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

        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; 

        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'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. 

        1.5.  "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. 

        1.6.  "Software
License Term" means the period commencing on the Effective Date and ending on April 30, 2007. 

 

        1.7.  "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, inducing those customers purchasing maintenance
services. 

        1.8.  "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 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, a worldwide, paid-up, royalty-free, irrevocable, 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 Pharmacopeia, 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 Pharmacopeia's prior approval, which will not be unreasonably withheld. 

           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 

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(for
host-locked licenses), PDD shall secure Pharmacopeia's prior approval, 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 7.2 or 7.3, 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 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. 

        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
Pharmacopeia's written consent. PDD's non-disclosure obligation shall not apply 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 

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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 Pharmacopeia's express prior written consent. 

        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 License.

        3.1.  License Grant. 

        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. 

        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. 

        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. 

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

        3.2.  Maintenance of Intellectual Property Rights. 

        a.     As
of the effective Date, 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 

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and
patent applications incorporated in the Licensed Patents and conducting any interference, re-examination, reissue and opposition proceedings relating to such Patent Rights. 

        b.     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.     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 cooperate in any manner reasonably requested in connection with any such actions by PDD, at the expense of PDD. 

        3.3.  Patent Enforcement. 

        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 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 a 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 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 a 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 

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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. 

        4.     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. 

        5.     Warranties.

        5.1.  Each
of PDD and Pharmacopeia represents and warrants to the other 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 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. 

        5.2.  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; and 

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

        5.3.  The
Pharmacopeia Group's sole obligation and PDD's exclusive remedy for a breach of the warranty set forth in Section 5.2.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 

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

        5.4.  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. 

        5.5.  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. 

        5.6.  EXCEPT
AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PHARMACOPEIA GROUP MAKES NO 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. 

        6.     Indemnification.

        6.1.  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. 

        6.2.  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. 

        6.3.  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. 

        6.4.  Upon
seeking indemnification under this Agreement, PDD will give the Pharmacopeia Group prompt written notice of the commencement of any action (and any prior claims
relating to such action) for which PDD seeks indemnification. The Pharmacopeia Group will have no liability or responsibility of any kind to PDD if it is not promptly notified and does not have
adequate opportunity to defend. 

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        6.5.  If
the Pharmacopeia Group 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, PDD may assume the defense of such claim or action for the account and at the risk of the Pharmacopeia Group, and any liabilities related thereto shall be
conclusively deemed a liability of the Pharmacopeia Group. 

        6.6.  Except
as provided in Section 6.5, the Pharmacopeia Group will have sole control of the defense of the action and of all negotiations for its settlement or
compromise. The Pharmacopeia Group, however, is not permitted to settle or compromise any claim or action that imposes any restrictions or obligations on PDD, without PDD's prior written consent. 

        6.7.  The
indemnification rights of PDD under this Agreement are in addition to all other rights which PDD may have at law or in equity or otherwise. 

        6.8.  IN
NO EVENT SHALL THE PHARMACOPEIA GROUP OR THE PHARMACOPEIA GROUP'S LICENSORS OR SUPPLIERS 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 ITS LIABILITY. 

        7.     Term and Termination.

        7.1.  This
Agreement is effective as of the Effective Date and continues, unless earlier terminated pursuant to the provisions of Section 7.2, until the expiration of
the last to expire Licensed Patent. 

        7.2.  The
Pharmacopeia Group has the right to terminate a license granted under this Agreement if PDD 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, 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. 

        7.3.  In
the event of any proceeding is instituted by or against any member of the Pharmacopeia Group 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 authorize any of the
foregoing or similar actions by or against any such Pharmacopeia Group member, 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. 

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

        7.5.  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. 

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        8.     Miscellaneous.

        8.1.  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. 

        8.2.  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 8.2: 

	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-            
	    Attn: General Counsel	 	    Attn: General Counsel

        8.3.  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. 

        8.4.  Survival. The following Sections shall survive any termination or expiration of this Agreement: Sections 2.5, 2.6, 2.7,
5.2.b, 5.3, 5.4, 5.4 and 5.5 and Article 6 survives any termination or expiration of this Agreement 

        8.5.  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

 

        8.6.  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. 

        8.7.  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. 

        8.8.  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. 

        8.9.  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. Any effort to assign in violation hereof is considered void. In the event of any assignment, the assigning party must provide the other
party with appropriate documentation of the assignment. 

        8.10. 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. 

        8.11. 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. 

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

        8.13. 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] 

10

 

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

	Pharmacopeia, Inc.	 	Pharmacopeia Drug Discovery, Inc.
	

By:	

 	
 	

By:	

 
	 	
 Name:

Title:	 	 	
 Name:

Title:
	
Accelrys Inc.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
 Name:

Title:	 	 	 

11

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Exhibit 10.5  

 
 

PHARMACOPEIA DRUG DISCOVERY, INC.
  2004 STOCK INCENTIVE PLAN    
    

Effective
April 6, 2004 

  

 
 

TABLE OF CONTENTS    
    

	ARTICLE 1 PURPOSE AND TERM OF PLAN	 	1
	 	

1.1.	
 	

Purpose.	
 	

1
	 	1.2.	 	Term.	 	1
	

ARTICLE 2 DEFINITIONS	
 	

1
	

ARTICLE 3 ELIGIBILITY	
 	

5
	 	

3.1.	
 	

In General.	
 	

5
	 	3.2.	 	Incentive Stock Options.	 	5
	

ARTICLE 4 PLAN ADMINISTRATION	
 	

5
	 	

4.1.	
 	

Members.	
 	

5
	 	4.2.	 	Responsibility.	 	5
	 	4.3.	 	Authority of the Committee.	 	6
	 	4.4.	 	Discretionary Authority.	 	6
	 	4.5.	 	Section 162(m) of the Code.	 	6
	 	4.6.	 	Action by the Committee.	 	6
	 	4.7.	 	Allocation and Delegation of Authority.	 	6
	

ARTICLE 5 FORM OF AWARDS 8	
 	

 
	 	

5.1.	
 	

In General.	
 	

7
	 	5.2.	 	Foreign Jurisdictions.	 	7
	

ARTICLE 6 SHARES SUBJECT TO PLAN	
 	

8
	 	

6.1.	
 	

Available Shares.	
 	

8
	 	6.2.	 	Adjustment to Shares.	 	8
	 	6.3.	 	Maximum Award Payable.	 	9
	

ARTICLE 7 PERFORMANCE AWARDS	
 	

9
	 	

7.1.	
 	

Purpose.	
 	

9
	 	7.2.	 	Eligibility.	 	9
	 	7.3.	 	Discretion of Committee with Respect to Performance Awards.	 	9
	 	7.4.	 	Payment of Performance Awards.	 	9
	

ARTICLE 8 STOCK OPTIONS	
 	

10
	 	

8.1.	
 	

In General.	
 	

10
	 	8.2.	 	Terms and Conditions of Options.	 	10
	 	8.3.	 	Restrictions Relating to Incentive Stock Options.	 	10
	 	8.4.	 	Additional Terms and Conditions.	 	10
	 	8.5.	 	Exercise of Option and Payment of Option Price.	 	11
	

ARTICLE 9 STOCK APPRECIATION RIGHTS	
 	

11
	 	

9.1.	
 	

In General.	
 	

11
	 	9.2.	 	Terms and Conditions of Tandem SARs.	 	11
	 	9.3.	 	Terms and Conditions of Freestanding SARs.	 	11
	 	9.4.	 	Deemed Exercise.	 	11
	 	9.5.	 	Additional Terms and Conditions.	 	11

i

 

	

ARTICLE 10 STOCK AWARDS	
 	

12
	 	

10.1.	
 	

Grants.	
 	

12
	 	10.2.	 	Stock Award Restrictions.	 	12
	 	10.3.	 	Rights as Stockholders.	 	12
	 	10.4.	 	Evidence of Award.	 	12
	

ARTICLE 11 PERFORMANCE UNITS	
 	

12
	 	

11.1.	
 	

Grants.	
 	

12
	 	11.2.	 	Performance Criteria.	 	12
	 	11.3.	 	Additional Terms and Conditions.	 	12
	

ARTICLE 12 PERFORMANCE SHARES	
 	

12
	 	

12.1.	
 	

Grants.	
 	

12
	 	12.2.	 	Performance Criteria.	 	13
	 	12.3.	 	Additional Terms and Conditions.	 	13
	

ARTICLE 13 VESTING AND PAYMENT OF AWARDS	
 	

13
	 	

13.1.	
 	

