Exhibit 10.1

 

EMPLOYMENT AGREEMENT OF LESLIE JOHNSTON BROWNE

 

This employment agreement (the “Agreement”) is made and entered into as of the
14th day of July, 2004, by and between Pharmacopeia Drug Discovery, Inc.,
(hereinafter the “Company”), and Leslie Johnston Browne, Ph.D. (hereinafter “Dr.
Browne”).

 

RECITALS

 

WHEREAS, the Company desires to employ Dr. Browne to render services in the
capacity of President and Chief Executive Officer of Pharmacopeia Drug
Discovery, Inc. (“President and Chief Executive Officer”) on the terms set forth
in this Agreement;

 

WHEREAS, Dr. Browne desires to render services during the term of this Agreement
in the capacity of President and Chief Executive Officer on the terms set forth
in this Agreement;

 

NOW, THEREFORE, in consideration of their mutual promises and intending to be
legally bound, the parties agree as follows:

 

1.                                       EMPLOYMENT.

 

A.                                       THE COMPANY AGREES TO EMPLOY DR. BROWNE
AS PRESIDENT AND CHIEF EXECUTIVE OFFICER UPON THE TERMS AND CONDITIONS SET FORTH
IN THIS AGREEMENT.

 

B.                                      DR. BROWNE’S DUTIES, POWERS AND
RESPONSIBILITIES AS PRESIDENT AND CHIEF EXECUTIVE OFFICER SHALL BE THOSE WHICH
ARE CUSTOMARY FOR SUCH POSITION, AS MAY BE DETERMINED FROM TIME TO TIME BY THE
BOARD OF DIRECTORS OF THE COMPANY (“THE BOARD”).  DR. BROWNE AGREES TO PERFORM
AND DISCHARGE SUCH DUTIES WELL AND FAITHFULLY AND TO BE SUBJECT TO THE
SUPERVISION AND DIRECTION OF THE BOARD.

 

C.                                       THE POSITION OF PRESIDENT AND CHIEF
EXECUTIVE OFFICER IS A FULL-TIME POSITION.  DR. BROWNE AGREES TO DEVOTE HIS FULL
TIME EFFORT, ATTENTION, AND ENERGIES TO THIS POSITION.  DR. BROWNE WILL NOT
RENDER ANY PROFESSIONAL SERVICES OR ENGAGE IN ANY ACTIVITY WHICH MIGHT BE
COMPETITIVE WITH, ADVERSE TO THE BEST INTEREST OF, OR CREATE THE APPEARANCE OF A
CONFLICT OF INTEREST WITH THE COMPANY.  PRIOR TO SERVING ON ANY OTHER BOARD OF
DIRECTORS, DR. BROWNE SHALL OBTAIN THE WRITTEN PERMISSION OF THE BOARD, WHICH
SHALL NOT BE UNREASONABLY WITHHELD.  DR. BROWNE AGREES TO ABIDE BY THE POLICIES,
AND RULES AND REGULATIONS OF THE COMPANY AS THEY MAY BE AMENDED FROM TIME TO
TIME.

 

2.                                       TERM.

 

A.                                       THE EMPLOYMENT OF DR. BROWNE AS
PRESIDENT AND CHIEF EXECUTIVE OFFICER UNDER THIS AGREEMENT IS FOR AN INITIAL
TERM OF ONE YEAR BEGINNING ON

 

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DR. BROWNE’S FIRST DATE OF EMPLOYMENT BY THE COMPANY, AUGUST 9, 2004 (THE “START
DATE”).

 

B.                                      UNLESS EARLIER TERMINATED UNDER THE
PROVISIONS OF THIS AGREEMENT, THIS AGREEMENT WILL RENEW AUTOMATICALLY FOR
SUCCESSIVE ONE YEAR PERIODS AT THE CONCLUSION OF THE INITIAL TERM AND ANY
SUCCEEDING RENEWAL TERMS (COLLECTIVELY, THE “TERM”), UNLESS EITHER PARTY
NOTIFIES THE OTHER IN WRITING, AT LEAST ONE YEAR IN ADVANCE, OF ITS INTENTION
NOT TO RENEW THE AGREEMENT AT THE EXPIRATION OF THE INITIAL OR RENEWAL TERM.

 

3.                                       COMPENSATION.

 

A.                                       FOR HIS SERVICES UNDER THIS AGREEMENT
AS PRESIDENT AND CHIEF EXECUTIVE OFFICER, DR. BROWNE WILL BE PAID BY THE COMPANY
AN INITIAL BASE SALARY OF THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) PER
YEAR (“BASE SALARY”).  THE BASE SALARY WILL BE PAID IN EQUAL INSTALLMENTS, LESS
NORMALLY APPLICABLE PAYROLL DEDUCTIONS, IN ACCORDANCE WITH THE COMPANY’S REGULAR
PAYROLL SCHEDULE.  DR. BROWNE’S COMPENSATION WILL BE REVIEWED ON OR BEFORE
FEBRUARY 28 OF EACH YEAR TO DETERMINE WHETHER HIS COMPENSATION LEVEL SHALL BE
ADJUSTED IN A MANNER COMMENSURATE WITH HIS PERFORMANCE IN THE PRIOR YEAR OF
SERVICE.

