the Spinco Savings Plans under the Code or ERISA or
in connection with any of the transactions described in this Article III.

 

ARTICLE IV

WELFARE PLANS

 

4.1                               Continuation in Supplier
Welfare Plans

 

(a)                                  Spinco
will take all such actions as are necessary to adopt the Supplier Welfare
Plans, effective as of the Distribution Date; such adoption shall be limited by
this Agreement and shall solely relate to the Spinco Employees and any new
employees of Spinco who become eligible to participate in the Supplier Welfare
Plan.  Supplier hereby consents to the
adoption of the Plan by Spinco and agrees to take all such actions as are
reasonably necessary to facilitate the adoption of the Welfare Plans by
Spinco.  Supplier and Spinco agree to
cooperate and share the costs on a pro rata basis (determined by number of
participants in the relevant Welfare Plan who are Active or Former Spinco or
Supplier Employees) of (i) communicating with the insurance companies, HMOs and
all other providers or third-party administrators with respect to the benefits
provided under the Welfare Plans, and (ii) communicating with Welfare Plan
participants, including providing any summary of material modifications
necessary under ERISA.  Spinco and
Supplier acknowledge and understand that the Supplier Welfare Plans will be
“multiple employer welfare arrangements” within the meaning of Section 3
(40) ERISA.

 

(b)                                 Supplier,
as the primary employer under the Welfare Plan, hereby agrees to retain sole
responsibility for (i) amending the Plan for purposes of maintaining compliance
with the provisions of ERISA and (ii) correcting any fiduciary violations with
the DOL.  Supplier and Spinco shall
share a pro rata portion (determined by number of participants in the relevant
Welfare Plan who are Active or Former Spinco or Supplier Employees) of the
costs and expenses associated with each of the foregoing provisions (relating
to the period after adoption by Supplier with respect to Supplier’s employees
and former employees who participate or participated in the Plans due to their
employment with Supplier), except paragraph (ii). The costs of paragraph (ii)
shall be borne by Supplier.

 

(c)                                  Spinco
hereby agrees to (i) withhold all employee contributions and make all employer
contributions as required by any applicable Supplier Welfare Plan, and pay such
contributions as directed by the Supplier and (ii) notify the Supplier regarding
any changes of status or termination of employment by any Spinco Employees,
Spinco Former Employees or Beneficiaries who are participants in the Welfare
Plans, within the meaning of section 125 of the Code and the regulations
thereunder.

 

(d)                                 Vendor
Contracts.

 

(i)                                     Before
the Distribution Date, Supplier shall take such steps as are necessary under
each ASO Contract, Group Insurance Policy and HMO Agreement in existence as of
the date of this Agreement to permit Spinco to participate in the terms and
conditions of such ASO Contract, Group Insurance Policy or HMO Agreement
beginning immediately after the Distribution Date.

 

7

 

(ii)                                  Supplier
shall determine, and shall promptly notify Spinco of, the manner in which
Spinco’s participation in the terms and conditions of ASO Contracts, Group
Insurance Policies and HMO Agreements, as set forth above is to be
effectuated.  Spinco hereby authorizes
Supplier to act on its behalf to extend to Spinco the terms and conditions of
the ASO Contracts, Group Insurance Policies and HMO Agreements during the
Transition Period.  Spinco shall fully
cooperate with Supplier in such efforts.

 

(iii)                               Supplier
and Spinco shall use their reasonable best efforts to cause each of the insurance
companies, HMOs, paid provider organizations and third-party administrators
providing services and benefits under the Supplier Welfare Plans and the Spinco
Welfare Plans to maintain the premium and/or administrative rates, based on the
aggregate number of participants in both the Supplier Welfare Plans, during the
Transition Period, and the Spinco Welfare Plans.

 

(iv)                              For
the Transition Period, Spinco shall be responsible, subject to the direction
and control of Supplier, for the management of the existing contractual and
other arrangements pertaining to the administration of the Spinco Welfare
Plans.  Immediately after the
Distribution Date, Spinco shall be responsible for the management and control
of the ASO contracts, Group Insurance Policies and HMO Agreements and other
vendor contracts and relationships to the extent such contracts, policies and
agreements apply to the Spinco Welfare Plans. 
Notwithstanding the foregoing, nothing contained in this Section 4.1(d)(iv)
shall permit Spinco to direct any insurance carrier, third-party vendor or
claims administrator with respect to any contractual arrangement, policy or
agreement under any Supplier Welfare Plan.

 

(e)                                  For
the period before the Distribution Date and for the Transition Period, Supplier
shall be responsible for administering compliance with the continuation
coverage requirements for “group health plans” under Title X of COBRA, and the
portability requirements under HIPAA, with respect to Active Spinco Employees,
Former Spinco Employees and their Beneficiaries and shall be responsible for
furnishing all necessary employee change notices with respect to these persons
in accordance with applicable Supplier policies and procedures.  Following the time periods described in the
preceding sentence, Spinco shall be solely responsible for administering
compliance with and satisfying any outstanding COBRA or HIPAA obligation with
respect to Active Spinco Employees, Former Spinco Employees and their
Beneficiaries.

 

(f)                                    If
Spinco recovers any amounts through subrogation or reimbursement for claims
paid by Supplier to Active Spinco Employees, Former Spinco Employees or their
Beneficiaries, Spinco shall pay such amounts to Supplier.

 

4.2                               Establishment of Welfare
Plans.  Effective as of the
Transition End Date, Spinco shall take all actions necessary or appropriate to
establish the Spinco Welfare Plans to provide Active Spinco Employees (and
Former Spinco Employees, if applicable) those benefits it determines in its
sole discretion.  Spinco shall provide
coverage to Active Spinco Employees (and Former Spinco Employees, if
applicable) under such Spinco Welfare Plans without the need to undergo a
physical examination or otherwise provide evidence of insurability, will not
impose pre-existing condition exclusions and will recognize and maintain all
irrevocable assignments 

 

8

 

and elections made by Active Spinco Employees (and
Former Spinco Employees, if applicable) in connection with any life insurance
coverage under the Supplier Welfare Plans.

 

4.3                               Vacation and Sick Pay
Liabilities.  Effective as of
the Distribution Date, Spinco shall assume all Liabilities for vacation, sick
leave and other paid time off in respect of all Active Spinco Employees (and
Former Spinco Employees, if applicable) as of the Distribution Date.

 

4.4                               Medical
Spending/Dependent Care Accounts.  As
soon as practicable after the Transition End Date, Supplier shall reimburse
Spinco for the aggregate contributions to such accounts withheld by Supplier
from Active Spinco Employees (and Former Spinco Employees, if applicable) prior
to the Distribution Date to the extent that Supplier did not exhaust such
contributions by providing benefits to Active Spinco Employees (and Former
Spinco Employees, if applicable) prior to the Distribution Date, or if benefits
paid by Supplier to Active Spinco Employees (and Former Spinco Employees, if
applicable) prior to the Distribution Date exceeds the contributions withheld
by Supplier from Active Spinco Employees (and Former Spinco Employees, if
applicable), Spinco shall reimburse Supplier for such difference.

 

4.5                               Severance.  The Parties agree that, with
respect to Active Spinco Employees who, in connection with the Distribution,
cease to be employees of Supplier and become Employees of Spinco, such
cessation shall not be deemed a severance of employment for purposes of any
Plan that provides for the payment of severance, salary continuation or similar
benefits.  The Parties shall take all
such action, including, but not limited to, amending any Plan to give effect to
the provisions of this Section.

 

4.6                               Workers’
Compensation and Unemployment Compensation.  Effective as of the Distribution
Date, Spinco shall assume all Liabilities for Active Spinco Employees and Former
Spinco Employees related to any and all workers’ compensation and unemployment
compensation matters under any law of any state, territory, or possession of
the United States or the District of Columbia and Spinco shall be fully
responsible for the administration of all such claims.  If Spinco is unable to assume any of such
Liabilities or the administration of any such claim because of the operation of
applicable state law or for any other reason, Spinco shall reimburse Supplier
for all such Liabilities.

 

4.7                               HIPAA Business
Associate Provisions.

 

(a)                                  Definitions.  For purposes of this Section 4.7, the
following words and phrases shall have the meanings set forth below.

 

(i)                                     “Designated
Record Set” shall have the meaning set out in its definition at 45 C.F.R.
§164.501, as such provision is currently drafted and as subsequently amended.

 

(ii)                                  “Record”
means any item, collection, or grouping of information that includes Protected
Health Information and is maintained, collected, used, or disseminated by or
for Spinco.

 

9

 

(iii)                               “Individually
Identifiable Health Information” shall have the meaning set out in its
definition at 45 C.F.R. §164.501, as such provision is currently drafted and as
subsequently amended.

 

(iv)                              “Privacy
Standards” shall mean the Standards for Privacy of Individually
Identifiable Health Information promulgated under HIPAA.

 

(v)                                 “Protected
Health Information” or (“PHI”) shall have the meaning set out in its
definition at 45 C.F.R. §164.501, as such provision is currently drafted and as
subsequently amended.

 

(b)                                 Use and
Disclosure of PHI.  Supplier
may use and disclose PHI received from Spinco or created or received by
Supplier on behalf of Spinco solely as permitted or required by this Agreement
or as otherwise required by law. 
Supplier shall not use and disclose PHI received from Spinco or created
or received by Supplier on behalf of Spinco in any manner that would constitute
a violation of the Privacy Standards if used in such manner by Spinco.

 

(c)                                  Safeguards.  Supplier agrees that it will use
commercially reasonable efforts to safeguard PHI and to prevent use or
disclosure of PHI other than as provided for under this Section 4.7.

 

(d)                                 Reporting of
Disclosures of PHI.  Supplier
shall report to Spinco any use or disclosure of PHI in violation of this
Section 4.7 of which it becomes aware.

 

(e)                                  Agreements
with Third Parties.  Supplier
shall obtain agreement with any agent or subcontractor that will have access to
PHI that is received from, or created or received by Supplier on behalf of
Spinco, to be bound by the same restrictions, terms, and conditions that apply
to Supplier pursuant to this Section 4.7 with respect to such PHI.

 

(f)                                    Access to
Information. Within twenty-five (25) days of receipt of a request by
Spinco for access to PHI in a Designated Record Set concerning an individual
whose PHI is held by Supplier under this Agreement, Supplier will provide such
access to an individual in accordance with 45 C.F.R. § 164.524.

 

(g)                                 Availability
of PHI for Amendment.  Within
fifty (50) days of receipt of a request from Spinco for the amendment of an
individual’s PHI contained in a Designated Record Set, Supplier agrees to make
any amendment to PHI in a Designated Record Set that Spinco directs or agrees
to pursuant to 45 C.F.R. §164.526.