Vesting.	
 	

13
	 	13.2.	 	Payment.	 	13
	 	13.3.	 	Death.	 	13
	 	13.4.	 	Disability.	 	13
	 	13.5.	 	Retirement.	 	14
	 	13.6.	 	Approved Reason.	 	14
	 	13.7.	 	Termination for Cause.	 	14
	 	13.8.	 	Other Terminations.	 	14
	 	13.9.	 	Incentive Stock Options.	 	14
	 	13.10.	 	Other Awards.	 	15
	 	13.11.	 	Set-Off.	 	15
	

ARTICLE 14 DIVIDEND AND DIVIDEND EQUIVALENTS	
 	

15
	

ARTICLE 15 DEFERRAL OF AWARDS	
 	

15
	

ARTICLE 16 CHANGE IN CONTROL	
 	

16
	 	

16.1.	
 	

Background.	
 	

16
	 	16.2.	 	Options and SARs.	 	16
	 	16.3.	 	Stock Awards.	 	16
	 	16.4.	 	Treatment of Performance Units and Performance Shares.	 	16
	 	16.5.	 	Deferred Awards.	 	16
	

ARTICLE 17 MISCELLANEOUS 21	
 	

 
	 	

17.1.	
 	

Nonassignability.	
 	

17
	 	17.2.	 	Withholding Taxes.	 	18
	 	17.3.	 	Amendments to Awards.	 	18
	 	17.4.	 	Regulatory Approvals and Listings.	 	18
	 	17.5.	 	No Right to Continued Employment, Service or Grants.	 	18
	 	17.6.	 	Amendment/Termination.	 	18
	 	17.7.	 	Governing Law.	 	18
	 	17.8.	 	No Right, Title, or Interest in Company Assets.	 	18
	 	17.9.	 	Section 16 of the Exchange Act.	 	19
	 	17.10.	 	No Guarantee of Tax Consequences.	 	19

ii

PHARMACOPEIA DRUG DISCOVERY, INC.

2004 STOCK INCENTIVE PLAN

Effective April 6, 2004  

 
 

ARTICLE 1
  PURPOSE AND TERM OF PLAN    
    

        1.1.  Purpose. The purpose of the Plan is to provide motivation to selected Employees, Directors and Consultants to put forth
maximum efforts toward the continued growth, profitability, and success of the Company by providing incentives to such Employees, Directors and Consultants through the ownership and performance of
Common Stock. 

        1.2.  Term. The Plan was approved by the Board on March 16,2004, and will become effective upon the date of the
approval by PDD's stockholders. The Plan and any Awards granted thereunder shall be null and void if stockholder approval is not obtained. 

 
 

ARTICLE 2
  DEFINITIONS    
    

        In any necessary construction of a provision of this Plan, the masculine gender may include the feminine, and the singular may include the plural, and vice versa. 

        2.1.  "Affiliate" means any entity other than the Subsidiaries in which the Company has a substantial direct or indirect
equity interest, as determined by the Board. 

        2.2.  "Approved Reason" means a reason for terminating employment with the Company, which, in the opinion of the Committee, is
in the best interests of the Company. The Committee must specifically designate that a Participant has been terminated for an Approved Reason. Absent such determination by the Committee, a Participant
cannot be found to have terminated for an Approved Reason. 

        2.3.  "Award" means any form of Option, SAR, Stock Award, performance unit, performance share, or Performance Award, whether
singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish by the Award Notice
or otherwise. 

        2.4.  "Award Notice" means the written document establishing the terms, conditions, restrictions, and/or limitations of an
Award in addition to those established by this Plan and by the Committee's exercise of its administrative powers. The Committee will establish the form of the written document in the exercise of its
sole and absolute discretion. 

        2.5.  "Board" means the Board of Directors of PDD. 

        2.6.  "Cause" means, unless otherwise provided in an Award Notice: (a) any gross failure by the Participant (other than
by reason of Disability) to faithfully and professionally carry out his or her duties or to comply with any other material provision of his or her employment agreement, if any, which continues for
thirty days after written notice by the Company; provided, that the Company does not have to provide notice in the event that the failure is not susceptible to remedy or relates to the same type of
acts or omissions as to which notice has been given on a prior occasion; (b) the Participant's dishonesty or other willful misconduct; (c) the Participant's conviction of any felony or
of any other crime involving moral turpitude, whether or not relating to his or her employment; (d) the Participant's insobriety or use of drugs, chemicals or controlled substances either in
the course of performing his or her duties and responsibilities under his or her employment agreement or otherwise affecting the ability of Participant to perform those duties and responsibilities;
(e) the Participant's failure to comply with a lawful written direction of the Company; (f) any wanton or willful dereliction of duties by the Participant; or (g) breach of the
Company's Code of Ethics or insider trading policies. 

        2.7.  "CEO" means the Chief Executive Officer of PDD. 

 

        2.8.  "Change In Control" means: (i) any "person" (within the meaning of Section 13(d) or 14(d) of the Exchange
Act, including a "group" within the meaning of Section 13(d) but excluding PDD and any of its Subsidiaries or Affiliates and any employee benefit plan sponsored or maintained by PDD or any
subsidiary thereof), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PDD representing thirty percent
(30%) or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of PDD (the "PDD Voting Securities"); or
(ii) the consummation of a merger, consolidation, reorganization or any other business combination (any of the foregoing, a "Business Combination") of or involving PDD and another person or
persons where the persons who were the beneficial owners of PDD Voting Securities outstanding immediately prior to such Business Combination do not beneficially own, directly or indirectly,
immediately after such transaction, securities representing fifty percent (50%) or more of the combined voting power of the then outstanding PDD Voting Securities or Voting Securities of the entity
acquiring PDD in such Business Combination; (iii) a complete liquidation or dissolution of PDD; or (iv) a sale, lease, exchange or other disposition or transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets or business of PDD; provided, that a change in control under this clause shall not be deemed to have occurred where
(x) PDD sells, exchanges or otherwise disposes of or transfers all or substantially all of its assets or business to another corporation which is beneficially owned, directly or indirectly,
immediately following such transaction by the holders of PDD Voting Securities in substantially the same proportions as their ownership of PDD Voting Securities immediately prior to such transaction
and (y) such corporation assumes the Plan; or (v) such time as the Continuing Directors (as defined below) do not constitute at least a majority of the Board (or, if applicable, of a
successor to PDD), where the term "Continuing Director" means at any date a director of PDD who was (x) a director on the date of the approval of the Plan by PDD's stockholders or
(y) nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the board
was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election (it being understood that no individual whose initial
assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the board shall be a Continuing Director). 

        2.9.  "Code" means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and
successor provisions and regulations thereto. 

        2.10. "Committee" means the Board or the committee designated by the Board to administer the Plan under Article 4.
After PDD becomes Publicly Traded, the Committee shall have at least two members, each of whom shall be a "non-employee director" as defined in Rule 16b-3 under the
Exchange Act and an "outside director" as defined in Section 162(m) of the Code and the regulations thereunder, and, if applicable meet the independence requirements of the applicable stock
exchange, quotation system or other self-regulatory organization on which the Common Stock is traded. Notwithstanding the foregoing, after PDD becomes Publicly Traded, the Board may
designate one or more of its members to serve as a Secondary Committee and delegate to the Secondary Committee authority to grant Awards to eligible individuals who are not subject to the requirements
of Rule 16b-3 under the Exchange Act or Section 162(m) of the Code and the regulations thereunder. The Secondary Committee shall have the same authority with respect to
selecting the individuals to whom such Awards are granted and establishing the terms and conditions of such Awards as the Committee has under the terms of the Plan. 

        2.11. "Common Stock" means the common stock, $0.01 par value per share, of PDD that may be newly issued or treasury stock. 

2

 

        2.12. "Company" means with respect to Employees and consultants, PDD and its Subsidiaries and Affiliates (other than
Pharmacopeia and its Affiliates) provided, however, that with respect to Directors, Company shall only mean PDD. 

        2.13. "Consultants" means the consultants, advisors and independent contractors retained by the Company. 

        2.14. "Covered Employee" means an Employee who is a "Covered Employee" within the meaning of Section 162(m) of the
Code. 

        2.15. "Director" means a non-Employee member of the Board. 