 

B.                                      DR. BROWNE SHALL BE ENTITLED TO A
SIGNING BONUS OF $100,000.  ONE HALF OF THIS BONUS ($50,000), LESS NORMALLY
APPLICABLE PAYROLL DEDUCTIONS, SHALL BE PAID AS SOON AS PRACTICABLE AFTER THE
START DATE.  THE REMAINDER ($50,000), LESS NORMALLY APPLICABLE PAYROLL
DEDUCTIONS, SHALL BE PAID SIX MONTHS AFTER THE START DATE.

 

C.                                       BEGINNING JANUARY 1, 2005, DR. BROWNE
SHALL PARTICIPATE IN THE COMPANY’S BONUS PROGRAM FOR SENIOR MANAGEMENT, WHICH
SHALL PROVIDE AN ANNUAL BONUS TARGET OF FIFTY PERCENT (50%) OF DR. BROWNE’S BASE
SALARY, AS DETERMINED IN ACCORDANCE WITH THE COMPANY’S EXISTING COMPENSATION
POLICY.  SUCH AMOUNTS PAYABLE TO DR. BROWNE UNDER THE BONUS PROGRAM SHALL BE
REFERRED TO HEREIN AS THE “INCENTIVE BONUS.”  INCENTIVE BONUSES WILL BE PAID ON
THE MARCH 1 FOLLOWING THE COMPLETION OF EACH CALENDAR YEAR, PROVIDED DR. BROWNE
IS EMPLOYED OR IS RECEIVING SEVERANCE PAYMENTS ON THAT DATE, OR UPON THE
EXPIRATION OF THE TERM (AS DESCRIBED IN SECTION 4(G)).

 

D.                                      FROM TIME TO TIME, DR. BROWNE MAY BE
GRANTED THE OPTION TO PURCHASE COMPANY STOCK UNDER THE TERMS OF THE COMPANY’S
STOCK OPTION PLAN, OR SIMILAR EMPLOYEE STOCK OPTION PLANS IN EFFECT FROM TIME TO
TIME.  SUCH STOCK OPTION GRANTS SHALL BE SUBJECT TO THE TERMS OF THE APPLICABLE
STOCK OPTION PLAN(S) THEN IN EFFECT.

 

E.                                       DR. BROWNE SHALL BE GRANTED ON THE
START DATE THREE HUNDRED THOUSAND (300,000) OPTIONS TO PURCHASE COMPANY STOCK,
PRICED AT THE FAIR MARKET VALUE ON THE DATE OF THE GRANT.  THE VESTING
SCHEDULE FOR THESE OPTIONS SHALL BE AS FOLLOWS:  25% OF THESE OPTIONS SHALL BE
VESTED AFTER ONE YEAR (FROM THE DATE OF THE GRANT) AND 1/48 OF THE OPTIONS SHALL
VEST ON THE FIRST OF EACH MONTH THEREAFTER.  THESE OPTIONS ARE INTENDED TO BE
INCENTIVE STOCK OPTIONS AS DEFINED UNDER SECTION 422 OF THE INTERNAL REVENUE
CODE OF 1986 AND ANY REGULATIONS PROMULGATED THEREUNDER.  HOWEVER, TO THE EXTENT
THE OPTION

 

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GRANT FAILS TO SATISFY ANY REQUIREMENT OF SECTION 422(D) OF THE CODE, THE
AFFECTED OPTIONS SHALL BE TREATED AS NON-QUALIFIED STOCK OPTIONS.

 

4.                                       TERMINATION; RESIGNATION; PERMANENT
DISABILITY; DEATH.   DR. BROWNE’S EMPLOYMENT AS PRESIDENT AND CHIEF EXECUTIVE
OFFICER MAY BE TERMINATED AT ANY TIME BY ACTION OF THE BOARD FOR ANY REASON.  IN
THE EVENT OF TERMINATION OF HIS EMPLOYMENT, THE COMPANY SHALL HAVE NO LIABILITY
TO DR. BROWNE AS PRESIDENT AND CHIEF EXECUTIVE OFFICER FOR COMPENSATION OR
BENEFITS EXCEPT AS SPECIFIED IN THIS SECTION 4 OR AS REQUIRED BY THE COMPANY’S
BENEFITS POLICY.

 

A.                                       INVOLUNTARY TERMINATION WITHOUT CAUSE. 
IF DR. BROWNE’S EMPLOYMENT AS PRESIDENT AND CHIEF EXECUTIVE OFFICER IS
TERMINATED INVOLUNTARILY BY THE BOARD, WITHOUT “CAUSE” (AS DEFINED BELOW),
DURING THE TERM, THE COMPANY SHALL:

 

(1)                                  PAY DR. BROWNE ALL COMPENSATION AND
BENEFITS ACCRUED, BUT UNPAID, UP TO THE DATE OF HIS TERMINATION.  DR. BROWNE’S
INCENTIVE BONUS FOR THE CALENDAR YEAR IN WHICH HIS EMPLOYMENT IS TERMINATED
SHALL BE PAID ON A PRO RATA BASIS, BASED ON THE ACTUAL PERCENTAGE OF TARGET
BONUSES DETERMINED BY THE COMPANY’S BOARD OF DIRECTORS FOR THE YEAR IN WHICH THE
TERMINATION OCCURS.

 

(2)                                  CONTINUE TO PAY DR. BROWNE EACH MONTH, FOR
A PERIOD OF TWENTY-FOUR (24) MONTHS, AN AMOUNT EQUAL TO ONE TWELFTH OF HIS
ANNUAL BASE SALARY IN EFFECT AS OF THE DATE OF TERMINATION.  THE COMPANY WILL
MAINTAIN DR. BROWNE’S GROUP MEDICAL COVERAGE DURING THE PERIOD HE IS RECEIVING
PAYMENTS UNDER THIS SECTION 4(A)(2).