 

(h)                                 Accounting
of Disclosures.  Within fifty
(50) days of receipt of a notice from Spinco to Supplier stating that Spinco
has received a request for an accounting of disclosures of PHI regarding an
individual, Supplier shall make available to Spinco such information as is in
Supplier’s possession and is required for Spinco to make the accounting under
45 C.F.R. §164.528.  Supplier
agrees to document such disclosures of PHI and information related to such
disclosures as would be required for Spinco to respond to a request by an
individual for an accounting of disclosures of PHI in accordance with
45 C.F.R. § 164.528.

 

10

 

(i)                                     Availability
of Books and Records. 
Supplier agrees to make its internal policies, procedures, practices,
books, records and agreements relating to the use and disclosure of PHI
received from, or created or received by Supplier on behalf of, Spinco
available to the Secretary of the Department of Health and Human Services (“Secretary”)
for purposes of determining Spinco’s compliance with the Privacy Standards,
subject to attorney-client and other applicable legal privileges.

 

(j)                                     Return of
PHI upon Termination.  Upon
termination of the Agreement for any reason, Supplier shall return to Spinco
all PHI received from Spinco or created or received by Supplier on behalf of
Spinco and which Supplier still maintains in any form.  Prior to doing so, Supplier further agrees
to recover any PHI in the possession of its subcontractors or agents.  Supplier shall not retain any copies of such
PHI.  If it is not feasible to return
such PHI as determined by Spinco, Supplier agrees to extend any and all
protections, limitations, and restrictions in this Section 4.7 to Supplier’s
use and disclosure of any PHI retained after the termination of the Agreement,
and to limit any further uses and disclosures to the purpose or purposes that
make the return of PHI infeasible.  If
it is not feasible for Supplier to obtain from a subcontractor or agent any PHI
in the possession of the subcontractor or agent, Supplier will require the
subcontractor and/or agent to agree to extend any and all protections,
limitations, and restrictions in this Section 4.7 to the subcontractors’ and/or
agents’ use and disclosure of any PHI retained after the termination of the
Agreement, and to limit any further uses and disclosures to the purposes that
make the return of the PHI infeasible.

 

(k)                                  Termination.  Pursuant to 45 C.F.R.
§164.504(e)(2)(iii), Spinco may upon ten (10) days notice terminate the
provisions of any agreement that relates to the administration of any Welfare
Plan determined to be a health plan under the Privacy Standards if Spinco
determines that Supplier has breached a material term of this
Section 4.7.  Alternatively, Spinco
may (i) provide Supplier with 30 days written notice of the existence of
an alleged material breach; and (ii) afford Supplier an opportunity to
cure said alleged material breach to Spinco’s satisfaction within the stated
time period.  Failure to cure the
alleged breach is grounds for immediate termination of the provisions of any
agreement that relates to the administration of any Welfare Plan determined to
be a health plan under the Privacy Standards; provided, however, that in the
event that Spinco determines that such termination is not feasible, Supplier
hereby acknowledges that Spinco shall have the right to report the breach to
the Secretary, notwithstanding any other provision of the Agreement to the
contrary.  Spinco reserves the right to
cure any breach by Supplier of any provision of this Section 4.7;
provided, however, that Spinco retains its right to terminate relevant
provision of an agreement as provided under this Section 4.7(k) and its
right to seek related remedies, even if Spinco is able to cure the breach.

 

(l)                                     Spinco’s
Obligations.  Spinco shall
notify Supplier of any limitation(s) in its notice of privacy practices, to the
extent that such limitation may affect Supplier’s use or disclosure of PHI.  Spinco also shall notify Supplier of any
changes in, or revocation of, permission by an individual to use or disclose
PHI, to the extent that such changes may affect Supplier’s use or disclosure of
PHI.  Spinco also shall notify Supplier
of any restriction to the use or disclosure of PHI that Spinco has agreed to in
accordance with 45 C.F.R. § 164.522, to the extent that such restriction
may affect Supplier’s use or disclosure of PHI.

 

11

 

(m)                               Management and
Administration.  Except as
otherwise limited in this Agreement, Supplier may use PHI for the proper
management and administration of the Spinco health plan or to carry out the
legal responsibilities of Supplier. 
Except as otherwise limited in this Agreement, Supplier may disclose PHI
for the proper management and administration of the Spinco health plan,
provided that disclosures are required by law, or Supplier obtains reasonable
assurances from the person to whom the information is disclosed that it will
remain confidential and used or further disclosed only as required by law or
for the purposes for which it was disclosed to the person.  The person also must agree to notify
Supplier of any instances of which it is aware in which the confidentiality of
the information has been breached.

 

(n)                                 Amendment.  The parties agree to take such action as is
necessary to amend this Section 4.7 from time to time as is necessary for
Spinco to comply with the requirements of the Privacy Standards.

 

ARTICLE V

EXECUTIVE COMPENSATION PROGRAMS

 

5.1                               Supplier
Non-Qualified Plan.

 

(a)                                  All
Active Spinco Employees shall cease to be eligible to participate in the
Supplier Non-Qualified Plan as of the Distribution Date.

 

(b)                                 Effective
as of the Distribution Date, (i) Spinco shall assume all Liabilities in
connection with the Supplier Non-Qualified Plan for Active Spinco Employees
(and Former Spinco Employees, if applicable) and Supplier shall have no
responsibility with respect to such Liabilities, (ii) to the extent those Liabilities
are funded by a rabbi trust, the assets relating to Active Spinco Employees
(and Former Spinco Employees, if applicable), shall be transferred to Spinco or
a rabbi trust designated by Spinco as soon as practicable following the
Distribution Date, (iii) Spinco shall establish a non-qualified deferred
compensation plan on such terms as it determines in its sole discretion (“Spinco
Non-Qualified Plan”), and (iv) as applicable, all service recognized under
the Supplier Non-Qualified Plan (for periods immediately before the
Distribution Date) shall, as of immediately after the Distribution Date, be
recognized and taken into account under the Spinco Non-Qualified Plan.

 

5.2                               Bonus Plans.  Spinco shall assume all
Liabilities for or related to Active Spinco Employees (and Former Spinco
Employees, if applicable) payable under any bonus plan sponsored or maintained
by Spinco or Supplier with respect to the period prior to the Distribution
Date; provided, however, that Supplier and Spinco may jointly make such adjustments
to the financial goals, targets, payments and forms of payment as they deem
appropriate to reflect the Distribution. 
As of the Distribution Date, Spinco may establish a bonus plan covering
such of its Active Spinco Employees as it in its sole discretion deems
appropriate.

 

12

 

ARTICLE VI

STOCK INCENTIVE PLANS

 

6.1                               Stock Option
Awards.

 

(a)                                  Effective
as of the Distribution Date, Spinco shall establish an equity-based incentive
plan for the benefit of Spinco’s employees, consultants and directors (“Spinco
Stock Incentive Plan”), with such terms as Spinco determines, in its sole
discretion.

 

(b)                                 Except as provided in Section 6.1(c) for Key
Recipients and Section 6.1(d) for Director Recipients, employees and
consultants who have received unexercised options (whether vested or unvested)
to purchase Supplier Common Stock (“Supplier Options”) under the
Supplier Stock Incentive Plans before the Distribution Date, and who become
employees or consultants of Spinco on the Distribution Date, will have each of
their unexercised Supplier Options converted into options to purchase Spinco
Common Stock (“Spinco Options”) under the Spinco Stock Incentive Plan as
of the Distribution Date, subject to the following terms and conditions:

 

(i)                                     The terms of the conversion described in this
Section will be determined by reference to, and in consideration of, the
ratio of the market price of Supplier common stock and Spinco Common Stock
immediately before or after the distribution. 
The conversion will preserve the then intrinsic value of the existing
Supplier Options.  Following the
conversion contemplated by this Section, the aggregate market value of the
Spinco Common Stock purchasable under the Spinco Options immediately after the
Distribution will be approximately equal to the aggregate market value of the
Supplier Common Stock that was purchasable under the Supplier Options
immediately before the distribution, with the aggregate exercise price of the
Spinco Options being the same as the Supplier Options (except to the extent the
number of shares purchasable is rounded down to the nearest whole share).

 

(ii)                                  The term, vesting and other terms of the Spinco
Options will be the same as the terms of the current Supplier Options; notwithstanding
any contrary provision of the Spinco Stock Incentive Plan.

 

(c)                                  Each Key Recipient of Supplier Options under the
Supplier Stock Incentive Plans before the Distribution Date who becomes an
employee or consultant of Spinco on the Distribution Date, will, have 30% of
his or her unexercised vested Supplier Options converted into Spinco Options
under the Spinco Stock Incentive Plan as of the Distribution Date.  The remaining 70% of his or her vested,
unexercised Supplier Options shall remain under the terms of the Supplier Stock
Incentive Plan (“Key Supplier Options”).  Unvested Supplier Options held by Key Recipients (other than the
Designated Key Recipient identified on Schedule I) will be converted into
Spinco Options in accordance with Section 6.1(b).  Unvested Supplier Options held by the
Designated Key Recipient identified on Schedule I will remain under the
terms of the Supplier Stock Incentive Plan as unvested Key Supplier Options.  Supplier will administer the applicable
Supplier Stock Incentive Plan to provide that the holders of the Key Supplier
Options will not be treated as terminating employment or service with Supplier
due to the Distribution, solely for purposes of determining the terms
applicable to the Key Supplier

 

13

 

Options after the Distribution
Date.  The term, vesting and other terms
of the Spinco Options will be the same as the terms of the current Supplier
Options.  The valuation and determination
of the number of Spinco Options and Supplier Options will be made in the same
manner as described in Section 6.1(b)(i).

 

(d)                                 Each recipient of Supplier Options who is a
director of Supplier (“Director Recipient”) before the Distribution Date
will have 30% of his or her unexercised Supplier Options converted into Spinco
Options under the Spinco Stock Incentive Plan as of the Distribution Date.  The remaining 70% of his or her unexercised
Supplier Options shall remain under the terms of the Supplier Stock Incentive
Plan (“Director Supplier Options”). 
Supplier will administer the applicable Supplier Stock Plan to provide
that the holders of the Director Supplier Options who do not remain as
directors of Supplier after the Distribution will not be treated as terminating
service from Supplier due to the Distribution, solely for purposes of
determining the terms applicable to the Director Supplier Options after the
Distribution Date.  The term, vesting
and other terms of the Spinco Options will be the same as the terms of the
current Supplier Options.  The valuation
and determination of the number of Spinco Options and Supplier Options will be
made in the same manner as described in Section 6.1(b)(i).

 

(e)                                  Spinco
shall make such additional awards under the Spinco Stock Incentive Plan to
Active Spinco Employees, consultants and directors as it in its sole discretion
deems appropriate.

 

6.2                               Employee Stock
Purchase Plan.

 

(a)                                  Effective
as of the Distribution Date, Spinco shall establish an employee stock purchase
plan (the “Spinco ESPP”) that will provide benefits that are similar to
those provided under the Supplier Employee Stock Purchase Plan (the “Supplier
ESPP”) immediately before the Distribution Date.