        2.16. "Disability" means a physical or mental impairment that satisfies the definition of disability under
Section 22(e)(3) of the Code. 

        2.17. "Effective Date" means the date an Award is determined to be effective by the Committee upon its grant of such Award,
which date shall be set forth in the applicable Award Notice. 

        2.18. "Employee" means any person employed by the Company on a full or part-time basis. 

        2.19. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and
successor provisions and rules thereto. 

        2.20. "Fair Market Value" means on any given date: 

        (a)   if
the Common Stock is listed on an established stock exchange or exchanges, the closing price of Common Stock on the principal exchange on which it is traded on such
date, or if no sale was made on such date on such principal exchange, on the last preceding day on which the Common Stock was traded; 

        (b)   if
the Common Stock is not then listed on an exchange, but is quoted on NASDAQ or a similar quotation system, the closing price per share for the Common Stock as quoted
on NASDAQ or similar quotation system on such date; 

        (c)   if
the Common Stock is not then listed on an exchange or quoted on NASDAQ or a similar quotation system, the value, as determined in good faith by the Committee and in
accordance with applicable provisions of the Code or regulations and rulings thereunder. 

        2.21. "Incentive Stock Option" means an Option which meets the requirements of Section 422 of the Code and which is
designated as an Incentive Stock Option by the Committee. 

        2.22. "Negative Discretion" means the discretion authorized by the Plan to be applied by the Committee in determining the
size of an Award for a Performance Period if, in the Committee's sole judgment, such application is appropriate. Negative Discretion may only be used by the Committee to eliminate or reduce the size
of an Award. In no event shall any discretionary authority granted to the Committee by the Plan, including, but not limited to Negative Discretion, be used to: (a) grant Awards for a
Performance Period if the Performance Goals for such Performance Period have not been attained under the applicable Performance Formula; or (b) increase an Award above the maximum amount
payable under Section 6.3 of the Plan. 

        2.23. "Non-Qualified Stock Option" means an Option not intended to be an Incentive Stock Option, and designated
as a Non-Qualified Stock Option by the Committee. 

        2.24. "Option" means the right, granted from time to time under the Plan, to purchase Common Stock for a specified period of
time at a stated price. An Option may be an Incentive Stock Option or a Non-Qualified Stock Option. 

        2.25. "Participant" means either an Employee, Director or Consultant to whom an Award has been granted by the Committee under
the Plan. 

3

 

        2.26. "Participating Covered Employee" for a given calendar year means a Covered Employee who has been selected by the
Committee to participate in the annual incentive award for that calendar year under Article 8. 

        2.27. "PDD" means Pharmacopeia Drug Discovery, Inc., a Delaware corporation. 

        2.28. "Performance Awards" means the Stock Awards, performance units and performance shares granted to Covered Employees
pursuant to Article 7. After PDD becomes Publicly Traded, all Performance Awards are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 

        2.29. "Performance Criteria" means the one or more criteria that the Committee shall select for purposes of establishing the
Performance Goal(s) for a Performance Period. The Performance Criteria that will be used to establish such Performance Goal(s) shall be limited to the following: revenue growth; earnings before
interest, taxes, depreciation and amortization (EBITDA); operating income; net operating income after tax; pre- or after-tax income; cash flow; cash flow per share; net
earnings; earnings per share; return on equity; return on capital employed; return on assets; economic value added (or an equivalent metric); share price performance; total shareholder return;
improvement in or attainment of expense levels; improvement in or attainment of working capital levels; or debt reduction. After PDD becomes Publicly Traded, to the extent required by
Section 162(m) of the Code, the Committee shall, within the time period required by Section 162(m) of the Code (generally, the first 90 days of a Performance Period), define in an
objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period. 

        2.30. "Performance Formula" means, for a Performance Period, the one or more objective formulas (expressed as a percentage or
otherwise) applied against the relevant Performance Goal(s) to determine, with regards to the Award of a particular Participant, whether all, some portion but less than all, or none of the Award has
been earned for the Performance Period. 

        2.31. "Performance Goals" means, for a Performance Period, the one or more goals established by the Committee for the
Performance Period based upon the Performance Criteria. Performance Goals may be based on Company or business unit performance, and if so desired by the Committee, by comparison with a peer group of
companies. Unless otherwise stated, such Performance Goals, need not be based upon an increase or positive result and could include, for example, maintaining the status quo or limiting economic loss
(measured, in each case, by reference to specific Performance Criteria.) The Committee is authorized at any time during the time period permitted by Section 162(m) of the Code (generally, the
first 90 days of a Performance Period), or at any time thereafter, in its sole and absolute discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period in
order to prevent the dilution or enlargement of the rights of Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or
development; (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; and (c) in view of the Committee's assessment of the business strategy of the Company,
performance of comparable organizations, economic and business conditions, and any other circumstances deemed relevant. 

        2.32. "Performance Period" means the one or more periods of time, which may be of varying and overlapping durations, as the
Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to and the payment of a Performance Award. 

        2.33. "Pharmacopeia" means Pharmacopeia, Inc., a Delaware Corporation. 

        2.34. "Plan" means the this Pharmacopeia Drug Discovery, Inc. 2004 Stock Incentive Plan, as amended from time to time. 

4

 

        2.35. "Publicly Traded" means PDD is required to register shares of any class of common equity under Section 12 of the
Exchange Act. 

        2.36. "Restricted Stock" means a Stock Award granted pursuant to Article 11 subject to the restrictions provided in
the applicable Award Notice. 

        2.37. "Retirement" means, unless otherwise provided, a termination for other than Cause after attaining at least age 55 and
completing at least 5 years of service with the Company. 

        2.38. "SAR", or stock appreciation right, means the right to receive, in cash or in Common Stock, as determined by the
Committee, the increase in the Fair Market Value of the Common Stock underlying the SAR from the date of grant to the date of exercise. 

        2.39. "Stock Award" means an award granted pursuant to Article 10 in the form of shares of Common Stock, Restricted
Stock, and/or Units of Common Stock. 

        2.40. "Subsidiary" means any corporation (other than PDD) in an unbroken chain of corporations beginning with PDD (or any
subsequent parent of PDD) if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. 

        2.41. "Ten Percent Stockholder" means a person who on any given date owns, either directly or indirectly (taking into account
the attribution rules contained in Section 424(d) of the Code), stock possessing more than 10 percent of the total combined voting power of all classes of stock of PDD or any Subsidiary. 

        2.42. "Unit" means a bookkeeping entry used by Company to record and account for the grant of the following Awards until such
time as the Award is paid, canceled, forfeited or terminated, as the case may be: Units of Common Stock, performance units, and performance shares which are expressed in terms of Units of Common
Stock. 

 
 

ARTICLE 3
  ELIGIBILITY    
    

        3.1.  In General. Subject to Section 3.2, all Employees, Directors and Consultants are eligible to participate in the
Plan. The Committee may select, from time to time, Participants from those Employees and who, in the opinion of the Committee, can further the Plan's purposes. In addition, the Committee may select,
from time to time, Participants from those Directors and Consultants (who may or may not be Committee members) who, in the opinion of the Committee, can further the Plan's purposes. Once a Participant
is so selected, the Committee shall determine the type(s) of Awards to be made to the Participant and shall establish in the related Award Notice(s) the terms, conditions, restrictions and/or
limitations, if any, applicable to the Award(s) in addition to those set forth in this Plan and the administrative rules and regulations issued by the Committee. 

        3.2.  Incentive Stock Options. Only Employees shall be eligible to receive "incentive stock options" (within the meaning of
Section 422 of the Code). 

 
 

ARTICLE 4
  PLAN ADMINISTRATION    
    

        4.1.  Members. Members of the Committee shall be appointed by and hold office at the pleasure of the Board. Committee members
may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board. 

        4.2.  Responsibility. The Committee shall have total and exclusive responsibility to control, operate, manage and administer
the Plan, in accordance with its terms. 