 

(3)                                  ALLOW ALL VESTED OPTIONS TO BE EXERCISABLE
PURSUANT TO THE TERMS OF THE STOCK OPTION AGREEMENT(S) UNDER WHICH THE OPTIONS
WERE GRANTED.

 

(4)                                  IF THE TERMINATION OCCURS IN THE FIRST YEAR
OF THE TERM, TWENTY-FIVE PERCENT (25%) OF THE INITIAL OPTION GRANT WILL
IMMEDIATELY VEST ON THE TERMINATION DATE.

 

B.                                      TERMINATION BY DR. BROWNE FOR GOOD
REASON.  IN THE EVENT DR. BROWNE TERMINATES THIS AGREEMENT WITH AT LEAST NINETY
(90) DAYS’ WRITTEN NOTICE AND FOR “GOOD REASON,” AS DEFINED BELOW, DURING THE
TERM, HE SHALL BE ENTITLED TO RECEIVE THE BENEFITS PROVIDED IN SECTION 4(A)
ABOVE.  FOR PURPOSES OF THIS SECTION 4(B), “GOOD REASON” SHALL BE PROVIDED BY
THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS:  I) DR. BROWNE’S REMOVAL AS
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY OR ANY OTHER MATERIAL
ADVERSE CHANGE BY THE COMPANY IN DR. BROWNE’S DUTIES, AUTHORITY OR
RESPONSIBILITIES AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY; II) A
REDUCTION

 

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OF MORE THAN TWENTY PERCENT (20%) OF DR. BROWNE’S BASE SALARY, UNLESS MADE WITH
DR. BROWNE’S EXPRESS WRITTEN CONSENT; III) A MATERIAL REDUCTION IN THE KIND OR
LEVEL OF EMPLOYEE BENEFITS SUCH THAT DR. BROWNE’S OVERALL BENEFITS PACKAGE IS
SIGNIFICANTLY REDUCED, UNLESS MADE WITH DR. BROWNE’S EXPRESS WRITTEN CONSENT;
IV) IF AS A RESULT OF A RELOCATION OF THE COMPANY TO A FACILITY MORE THAN FIFTY
(50) MILES FROM THE COMPANY’S CURRENT LOCATION, DR. BROWNE IS REQUIRED TO
RELOCATE HIS RESIDENCE, UNLESS MADE WITH DR. BROWNE’S EXPRESS WRITTEN CONSENT;
V) A MATERIAL BREACH OF THIS AGREEMENT BY THE COMPANY THAT HAS NOT BEEN CURED
WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE THEREOF BY DR. BROWNE TO THE
COMPANY; OR VI) A CHANGE OF CONTROL (AS DEFINED IN SECTION 4(C)) OF THE COMPANY
THAT MATERIALLY CHANGES DR. BROWNE’S DUTIES, TITLE OR RESPONSIBILITY.

 

C.                                       TERMINATION WITHOUT CAUSE IN CONNECTION
WITH CHANGE OF CONTROL.  IN THE EVENT THAT DR. BROWNE’S EMPLOYMENT AS PRESIDENT
AND CHIEF EXECUTIVE OFFICER IS TERMINATED INVOLUNTARILY BY THE BOARD WITHOUT
CAUSE IN CONNECTION WITH A “CHANGE OF CONTROL” (AS DEFINED BELOW) OF THE
COMPANY: I) DR. BROWNE SHALL BE ENTITLED TO RECEIVE THE BENEFITS PROVIDED IN
SECTION 4(A) ABOVE; II) ALL STOCK OPTIONS GRANTED TO DR. BROWNE THAT ARE THEN
UNVESTED SHALL IMMEDIATELY VEST; AND III) DR. BROWNE SHALL RECEIVE PRO RATA
INCENTIVE BONUSES FOR THE PERIOD DURING WHICH HE IS RECEIVING PAYMENTS UNDER
SECTION 4(A)(2), EQUAL TO THE AVERAGE INCENTIVE BONUS HE RECEIVED IN EACH OF THE
THREE YEARS IMMEDIATELY PRIOR TO THE TERMINATION OR, IF LESS THAN THREE YEARS’
OF BONUS HISTORY IS AVAILABLE, HIS TARGET BONUS FOR THE YEAR IN WHICH THE
TERMINATION OCCURS.

 

For purposes of this Agreement, a “change of control” means that any of the
following events has occurred:

 

(i)                                     Any person (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)),
other than the Company, any employee benefit plan of the Company or any entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan, together with all “affiliates” and “associates” (as such terms
are defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner
or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the Exchange
Act), directly or indirectly (the “Control Group”), of more than 50% of the
outstanding equity securities of the Company, or otherwise becomes entitled,
directly or indirectly, to vote more than 50% of the voting power entitled to be
cast at elections for directors (“Voting Power”) of the Company;

 

(ii)                                  A consolidation or merger (in one
transaction or a series of related transactions) of the Company pursuant to
which the holders of the Company’s equity securities immediately prior to such
transaction or series of related transactions would not be the holders, directly
or indirectly, immediately after such transaction or series of related
transactions of more than 50% of the Voting Power of the entity surviving such
transaction or series of related transactions; or

 

(iii)                               The sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company.