 

(b)                                 Effective
as of the Distribution Date, Supplier shall amend the Supplier ESPP to provide
that any amounts contributed by Active Spinco Employees to the Supplier ESPP
shall be transferred to Spinco and shall be applied to the purchase of Spinco
Common Stock under the Spinco ESPP.  The
rights to purchase Supplier Common Stock, which have been earned under the
Supplier ESPP shall be converted, in accordance with the procedures described
in Section 6.1(b) and applicable law, into rights to purchase Spinco
Common Stock under the Spinco ESPP effective as of the Closing Date.  The initial “purchase period” under the
Spinco ESPP will end on the same date that such period is scheduled to end
under the Supplier ESPP.  Additional
purchase periods under the Spinco ESPP will be subject to the terms and
conditions determined by Spinco in its sole discretion.

 

ARTICLE VII

FOREIGN PLANS

 

7.1                               Foreign Retirement
Plans.  Supplier and Spinco
shall use their reasonable best efforts so that, as soon as practicable after
the Distribution Date, all Supplier Foreign Plans which provide retirement
benefits solely to Active Spinco Employees and Former Spinco Employees shall be
assumed by Spinco together with all related assets and liabilities and neither 

 

14

 

Supplier nor any Supplier Group Plan shall retain any
liability with respect to such Foreign Plans.

 

7.2                               Foreign Welfare
Plans.  Supplier and Spinco
shall use their reasonable best efforts, effective as of the Distribution Date,
and to the extent allowed under foreign laws, to handle the Foreign Plans which
provide welfare benefits in a manner which mirrors the approach outlined in
this Agreement for the various employee benefit plans.

 

ARTICLE VIII

ACCOUNTING

 

8.1                               Payment of and
Accounting Treatment for Expenses.

 

(a)                                  Except
as specifically provided in this Agreement, all expenses (and the accounting
treatment related to such expenses) related to liabilities through the
Distribution Date regarding matters addressed in this Agreement shall be
handled and administered in the ordinary course by Supplier and Spinco in accordance
with past Supplier accounting and financial practices and procedures pertaining
to such matters.  To the extent such
expenses are unpaid as of the Distribution Date that pertain to Active Spinco
Employees or Former Spinco Employees, Spinco shall be solely responsible for
such payment, without regard to any accounting treatment to be accorded such
expense by Supplier or Spinco on their respective books and records.  The accounting treatment to be accorded all
such expenses, whether such expenses are paid by Supplier or Spinco, shall be
determined by Supplier.

 

(b)                                 Spinco
shall assume any balance sheet liability for any Liabilities assumed by it
under this Agreement as of the Distribution Date or thereafter, with respect to
any Active Spinco Employee or Former Spinco Employees.  The determination of any balance sheet
liability as of the close of business on the Distribution Date shall be
determined by Supplier consistent with past accounting practices, consistently applied.

 

8.2                               Accounting
Adjustments.  Before the
Distribution Date, Spinco will have established on its books for financial
accounting purposes liabilities and reserves for deferred compensation, welfare
and other employee benefit plan obligations that will be retained or assumed by
Spinco under this Agreement, and Supplier will have adjusted the liabilities
and reserves on its books for financial accounting purposes to take into
account Spinco’s assumption or retention of Liabilities under this
Agreement.  The initial adjustments as
of the Distribution Date will be made on an estimated basis.  After the Parties have finally calculated
the actual liabilities under this Agreement, each Party shall appropriately
adjust its liabilities and reserves to reflect the amount of the liabilities
and reserves that are properly allocable to that Party.

 

15

 

ARTICLE IX

AUDITS; INFORMATION SHARING

 

9.1                               Audits.

 

(a)                                  Each
of Supplier and Spinco, and their duly authorized representatives, shall have
the right to conduct audits at any time upon reasonable prior notice, at their
own expense, with respect to all information provided to it or to any Plan
trustee, recordkeeper or third-party administrator by the other Party.  The Party conducting the audit shall have
the sole discretion to determine the procedures and guidelines for conducting
audits and the selection of audit representatives under this Section.  The auditing Party shall have the right to
make copies of any records at its expense. 
The Party being audited shall provide the auditing Party’s
representatives with reasonable access during normal business hours to its
operations, computer systems and paper and electronic files, and provide
workspace to its representatives.  After
any audit is completed, the Party being audited shall have the right to review
a draft of the audit findings and to comment on those findings in writing
within ten business days after receiving such draft.

 

(b)                                 The
auditing Party’s audit rights under this Section shall include the right to
audit, or participate in an audit facilitated by the Party being audited, of
any Subsidiaries and affiliates of the Party being audited and of any benefit
providers and third parties with whom the Party being audited has a
relationship, or agents of such Party, to the extent any such persons are
affected by or addressed in this Agreement. 
The Party being audited shall, upon written request from the auditing
Party, provide an individual (at the auditing Party’s expense) to supervise any
audit of any such benefit provider or third-party.  The auditing Party shall be responsible for supplying, at its
expense, additional personnel sufficient to complete the audit in a reasonably
timely manner.

 

9.2                               Sharing of
Participant Information.  Subject
to any limitations expressly provided for herein, Supplier and Spinco shall
share, Supplier shall cause each applicable affiliate of Supplier to share, and
Spinco shall cause each applicable affiliate of Spinco to share, with each
other and their respective agents and vendors (without obtaining releases) all
participant information necessary for the efficient and accurate administration
of each of the Supplier Plans and the Spinco Plans.  Supplier and Spinco and their respective authorized agents shall,
subject to applicable laws on confidentiality, be given reasonable and timely
access to, and may make copies of, all information relating to the subjects of
this Agreement in the custody of the other Party, to the extent necessary for
such administration.

 

ARTICLE X

GENERAL

 

10.1                        Notices.  All notices, requests, claims and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
by hand, by reputable overnight courier service, by facsimile

 

16

 

transmission, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
addresses listed below:

 

	
  if to Supplier, to:

  	
   

  	
  Pharmacopeia, Inc.

  
	
   

  	
   

  	
  9685 Scranton Road

  
	
   

  	
   

  	
  San Diego, CA

  
	
   

  	
   

  	
  Attn.:

  	
  Vice President, Human
  Resources

  
	
   

  	
   

  	
  Fax:

  	
  (858) 799-5100

  
	
   

  	
   

  	
   

  
	
  if to Spinco, to:

  	
   

  	
  Pharmacopeia Drug
  Discovery, Inc.

  
	
   

  	
   

  	
  3000 Eastpark Blvd.

  
	
   

  	
   

  	
  Cranbury, NJ 08512

  
	
   

  	
   

  	
  Attn:

  	
  Executive Vice
  President, Human Resources

  
	
   

  	
   

  	
  Fax: 

  	
  (609) 452-3671

  
					

 

or to such other address
as any Party may, from time to time, designate in a written notice given in
accordance with this Section.  Notice
given by hand shall be deemed delivered when received by the recipient.  Notice given by mail as set out above shall
be deemed delivered five calendar days after the date the same is mailed.  Notice given by reputable overnight courier
shall be deemed delivered on the next following business day after the same is
sent.  Notice given by facsimile
transmission shall be deemed delivered on the day of transmission provided
telephone confirmation of receipt is obtained promptly after completion of
transmission.

 

10.2                        Amendment and
Waiver.  This Agreement may
not be altered or amended, nor may rights hereunder be waived, except by an
instrument in writing executed by the Party or Parties to be charged with such
amendment or waiver.  No waiver of any
term, provision or condition of or failure to exercise or delay in exercising
any rights or remedies under this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, provision, condition, right or remedy or as a waiver of any other
term, provision or condition of this Agreement.

 

10.3                        Entire
Agreement.  This
Agreement constitutes the entire understanding of the Parties with respect to
the subject matter herein addressed, superseding all negotiations, prior
discussions and prior agreements and understandings relating to such subject
matter.

 

10.4                        Parties in
Interest.  Neither
of the Parties may assign its rights or delegate any of its duties under this
Agreement without the prior written consent of the other Party (which consent
shall not be unreasonably withheld or delayed).  This Agreement shall be binding upon, and shall inure to the
benefit of, the Parties and their respective successors and permitted assigns.

 

10.5                        No Third-Party
Beneficiaries; No Termination of Employment. 
No provision of this Agreement shall be construed to create
any right, or accelerate entitlement, to any compensation or benefit whatsoever
on the part of any Active Spinco Employee or Former Spinco Employee under any
Supplier Plan or Spinco Plan or otherwise. 
Without limiting the generality of the foregoing, neither the
Distribution nor the termination of the controlled group status of a affiliate
of Spinco shall cause any Employee to be deemed to have incurred a

 

17

 

termination of employment that by itself entitles such
individual to the commencement of benefits under any of the Supplier Plans, any
of the Spinco Plans, or any individual agreements.

 

10.6                        Right to Amend or
Terminate Any Plans.  Nothing
in this Agreement other than those provisions specifically set forth in this
Agreement to the contrary shall preclude Spinco or Supplier, at any time after
the Distribution Date, from amending, merging, modifying, terminating,
eliminating, reducing, or otherwise altering in any respect any Spinco plan or
Supplier Plan, respectively, any benefit under any Plan or any trust, insurance
policy or funding vehicle related to any Spinco Plan or Supplier Plan.

 

10.7                        Effect if
Distribution Does Not Occur.  If
the Distribution does not occur, then all actions and events that are, under
this Agreement, to be taken or occur effective as of the Distribution Date,
immediately after the Distribution Date, or otherwise in connection with the
Distribution, shall not be taken or occur except to the extent specifically
agreed to in writing by Spinco and Supplier.

 

10.8                        Relationship of
Parties.  Nothing in this
Agreement shall be deemed or construed by the Parties or any third party as
creating the relationship of principal and agent, or a partnership or joint
venture between the Parties, it being understood and agreed that no provision
contained in this Agreement, and no act of the Parties, shall be deemed to
create any relationship between the Parties other than the relationship set
forth in this Agreement.

 

10.9                        Affiliates.  Each of Supplier and Spinco shall
cause to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth in this Agreement to be performed by
affiliates of Supplier or affiliates of Spinco, respectively, where relevant.

 

10.10                 Further Assurances
and Consents   In addition to
the actions specifically provided for elsewhere in this Agreement, each of the
Parties will use its reasonable best efforts to (a) execute and deliver such
further instruments and documents and take such other actions as any other
Party may reasonably request in order to effectuate the purposes of this
Agreement and to carry out the terms of this Agreement and (b) take, or cause
to be taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and
agreements or otherwise to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using its
reasonable best efforts to obtain any consents and approvals and to make any
filings and applications necessary or desirable in order to consummate the
transactions contemplated by this Agreement; provided that no Party shall be
obligated to pay any consideration therefor (except for filing fees and other
similar charges) to any third-party from whom such consents, approvals and
amendments are requested or to take any action or omit to take any action if
the taking of or the omission to take such action would be unreasonably
burdensome to the Party.