5

 

        4.3.  Authority of the Committee. The Committee shall have all the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to: (a) select the Participants
and determine the type of Awards to be made to Participants, the number of shares subject to Awards and the terms, conditions, restrictions and limitations of the Awards; (b) interpret the
Plan; (c) determine eligibility for participation in the Plan; (d) decide all questions concerning eligibility for and the amount of Awards payable under the Plan; (e) construe
any ambiguous provision of the Plan; (f) correct any default; (g) supply any omission; (h) reconcile any inconsistency; (i) issue administrative guidelines as an aid to
administer the Plan and make changes in such guidelines as it from time to time deems proper; (j) make regulations for carrying out the Plan and make changes in such regulations as it from time
to time deems proper; (k) determine whether Awards should be granted singly, in combination or in tandem; (l) to the extent permitted under the Plan, grant waivers of Plan terms,
conditions, restrictions, and limitations, (m) accelerate the vesting, exercise, or payment of an Award or the performance period of an Award when such action or actions would be in the best
interest of the Company; (n) establish such other types of Awards, besides those specifically enumerated in Article 5 hereof, which the Committee determines are consistent with the
Plan's purpose; (o) subject to Section 17.3, grant Awards in replacement of Awards previously granted under this Plan or any other executive compensation plan of the Company;
(p) establish; and administer the-Performance Goals and certify whether, and to what extent, they have been attained; (q) determine the terms and provisions of any agreements
entered into hereunder; (r) take any and all other action it deems necessary or advisable for the proper operation or administration of the Plan; and (s) make all other determinations it
deems necessary or advisable for the administration of the Plan, including factual determinations. Notwithstanding anything herein to the contrary, Options and SARs granted under the Plan will not be
repriced, replaced or regranted through cancellation or by decreasing the exercise price except as expressly provided by the adjustment provisions of Section 6.2 without shareholder approval. 

        4.4.  Discretionary Authority. The Committee shall have full discretionary authority in all matters related to the discharge
of its responsibilities and the exercise of its authority under the Plan including, without limitation, its construction of the terms of the Plan and its determination of eligibility for participation
and Awards under the Plan. It is the intent of Plan that the decisions of the Committee and its actions with respect to the Plan shall be final, binding and conclusive upon all persons having or
claiming to have any right or interest in or under the Plan. 

        4.5.  Section 162(m) of the Code. After PDD becomes Publicly Traded, with regards to all Covered Employees, the Plan
shall, for all purposes, be interpreted and construed in accordance with Section 162(m) of the Code. 

        4.6.  Action by the Committee. The Committee may act only by a majority of its members. Any determination of the Committee may
be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of its number to execute and deliver
documents on behalf of the Committee. 

        4.7.  Allocation and Delegation of Authority. The Committee may allocate all or any portion of its responsibilities and powers
under the Plan to any one or more of its members, the CEO or the Secondary Committee as the Committee deems appropriate and may delegate all or any part of its responsibilities and powers to any such
person or persons, provided that any such allocation or delegation be in writing; provided, however, that only the Committee may select and grant Awards to Participants who are subject to
Section 16 of the Exchange Act or are Covered Employees. The Committee may revoke any such allocation or delegation at any time for any reason with or without prior notice. 

6

 

 
 

ARTICLE 5
  FORM OF AWARDS    
    

        5.1.  In General. Awards may, at the Committee's sole discretion, be granted in the form of Performance Awards pursuant to
Article 7, Options pursuant to Article 8, SARs pursuant to Article 9, Stock Awards pursuant to Article 10, performance units pursuant to Article 11, performance
shares pursuant to Article 12, any form established by the Committee pursuant to Section 4.3(n), or a combination thereof. All Awards shall be subject to the terms, conditions,
restrictions and limitations of the Plan. The Committee may, in its sole judgment, subject an Award at any time to such other terms, conditions, restrictions and/or limitations, (including, but not
limited to, the time and conditions of exercise and restrictions on transferability and vesting), provided they are not inconsistent with the terms of the Plan. Awards under a particular Article of
the Plan need not be uniform and Awards under two or more Articles may be combined into a single Award Notice. Any combination of Awards may be granted at one time and on more than one occasion to the
same Participant. 

        5.2.  Foreign Jurisdictions. 

        (a)   Special Terms. In order to facilitate the making of any Award to Participants who are employed or retained by the Company
outside the United States as Employees, Directors or Consultants (or who are foreign nationals temporarily within the United States), the Committee may provide for such modifications and additional
terms and conditions ("special terms") in Awards as the Committee may consider necessary or appropriate to accommodate differences in local law, policy or custom or to facilitate administration of the
Plan. The special terms may provide that the grant of an Award is subject to (1) applicable governmental or, regulatory approval or other compliance with local legal requirements and/or
(2) the execution by the Participant of a written instrument in the form specified by the Committee, and that in the event such conditions are not satisfied, the grant shall be void. The
special terms may also provide that an Award shall become exercisable or redeemable, as the case may be, if an Employee's employment or Director or Consultant's relationship with the Company ends as a
result of workforce reduction, realignment or similar measure and the Committee may designate a person or persons to make such determination for a location. The Committee may adopt or approve
sub-plans, appendices or supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for purposes of implementing any
special terms, without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, no such sub-plans, appendices or supplements to, or amendments,
restatements, or alternative versions of, the Plan shall: (a) increase the limitations contained in Section 6.3; (b) increase the number of available shares under
Section 6.1; (c) cause the Plan to cease to satisfy any conditions of Rule 16b-3 under the Exchange Act or, with respect to Covered Employees, Section 162(m) of
the Code; or (d) revoke, remove or reduce any vested right of a Participant without the prior written consent of such Participant. 

        (b)   Currency Effects. Unless otherwise specifically determined by the Committee, all Awards and payments pursuant to such
Awards shall be determined in U.S. currency. The Committee shall determine, in its discretion, whether and to the extent any payments made pursuant to an Award shall be made in local currency, as
opposed to U.S. dollars. In the event payments are made in local currency, the Committee may determine, in its discretion and without liability to any Participant, the method and rate of converting
the payment into local currency. 

        (c)   Modifications to Awards. The Committee shall have the right at any time and from time to time and without prior notice to
modify outstanding Awards to comply with or satisfy local laws and regulations or to avoid costly governmental filings. By means of illustration, but not limitation, the Committee may restrict the
method of exercise of an Award to facilitate compliance with applicable securities laws or exchange control filings, laws or regulations. 

7

 

        (d)   No Acquired Rights. No Employee in any country shall have any right to receive an Award, except as expressly provided for
under the Plan. All Awards made at any time are subject to the prior approval of the Committee. 

 
 

ARTICLE 6
  SHARES SUBJECT TO PLAN    
    

        6.1.  Available Shares. The maximum number of shares of Common Stock which shall be available for grant of Awards under the
Plan (including Incentive Stock Options) during its term shall not exceed two million four hundred thousand (2,400,000). The number of shares of Common
that shall be awarded as Incentive Stock Options shall not exceed five hundred thousand (500,000) and the number of Stock Awards and performance shares shall not exceed four hundred thousand
(400,000). Such amount shall be subject to adjustment as provided in Section 6.2. Any shares of Common Stock related to Awards which terminate by expiration, forfeiture, cancellation or
otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee's permission for Awards not involving Common Stock, shall be available
again for grant under the Plan. Moreover, if the exercise price of any Option or the tax withholding requirements with respect to any Option are satisfied by tendering shares of Common Stock to the
Company (by either actual delivery or by attestation), only the number of shares of Common Stock issued net of the shares of Common Stock tendered will be deemed delivered for purposes of determining
the maximum number of shares of Common Stock available for delivery under the Plan. The maximum number of shares available for issuance under the Plan shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional shares, of Common Stock or credited as additional performance shares. The maximum number of shares of Common Stock shall not be reduced by the
issuance of shares of Common Stock hereunder due to the assumption, conversion or substitution of awards made by an entity acquired by the Company. The shares of Common Stock available for issuance
under the Plan may be authorized and unissued shares or treasury shares. For the purpose of computing the total number of shares of Common Stock granted under the Plan, where one or more types of
Awards, both of which are payable in shares of Common Stock, are granted in tandem with each other, such that the exercise of one type of Award with respect to a number of shares cancels an equal
number of shares of the other, the number of shares granted under both Awards shall be deemed to be equivalent to the number of shares under one of the Awards. 