 

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D.                                      TERMINATION FOR CAUSE.  IF  DR. BROWNE’S
EMPLOYMENT IS TERMINATED AS PRESIDENT AND CHIEF EXECUTIVE OFFICER FOR “CAUSE” AS
DEFINED BELOW DURING THE TERM, THE COMPANY SHALL PAY DR. BROWNE ALL ACCRUED, BUT
UNPAID, COMPENSATION AND BENEFITS WHICH ARE THEN DUE AND OWING AS OF THE DATE OF
HIS TERMINATION.  HE SHALL NOT BE ENTITLED TO RECEIVE A PRO RATA INCENTIVE BONUS
FOR THE CALENDAR YEAR IN WHICH THE TERMINATION OCCURS, OR ANY OF THE AMOUNTS
SPECIFIED IN SECTION 4(A).  THE COMPANY SHALL HAVE THE RIGHT TO SETOFF ANY
AMOUNTS DUE TO DR. BROWNE BY ANY AMOUNTS OWED BY DR. BROWNE TO THE COMPANY AT
THE TIME DR. BROWNE’S EMPLOYMENT TERMINATES AND HE HEREBY AUTHORIZES THE COMPANY
TO MAKE THIS SETOFF.

 

Dr. Browne’s employment may be terminated for “Cause” at any time upon delivery
of written notice to Dr. Browne.  “Cause” means the occurrence of any of the
following events:  i) any gross failure on the part of Dr. Browne (other than by
reason of disability as provided in Section 4(f)) to faithfully and
professionally carry out his duties or to comply with any other material
provision of this Agreement, which failure continues after written notice
thereof by the Board, provided that the Board shall not be required to provide
such notice in the event that such failure (A) is not susceptible to remedy or
(B) relates to the same type of acts or omissions as to which such notice has
been given on a prior occasion; ii) Dr. Browne’s material dishonesty (which
shall include without limitation any misuse or misappropriation of the Company’s
assets), or other willful misconduct which is intended to injure or which
injures or is likely to injure the business of the Company; iii) Dr. Browne’s
conviction for any felony or for any other crime involving moral turpitude,
whether or not relating to his employment; iv) Dr. Browne’s insobriety or use of
drugs, chemicals or controlled substances either (A) in the course of performing
his duties and responsibilities under this Agreement, or (B) otherwise affecting
the ability of Dr. Browne to perform the same; v) Dr. Browne’s failure to comply
with a lawful, written direction of the Board, which is consistent with Dr.
Browne’s duties and responsibilities as President and Chief Executive Officer
with the Company; or vi) any wanton and willful dereliction of duties by Dr.
Browne.  The existence of any of the foregoing events or conditions shall be
determined by the Board in the exercise of its reasonable judgment.

 

E.                                       VOLUNTARY RESIGNATION.  IN THE EVENT
THAT DR. BROWNE SHALL VOLUNTARILY RESIGN AS PRESIDENT AND CHIEF EXECUTIVE
OFFICER:

 

(1)                                  DR. BROWNE SHALL PROVIDE THE COMPANY’S
BOARD OF DIRECTORS WITH NINETY (90) DAYS’ ADVANCE WRITTEN NOTICE OF HIS
INTENTION TO RESIGN VOLUNTARILY.

 

(2)                                  FOLLOWING THE EFFECTIVE DATE OF HIS
RESIGNATION, THE COMPANY SHALL BE RELIEVED OF ALL OTHER OBLIGATIONS TO PAY
COMPENSATION TO DR. BROWNE, EXCEPT THAT THE COMPANY SHALL IMMEDIATELY PAY DR.
BROWNE ALL ACCRUED, BUT UNPAID, BASE SALARY AND ANY OTHER UNPAID EXPENSES OR
EXPENSE REIMBURSEMENT.

 

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F.                                         DISABILITY.  IF DR. BROWNE BECOMES
DISABLED FOR MORE THAN ONE HUNDRED EIGHTY (180) DAYS IN ANY TWELVE (12) MONTH
PERIOD, THE COMPANY SHALL HAVE THE RIGHT TO TERMINATE HIS EMPLOYMENT WITHOUT
FURTHER LIABILITY UPON WRITTEN NOTICE TO DR. BROWNE.  DR. BROWNE SHALL BE DEEMED
DISABLED FOR PURPOSES OF THIS AGREEMENT EITHER I) IF HE IS DEEMED DISABLED FOR
PURPOSES OF ANY LONG-TERM DISABILITY INSURANCE POLICY PAID FOR BY THE COMPANY
AND AT THE TIME IN EFFECT, OR II) IF IN THE EXERCISE OF THE COMPANY’S REASONABLE
JUDGMENT, DUE TO ACCIDENT, MENTAL OR PHYSICAL ILLNESS, OR ANY OTHER REASON, HE
CANNOT PERFORM HIS DUTIES AS PRESIDENT AND CHIEF EXECUTIVE OFFICER.  IN THE
EVENT THE COMPANY SHALL TERMINATE DR. BROWNE DUE TO DISABILITY, AS DESCRIBED
ABOVE, DR. BROWNE SHALL BE ENTITLED TO RECEIVE THE BENEFITS SET FORTH IN
SECTION 4(A), REDUCED BY THE AMOUNT OF ANY DISABILITY PLAN OR INSURANCE BENEFIT
PAID TO HIM.