 

10.11                 Severability.  The provisions of this Agreement
are severable and should any provision of this Agreement be void, voidable or
unenforceable under any applicable law, such provision shall not affect or
invalidate any other provision of this Agreement, which shall continue to
govern the relative rights and duties of the Parties as though such void,
voidable or unenforceable provision were not part of this Agreement.

 

18

 

10.12                 Governing
Law.  Subject
to federal law, this Agreement shall be construed in accordance with, and
governed by, the laws of the State of Delaware, without regard to the conflicts
of law rules of such state.

 

10.13                 Counterparts.  This Agreement may be executed in
one or more counterparts each of which shall be deemed an original instrument,
but all of which together shall constitute but one and the same Agreement.

 

10.14                 Disputes.

 

(a)                                  Resolution
of any and all disputes arising from or in connection with this Agreement, whether
based on contract, tort, statute or otherwise, including, but not limited to,
disputes in connection with claims by third parties (collectively, “Disputes”),
shall be subject to the provisions of this Section 10.14; provided,
however, that nothing contained in this Agreement shall preclude either Party
from seeking or obtaining (i) injunctive relief or (ii) equitable or other
judicial relief to enforce the provisions of this Agreement or to preserve the
status quo pending resolution of Disputes hereunder.

 

(b)                                 Either
Party may give the other Party written notice of any Dispute not resolved in
the normal course of business.  The
parties shall attempt in good faith to resolve any Dispute promptly by
negotiation between executives of the parties who have authority to settle the
controversy and who are at a higher level of management than the persons with
direct responsibility for administration of this Agreement.  Within 30 days after delivery of the notice,
the foregoing executives of both parties shall meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem necessary for a
period not to exceed 15 business days, to attempt to resolve the Dispute.  All reasonable requests for information made
by one Party to the other will be honored. 
If the parties do not resolve the Dispute within such 45 business day
period (the “Initial Negotiation Period”), the Parties shall attempt in
good faith to resolve the Dispute by negotiation between (a) in the case of
Supplier, the Chief Financial Officer and (b) in the case of Spinco, the Chief
Financial Officer (collectively, “Designated Officers”).  Such officers shall meet at a mutually
acceptable time and place (but in any event no later than 15 business days
following the expiration of the Initial Negotiation Period) and thereafter as
often as they reasonably deem necessary for a period not to exceed 15 business
days, to attempt to resolve the Dispute.

 

(c)                                  If
the Dispute has not been resolved by negotiation within 75 business days of the
first Party’s notice, or if the Parties failed to meet within 30 business days
of the first Party’s notice, or if the Designated Officers failed to meet
within 60 business days of the first Party’s notice, either Party may commence
any litigation or other procedure allowed by law.

 

10.15                 Assignment.  Neither of the parties may assign
or delegate any of its rights or duties under this Agreement without the prior
written consent of the other party, which consent will not be unreasonably
withheld; provided that Supplier may, at any time, assign or delegate its
rights or duties hereunder to Accelrys, Inc without obtaining the consent of
Spinco.  This Agreement shall be binding
upon, and shall inure to the benefit of, the Parties and their respective
successors and permitted assigns. 
Notwithstanding the foregoing, Spinco may, and hereby gives notice to
Supplier that it intends to, pledge its rights and obligations under this

 

19

 

Agreement to its lenders as collateral to secure
indebtedness outstanding under its senior secured credit facility and all
renewals, refundings, refinancings and replacements thereof.

 

10.16                 Interpretation.  Words in the singular shall be
held to include the plural and vice versa and words of one gender shall be held
to include the other genders as the context requires.  The word “including” and words of similar import when used in
this Agreement means “including, without limitation,” unless the context
otherwise requires or unless otherwise specified.

 

10.17                 Headings.  The Article and
Section headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the Parties and shall not in any
way affect the meaning or interpretation of this Agreement.

 

*                                         *                                         *                                         *                                         *

 

20

 

IN WITNESS WHEREOF, the
Parties have executed and delivered this Agreement as of the day and year first
above written.

 

 

	
   

  	
  PHARMACOPEIA,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John J. Hanlon

  
	
   

  	
   

  	
  Name: John J. Hanlon

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PHARMACOPEIA
  DRUG DISCOVERY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph A. Mollica, Ph.D.

  
	
   

  	
   

  	
  Name: Joseph A. Mollica, Ph.D.

  
	
   

  	
   

  	
  Title: President and Chief Executive OfficerExhibit 10.4

 

PATENT AND SOFTWARE LICENSE AGREEMENT

 

This PATENT AND SOFTWARE LICENSE AGREEMENT (the
“Agreement”), effective this 30th day of April, 2004 (the “Effective Date”), is
between Pharmacopeia Drug Discovery, Inc., a corporation organized and existing
under the laws of the State of Delaware and having a principal place of
business at 3000 Eastpark Boulevard, Cranbury New Jersey 08512 (“PDD”), and
Pharmacopeia, Inc., a corporation organized and existing under the laws of the
State of Delaware and having a place of business at 9685 Scranton Road, San
Diego, California 92121-3752 (“Pharmacopeia”), for itself and on behalf of
Accelrys Inc. and each of Pharmacopeia’s subsidiaries other than PDD
(Pharmacopeia and such subsidiaries other than PDD being referred to herein
collectively as the “Pharmacopeia Group”).

 

WHEREAS, the
Pharmacopeia Group is the owner of certain software product(s), together with
the related documentation and components thereto, as well as all rights, title
and interest in and to the inventions disclosed in certain patents and patent
applications;

 

WHEREAS, PDD is the
owner of all rights, title and interest in and to the inventions disclosed in
certain patents and patent applications;

 

WHEREAS, PDD has
incurred significant expenses in connection with the filing, prosecution and
maintenance of such patents and patent applications;

 

WHEREAS, PDD desires
to obtain, and the Pharmacopeia Group desires to grant, a license to PDD to the
software and a license to practice the inventions claimed by the Licensed
Patents; and

 

WHEREAS, the
Pharmacopeia Group desires to obtain, and PDD desires to grant, a license to
practice the inventions claimed by the PDD patents;

 

NOW THEREFORE, the
parties agree as follows:

 

1.             Definitions. For all purposes
of this Agreement, the following terms have the meanings set forth below:

 

1.1.          “Affiliate” of a party
means any legal entity directly or indirectly controlling, controlled by or
under common control with that party. For purposes of this Agreement, “control”
means the direct or indirect ownership of more than fifty percent (50%) of the
outstanding voting securities of the legal entity, or the right to receive more
than fifty percent (50%) of the profits or earnings of the legal entity, or the
right to direct the policy decisions of the legal entity.

 

1.2.          “Documentation” means
the then current on-line help, guides, and manuals published by the
Pharmacopeia Group and made generally available by the Pharmacopeia Group for
the Software.  Documentation shall include
any updated Documentation that the Pharmacopeia Group provides with Updates.

 

1.3.          “Licensed Patents” means
the patents and patent applications listed on Exhibit A attached hereto, and
any and all patents issuing from the patent applications listed on such Exhibit
A, or issuing from any divisions or continuations of such applications, as well
as all re-issues, re-examinations, renewals or extensions of such patents.

 

1.4.          “PDD Patents” means the
patents and patent applications listed on Exhibit C attached hereto, and any
and all patents issuing from the patent applications listed on such

 

 

Exhibit C, or issuing from any
divisions or continuations of such applications, as well as all re-issues,
re-examinations, renewals or extensions of such patents.

 

1.5.          “PDD Patent Product”
means a software product, developed or commercialized by the Pharmacopeia
Group, which meets the following description: (i) in the absence of the license
granted under Section 3.4.a of this Agreement, the making, using, copying, sale,
rental, lease or offer for sale, rental or lease of such software product would
infringe any claim of a PDD Patent, or (ii) any software product designed or
developed for use with software described in (i)

 

1.6.          “PDD’s Internal
Business” means the design and manufacture of compounds for sale to and use by
third parties, for its own use, and for use in performing drug discovery and
development services for third parties; the selection and evaluation of
appropriate target molecules; the development of assays for screening against
target molecules; the screening of compounds against target molecules for its
own internal research or for third parties and interpreting and advising on the
results of such screening; and the performing of medicinal/pharmaceutical
chemistry services for its own internal research or for third parties.

 

1.7.          “Software” means the
software product(s), together with the Documentation and components (including
new releases, enhancements, and modifications provided under warranty or maintenance,
if applicable) listed on attached Exhibit B.

 

1.8.          “Software License Term”
means the period commencing on the Effective Date and ending on April 30, 2007.

 

1.9.          “Source Code” means the
program instructions for the software programs known as TopKat, LibProp and
ADME Profiler, as those programs are constructed as of the Effective Date.

 

1.10.        “Update(s)” means new
releases, corrections, enhancements, improvements and modifications of the
Software and/or Documentation that are (a) subsequent releases of the Software
that (i) add new features, functionality, and/or improved performance, (ii)
operate on new or other databases, operating systems, or client or server
platforms, or (iii) add new foreign language capabilities; (b) bug or error
fixes, patches, workarounds, and maintenance releases; (c) new point releases,
including those denoted by a change to the right of the first decimal point
(e.g., version 3.0 to 3.1) and (d) new major version releases, regardless of
the version name or number, but including those denoted by (i) a change to the
left of the first decimal point (e.g., version 5.0 to 6.0) and/or (ii) the
addition of a date designation or a change in an existing date designation
(e.g., version 1999 to 2000); provided, however that Updates shall not include
new or separate products which are offered only for an additional fee to its
customers generally, including those customers purchasing maintenance services.

 

1.11.        “User(s)” means the named
or specified (by password or other user identification) individuals authorized
by PDD to use the Software, regardless of whether the individual is actively
using the Software at any given time. 
PDD may replace Users and authorize new Users as necessary to reflect personnel
changes provided that the number of Users at any given time does not exceed the
maximum number of Users at any given time. 
Users may include the employees of PDD or third parties; provided that
such third party is limited to use of the Software (i) only as configured and
deployed by PDD, and (ii) solely in connection with PDD’s business operations
as conducted by or through such third party, including but not limited to the

 

2

 

installation, administration or
implementation of the Software for PDD. 
PDD agrees that it is responsible for ensuring that any usage by its
employees and any such third parties is in accordance with the terms and
conditions of this Agreement.  It is
expressly understood and agreed that Users shall not include the employees or
consultants of, or third parties working with, any individual or entity that
acquires a controlling interest in PDD or PDD’s Internal Business, whether by
merger, consolidation, reorganization or similar transaction or by sale,
transfer or disposition of all or substantially all PDD’s assets, properties or
business.

 

2.             Software License
to PDD.

 

2.1.          License Grant.
Subject to the terms and conditions of this Agreement, the Pharmacopeia Group
hereby grants, and PDD accepts for the Software License Term, a worldwide,
paid-up, royalty-free, irrevocable (subject to Section 2.2), nontransferable
(with no right to sublicense) and non-exclusive license to use the Software for
the sole purpose of processing the work of PDD’s Internal Business.