        6.2.  Adjustment to Shares. 

        (a)   In General. The provisions of this Section 6.2(a) are subject to the limitation contained in
Section 6.2(b). If there is any change in the number of outstanding shares of Common Stock through the declaration of stock dividends, stock splits or the like, the number of shares available
for Awards, the shares subject to any Award and the exercise prices of Awards shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock through any
change in the capital account of PDD, or through a merger, consolidation, separation (including a spin off or other distribution of stock or property), reorganization (whether or not such
reorganization comes within the meaning of such term in Section 368(a) of the Code) or partial or complete liquidation, the Committee shall make appropriate adjustments in the maximum number of
shares of Common Stock which may be issued under the Plan and any adjustments and/or modifications to outstanding Awards as it, in its sole discretion, deems appropriate. In the event of any other
change in the capital structure or in the Common Stock of PDD, the Committee shall also be authorized to make such appropriate adjustments in the maximum number of shares of Common Stock available for
issuance under the Plan and any adjustments and/or modifications to outstanding Awards as it, in its sole discretion, deems appropriate. The maximum number of shares available for issuance under the
Plan shall be automatically adjusted to the extent necessary to reflect any dividend equivalents paid in the form 

8

 

of
Common Stock. Subject to Section 6.2(b), if the maximum number of shares of Common Stock available for issuance under the Plan are adjusted pursuant to this Section 6.2(a),
corresponding adjustments shall be made to the limitations set forth in Section 6.3. 

        (b)   Covered Employees. After PDD becomes Publicly Traded, in no event shall the Award of any Participant who is a Covered
Employee be adjusted pursuant to Section 6.2(a) to the extent it would cause such Award to fail to qualify as "performance-based compensation" under Section 162(m) of the Code. 

        6.3.  Maximum Award Payable. Notwithstanding any provision contained in the Plan to the contrary, the maximum Award payable
(or granted, if applicable) to any one Participant under the Plan for a calendar year is: (a) for Performance Awards, 200,000 shares of Common Stock or, in the event the Performance Award is
paid in cash, $500,000; (b) for Options, 500,000 shares of Common Stock; (c) for SARs, 250,000 shares of Common Stock; (d) for Stock Awards (including Restricted Stock and those
issued in the form of Performance Awards under Article 7), 200,000 shares of Common Stock. 

 
 

ARTICLE 7
  PERFORMANCE AWARDS    
    

        7.1.  Purpose. This Article 7 is only applicable after PDD has become Publicly Traded. For purposes of grants issued to
Covered Employees, the provisions of this Article 7 shall apply in addition to and, where necessary, in lieu of the provisions of Article 10, Article 11 and Article 12. The
purpose of this Article is to provide the Committee the ability to qualify the Stock Awards authorized under Article 10, the performance units under Article 11, and the performance
shares under Article 12 as "Performance-Based Compensation" under Section 162(m) of the Code. To the extent applicable, after PDD has become Publicly Traded, the provisions of this
Article 7 shall control over any contrary provision contained in Article 10, Article 11 or Article 12. 

        7.2.  Eligibility. Only Covered Employees shall be eligible to receive Performance Awards. The Committee will, in its sole
discretion, designate within the earlier of the (1) first 90 days of a Performance Period and (2) the lapse of 25% of the period of service to which the Performance Goals relate,
which Covered Employees will be Participants for such period. However, designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to
receive an Award for the period. The determination as to whether or not such Participant becomes entitled to an Award for such Performance Period shall be decided solely in accordance with the
provisions of this Article 7. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a
Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employee as a Participant in such period or
in any other period. 

        7.3.  Discretion of Committee with Respect to Performance Awards. With regards to a particular Performance Period, the
Committee shall have full discretion to select the length of such Performance Period, the types of Performance Awards to be issued, the Performance Criteria that will be used to establish the
Performance Goals, the kinds and/or levels of the Performance Goals, whether the Performance Goals are to apply to the Company or any one or more subunits thereof, and the Performance Formula. Within
the earlier of (1) the first 90 days of a Performance Period and (2) the lapse of 25% of the period of service, and in any event while the outcome is substantially uncertain, the
Committee shall, with regards to the Performance Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding
sentence of this Section and record the same in writing. 

        7.4.  Payment of Performance Awards. 

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        (a)   Condition to Receipt of Performance Award. Unless otherwise provided in the relevant Award Notice, a Participant must be
employed by the Company on the last day of a Performance Period to be eligible for a Performance Award for such Performance Period. 

        (b)   Limitation. A Participant shall be eligible to receive a Performance Award for a Performance Period only to the extent
that: (1) the Performance Goals for such period are achieved; and (2) and the Performance Formula as applied against such Performance Goals determines that all or some portion of such
Participant's Performance Award has been earned for the Performance Period. 

        (c)   Certification. Following the completion of a Performance Period, the Committee shall meet to review and certify in
writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, to also calculate and certify in writing the amount of the Performance Awards
earned for the period based upon the Performance Formula. The Committee shall then determine the actual size of each Participant's Performance Award for the Performance Period and, in so doing, shall
apply Negative Discretion, if and when it deems appropriate. 

        (d)   Negative Discretion. In determining the actual size of an individual Performance Award for a Performance Period, the
Committee may reduce or eliminate the amount of the Performance Award earned under the Performance Formula for the Performance Period through the use of Negative Discretion, if in its sole judgment,
such reduction or elimination is appropriate. 

        (e)   Timing of Award Payments. The Awards granted for a Performance Period shall be paid to Participants as soon as
administratively practicable following completion of the certifications required by Section 7.4(c). 

 
 

ARTICLE 8
  STOCK OPTIONS    
    

        8.1.  In General. Awards may be granted in the form of Options. These Options may be Incentive Stock Options,
Non-Qualified Stock Options or a combination of both. All Awards under the Plan issued to Covered Employees in the form of Non-Qualified Stock Options shall qualify as
"Performance-Based Compensation" under Section 162(m) of the Code. 

        8.2.  Exercise Price. The price at which Common Stock may be purchased upon exercise of a Non-Qualified Stock
Option shall be not less than 75% of the Fair Market Value of the Common Stock, as determined by the Committee, on the Effective Date of the option's grant. Notwithstanding the forgoing, the exercise
price of any Incentive Stock Option shall not be less than (i) 110% of the Fair Market Value on the Effective Date in the case of a grant to a Ten Percent Stockholder, or (ii) 100% of
the Fair Market Value on the Effective Date in the case of a grant to any other Participant. 

        8.3.  Restrictions Relating to Incentive Stock Options. Incentive Stock Options shall, in addition to being subject to the
terms and conditions of Section 8.2, comply with Section 422 of the Code. Accordingly, the aggregate Fair Market Value (determined at the time the option was granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under this Plan or any other plan of the Company) shall not exceed $100,000
(or such other limit as may be required by the Code). Incentive Stock Options must be issued within ten years from the effective date of the Plan, and the term of such Options may not exceed ten years
(or any shorter period required by Section 422 of the Code). Incentive Stock Options shall not be transferable other than by will or the laws of descent and distribution. 

        8.4.  Additional Terms and Conditions. An Option shall be exercisable in accordance with such terms and conditions and at such
times and during such periods as may be determined by the Committee. 

10

 

The
Committee may, by way of the Award Notice or otherwise, establish such other terms, conditions, restrictions and/or limitations, including vesting and post-termination exercise period
if any, of any Option, provided they are not inconsistent with the Plan. 

        8.5.  Exercise of Option and Payment of Option Price. An Option may be exercised only for a whole number of shares of Common
Stock. The Committee shall establish the time and the manner in which an Option may be exercised. The exercise price of the shares of Common Stock received upon the exercise of an Option shall be paid
within three days of the date of exercise: (i) in cash, (ii) with the consent of the Committee in whole or in part in shares of Common Stock held by the Participant (or to the extent
permitted by the Committee, in Common Stock which the Participant would otherwise receive upon the exercise of such Option) and valued at their Fair Market Value on the date of exercise; provided that
if PDD becomes Publicly Traded, such Common Stock shall have been held by the Participant for at least six months, (iii) after PDD becomes Publicly Traded, in cash received from a broker-dealer
whom the Participant has authorized to sell all or a portion of the Common Stock covered by the Option, or (iv) in such other manner deemed appropriate by the Committee. 

 
 

ARTICLE 9
  STOCK APPRECIATION RIGHTS    
    

        9.1.  In General. Awards may be granted in the form of SARs. The "exercise price" for a particular SAR shall be defined in the
Award Notice for that SAR An SAR may be granted in tandem with all or a portion of a related Option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A Tandem SAR may
be granted either at the time of the grant of the related Option or at any time thereafter during the term of the Option. All Awards under the Plan issued to Covered Employees in the form of an SAR
shall qualify as "Performance-Based Compensation" under Section 162(m) of the Code. 