 

G.                                      NON-RENEWAL.  FOLLOWING THE EXPIRATION
OF THE TERM BY REASON OF TIMELY NOTICE OF NON-RENEWAL BY THE COMPANY IN
ACCORDANCE WITH SECTION 2(B), DR. BROWNE SHALL BE ENTITLED TO RECEIVE THE
BENEFITS SET FORTH IN SECTION 4(A) ABOVE, EXCEPT THAT THE SEVERANCE DESCRIBED IN
SECTION 4(A)(2) SHALL BE FOR A PERIOD OF TWELVE (12) MONTHS FOLLOWING THE
EXPIRATION OF THE TERM.  UPON THE EXPIRATION OF THE TERM BY REASON OF TIMELY
NOTICE OF NON-RENEWAL BY DR. BROWNE, DR. BROWNE WILL REMAIN ELIGIBLE TO RECEIVE
A PRO RATA INCENTIVE BONUS FOR THE YEAR IN WHICH THE TERM EXPIRES.  IN THE EVENT
THE TERM EXPIRES BY REASON OF TIMELY NOTICE OF NON-RENEWAL, THE TWENTY-FOUR (24)
MONTH TIME PERIOD SET FORTH IN SECTION 12 OF THIS AGREEMENT SHALL BE REDUCED TO
TWELVE (12) MONTHS FOLLOWING THE EXPIRATION OF THE TERM.

 

H.                                      DEATH.  IN THE EVENT OF THE DEATH OF DR.
BROWNE, THIS AGREEMENT SHALL AUTOMATICALLY TERMINATE AND ANY OBLIGATION TO
CONTINUE TO PAY COMPENSATION AND BENEFITS SHALL CEASE AS OF THE DATE OF HIS
DEATH.

 

I.                                          NO MITIGATION.  DR. BROWNE HAS NO
DUTY TO MITIGATE ANY PAYMENT OBLIGATIONS OF THE COMPANY UNDER THIS SECTION 4.

 

J.                                          CERTAIN ADDITIONAL PAYMENTS.  IF ANY
OF THE BENEFITS OR PAYMENTS UNDER THIS AGREEMENT, OR UNDER ANY OTHER AGREEMENT
WITH OR PLAN OF THE COMPANY (IN THE AGGREGATE, THE “TOTAL PAYMENTS”), WILL BE
SUBJECT TO THE TAX (THE “EXCISE TAX”) IMPOSED BY SECTION 4999 OF THE INTERNAL
REVENUE CODE, THE COMPANY SHALL PAY DR. BROWNE IN CASH AN ADDITIONAL AMOUNT (THE
“GROSS-UP PAYMENT”) SUCH THAT THE NET AMOUNT RETAINED BY DR. BROWNE AFTER
DEDUCTION OF ANY EXCISE TAX UPON THE TOTAL PAYMENTS AND ANY FEDERAL, STATE AND
LOCAL INCOME TAX AND EXCISE TAX UPON THE GROSS-UP PAYMENT PROVIDED FOR BY THIS
SECTION 4(G) SHALL BE EQUAL TO THE TOTAL PAYMENTS.  SUCH PAYMENTS SHALL BE MADE
BY THE COMPANY TO DR. BROWNE AS SOON AS PRACTICAL FOLLOWING A DETERMINATION THAT
ANY OF THE TOTAL PAYMENTS WILL BE SUBJECT TO THE EXCISE TAX, BUT IN NO EVENT
BEYOND THIRTY (30) DAYS FROM SUCH DATE.

 

All determinations required to be made under this Section 4(j), including
whether any of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax, shall be made by a nationally recognized accounting
firm

 

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(the “Accounting Firm”) mutually acceptable to the parties.  The Accounting Firm
shall provide detailed supporting calculations both to the Company and to Dr.
Browne within 10 days after a request for such determinations are made by Dr.
Browne or the Company.  Any such determination by the Accounting Firm shall be
binding upon the Company and Dr. Browne.  For purposes of determining the amount
of the Gross-Up Payment, Dr. Browne shall be deemed to pay Federal, state and
local income taxes at the highest marginal rates applicable to Dr. Browne as of
the date of the determination.

 

5.                                       BOARD MEMBERSHIP.  AS PRESIDENT AND
CHIEF EXECUTIVE OFFICER, DR. BROWNE SHALL AT ALL TIMES BE NOMINATED BY THE BOARD
TO SERVE ON THE COMPANY’S BOARD OF DIRECTORS, SUBJECT TO ELECTION BY THE
STOCKHOLDERS.

 

6.                                       VACATION AND HOLIDAY.  DR. BROWNE SHALL
BE ENTITLED TO FOUR WEEKS’ VACATION EACH YEAR AND TO THOSE HOLIDAYS OBSERVED BY
THE COMPANY.  AS AN ESSENTIAL EMPLOYEE OF THE COMPANY, DR. BROWNE SHALL
SCHEDULE HIS VACATION AND HOLIDAY OBSERVANCES SO AS NOT TO UNREASONABLY
INTERFERE WITH THE PERFORMANCE OF HIS DUTIES AS PRESIDENT AND CHIEF EXECUTIVE
OFFICER.

 

7.                                       HEALTH INSURANCE; LIFE INSURANCE; OTHER
FRINGE BENEFITS. DR. BROWNE SHALL BE ENTITLED TO THE BENEFIT OF SUCH GROUP
MEDICAL, ACCIDENT AND LONG-TERM DISABILITY INSURANCE AS THE COMPANY SHALL MAKE
AVAILABLE FROM TIME TO TIME TO ITS EXECUTIVE EMPLOYEES.