 

a.             PDD
may only use the Software at the specific location(s) at which the Software
currently is utilized or to which the Software is subsequently delivered.

 

b.             For
host-locked licenses, PDD may use the Software only on the central processing
unit (the “Licensed CPU”) originally designated for installation or as agreed
to by the relevant member of Pharmacopeia Group, and only at the specific
location at which the Software is currently utilized or to which the Software
is subsequently delivered.  For floating
licenses, the Software may be accessed by any computer that is commercially
supported by PDD and within PDD’s authorized network at the specific location
at which the Software is currently utilized or to which the Software is
subsequently delivered.

 

c.             The
Software may be used simultaneously by no more than the maximum number of Users
set forth on Exhibit B, and may not be electronically or otherwise transferred
to a different physical location.

 

i.              If,
during the License Term, PDD desires to use the Software for additional
simultaneous Users, at another site, or on a different Licensed CPU (for
host-locked licenses), PDD shall secure the prior approval of the relevant
member of the Pharmacopeia Group, which will not be unreasonably withheld but
which will be conditioned upon payment by PDD of the Pharmacopeia Group’s
then-current license fees for such additional Users, additional site or
different Licensed CPU.

 

ii.             If,
after the expiration or termination of the License Term, PDD desires to use the
Software for additional simultaneous users, at another site, or on a different
Licensed CPU (for host-locked licenses), PDD shall secure the prior approval of
the relevant member of the Pharmacopeia Group, which may be granted subject to
additional charges.

 

2.2.          License Term. The
license granted in Section 2.1 shall be in effect for the Software License
Term, unless earlier terminated by one of the parties as set forth in Section
8.2 or 8.4, or extended by mutual written agreement of the parties.

 

2.3.          Software Ownership.
The Software, documentation, and supporting materials and all worldwide
intellectual property rights therein are the sole and exclusive property of the

 

3

 

Pharmacopeia Group and its
licensors or suppliers.  Except to the
limited extent required for PDD to use the Software pursuant to the license
granted in Section 2.1, nothing in this Agreement will be deemed to grant, by
implication, estoppel or otherwise, a license in any existing or future patents
of the Pharmacopeia Group.  No title or
ownership rights to the Software are transferred to PDD by this Agreement, but
shall remain with the Pharmacopeia Group and/or its licensors or suppliers.  All rights not expressly granted by the
Pharmacopeia Group with respect to the Software under this Agreement are
reserved by the Pharmacopeia Group.

 

2.4.          Software Maintenance.

 

a.             During
the Software License Term, the Pharmacopeia Group will provide maintenance
services that include both Update Service and Hotline Support as described in
this Section 2.4.a.i and 2.4.a.ii at no additional cost or expense to PDD.

 

i.              Update
Service includes the provision to PDD of all Updates that are made by the
Pharmacopeia Group during the Software License Term within thirty (30) days of
the date such Updates are available to the Pharmacopeia Group’s other
customers.

 

ii.             Hotline
Support includes commercially reasonable telephone and electronic mail
assistance and consultation to assist PDD in resolving problems with the use of
the Software, including the verification, diagnosis, and correction of material
errors and defects in the Software. 
Maintenance service does not include new products sold separately by the
Pharmacopeia Group, which products must be separately licensed by PDD.

 

For clarity,
installation, implementation, integration or similar services do not fall
within the maintenance services to be provided by the Pharmacopeia Group under
this Agreement.  Should PDD require such
services, these may be available subject to payment of the Pharmacopeia Group’s
then-standard fees for such services and execution of the Pharmacopeia Group’s
then-standard terms and conditions for such services.

 

b.             After
the Software License Term, upon payment of the applicable maintenance fee by
PDD, maintenance services will be provided under the Pharmacopeia Group’s
standard commercial terms for customers using the Software for twelve-month
periods unless terminated by either party upon thirty (30) days written notice
prior to the renewal date.  Annual
maintenance fees are payable in advance on the anniversary date of the order.

 

2.5.          Non-Disclosure;
Alterations; Copies.

 

a.             PDD
acknowledges and agrees that the Software, its structure, organization, source
code and related documentation are valuable and proprietary trade secrets of
the Pharmacopeia Group.  PDD shall (i)
maintain the confidentiality of the Software, using, at a minimum, the same
safeguards afforded its own confidential, proprietary trade secrets, but in no
event less than reasonable care; (ii) not disclose, provide, transfer, rent,
sublicense, or otherwise make available any portion of the Software to any
third party, without first obtaining the written approval of the relevant
member of the Pharmacopeia’s Group. 
PDD’s non-disclosure obligation shall not apply

 

4

 

to information
now or hereafter in the public domain through no fault of PDD, information in
the possession of PDD prior to disclosure by the Pharmacopeia Group,
information properly obtained without restriction from a third party who is not
bound by an obligation of confidentiality to the Pharmacopeia Group, or
information independently developed by PDD without reference to the Software.

 

b.             PDD
acknowledges any actual or threatened breach of the obligations of
confidentiality set forth in Section 2.5.a will constitute immediate,
irreparable harm to the Pharmacopeia Group for which monetary damages would be
an inadequate remedy, and that the Pharmacopeia Group may, in addition to any
other remedy under this Agreement, seek injunctive or other appropriate
equitable relief as remedy for such breach.

 

c.             PDD
shall not alter, modify, adapt, translate, reverse engineer, decompile,
disassemble, or create derivative works from the Software, nor take any other
steps intended to produce a source language statement of the Software or any
part thereof without the express prior written consent of the relevant member
of the Pharmacopeia Group.

 

d.             PDD
is authorized to copy the Software solely for backup, archival, and disaster
recovery purposes and only to the minimum extent necessary to accomplish such
purposes.  PDD shall not remove any
copyright or proprietary rights notices from the Software and shall reproduce
all such notices on any copies that it makes.

 

2.6.          Publication
Acknowledgement. If the Software is used by PDD to obtain results that are
published in a scientific journal or other publication, PDD will acknowledge
its use of the Software with an appropriate citation, which shall include the
Pharmacopeia Group’s then current full corporate name and the name of the
Software product used.

 

2.7.          Applicable Laws.
PDD agrees to comply with all applicable laws and regulations in its
performance under this Agreement.  PDD
acknowledges that the Software may be subject to U.S. Export controls, and
agrees not to export the Software or any part or direct product thereof in
violation of U.S. Bureau of Industry Security regulations.  In furtherance of these obligations, PDD
hereby represents, warrants and covenants that it will not use, or authorize or
permit any other person, firm, corporation or other entity to use, the Software
or make the Software available for use in connection with the design,
development, production, stockpiling or use of any chemical or biological
weapons.  PDD agrees to defend,
indemnify, and hold harmless the Pharmacopeia Group from and against any
violation of such laws or regulations by PDD or any of its respective agents,
officers, directors or employees.  This
indemnity provision shall survive any termination of this Agreement.

 

3.             Patent Licenses.

 

3.1.          License Grant to PDD.

 

a.             The
Pharmacopeia Group grants to PDD, and PDD accepts, a worldwide, paid-up,
royalty-free, irrevocable, nontransferable and non-exclusive license to the
Licensed Patents solely for use in PDD’s Internal Business.

 

b.             The
rights and licenses granted are personal and may not be sub-licensed, assigned
or otherwise transferred except only as expressly set forth in this Agreement.

 

5

 

c.             Notwithstanding
Section 3.1.b, PDD may grant a sublicense to the Licensed Patents to those of
its customers who practice the Licensed Patents in a field that is not
competitive with the software products and services provided by the
Pharmacopeia Group.

 

d.             PDD
and the Pharmacopeia Group each acknowledges and agrees that no right or
license in or to any patent or proprietary right of the Pharmacopeia Group,
other than to the Licensed Patents as expressly set forth herein, is granted by
this Agreement, either expressly or by implication.

 

3.2.          Maintenance of
Intellectual Property Rights.

 

a.             As
of the Effective Date and until the termination or expiration of the license
granted in Section 3.1.a, the Pharmacopeia Group shall be responsible, at the
Pharmacopeia Group’s sole discretion and expense, for preparing, filing,
prosecuting and maintaining in such countries where the Pharmacopeia Group
deems appropriate, those patents and patent applications incorporated in the
Licensed Patents and conducting any interference, re-examination, reissue and
opposition proceedings relating to such Licensed Patent.  PDD agrees to cooperate in any manner
reasonably requested in connection with all such actions by the Pharmacopeia
Group; provided that PDD is reimbursed by the Pharmacopeia Group for any
expenses resulting from such cooperation.

 

b.             As
of the Effective Date and until the termination or expiration of the license
granted in Section 3.1.a, the Pharmacopeia Group shall keep PDD fully informed
as to the status of patent matters described in Section 3.2.a including,
without limitation, by providing copies of any substantive documents that the
Pharmacopeia Group receives from any patent offices concerning the Licensed
Patents promptly after receipt by the Pharmacopeia Group and by providing PDD
with the opportunity to fully review and comment on any substantive documents
which will be filed in any patent office as far in advance of a filing date as
reasonable.  The documents shall
include, without limitation, and where applicable, office actions, notice of
all fees due, notices of interference, reissue, re-examination, or opposition
proceedings or requests for patent term extensions.

 

c.             As
of the Effective Date and until the termination or expiration of the license
granted in Section 3.1.a, in the event the Pharmacopeia Group decides to cease
prosecuting or maintaining any patents and patent applications incorporated in
the Licensed Patents, or decides not to conduct any interference, re-examination,
reissue or opposition proceedings with respect thereto, the Pharmacopeia Group
will inform PDD of such decision at a time sufficient to allow PDD to respond
to any outstanding office action or other obligation, and PDD will have the
right but not the obligation to maintain such patents and patent applications,
and to conduct any interference, re-examination, reissue or opposition
proceedings with respect thereto, at PDD’s sole expense.  The Pharmacopeia Group agrees to assign such
patent applications to PDD, and to cooperate in any manner reasonably requested
in connection with any such actions by PDD, at the expense of PDD.

 

6

 

3.3.          Patent Enforcement.

 

a.             As
of the Effective Date and until the termination or expiration of the license
granted in Section 3.1.a, in the event the Pharmacopeia Group learns that any
third party, including without limitation a customer of the Pharmacopeia Group,
is or might be infringing, or preparing to infringe, any Licensed Patent, then
the Pharmacopeia Group will promptly notify PDD of such information.  Upon such notice, PDD and the Pharmacopeia
Group will consult one another in a timely manner concerning any appropriate
response to such infringement or noncompliance.  Each party agrees to cooperate in all reasonable respects with
the other in any action either may take against infringement of any Licensed
Patent.