        9.2.  Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to the extent, and only to the extent, that the
related Option is exercisable, and the "exercise price" of such an SAR (the base from which the value of the SAR is measured at its exercise) shall be the exercise price under the related Option.
However, at no time shall a Tandem SAR be issued if the exercise price of its related Option is less than the Fair Market Value of the Common Stock, as determined by the Committee, on the Effective
Date of the Tandem SAR's grant. If an Option is exercised as to some or all of the shares covered by the Award, the related Tandem SAR, if any, shall be canceled automatically to the extent of the
number of shares covered by the Option exercise. Upon exercise of a Tandem SAR as to some or all of the shares covered by the Award, the related Option shall be canceled automatically to the extent of
the number of shares covered by such exercise. Moreover, all Tandem SARs shall expire not later than 10 years from the Effective Date of the SAR's grant. 

        9.3.  Terms and Conditions of Freestanding SARs. Freestanding SARS shall be exercisable or automatically mature in accordance
with such terms and conditions and at such times and during such periods as may be determined by the Committee. The exercise price of a Freestanding SAR shall be not less than 100% of the Fair Market
Value of the Common Stock, as determined by the Committee, on the Effective Date of the Freestanding SAR's grant. Moreover, all Freestanding SARs shall expire not later than 10 years from the
Effective Date of the Freestanding SAR's grant. 

        9.4.  Deemed Exercise. The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the
scheduled expiration date of such SAR if at such time the SAR by its terms remains exercisable and, if so exercised, would result in a payment to the holder of such SAR. 

        9.5.  Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, determine such other terms,
conditions, restrictions and/or limitations, if any, including vesting and post-termination exercise periods of any SAR Award, provided they are not inconsistent with the Plan. 

11

 

 
 

ARTICLE 10
  STOCK AWARDS    
    

        10.1. Grants. Awards may be granted in the form of Stock Awards. Stock Awards shall be awarded in such numbers and at such
times during the term of the Plan as the Committee shall determine. 

        10.2. Stock Award Restrictions. Stock Awards shall be subject to such terms, conditions, restrictions, and/or limitations, if
any, as the Committee deems appropriate including, but not by way of limitation, restrictions on transferability and continued employment, provided, however, they are not inconsistent with the Plan.
The Committee may modify or accelerate the delivery of a Stock Award under such circumstances as it deems appropriate. 

        10.3. Performance Criteria. Stock Awards may be contingent on the attainment during a Performance Period of certain
performance objectives. The length of the Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such goals have been
attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance Goals may be revised by the Committee, at such times as it deems appropriate during
the Performance Period, in order to take into consideration any unforeseen events or changes in circumstances. 

        10.4. Rights as Stockholders. During the period in which any Restricted Stock are subject to any restrictions imposed under
Section 10.2, the Committee may, in its sole discretion, grant to the Participant to whom such Restricted Stock have been awarded all or any of the rights of a stockholder with respect to such
shares, including, but not by way of limitation, the right to vote such shares and, pursuant to Article 15, the right to receive dividends. 

        10.5. Evidence of Award. Any Stock Award granted under the Plan may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, book-entry, registration or issuance of a stock certificate or certificates. 

 
 

ARTICLE 11
  PERFORMANCE UNITS    
    

        11.1. Grants. Awards may be granted in the form of performance units. Performance units, as that term is used in this Plan,
shall refer to Units valued by reference to designated criteria established by the Committee, other than Common Stock. 

        11.2. Performance Criteria. Performance units shall be contingent on the attainment during a Performance Period of certain
performance objectives. The length of the Performance Period, the performance objectives to be achieved during the Performance Period, and the measure of whether and to what degree such objectives
have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance objectives may be revised by the Committee, at such times as it deems
appropriate during the Performance Period, in order to take into consideration any unforeseen events or changes in circumstances. 

        11.3. Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, determine such other
terms, conditions, restrictions, and/or limitations, if any, of any Award of performance units, provided they are not inconsistent with the Plan. 

 
 

ARTICLE 12
  PERFORMANCE SHARES    
    

        12.1. Grants. Awards may be granted in the form of performance shares. Performance shares, as that term is used in this Plan,
shall refer to shares of Common Stock or Units that are expressed in terms of Common Stock. 

12

 

        12.2. Performance Criteria. Performance shares shall be contingent upon the attainment during a Performance Period of certain
performance objectives. The length of the Performance Period, the performance objectives to be achieved during the Performance Period, and the measure of whether and to what degree such objectives
have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance objectives may be revised by the Committee, at such times as it deems
appropriate during the Performance Period, in order to take into consideration any unforeseen events or changes in circumstances. 

        12.3. Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, determine such other
terms, conditions, restrictions and/or limitations, if any, of any Award of performance shares, provided they are not inconsistent with the Plan. 

 
 

ARTICLE 13
  VESTING AND PAYMENT OF AWARDS    
    

        13.1. Vesting. The time when an Option or SAR shall vest and become exercisable shall be stated in the Award Notice. The
restrictions, if any, on Restricted Stock shall expire at the times designated in the Award Notice. Notwithstanding the foregoing, (i) no Option shall vest before the one-year
anniversary of the Effective Date of such Option, unless such vesting is accelerated in accordance with the other provisions of this Article 13 (not including this Section 13.1) or
Article 16, and (ii) no Restricted Stock shall vest faster than pro rata over a three-year period from the Effective Date, unless such Restricted Stock was issued to replace
a deferred Stock Award, to replace awards that a new Employee has forfeited from his or her previous employer or the restrictions lapse earlier due to the other provisions of this Article 13
(not including this Section 13.1) or Article 16. 

        13.2. Payment. Absent a Plan provision to the contrary, payment of Awards may, at the discretion of the Committee, be made in
cash, Common Stock, a combination of cash and Common Stock, or any other form of property as the Committee shall determine. In addition, payment of Awards may include such terms, conditions,
restrictions and/or limitations, if any, as the Committee deems appropriate, including, in the case of Awards paid in the form of Common Stock, restrictions on transfer and forfeiture provisions;
provided, however, such terms, conditions, restrictions and/or limitations are not inconsistent with the Plan. Further, payment of Awards may be made in the form of a lump sum or installments, as
determined,by the Committee. 

        13.3. Death. The Committee shall have the authority to promulgate rules and regulations to determine the treatment of a
Participant under the Plan in the event of such Participant's death. Unless otherwise provided in an Award Notice, in the event that a Participant shall die while he or she is an Employee, Director or
Consultant and prior to the complete exercise of Options or complete maturity of SARs granted to him or her under the Plan, any such remaining Options or SARs shall be fully vested and may be
exercised in whole or in part within one year after the date of the Participant's death and then only: (i) by the beneficiary designated by the Participant in a writing submitted to the Company
prior to the Participant's death, or in the absence of same, by the Participant's estate or by or on behalf of such person or persons to whom the Participant's rights pass under his or her will or the
laws of descent and distribution, (ii) to the extent that the Participant would have been entitled to exercise the Option or SAR at the date of his or her death had it been fully vested, and
subject to all of the conditions on exercise imposed by the Plan and the Award Notice, and (iii) prior to the expiration of the term of the Option or SAR. Notwithstanding this Section or the
terms of an Award Notice, the Committee shall have the right to extend the period for exercise of an Option or SAR, up to one year even if such
extension exceeds the original term of such Option or SAR. 

        13.4. Disability. The Committee shall have the authority to promulgate rules and regulations to determine the treatment of a
Participant under the Plan in the event of such Participant's Disability. Unless otherwise provided in an Award Notice, in the event that a Participant's status as an Employee, 

13

 

Director
or Consultant terminates due to the Participant's Disability prior to the complete exercise of Options or complete maturity of SARs granted to him or her under the Plan, any such remaining
Options or SARs shall be fully vested and may be exercised in whole or in part up to three years after the Participant's termination of status due to Disability as an Employee, Director or Consultant,
as the case may be. Notwithstanding this Section or the terms of an Award Notice, the Committee shall have the right to extend the period for exercise of an Option or SAR up to one year, even if such
extension exceeds the term of such Option or SAR. 