 

8.                                       RELOCATION AND TEMPORARY HOUSING.  THE
COMPANY WILL PAY FOR THE REASONABLE, PROPERLY DOCUMENTED COSTS OF RELOCATING DR.
BROWNE’S HOUSEHOLD GOODS TO THE PRINCETON, NEW JERSEY AREA FROM SAN FRANCISCO,
CALIFORNIA, IN ACCORDANCE WITH COMPANY POLICY.  THE COMPANY WILL ALSO PROVIDE
DR. BROWNE WITH A PAYMENT OF $4,000 PER MONTH FOR NINE MONTHS, TO BE USED FOR
TEMPORARY HOUSING IN THE PRINCETON, NEW JERSEY AREA.  IT IS ANTICIPATED THAT DR.
BROWNE WILL OBTAIN PERMANENT HOUSING IN THE PRINCETON, NEW JERSEY AREA PRIOR TO
ONE YEAR AFTER THE START DATE.

 

In addition, the Company will pay for up to nine (9) trips between the
Princeton, NJ area and San Francisco, CA for Dr. and/or Mrs. Browne, in
connection with house-hunting or the sale or rental of their San Francisco
residence.

 

The Company will also reimburse closing costs associated with the purchase of a
residence in the Princeton, New Jersey area along with associated reasonable and
customary expenses.  To the extent that the relocation cost and closing cost
reimbursements are taxable to Dr. Browne, the Company will gross-up the payment
such that the net amount received by Dr. Browne equals the amount of the
reimbursable expenses.

 

Upon the signing of a contract to purchase, lease or rent a residence in
Princeton, New Jersey, the Company will pay Dr. Browne a relocation bonus of one
hundred thousand dollars ($100,000), which Dr. Browne agrees to return to the
Company in the event the closing on such residence is not consummated.  In the
event Dr. Browne

 

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sells his California residence within twelve (12) months of the Start Date, he
will receive an additional payment of fifty thousand dollars ($50,000) upon
verification of the closing of that sale.

 

SHOULD DR. BROWNE VOLUNTARILY TERMINATE HIS EMPLOYMENT WITH THE COMPANY PRIOR TO
ONE (1) YEAR FROM THE DATE OF THIS AGREEMENT, DR. BROWNE WILL REPAY TO THE
COMPANY ONE HALF OF ALL MONIES PAID TO HIM OR ON HIS BEHALF IN ASSOCIATION WITH
HIS RELOCATION AND TEMPORARY HOUSING, NOT TO EXCEED THE NET AMOUNT RECEIVED BY
HIM AFTER TAXES.  THE COMPANY MAY COLLECT ANY SUCH MANDATORY REPAYMENTS, IN FULL
OR IN PART, BY DEDUCTING THEM FROM AMOUNTS OTHERWISE DUE DR. BROWNE FROM THE
COMPANY, AND DR. BROWNE HEREBY AUTHORIZES SUCH DEDUCTION.

 

9.                                       PROFESSIONAL EXPENSES.  DR. BROWNE WILL
BE REIMBURSED IN ACCORDANCE WITH THE COMPANY’S POLICY AND PROCEDURE FOR THE
REASONABLE COSTS OF PROPERLY DOCUMENTED PROFESSIONAL AND BUSINESS RELATED TRAVEL
EXPENSES REQUIRED IN THE COURSE OF HIS EMPLOYMENT.  THE COMPANY WILL ALSO PAY
FOR APPROPRIATE PROFESSIONAL DUES AND MEMBERSHIPS, WHICH MUST BE APPROVED IN
ADVANCE BY THE BOARD.

 

10.                                 LEGAL FEES.  DR. BROWNE SHALL BE ENTITLED TO
REIMBURSEMENT BY THE COMPANY FOR ANY LEGAL FEES HE MAY INCUR IN CONNECTION WITH
THE NEGOTIATION AND EXECUTION OF THIS AGREEMENT, IN AN AMOUNT NOT TO EXCEED
$10,000.

 

11.                                 CONFIDENTIAL INFORMATION.  EXCEPT AS
REASONABLY NECESSARY TO PERFORM HIS DUTIES AS PRESIDENT AND CHIEF EXECUTIVE
OFFICER, DR. BROWNE AGREES NOT TO REVEAL TO ANY OTHER PERSON OR ENTITY OR USE
FOR HIS OWN BENEFIT ANY CONFIDENTIAL INFORMATION OF OR ABOUT COMPANY OR ITS
OPERATIONS, BOTH DURING AND AFTER HIS EMPLOYMENT UNDER THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION MARKETING PLANS, FINANCIAL INFORMATION, KEY PERSONNEL,
EMPLOYEES’ SALARIES AND BENEFITS, CUSTOMER LISTS, PRICING AND COST STRUCTURES,
OPERATION METHODS AND ANY OTHER INFORMATION NOT AVAILABLE TO THE PUBLIC, WITHOUT
THE COMPANY’S PRIOR WRITTEN CONSENT.