 

b.             The
Pharmacopeia Group may, but is not obligated to, enforce the Licensed Patents,
at the Pharmacopeia Group’s own expense, against any such third party
infringing the same.  PDD may join any
such lawsuit at its own expense.  In the
event the Pharmacopeia Group elects not to enforce the Licensed Patents against
such third party infringer, PDD may assume the responsibility for enforcing the
Licensed Patents, at PDD’s sole expense. However, absent the Pharmacopeia
Group’s permission, PDD may not enforce the Licensed Patents against any third
party.

 

c.             The
Pharmacopeia Group will not enter into any settlement or compromise with such
an infringing third party that requires PDD to sublicense or relinquish any of
the rights granted to PDD hereunder without PDD’s prior written consent.  In the event PDD assumes the responsibility
for enforcing the Licensed Patents against such third party, PDD will not enter
into any settlement or compromise with an infringing third party without the
consent of the Pharmacopeia Group.

 

d.             In
any action to enforce any Licensed Patents, either party, at the reasonable
request and sole expense of the other party, will cooperate to the fullest
extent reasonably possible with the other party, including being joined as a
party to the action, if necessary.  This
provision does not require, and may not be construed to require, either party
to undertake any activities, including legal discovery, at the request of any
third party except as may be required by lawful process of a court of competent
jurisdiction.

 

e.             Any
consideration received or recovered by either party from any litigation or settlement
of any claim or suit pursuant to Section 3.3.b will first be applied to
reimburse the Pharmacopeia Group and PDD, as applicable, for such party’s
respective litigation expenditures related to enforcing the Licensed Patents
licensed to PDD under this Agreement. 
Any additional recovery, beyond the collective expenditures, will be
divided between PDD and the Pharmacopeia Group in proportion to each party’s
respective share of the litigation expenditures related to the Licensed Patents
licensed to PDD under this Agreement.

 

3.4.          License Grant to the
Pharmacopeia Group.

 

a.             PDD
grants to the Pharmacopeia Group and the Pharmacopeia Group accepts, a
worldwide, paid-up, royalty-free, irrevocable, and non-exclusive license under
the PDD Patents to make, use, copy, sell, rent, lease or offer to sell, rent or
lease PDD Patent Products.

 

7

 

i.              Other
than as set forth in Section 3.4.a.ii, below, the rights and license granted in
Section 3.4.a are personal and may not be sub-licensed, assigned or otherwise
transferred absent the express written consent of PDD, which consent will not
be unreasonably withheld.

 

ii.             PDD
grants to the Pharmacopeia Group and the Pharmacopeia Group accepts, the right
to sublicense to the transferees of PDD Patent Products the rights granted in
Section 3.4.a for the limited purpose of practicing the PDD Patents in the form
of using the PDD Patent Products.  No
other right to sublicense the rights granted in Section 3.4.a are granted in
this Agreement.

 

b.             PDD
and the Pharmacopeia Group each acknowledges and agrees that no right or
license in or to any patent or proprietary right of PDD, other than to the PDD
Patents as expressly set forth herein, is granted by this Agreement, either
expressly or by implication.

 

c.             In
consideration for the license granted under this Agreement, the Pharmacopeia
Group agrees to grant PDD, and PDD accepts, a nontransferable right to use only
for its own internal purposes, free of charge, any PDD Patent Product.  Within thirty (30) days after the first
commercial sale, rental or lease of any PDD Patent Product or any update,
upgrade or enhancement thereof, the Pharmacopeia Group shall provide at least
one copy of the compiled code for such PDD Patent Product to PDD, in a format
as normally provided by the Pharmacopeia Group to its paying customers.  The Pharmacopeia Group further agrees to
provide, at no charge to PDD, support and documentation for such PDD Patent
Product, comparable to the support and documentation for such software normally
provided by the Pharmacopeia Group to its paying customers.

 

3.5.          Maintenance of
Intellectual Property Rights.

 

a.             As
of the effective Date, PDD shall be responsible, at PDD’s sole discretion and
expense, for preparing, filing, prosecuting and maintaining in such countries
where PDD deems appropriate, those patents and patent applications incorporated
in the PDD Patents and conducting any interference, re-examination, reissue and
opposition proceedings relating to such Patent Rights.  The Pharmacopeia Group agrees to cooperate
in any manner reasonably requested in connection with all such actions by PDD;
provided that the Pharmacopeia Group is reimbursed by PDD for any expenses
resulting from such cooperation.

 

b.             In
the event PDD decides to cease prosecuting or maintaining any patents and
patent applications incorporated in the PDD Patents, or decides not to conduct
any interference, re-examination, reissue or opposition proceedings with
respect thereto, PDD will inform the Pharmacopeia Group of such decision at a
time sufficient to allow the Pharmacopeia Group to respond to any outstanding
office action or other obligation, and the Pharmacopeia Group will have the
right but not the obligation to maintain such patents and patent applications,
and to conduct any interference, re-examination, reissue or opposition
proceedings with respect thereto, at the Pharmacopeia Group’s sole
expense.  PDD agrees to cooperate in any
manner reasonably requested in connection with any such actions by the
Pharmacopeia Group, at the expense of the Pharmacopeia Group.

 

8

 

3.6.          Patent Enforcement.

 

a.             In
the event the Pharmacopeia Group learns that any third party, other than a
customer of PDD, is or might be infringing, or preparing to infringe, any PDD
Patent, then the Pharmacopeia Group will promptly notify PDD of such
information.  Upon such notice, the
Pharmacopeia Group and PDD will consult one another in a timely manner
concerning any appropriate response to such infringement or noncompliance.  Each party agrees to cooperate in all
reasonable respects with the other in any action either may take against
infringement of any PDD Patent.

 

b.             PDD
may, but is not obligated to, enforce the PDD Patents, at PDD’s own expense,
against any third party infringing the same. 
The Pharmacopeia Group may join any such lawsuit at its own
expense.  In the event PDD elects not to
enforce the PDD Patents against a third party infringer, the Pharmacopeia Group
may, only with the express written consent of PDD, which consent will not be
unreasonably withheld, assume the responsibility for enforcing the PDD Patents,
at the Pharmacopeia Group’s sole expense.

 

c.             PDD
will not enter into any settlement or compromise with an infringing third party
that requires the Pharmacopeia Group to sublicense or relinquish any of the
rights granted to the Pharmacopeia Group hereunder without the Pharmacopeia
Group’s prior written consent.  In the
event the Pharmacopeia Group assumes the responsibility for enforcing the PDD
Patents against a third party, the Pharmacopeia Group will not enter into any
settlement or compromise with an infringing third party without the consent of
PDD.

 

d.             In
any action to enforce any PDD Patents, either party, at the reasonable request
and sole expense of the other party, will cooperate to the fullest extent
reasonably possible with the other party, including being joined as a party to
the action, if necessary.  This provision
does not require, and may not be construed to require, either party to
undertake any activities, including legal discovery, at the request of any
third party except as may be required by lawful process of a court of competent
jurisdiction.

 

e.             Any
consideration received or recovered by either party from any litigation or
settlement of any claim or suit pursuant to Section 3.6b will first be applied
to reimburse the Pharmacopeia Group and PDD, as applicable, for such party’s
respective litigation expenditures related to enforcing the PDD Patents
licensed to the Pharmacopeia Group under this Agreement.  Any additional recovery, beyond the
collective expenditures, will be divided between PDD and the Pharmacopeia Group
in proportion to each party’s respective share of the litigation expenditures related
to the PDD Patents licensed to the Pharmacopeia Group under this Agreement.

 

4.             Source Code.

 

4.1.          Both parties will
provide the other party with a copy of any Source Code it has in its
possession.

 

4.2.          License
Grant.

 

a.             The
Pharmacopeia Group grants to PDD and PDD accepts a non-exclusive,
non-transferable, royalty-free, fully paid, perpetual, non-terminable license
to use the Source Code solely for PDD’s Internal Business.

 

9

 

b.             The
Pharmacopeia Group grants to PDD and PDD accepts a non-exclusive,
non-transferable license to modify, enhance, adapt and make derivative works
from the Source Code solely for use in PDD’s Internal Business.

 

4.3.          License Limitations

 

a.             The
Licenses granted in Section 4.2.a is subject to all use restrictions and
confidentiality obligations set forth in this Agreement respecting the Software
licensed to PDD under this Agreement.

 

b.             The
Pharmacopeia Group does not supply maintenance and support services for Source
Code under this Agreement.

 

4.4.          Proprietary Rights in
Modifications.

 

a.             Any
and all right, title, intellectual property rights and/or other ownership or
proprietary interest, whether in the United States or abroad, in or to any and
all improvements, enhancements, modifications, or derivative versions
(hereinafter collectively referred to as “Modifications”) of the Source Code,
if any, developed by or for PDD with the use of the Source Code provided by The
Pharmacopeia Group shall vest exclusively in The Pharmacopeia Group and/or its
licensors.

 

b.             PDD
hereby irrevocably assigns all such rights and interest in Modifications to The
Pharmacopeia Group and/or its licensors.

 

i.              To
the extent PDD cannot assign such rights, PDD hereby waives and agrees never to
assert such rights against The Pharmacopeia Group or any of The Pharmacopeia
Group’s licensees.

 

ii.             If
PDD has any right to the Modifications that cannot be assigned to The
Pharmacopeia Group or waived by PDD, PDD unconditionally and irrevocably grants
to The Pharmacopeia Group, during the term of such rights, an exclusive,
irrevocable, perpetual, worldwide, fully paid and royalty-free license, with
rights to sublicense throughout multiple levels of sublicensees, to reproduce,
create derivative works of, distribute, publicly perform and publicly display
by all means now known or later developed such rights.

 

iii.            PDD
agrees to obtain such assignment, waiver, covenant not to assert such rights,
or license from any subsidiary, subcontractor, or employee who creates, either
in whole or part, the Modifications.

 

iv.            At
the expense of the Pharmacopeia Group, PDD agrees to render reasonable
cooperation to The Pharmacopeia Group in the procurement and maintenance of The
Pharmacopeia Group’s rights in the Modifications and to execute all documents
which The Pharmacopeia Group reasonably deems necessary and desirable for
vesting the Pharmacopeia Group with such rights throughout the world, including
litigation of applicable patents, copyrights and other proceedings.

 

v.             In
the event that PDD is unable for any reason whatsoever to secure a signature on
behalf of The Pharmacopeia Group to any

 

10

 

document it
believes is reasonably required in order to apply for or execute any patent,
copyright or other application with respect to the Modifications, PDD hereby
irrevocably designates and appoints The Pharmacopeia Group and its duly
authorized officers and agents as PDD’s agents and its attorneys-in-fact solely
to act for and in its behalf and instead of it, to execute and file any such
application and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights or other rights therein with
the same legal force and effect as if executed by PDD.

 

vi.            PDD
agrees to communicate and disclose to The Pharmacopeia Group in writing the
content and nature of the Modifications, promptly upon the development of the
Modifications.