        13.5. Retirement. The Committee shall have the authority to promulgate rules and regulations to determine the treatment of a
Participant under the Plan in the event of such Participant's Retirement. Unless otherwise provided in an Award Notice, in the event that a Participant's status as an Employee, Director or Consultant
terminates due to Retirement prior to the complete exercise of Options or complete maturity of SARs granted to him or her under the Plan, any such remaining Options or SARs that were vested as of the
date of Retirement may be exercised in whole or in part up to three years after the Participant's Retirement. During such period, the Participant shall also continue to vest in any unvested Options or
SARs as if such Participant were still an Employee, Director or Consultant hereunder, as applicable; provided that the such Participant does not violate any applicable non-competition,
non-disparagement, non-solicitation, confidentiality or other similar requirement. At the end of the three-year period, any remaining unvested Options or SARs shall
terminate, unless the Committee provides otherwise. Notwithstanding this Section or the terms of an Award Notice, the Committee shall have the right to extend the period for exercise of a Option or
SAR, provided such extension does not exceed the term of such Option or SAR and that the Participant does not violate any applicable non-competition, non-disparagement,
non-solicitation, confidentiality or other similar requirement. 

        13.6. Approved Reason. The Committee shall have the authority to promulgate rules and regulations to determine the treatment
of a Participant under the Plan in the event of a Participant's termination for an Approved Reason, to the extent such rules and regulations are not inconsistent with the Plan. 

        13.7. Termination for Cause. A Participant who is terminated for Cause shall, unless otherwise determined by the Committee,
immediately: forfeit, effective as of the date the Participant engages in such conduct, all unexercised, unearned, and/or unpaid Awards, including, but not by way of limitation, Awards earned but not
yet paid, all unpaid dividends and dividend equivalents, and all interest, if any, accrued on the foregoing. 

        13.8. Other Terminations. Subject to the terms of any employment or other agreement a Participant has with the Company, if a
Participant's employment with the Company terminates for a reason other than death, Disability, Retirement, Cause or an Approved Reason, and, unless otherwise provided in an Award Notice, any Option
or SAR shall be exercisable on termination of a Participant's status as an Employee, Director or Consultant only to the extent such Option or SAR is vested and exercisable at the time of the
termination of such relationship; and further, no Option or SAR shall be exercisable or mature after the later of 90 days or the expiration of the term thereof. The Committee, in its absolute
discretion, may: (i) accelerate the vesting and exercisability of an Option or SAR in order to allow its exercise by a terminating Participant; (ii) extend the period for exercise of an
Option or SAR, provided such extension does not exceed the term of such Option or SAR. 

        13.9. Incentive Stock Options. Unless otherwise provided in an Award Notice, an Incentive Stock Option shall be exercisable,
during the lifetime of the Participant, only while he or she is an Employee and has been an Employee continuously since the grant of the Incentive Stock Option or, subject to the Award Notice, within
three (3) months after termination of his or her employment. In its sole discretion, the Committee may provide in the Award Notice such further limitations on the survival of Incentive Stock
Options, and such limitations on the survival of Non-Qualified Stock Options and SARs, as it may determine; provided, however that all Options and SARs shall be exercisable for a 

14

 

minimum
of sixty (60) days after termination of a Participant's employment, except in the case of termination for Cause, in which case the exercise period shall lapse at termination. 

        13.10. Other Awards. 

        (a)   The
Committee shall have the authority to promulgate rules and regulations to determine the treatment of the Stock Awards of a Participant under the Plan in the event of
such Participant's death, Disability, Retirement, or termination from the Company for an Approved Reason or Cause. Unless otherwise provided in an Award Notice, upon a Participant's death, Disability,
or Retirement, or termination from the Company for an Approved Reason, any Stock Awards held by such Participant shall accelerate and become fully vested. 

        (b)   If
a Participant's employment with the Company terminates for any reason other than death, Disability or Retirement, or an Approved Reason, and except as otherwise
provided by Section 13.7, all unexercised, unearned, and/or unpaid Awards, including without limitation, Awards earned but not yet paid, all unpaid dividends and dividend equivalents, and all
interest accrued on the foregoing shall be canceled or forfeited, as the case may be, unless the Participant's Award Notice or the Committee provides otherwise. 

        13.11. Set-Off. By accepting an Award under this Plan, a Participant consents to a deduction from any amounts the
Company owes the Participant from time to time (including, but not limited to, amounts owed to the Participant as wages or other compensation, fringe benefits, or vacation pay), to the extent of the
amounts the Participant owes the Company under Section 13.11(a). Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means
of set-off the full amount the Participant owes the Company, the Participant shall immediately pay the unpaid balance to the Company. 

 
 

ARTICLE 14
  DIVIDEND AND DIVIDEND EQUIVALENTS    
    

        If an Award is granted in the form of a Stock Award, Option, SAR or performance share, the Committee may choose, at the time of the grant of the Award or any time
thereafter up to the time of the Award's payment, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions and/or
limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner (i.e., lump sum or installments), and at such time(s) as the Committee
shall determine. All dividends or dividend equivalents which are not paid currently may, at the Committee's discretion, accrue interest, be reinvested into additional shares of Common Stock of, in the
case of dividends or dividend equivalents, credited in connection with Stock Awards or performance shares, be credited as additional Stock Awards or performance shares and paid to the Participant if
and when, and to the extent that, payment is made pursuant to such Award. The total number of shares available for grant under shall not be reduced to reflect any dividends or dividend equivalents
that are reinvested into additional shares of Common Stock or credited as additional Stock Awards or performance shares. 

 
 

ARTICLE 15
  DEFERRAL OF AWARDS    
    

        At the discretion of the Committee, payment of any Award, dividend, or dividend equivalent, or any portion thereof, may be deferred by a Participant until such
time as the Committee may establish. All such deferrals shall be accomplished by the delivery of a written, irrevocable election by the Participant prior to the time established by the Committee for
such purpose, on a form provided by the Company. Further, all deferrals shall be made in accordance with administrative guidelines established by the Committee to ensure that such deferrals comply
with all applicable requirements of the Code. Deferred payments shall be paid in a lump sum or installments, as determined by the Committee. 

15

 

Deferred
Awards may also be credited with interest, at such rates to be determined by the Committee, and, with respect to those deferred Awards denominated in the form of Common Stock, with dividends
or dividend equivalents. 

 
 

ARTICLE 16
  CHANGE IN CONTROL    
    

        16.1. Background. Notwithstanding any provision contained in the Plan, including, but not limited to, Section 4.5, the
provisions of this Article 16 shall control over any contrary provision. 

        16.2. Options and SARs. With respect to all Options and SARs that are unexercised and outstanding, upon a Change In Control,
such Options and/or SARs shall become immediately and fully vested and exercisable; unless such Options and/or SARs are assumed by the successor corporation, and shall be substituted with options or
SARs involving the common stock of the successor corporation with equivalent value and with the terms and conditions of the substituted options or SARs being no less favorable than the Options or SARs
granted hereunder. Substituted awards shall vest in full if employment is terminated for any reason other than Cause or voluntary termination within eighteen (18) months of the Change In
Control. 

        16.3. Stock Awards. With respect to all Stock Awards that are outstanding, upon a Change In Control, such Stock Awards shall
become immediately and fully vested; unless such Stock Awards are assumed by the successor corporation, and are substituted with stock awards involving the common stock of the successor corporation
with equivalent value and with the terms and conditions of the substituted restricted stock awards being no less favorable than the Stock Awards granted hereunder. Substituted awards shall vest in
full if employment is terminated for any reason other than Cause or voluntary termination within eighteen (18) months of the Change In Control. 

        16.4. Treatment of Performance Units and Performance Shares. If a Change In Control occurs during the term of one or more
performance periods for which the Committee has granted performance units and/or performance shares (including those issued as Performance Awards under Article 7), the term of each such
performance period (hereinafter a "current performance period") shall immediately terminate upon the occurrence of such event. Upon a Change In Control, for each "current performance period" and each
completed performance period for which the Committee has not on or before such date made a determination as to whether and to what degree the performance objectives for such period have been attained
(hereinafter a "completed performance period"), it shall be assumed that the performance objectives have been attained at a level of one hundred percent (100%) or the equivalent thereof. A Participant
in one or more "current performance periods" shall be considered to have earned and, therefore, be entitled to receive, a prorated portion of the Awards previously granted to him for each such
"current performance period." Such prorated portion shall be determined by multiplying the number of performance shares or performance units, as the case may be, granted to the Participant by a
fraction, the numerator of which is the total number of days that have elapsed since the beginning of the "current performance period," and the denominator of which is the total number of days in such
"current performance period." A Participant in one or more "completed performance periods" shall be considered to have earned and, therefore, be entitled to receive all the performance shares or
performance units, as the case may be, previously granted to him during each "such "completed performance period." 

