Exhibit
10.3





[DATE]


[NAME OF GRANTEE]


[ADDRESS]


 


Re:          Non-Qualified
Stock Option Award Notice


 


Dear [NAME OF GRANTEE]:


 


The Board of Directors
of  Pharmacopeia, Inc. (“Pharmacopeia”)
hereby grants to you a non-qualified stock option (“Option”) to purchase
[INSERT NUMBER] shares of common stock, par value $0.01 (“Common Stock”), of
Pharmacopeia at a price of $[INSERT PRICE] (“Exercise Price”) per share,
effective [INSERT DATE] (the “Grant Date”).


The Option is subject to
the terms and conditions of this Award Notice. 
All capitalized terms used herein, not otherwise defined herein, shall
have the meanings set forth in Appendix A to this Award Notice.


VESTING AND EXERCISE PERIOD


 


Subject to your continued
employment with Pharmacopeia and the other provisions of this Award Notice, on
the following dates, you will be entitled to exercise the Option as follows:


One fourth of the
shares of Common Stock subject to the Option shall be vested and exercisable on
the first anniversary of the Grant Date;


An additional
1/48th of the shares subject to the Option shall be vested and exercisable on
the same day of the month (or the last day of the month if there is no such
date) as the Grant Date in each of the next 36 months thereafter;


Shares that become
exercisable will remain available for purchase until the tenth anniversary of
the Grant Date (the “Expiration Date”).


EFFECTS OF TERMINATION ON VESTING AND EXERCISE


 


Retirement


The Option will continue to vest in accordance with
the schedule above until the date which is three years following the date of
your Retirement, provided that you do not violate any applicable
non-competition, non-disparagement, non-solicitation or confidentiality
requirement or similar restrictive covenant with Pharmacopeia (collectively,
the “Restrictive Covenants”) during that three (3) -year period.


 


 

















 


If your employment is
terminated due to your Retirement, you will be permitted, prior to the
Expiration Date, to the extent the Option is exercisable, to exercise the
Option until the third anniversary of your Retirement, provided you have not
violated any applicable Restrictive Covenants. 
The Option shall immediately terminate in full upon violation of any
Restrictive Covenants and in any event to the extent not exercised during the
applicable period.


Death or Disability


If your employment with
Pharmacopeia terminates prior to the Expiration Date due to your death or
Disability, the Option will vest fully and will remain exercisable, as
applicable, by you, your personal representative or the persons who acquire the
right to exercise the Option by bequest or inheritance until, as applicable (i)
the earlier of the end of the twelve (12) -month period immediately following
your death or the Expiration Date and (ii) the earlier of the end of the three
(3) -year period immediately following your Disability or the Expiration
Date.  The Option shall terminate in full
to the extent not exercised within such period. 



Termination for Cause


If your employment with
Pharmacopeia is terminated prior to the Expiration Date for Cause,  the entire unexercised portion of the Option shall
terminate on such date.  


Good Reason or without
Cause


If you terminate your
employment with Pharmacopeia prior to the Expiration Date for Good Reason,  or if your employment is terminated by Pharmacopeia without
Cause prior to the Expiration Date,  vesting in the
Option will cease immediately.  The
Option, to the extent it is exercisable upon such a termination of employment,
will remain exercisable by you or your personal representative, as applicable,
until the Expiration Date.


Resignation or Other
Reasons


If your employment with
Pharmacopeia is terminated for any reason other than for Retirement, death,
Disability, Cause, Good Reason or in connection with a Change In Control (as
described below) prior to the Expiration Date, vesting in the Option will cease
immediately.  The Option, to the extent
it is exercisable upon such a termination of employment, will remain exercisable
by you or your personal representative, as applicable, until the later of the
end of the ninety (90) -day period immediately following such a termination of
employment or the Expiration Date.  The
Option shall terminate in full to the extent not exercised within such period.


CHANGE IN CONTROL


 


Notwithstanding anything
in this Award Notice to the contrary, but subject to the immediately following
paragraph, upon a Change In Control, any unvested portion of the then
outstanding Option shall immediately vest, unless the Option is assumed by a
successor corporation upon the Change In Control and the Option is substituted
with an option for common stock of the successor corporation that has
equivalent value as the Option and has terms and conditions no less favorable
than the Option.  All such substituted
option awards shall vest in full if your


 


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employment with
Pharmacopeia is terminated for any reason other than Cause or your voluntary
termination without Good Reason within eighteen (18) months of the Change In
Control.  