 

c.             Subject
to the terms and conditions of this Agreement, The Pharmacopeia Group hereby
grants to PDD a non-exclusive, non-transferable, royalty-free, fully paid,
non-terminable license to use the Modifications solely for PDD’s Internal
Business needs.

 

i.              PDD may not
sublicense or distribute the Modifications or make them available to any other
third party.

 

ii.             Nothing herein shall
obligate PDD to effect any Modifications to the Software.

 

iii.            The Pharmacopeia Group
shall have no maintenance, support, warranty or indemnity obligations with
respect to Modifications created by or for PDD, and The Pharmacopeia Group
disclaims all express and implied warranties relating to such Modifications,
including the implied warranties of merchantability, fitness for a particular
purpose and non-infringement.

 

5.             Use of Names.  Other
than as required by Section 2.6 above, nothing in this Agreement confers to
either party any right to use in publicity, advertising, promotion or marketing
any name, trade name, trade mark or other designation of the other party,
without the other party’s prior express permission.

 

6.             Warranties.

 

6.1.          Each of PDD and
Pharmacopeia, for itself and on behalf of the Pharmacopeia Group, represents
and warrants to the other party that

 

a.             the
representing party is a company or corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
organized;

 

b.             such
party has the legal power and authority to execute, deliver and perform this
Agreement;

 

c.             the
execution, delivery and performance by such party of this Agreement has been
duly authorized by all necessary corporate action;

 

d.             this
Agreement constitutes the legal, valid and binding obligation of such party
(and, in the case of Pharmacopeia, the Pharmacopeia Group), enforceable against

 

11

 

such party
(and, in the case of Pharmacopeia, the Pharmacopeia Group) in accordance with
its terms;

 

e.             the
execution, delivery and performance of this Agreement will not cause or result
in a violation of any law, of such party’s charter documents, or of any
contract by which such party (or, in the case of Pharmacopeia, the Pharmacopeia
Group) is bound; and

 

f.              the
representing party (and, in the case of Pharmacopeia, the Pharmacopeia Group)
has not, to the best of the representing party’s knowledge, entered into, nor
will the representing party (or, in the case of Pharmacopeia, the Pharmacopeia
Group) after the Effective Date knowingly enter into any written or oral
agreement that is or would be inconsistent with the representing party’s (or,
in the case of Pharmacopeia, the Pharmacopeia Group’s) obligations under this
Agreement or deprives or would deprive the other party of any rights granted
under this Agreement.

 

6.2.          Pharmacopeia warrants,
for itself and on behalf of the Pharmacopeia Group, that

 

a.             the
Pharmacopeia Group has the unencumbered right to grant to PDD the licenses
conveyed herein according to the terms of this Agreement;

 

b.             for
the twelve (12) months following the Effective Date (the “Warranty Period”),
the Software will perform substantially in accordance with any specifications
set forth in the Documentation when properly operated on the designated
hardware and operating system; and

 

c.             the
Pharmacopeia Group is not aware of any claim or demand of any right in or to any
of the Software;

 

d.             as
of the Effective Date, none of the Licensed Patents is the subject of any
litigation;

 

e.             the
Pharmacopeia Group is not aware of any claim or demand of any right in or to
any of the Licensed Patents; and

 

f.              that
it has the right to grant the license to the Source Code according to the terms
of this Agreement.

 

6.3.          PDD warrants that

 

a.             as
of the Effective Date, PDD is not aware that any of the Licensed Patents or PDD
Patents is the subject of any litigation; PDD is not aware of any claim or
demand of any right in or to any of the Licensed Patents or PDD Patents; and

 

b.             PDD
has the unencumbered right to grant to the Pharmacopeia Group the licenses
conveyed herein according to the terms of this Agreement.

 

6.4.          The Pharmacopeia Group’s
sole obligation and PDD’s exclusive remedy for a breach of the warranty set
forth in Section 6.2.b is for the Pharmacopeia Group to replace defective
Software media or materials and to use commercially reasonable efforts to
correct any material error or defect in the Software as expeditiously as
reasonably possible.  This warranty does
not apply to problems arising from (i) PDD’s modification or misuse of the
Software; (ii) malfunction of PDD’s equipment, operating system, or software
not supplied by the

 

12

 

Pharmacopeia Group; or (iii)
attempts to use the Software in a manner or purpose for which it was not
intended.

 

6.5.          THE PHARMACOPEIA GROUP
MAKES NO WARRANTY OR REPRESENTATION THAT THE PRACTICE OF ANY OF THE INVENTIONS
DISCLOSED IN THE LICENSED PATENTS WILL NOT INFRINGE ANY PATENT, TRADE SECRET OR
OTHER PROPRIETARY RIGHT, FOREIGN OR DOMESTIC, OF ANY THIRD PARTY.

 

6.6.          THE PHARMACOPEIA GROUP
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY RELATING TO THE
SOURCE CODE, INCLUDING, WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.

 

6.7.          EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, THE PHARMACOPEIA GROUP MAKES NO OTHER WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, REGARDING THE SOFTWARE.  NEITHER THE PHARMACOPEIA GROUP NOR ITS
LICENSORS OR SUPPLIERS WARRANT THAT THE SOFTWARE OR ANY USE OF THE SOFTWARE OR
EQUIPMENT WILL BE UN-INTERRUPTED OR ERROR-FREE.  PDD ACKNOWLEDGES THAT IT HAS RELIED ON NO WARRANTIES OTHER THAN
THE EXPRESS WARRANTIES IN THIS AGREEMENT.

 

6.8.          PDD MAKES NO WARRANTY OR
REPRESENTATION THAT THE PRACTICE OF ANY OF THE INVENTIONS DISCLOSED IN THE PDD
PATENTS WILL NOT INFRINGE ANY PATENT, TRADE SECRET OR OTHER PROPRIETARY RIGHT,
FOREIGN OR DOMESTIC, OF ANY THIRD PARTY.

 

6.9.          PDD MAKES NO WARRANTY OR
REPRESENTATION THAT THE PRODUCTION, USE, SALE, IMPORT OR EXPORT OF ANY PDD
PATENT PRODUCT WILL NOT INFRINGE ANY PATENT, TRADE SECRET OR OTHER PROPRIETARY
RIGHT, FOREIGN OR DOMESTIC, OF ANY THIRD PARTY.

 

6.10.        EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, NEITHER THE PHARMACOPEIA GROUP NOR PDD MAKE ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NONE ARE CREATED,
WHETHER UNDER THE UNIFORM COMMERCIAL CODE, CUSTOM OR USAGE IN THE INDUSTRY OR
THE COURSE OF DEALINGS BETWEEN THE PARTIES.

 

7.             Indemnification.

 

7.1.          Subject to the terms of
Section 7.11, the Pharmacopeia Group shall at its expense defend PDD, its
Affiliates after the Effective Date and their directors, officers, agents,
employees, representatives and assigns, against any claim, liabilities,
damages, expenses and losses (including reasonable attorney fees and costs) and
shall indemnify and hold PDD, such Affiliates and other indemnitees harmless
from any final judgment arising out of (i) the negligent actions of the
Pharmacopeia Group, its employees or any third party acting on behalf or under
authority of the Pharmacopeia Group in the performance of this Agreement and
(ii) the breach of any representation or warranty of the Pharmacopeia Group in
this Agreement.

 

7.2.          Subject to the terms of
Section 7.11, PDD shall at its expense defend the Pharmacopeia Group, its
Affiliates after the Effective Date and their directors, officers, agents,

 

13

 

employees, representatives and
assigns, against any claim, liabilities, damages, expenses and losses
(including reasonable attorney fees and costs) and shall indemnify and hold the
Pharmacopeia Group, such Affiliates and other indemnitees harmless from any
final judgment arising out of (i) the negligent actions of PDD, its employees
or any third party acting on behalf or under authority of PDD in the
performance of this Agreement and (ii) the breach of any representation or
warranty of PDD in this Agreement.

 

7.3.          Subject to the terms of
Section 7.11, The Pharmacopeia Group shall at its expense defend PDD, its
Affiliates after the Effective Date and their directors, officers, agents,
employees, representatives and assigns, against any claim, liabilities,
damages, expenses and losses (including reasonable attorney fees and costs) and
shall indemnify and hold PDD, such Affiliates and other indemnitees harmless
from any final judgment that a current, unmodified copy of the Software
infringes a U.S. patent or copyright, provided that (i) the Pharmacopeia Group
is given prompt written notice of any such claim, (ii) the Pharmacopeia Group
shall have sole control of the settlement or defense of any action against PDD
to which this indemnity applies; and (iii) PDD cooperates with the Pharmacopeia
Group, at the Pharmacopeia Group’s expense, in every reasonable way to
facilitate such defense.

 

7.4.          Should the use of the
Software be enjoined, or should the Pharmacopeia Group desire to minimize its
liabilities hereunder, the Pharmacopeia Group shall have the right, at the
Pharmacopeia Group’s sole option and expense, to secure the right for PDD to
continue use of the Software or to replace or modify the Software to make it
noninfringing.

 

7.5.          The Pharmacopeia Group
shall at its expense defend PDD, its Affiliates after the Effective Date and
their directors, officers, agents, employees, representatives and assigns,
against any claim, liabilities, damages, expenses and losses (including
reasonable attorney fees and costs) and shall indemnify and hold PDD, such
Affiliates and other indemnitees harmless from any final judgment that the
Source Code as provided hereunder infringes a U.S. patent or copyright,
provided that (i) the Pharmacopeia Group is given prompt written notice of any
such claim, (ii) the Pharmacopeia Group shall have sole control of the
settlement or defense of any action against PDD to which this indemnity
applies; and (iii) PDD cooperates with the Pharmacopeia Group, at the
Pharmacopeia Group’s expense, in every reasonable way to facilitate such
defense.

 

7.6.          Should the use of the
Source Code be enjoined, or should the Pharmacopeia Group desire to minimize
its liabilities hereunder, the Pharmacopeia Group shall have the right, at the
Pharmacopeia Group’s sole option and expense, to secure the right for PDD to
continue use of the Source Code or to replace or modify the Source Code to make
it noninfringing

 

7.7.          Upon seeking
indemnification under this Agreement, the party seeking indemnification (the
“Requesting Party”), will give the other party (the “Indemnifying Party”)
prompt written notice of the commencement of any action (and any prior claims relating
to such action) for which the Requesting Party seeks indemnification.  The Indemnifying Party will have no
liability or responsibility of any kind to the Requesting Party if it is not
promptly notified and does not have adequate opportunity to defend.

 

7.8.          If the Indemnifying
Party is given prompt notice and has adequate opportunity to defend, but fails
or declines to assume the defense of any such claim or action within thirty
(30) days after notice thereof, the Requesting Party may assume the defense of
such claim or action

 

14

 

for the account and at the risk
of the Indemnifying Party, and any liabilities related thereto shall be
conclusively deemed a liability of the Indemnifying Party.