        16.5. Deferred Awards. Unless otherwise provided by the Committee, at any time, upon a Change In Control, any Awards deferred
by a Participant under Article 16 hereof, but for which he or she has not received payment as of such date, shall be paid as soon as practicable, but in no event later than 90 days after
the Change In Ownership or the event giving rise to rights under Article 17. 

16

 

 
 

ARTICLE 17
  MISCELLANEOUS    
    

        17.1. Nonassignability. 

        (a)   In General. Except as otherwise determined by the Committee or as otherwise provided in Section 17.1(b), no Awards
or any other payment under the Plan shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution), assignment, pledge, or
encumbrance, nor shall any Award be payable to or exercisable by anyone other than the Participant to whom it was granted. 

        (b)   Non-Qualified Stock Options. The Committee shall have the discretionary authority to grant
Non-Qualified Stock Options or amend outstanding Non-Qualified Stock Options to provide that they be transferable, subject to such terms and conditions as the Committee shall
establish. In addition to any such terms and conditions, the following terms and conditions shall apply to all transfers of Non-Qualified Stock Options: 

        (1)   Permissible
Transferees. Transfers shall only be permitted to: (i) the Participant's "Immediate Family Members," as that term is defined in
Section 17.1(b)(8); (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members; or (iii) a family partnership or family limited partnership in which each
partner is, at the time of transfer and all times subsequent thereto, either an Immediate Family Member or a trust for the exclusive benefit of one or more Immediate Family Members. 

        (2)   No
Consideration. All transfers shall be made for no consideration. 

        (3)   Subsequent
Transfers. Once a Participant transfers a Non-Qualified Stock Option, any subsequent transfer of such transferred Option shall, notwithstanding
Section 17.l(b)(l) to the contrary, be permitted provided, however, such subsequent transfer complies with all of the terms and conditions of this Section 17.1, with the exception of
Section 17.l(b)(I). 

        (4)   Transfer
Agent. In order for a transfer to be effective, the Committee's designated transfer agent must be used to effectuate the transfer. The costs of such transfer
agent shall be borne solely by the transferor. 

        (5)   Withholding.
In order for a transfer to be effective, a Participant must agree in writing prior to the transfer on a form provided by the Company to pay any and all
payroll and withholding taxes due upon exercise of the transferred option. In addition, prior to the exercise of a transferred option by a transferee, arrangements must be made by the Participant with
the Company for the payment of all payroll and withholding taxes. 

        (6)   Terms
and Conditions of Transferred Option. Upon transfer, a Non-Qualified Stock Option continues to be governed by and subject to the terms and conditions
of the Plan and the option's applicable administrative guide and Award Notice. A transferee of a Non-Qualified Stock Option is entitled to the same rights as the Participant to whom such
Non-Qualified Stock Options was awarded, as if no transfer had taken place. Accordingly, the rights of the transferee are subject to the terms and conditions of the original grant to the
Participant, including provisions relating to expiration date, exercisability, exercise price and forfeiture. 

        (7)   Notice
to Transferees. PDD shall be under no obligation to provide a transferee with any notice regarding the transferred Options held by the transferee upon forfeiture
or any other circumstance. 

17

 

        (8)   Immediate
Family Member. For purposes of this Section 17.1, the term "Immediate Family Member" shall mean the Participant and his or her spouse, children or
grandchildren, whether natural, step- or adopted children or grandchildren. 

        17.2. Withholding Taxes. PDD shall be entitled to deduct from any payment under the Plan, regardless of the form of such
payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the Participant to pay to it such tax prior to and as a
condition of the making of such payment. In accordance with any applicable administrative guidelines it establishes, the Committee may allow a Participant to pay the amount of taxes required by law to
be withheld from an Award by withholding from any payment of Common Stock due as a result of such Award, or by permitting the Participant to deliver to the Company, shares of Common Stock having a
Fair Market Value, as determined by the Committee, equal to the minimum amount of such required withholding taxes. 

        17.3. Amendments to Awards. The Committee may at any time unilaterally amend any unexercised, unearned, or unpaid Award,
including, but not by way of limitation, Awards earned but not yet paid, to the extent it deems appropriate; provided, however, (i) no Award may be repriced, replaced, regranted through
cancellation, or modified without shareholder approval if the effect would be to reduce the exercise price for the shares underlying the Award, and (ii) that any such amendment which, in the
opinion of the Committee, is adverse to the Participant shall require the Participant's consent. 

        17.4. Regulatory Approvals and Listings. Notwithstanding anything contained in this Plan to the contrary, the Company shall
have no obligation to issue or deliver certificates of Common Stock evidencing Stock Awards or any other Award resulting in the payment of Common Stock prior to (i) the obtaining of any
approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on the stock exchange
on which the Common Stock may be listed, and (iii) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or advisable. 

        17.5. No Right to Continued Employment, Service or Grants. Participation in the Plan shall not give any Employee, Consultant
or Director any right to remain in the employ or service of the Company. Further, the adoption of this Plan shall not be deemed to give any Employee, Consultant or Director or any other individual any
right to be selected as a Participant or to be granted an Award. In addition, no Employee, Consultant or Director having been selected for an Award, shall have at any time the right to receive any
additional Awards. 

        17.6. Amendment/Termination. The Board may suspend or terminate the Plan at any time for any reason with or without prior
notice. In addition, the Board may, from time to time for any reason and with or without prior notice, amend the Plan in any manner, but may not without stockholder approval adopt any amendment which
would increase the number of shares available under the Plan, or, after PDD becomes Publicly Traded, which would require the vote of the stockholders of PDD pursuant to Section 162(m) of the
Code or any applicable rule of the exchange or quotation system on which the Common Stock is traded, but only insofar as such amendment affects Covered Employees, or if such approval is necessary or
deemed advisable with respect to tax, securities, or other applicable laws, policies, or regulations. Notwithstanding the foregoing, the Committee may not revoke, remove or reduce any vested right of
a Participant without the prior written consent of such Participant. 

        17.7. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, except
as superseded by applicable federal law, without giving effect to its conflicts of law provisions. 

        17.8. No Right, Title, or Interest in Company Assets. No Participant shall have any rights as a stockholder of PDD as a
result of participation in the Plan until the date of issuance of a stock 

18

 

certificate
in his or her name, and, in the case of Restricted Stock, such rights are granted to the Participant under the Plan. To the extent any person acquires a right, to receive payments from the
Company under the Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company and the Participant shall not have any rights in or against any specific assets of the
Company. All of the Awards granted under the Plan shall be unfunded. 

        17.9. Section 16 of the Exchange Act. After PDD becomes Publicly Traded, in order to avoid any Exchange Act
violations, the Committee may, from time to time, impose additional restrictions upon an Award, including but not limited to, restrictions regarding tax withholdings and restrictions regarding the
Participant's ability to exercise Awards under the Company's broker-assisted stock option exercise program. 

        17.10. No Guarantee of Tax Consequences. No person connected with the Plan in any capacity, including, but not limited to,
the Company and its directors, officers, agents and employees, makes any representation, commitment, or guarantee that any tax treatment, including, but not limited to, federal, state and local
income, estate and gift tax treatment, will be applicable with respect to the tax treatment of any Award, any amounts deferred under the Plan, or paid to or for the benefit of a Participant under the
Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan. 

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QuickLinks

PHARMACOPEIA DRUG DISCOVERY, INC. 2004 STOCK INCENTIVE PLAN

TABLE OF CONTENTS

ARTICLE 1 PURPOSE AND TERM OF PLAN

ARTICLE 2 DEFINITIONS

ARTICLE 3 ELIGIBILITY

ARTICLE 4 PLAN ADMINISTRATION

ARTICLE 5 FORM OF AWARDS

ARTICLE 6 SHARES SUBJECT TO PLAN

ARTICLE 7 PERFORMANCE AWARDS

ARTICLE 8 STOCK OPTIONS

ARTICLE 9 STOCK APPRECIATION RIGHTS

ARTICLE 10 STOCK AWARDS

ARTICLE 11 PERFORMANCE UNITS

ARTICLE 12 PERFORMANCE SHARES

ARTICLE 13 VESTING AND PAYMENT OF AWARDS

ARTICLE 14 DIVIDEND AND DIVIDEND EQUIVALENTS

ARTICLE 15 DEFERRAL OF AWARDS

ARTICLE 16 CHANGE IN CONTROL

ARTICLE 17 MISCELLANEOUS

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