 

12.                                 NON-COMPETITION.  DR. BROWNE SHALL NOT,
DURING THE COURSE OF HIS EMPLOYMENT WITH THE COMPANY OR FOR A PERIOD OF
TWENTY-FOUR (24) MONTHS THEREAFTER, DIRECTLY OR INDIRECTLY:

 

A.                                       BE EMPLOYED BY, ENGAGED IN OR
PARTICIPATE IN THE OWNERSHIP, MANAGEMENT, OPERATION OR CONTROL OF, OR ACT IN ANY
ADVISORY OR OTHER CAPACITY FOR, ANY COMPETING ENTITY WHICH CONDUCTS ITS BUSINESS
WITHIN THE TERRITORY (AS THE TERMS COMPETING ENTITY AND TERRITORY ARE
HEREINAFTER DEFINED); PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE FOREGOING,
DR. BROWNE MAY MAKE SOLELY PASSIVE INVESTMENTS IN ANY COMPETING ENTITY THE
COMMON STOCK OF WHICH IS “PUBLICLY HELD” AND OF WHICH DR. BROWNE SHALL NOT OWN
OR CONTROL, DIRECTLY OR INDIRECTLY, IN THE AGGREGATE SECURITIES WHICH CONSTITUTE
5% OR MORE OF THE VOTING RIGHTS OR EQUITY OWNERSHIP THEREOF.

 

B.                                      SOLICIT OR DIVERT ANY BUSINESS OR ANY
CUSTOMER FROM THE COMPANY OR ASSIST ANY PERSON, FIRM OR CORPORATION IN DOING SO
OR ATTEMPTING TO DO SO;

 

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C.                                       CAUSE OR SEEK TO CAUSE ANY PERSON, FIRM
OR CORPORATION TO REFRAIN FROM DEALING OR DOING BUSINESS WITH THE COMPANY OR
ASSIST ANY PERSON, FIRM OR CORPORATION IN DOING SO; OR

 

D.                                      SOLICIT FOR EMPLOYMENT, OR ADVISE OR
RECOMMEND TO ANY OTHER PERSON THAT THEY EMPLOY OR SOLICIT FOR EMPLOYMENT OR
RETENTION AS AN EMPLOYEE OR CONSULTANT, ANY PERSON WHO IS AN EMPLOYEE OF, OR
EXCLUSIVE CONSULTANT TO, THE COMPANY.

 

The Company’s obligation to make payments pursuant to Section 4 above shall
terminate in the event that, and at such time as, Dr. Browne is in breach of his
obligation not to compete as set forth in this Section 12.  For purposes of this
Section, the term “Competing Entity” shall mean any entity which is in
possession of drugs substantially similar to those of the Company that are in
pre-clinical development or clinical trials, or which is presently or hereafter
engaged in the business of providing to third parties chemistry products or
services for pre-clinical drug discovery or chemical development which i)
include the outlicensing of small molecule libraries, the undertaking of drug
candidate screening, and/or related drug optimization activities; or 
ii) utilize combinatorial chemistry or high-throughput screening technologies in
offering pre-clinical drug discovery services.  The term “Territory” shall mean
North America, Europe and Japan.  Notwithstanding anything in the above to the
contrary, Dr. Browne may engage in the activities set forth in Section 12(a)
hereof with the prior written consent of the Company, which consent shall not be
unreasonably withheld.  In determining whether a specific activity by Dr. Browne
for a Competing Entity shall be permitted, the Company will consider, among
other things, the nature and scope of i) the duties to be performed by Dr.
Browne, and ii) the business activities of the Competing Entity at the time of
Dr. Browne’s proposed engagement by such entity.

 

Dr. Browne acknowledges and agrees that the covenants set forth in this
Section are reasonable and necessary in all respects for the protection of the
Company’s legitimate business interests (including without limitation the
Company’s confidential, proprietary information and trade secrets and client
good-will, which represents a significant portion of the Company’s net worth and
in which the Company has a property interest).  Dr. Browne acknowledges and
agrees that, in the event that he breaches any of the covenants set forth in
this Section, the Company may be irreparably harmed and may not have an adequate
remedy at law; and, therefore, in the event of such a breach, the Company shall
be entitled to injunctive relief, in addition to (and not exclusive of) any
other remedies (including monetary damages) to which the Company may be entitled
under law.  If any covenant set forth in this Section 12 is deemed invalid or
unenforceable for any reason, it is the Parties’ intention that such covenants
be equitably reformed or modified to the extent necessary (and only to such
extent to) render it valid and enforceable in all respects.  In the event that
the time period and geographic scope referenced above is deemed unreasonable,
overbroad, or otherwise invalid, it is the Parties’ intention that the enforcing
court shall reduce or modify the time period and/or geographic scope to the
extent necessary (and only to such extent necessary) to render such covenants
reasonable, valid, and enforceable in all respects.

 