 

7.9.          Except as provided in
Section 7.8, the Indemnifying Party will have sole control of the defense of
the action and of all negotiations for its settlement or compromise.  The Indemnifying Party, however, is not
permitted to settle or compromise any claim or action that imposes any
restrictions or obligations on the Requesting Party, without the Requesting
Party’s prior written consent.

 

7.10.        The indemnification rights
under this Agreement are in addition to all other rights which the parties may
have at law or in equity or otherwise.

 

7.11.        IN NO EVENT SHALL ANY OF
THE PHARMACOPEIA GROUP OR PDD OR THE LICENSORS OR SUPPLIERS OF EITHER THE
PHARMACOPEIA GROUP OR PDD BE LIABLE FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR
CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF
GOODWILL, DATA LOSS, BUSINESS DISRUPTION, OR COMPUTER FAILURE.  EACH PARTY ACKNOWLEDGES THAT THE LICENSING
RIGHTS REFLECT THE ALLOCATION OF RISK SET FORTH IN THIS AGREEMENT AND THAT
NEITHER PARTY WOULD ENTER INTO THIS AGREEMENT ON THE TERMS HEREOF WITHOUT THESE
LIMITATIONS ON EACH PARTY’S LIABILITY.

 

8.             Term and
Termination.

 

8.1.          This Agreement is
effective as of the Effective Date and continues until the termination or
expiration of the last to terminate or expire of the Licensed Patents. Unless
earlier terminated pursuant to the provisions of Section 8.2 or Section 8.4,
the license granted in Section 3.4.a shall terminate upon the expiration of the
last to expire PDD Patent.

 

8.2.          The Pharmacopeia Group
has the right to terminate a license granted in Sections 2.1, 3.1.a, or 4.2 of
this Agreement if PDD breaches any material provision of this Agreement with
respect to such particular license and fails to remedy such breach within sixty
(60) days after receiving written notice of such breach.  This right of termination, however, cannot
be exercised if at any time during said time period, PDD advises the
Pharmacopeia Group that it challenges the alleged breach.  In such event, PDD and the Pharmacopeia
Group will negotiate in good faith to resolve any disputed breach.

 

8.3.          PDD has the right to
terminate a license granted under Section 3.4.a of this Agreement if the
Pharmacopeia Group breaches any material provision of this Agreement with
respect to such license and fails to remedy such breach within sixty (60) days
after receiving written notice of such breach. 
This right of termination, however, cannot be exercised if at any time
during said time period, the Pharmacopeia Group advises PDD that it challenges
the alleged breach.  In such event, PDD
and the Pharmacopeia Group will negotiate in good faith to resolve any disputed
breach.

 

8.4.          In the event any
proceeding is instituted by or against any member of the Pharmacopeia Group or
PDD seeking to adjudicate it bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking an entry of an order for relief
or the appointment of a receiver, trustee or other similar official for it or
any substantial part of its property or taking any action to

 

15

 

authorize any of the foregoing
or similar actions by or against any such Pharmacopeia Group member or PDD, all
rights and licenses granted hereunder are and shall otherwise be deemed to be,
for the purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. 365(n)),
licenses of rights to “intellectual property” as defined under Section 101(52)
of the Bankruptcy Code.

 

8.5.          Termination or
expiration of this Agreement does not release PDD or the Pharmacopeia Group
from any obligation theretofore accrued.

 

8.6.          Upon any termination or
expiration of any license right granted under Section 2.1, PDD shall make no
further use of that portion of the Software subject to such license right and
shall either return to the Pharmacopeia Group or destroy originals and all
copies of the Software and supporting materials subject to such license
right.  PDD shall supply a written
affidavit executed by an officer of PDD to the Pharmacopeia Group certifying
that it no longer possesses any embodiments of the Software or supporting
materials subject to such license right. 
No refunds or credits will be due PDD.

 

9.             Miscellaneous.

 

9.1.          Relationship of the
Parties.  The relationship of PDD
and the Pharmacopeia Group under this Agreement is that of independent
contractors.  The provisions of this
Agreement will not be construed to create between PDD and the Pharmacopeia
Group the relationship of principal and agent, joint venturers, co-partners or
any other similar relationship, the existence of which is hereby denied by PDD
and the Pharmacopeia Group.  Neither
party nor any member of the Pharmacopeia Group will be liable in any way for
any engagement, obligation, liability, contract, representation or warranty of
the other party to or with any third party. 
PDD is not an agent for the Pharmacopeia Group and the Pharmacopeia
Group is not an agent for PDD for any purpose and each party has no right or
authority to assume or create any obligations, express or implied, on behalf or
in the name of the other party.

 

9.2.          Notices.  Any notice or other communication required
or permitted to be given by either party under this Agreement shall be in
writing and shall be effective when delivered, if delivered by hand or by
electronic facsimile, or one (1) day after being sent by overnight express
courier (e.g. Federal Express), or five (5) days after mailing if mailed by
registered or certified mail, postage prepaid and return receipt
requested.  Any such notice or
communication shall be addressed to each party or the Pharmacopeia Group at the
following addresses or such other address as may be designated by notice
pursuant to this Section 9.2: 

 

	
  If to PDD:

  	
   

  	
  If to
  Pharmacopeia or any other member of

  the Pharmacopeia Group:

  
	
   

  	
   

  	
   

  
	
   

  	
  Pharmacopeia
  Drug Discovery, Inc.

  	
   

  	
   

  	
  Pharmacopeia,
  Inc. / Accelrys, Inc.

  
	
   

  	
  3000
  Eastpark Boulevard

  	
   

  	
   

  	
  9685
  Scranton Road

  
	
   

  	
  Cranbury New
  Jersey 08512

  	
   

  	
   

  	
  San Diego,
  CA 92121-3752

  
	
   

  	
  Facsimile:
  (609) 452-3672

  	
   

  	
   

  	
  Facsimile:
  (858) 799-5100

  
	
   

  	
  Attn:
  General Counsel

  	
   

  	
   

  	
  Attn:
  General Counsel

  

 

16

 

9.3.          Waiver.  No waiver of any breach of any provision of
this Agreement will constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provision of this Agreement; and no waiver will
be effective unless in writing.

 

9.4.          Survival.  The following Sections shall survive any
termination or expiration of this Agreement: Sections 2.5, 2.6, 2.7, 3.1.a,
4.2, 6.2.b, 6.4, 6.5, 6.6, 6.8, 6.9, 6.10, 9.1, 9.2, 9.3, 9.4, 9.6, 9.7, 9.8,
9.9, 9.10, 9.11, and 9.13 and Article 7 survive any termination or expiration
of this Agreement

 

9.5.          Force Majeur. In
the event that the performance of this Agreement or of an obligation under this
Agreement, is prevented, restricted or interfered with by reason of any cause
not within the control of the respective party, and which could not by reasonable
diligence have been avoided by such party, the party so affected, upon the
giving of prompt notice to the other party, as to the nature and probable
duration of such event, will be excused from such performance to the extent and
for the duration of such prevention, restriction or interference, provided that
the party so affected uses its reasonable efforts to avoid or remove such cause
of non-performance and will fulfill and continue performance under this
Agreement whenever and to the extent such cause or causes are removed.  For the purpose of this Section, but without
limiting the generality hereof, the following are not within the control of a
party: acts of God; acts or omissions of a governmental agency or body;
compliance with requests, recommendations, rules, regulations, or orders of any
governmental authority or any officer, department, agency, or instrument
thereof; flood; storm; earthquake; fire; war; insurrection; riot; terrorist
incidents, accidents; acts of the public enemy; invasion; disease: quarantine
restrictions; strike; labor lockout; differences with workmen; embargoes;
delays or failures in transportation; and acts of a similar nature.

 

9.6.          Choice of Law.  This Agreement shall be construed and take
effect in all respects in accordance with the laws of the State of Delaware,
without regard to its conflict of laws principals.  The United Nations Convention on Contracts for the International
Sale of Goods is expressly excluded from this Agreement.

 

9.7.          Severability.  If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, unenforceable or
void, such will be without effect on the validity, legality and enforceability
of the remaining provisions or this Agreement as a whole.  Such invalid, illegal, unenforceable or void
provision shall be changed and interpreted to accomplish the objectives of such
provision to the greatest extent possible under applicable law, and such
decision shall not affect the validity or enforceability of any or all of the
remaining provisions.

 

9.8.          Headings.  The section and paragraph headings and
numbering are for convenience only and cannot have any effect on the
interpretation or construction of this Agreement.

 

9.9.          Assignment.  This Agreement is binding upon and inures to
the benefit of the heirs, successors and assigns of the parties hereto,
provided that this Agreement, in whole or in part, is not assignable by either
party, except that either party may assign this Agreement to any successor by
merger or sale of substantially all of its business or assets to which this
Agreement pertains; provided, however, that PDD may not assign this Agreement
to any competitor of the Pharmacopeia Group that is engaged in the sale of
software.  Any effort to assign in
violation

 

17

 

hereof is considered void.  In the event of any assignment, the
assigning party must provide the other party with appropriate documentation of
the assignment.

 

9.10.        Merger.  Each party acknowledges that it has read
this Agreement, understands it, and agrees to be bound by its terms and further
agrees that it constitutes the complete and exclusive understanding between the
parties, which supersedes and merges all prior proposals, understandings,
representations, and agreements, oral and written, between the parties
regarding the subject matter of this Agreement; and no party has relied on any
representation not expressly set forth or referred to in this Agreement.

 

9.11.        Amendment.  No amendment, variation, waiver or
modification of any of the terms or provisions of this Agreement will be
effective unless set forth in writing, specifically referencing this Agreement,
and duly signed by an authorized officer of the party to be bound thereby.

 

9.12.        Execution.  This Agreement may be executed in two or
more counterparts, all of which constitute one and the same legal instrument.

 

9.13.        Going Forward.  The Pharmacopeia Group and PDD agree to
execute, acknowledge and deliver such further instruments and do all other such
acts as may be necessary or appropriate to effect the purpose and intent of
this Agreement.

 

[Remainder of page intentionally left blank]

 

18

 

IN WITNESS WHEREOF, the parties have executed
this Agreement as of the Effective Date.

 

	
  Pharmacopeia, Inc.

  	
  Pharmacopeia Drug Discovery, Inc.

  
	
   

  	
   

  
	
  By:

  	
  /s/ John J.
  Hanlon

  	
   

  	
  By:

  	
  Joseph A.
  Mollica Ph. D.

  	
   

  
	
   

  	
  Name: John
  J. Hanlon

  	
   

  	
  Name: Joseph
  A. Mollica Ph. D.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title: Chief
  Financial Officer

  	
   

  	
  Title:
  President and Chief Executive Officer

  
	
   

  	
   

  
	
  Accelrys Inc.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Mark J.
  Emkjer

  	
   

  
	
   

  	
  Name: Mark
  J. Emkjer

  
	
   

  	
   

  
	
   

  	
  Title:
  President and Chief Executive Officer

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