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13.                                 ARBITRATION.  ANY AND ALL DISPUTES BETWEEN
THE PARTIES (EXCEPT ACTIONS TO ENFORCE THE PROVISIONS OF SECTION 12 OF THIS
AGREEMENT), ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER DISPUTE
ARISING BETWEEN THE PARTIES, INCLUDING CLAIMS ARISING UNDER ANY EMPLOYMENT
DISCRIMINATION LAWS, SHALL BE ADJUDICATED AND RESOLVED EXCLUSIVELY THROUGH
BINDING ARBITRATION BEFORE THE AMERICAN ARBITRATION ASSOCIATION PURSUANT TO THE
AMERICAN ARBITRATION ASSOCIATION’S THEN-IN-EFFECT NATIONAL RULES FOR THE
RESOLUTION OF EMPLOYMENT DISPUTES (HEREAFTER “RULES”).  THE INITIATION AND
CONDUCT OF ANY ARBITRATION HEREUNDER SHALL BE IN ACCORDANCE WITH THE RULES AND
EACH SIDE SHALL BEAR ITS OWN COSTS AND COUNSEL FEES IN SUCH ARBITRATION.  ANY
ARBITRATION HEREUNDER SHALL BE CONDUCTED IN PRINCETON, NEW JERSEY, AND ANY
ARBITRATION AWARD SHALL BE FINAL AND BINDING ON THE PARTIES.  THE ARBITRATOR
SHALL HAVE NO AUTHORITY TO DEPART FROM, MODIFY, OR ADD TO THE WRITTEN TERMS OF
THIS AGREEMENT.  THE ARBITRATION PROVISIONS OF THIS SECTION SHALL BE INTERPRETED
ACCORDING TO, AND GOVERNED BY, THE FEDERAL ARBITRATION ACT, 9 U.S.C. § 1 ET
SEQ., AND ANY ACTION PURSUANT TO SUCH ACT TO ENFORCE ANY RIGHTS HEREUNDER SHALL
BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF 
NEW JERSEY.  THE PARTIES CONSENT TO THE JURISDICTION OF (AND THE LAYING OF VENUE
IN) SUCH COURT.

 

14.                                 WAIVER.  THE WAIVER BY EITHER PARTY OF ANY
BREACH OF ANY PROVISION OF THIS AGREEMENT SHALL NOT OPERATE OR BE CONSTRUED AS A
WAIVER OF ANY SUBSEQUENT BREACH BY THE OTHER PARTY OF ANY PROVISION OF THE
AGREEMENT.

 

15.                                 SEVERABILITY.  IN THE EVENT THAT ANY
SECTION, PARAGRAPH OR TERM OF THIS AGREEMENT SHALL BE DETERMINED TO BE INVALID
OR UNENFORCEABLE BY ANY COMPETENT AUTHORITY OR TRIBUNAL FOR ANY REASON, THE
REMAINDER OF THIS AGREEMENT SHALL BE UNAFFECTED THEREBY AND SHALL REMAIN IN FULL
FORCE AND EFFECT, AND ANY SUCH SECTION, PARAGRAPH, OR TERM SHALL BE DEEMED
MODIFIED TO THE EXTENT TO MAKE IT ENFORCEABLE.

 

16.                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT
SHALL BIND AND INURE TO THE BENEFIT OF THE SUCCESSORS AND ASSIGNS OF THE
COMPANY, AND THE HEIRS, EXECUTORS OR PERSONAL REPRESENTATIVES OF DR. BROWNE. 
THIS AGREEMENT MAY NOT BE ASSIGNED BY DR. BROWNE.  THIS AGREEMENT MAY BE
ASSIGNED TO ANY SUCCESSOR IN INTEREST TO THE COMPANY AND DR. BROWNE HEREBY
CONSENTS TO SUCH ASSIGNMENT.

 

17.                                 WARRANTIES AND REPRESENTATIONS.  DR. BROWNE
HEREBY WARRANTS AND REPRESENTS TO THE COMPANY THAT HE IS NOT A PARTY TO ANY
OTHER AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON OR ENTITY (INCLUDING
WITHOUT LIMITATION ANY AGREEMENTS CONTAINING RESTRICTIVE COVENANTS GOVERNING
POST-EMPLOYMENT COMPETITION, SOLICITATION, THE DISCLOSURE OF CONFIDENTIAL
INFORMATION, AND INTELLECTUAL PROPERTY RIGHTS, AND THE LIKE) THAT WOULD,
DIRECTLY OR INDIRECTLY, PREVENT HIM IN ANY WAY FROM LAWFULLY ENTERING INTO THIS
AGREEMENT, PERFORMING ANY OF THE DUTIES REQUIRED HEREUNDER (OR THAT MIGHT BE
ASSIGNED TO HIM IN THE FUTURE HEREUNDER), OR FULLY COMPLYING WITH AND HONORING
EACH AND EVERY TERM, COVENANT, AND PROMISE CONTAINED IN THIS AGREEMENT.

 

18.                                 LAWFUL EMPLOYMENT IN UNITED STATES.  THIS
AGREEMENT IS CONTINGENT UPON DR. BROWNE’S ABILITY TO BE LAWFULLY EMPLOYED IN THE
UNITED STATES

 

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INDEFINITELY, WITHOUT EMPLOYER SPONSORSHIP.  CUSTOMARY DOCUMENTATION
ESTABLISHING WORK ELIGIBILITY WILL BE REQUIRED IN ACCORDANCE WITH APPLICABLE
LAW.

 

19.                                 ENTIRE AGREEMENT; AMENDMENTS.  THIS
AGREEMENT, INCLUDING THE RECITALS (WHICH ARE A PART HEREOF), TOGETHER WITH THE
APPLICABLE BYLAWS AND POLICIES OF THE COMPANY, CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO AND THERE ARE NO OTHER UNDERSTANDINGS, AGREEMENTS OR
REPRESENTATIONS, EXPRESSED OR IMPLIED.  THIS AGREEMENT MAY AMENDED ONLY IN
WRITING SIGNED BY BOTH PARTIES.

 

20.                                 GOVERNING LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
JERSEY.

 

Dated this 14th day of July, 2004.

 

 

PHARMACOPEIA DRUG

 

DISCOVERY, INC.:

 

 

 

 

 

By:

/s/ Joseph A. Mollica

 

/s/ Leslie Johnston Browne

 

Joseph A. Mollica, Ph.D.

Leslie Johnston Browne, Ph.D.

Chairman of the Board

 

 

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