Notwithstanding anything
in this Award Notice to the contrary (including the immediately preceding
paragraph), in the event your employment with Pharmacopeia is terminated by
Pharmacopeia involuntarily without Cause or you terminate your employment with
Pharmacopeia for Good Reason, in either case at any time during the period
commencing two (2) months before and ending twelve (12) months after the
occurrence of a Change In Control, any unvested portion of the Option shall
immediately vest on the date of such termination of your employment, the
expiration date of the exercise period for the Option shall be the earlier of
(i) one (1) year following the date of termination or (ii) the Expiration Date,
and Pharmacopeia shall take all actions necessary or advisable to give effect
to this section of this Award Notice.  


EXERCISING THE OPTION


 


Upon exercise of any
portion of the Option and before delivery of the shares of Common Stock, full
payment for shares of Common Stock purchased upon the exercise shall be paid
within three days of the date of exercise and shall be made in cash, or, with
the consent of the Committee, (a) in whole or in part in shares of Common Stock
that have been held by you for at least six months and have an aggregate Fair
Market Value equal to the aggregate Exercise Price, or (b) in cash received
from a broker-dealer whom you have authorized to sell all or a portion of the
Common Stock covered by the Option.


The Option shall be
exercised by you by giving written notice of exercise to Pharmacopeia at
Pharmacopeia’s office in Cranbury, New Jersey, Attention: Corporate
Controller.  Such notice of exercise must
include a statement of the number of shares underlying the Option exercise and
a statement of preference as to the manner in which payment to Pharmacopeia
shall be made, as described above.  Such
notice shall be deemed to have been given when hand delivered, telecopied or
mailed, first class postage prepaid, and shall be irrevocable once given.


As promptly as is reasonably
practicable after the exercise of the Option and the satisfaction of any
applicable taxes, as determined by Pharmacopeia, a certificate for the shares
of Common Stock issuable on the exercise of the Option shall be delivered to
you or your personal representative, heir or legatee.


NONASSIGNABILITY


 


Except as provided below,
the Option may not be transferred, assigned or pledged by you otherwise than by
will or the laws of descent and distribution or be exercised other than by you
or, in the case of your death, by your personal representative, heir or
legatee.  


The Committee may permit you to transfer the Option
to: (i) your Immediate Family Members; (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.


 


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All transfers shall be
made for no consideration.  Once you
transfer the Option, any subsequent transfer of the Option shall,
notwithstanding the immediately preceding paragraph to the contrary, be
permitted provided, however, such subsequent transfer complies with all of the
terms and conditions of this Award Notice.


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.


In order for a transfer
to be effective, you must agree in writing prior to the transfer on a form
provided by Pharmacopeia 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 you with
Pharmacopeia for the payment of all payroll and withholding taxes.


Upon transfer, the Option
will continue to be governed by and subject to the terms and conditions of this
Award Notice. A transferee of the Option is entitled to the same rights as you
were, 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
you, including provisions relating to expiration date, exercisability, exercise
price and forfeiture.


Pharmacopeia shall be
under no obligation to provide a transferee with any notice regarding the
transferred Option held by the transferee upon forfeiture or any other
circumstance.


ADJUSTMENTS


 


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 shares subject to the Option and
the Exercise Price of the Option shall be automatically adjusted by the
Committee. If there is any change in the number of outstanding shares of Common
Stock through any change in the capital account of Pharmacopeia, 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 and/or
modifications to the Option.  In the
event of any other change in the capital structure or in the Common Stock of
Pharmacopeia, the Committee shall also make such appropriate adjustments and/or
modifications to the Option as it, in its sole discretion, deems appropriate.


WITHHOLDING AND SET OFF


 


By accepting the Option,
you consent to a deduction from any amounts Pharmacopeia owes you from time to
time (including, but not limited to, amounts owed to you as wages or other
compensation, fringe benefits, or vacation pay), to the extent of the amounts
you owe Pharmacopeia.  Whether or not
Pharmacopeia elects to make any set-off in whole or in part, if Pharmacopeia
does not recover by means of set-off the full amount you owe Pharmacopeia, you
shall immediately pay the unpaid balance to Pharmacopeia.


Pharmacopeia shall be entitled to deduct from any
payment, 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 you to pay to it such tax prior to and as a


 


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condition of the making
of such payment. In accordance with any applicable administrative guidelines it
establishes, the Committee may allow you to pay the minimum amount of taxes
required by law to be withheld from the Option by withholding from any payment
of Common Stock due as a result of exercising the Option, or the Committee may
allow you to pay the tax withholding amount by delivering to Pharmacopeia
shares of Common Stock having a Fair Market Value equal to the required tax
withholding amount, as determined by the Committee.


AMENDMENT


The Committee may at any
time unilaterally amend the Option to the extent it deems appropriate;
provided, however, that any such amendment which, in the opinion of the
Committee, is adverse to you shall require your consent.


SECTION 409A


 


To the extent determined necessary or advisable by the Committee in its
sole discretion, the Option shall be interpreted to the extent possible to
avoid application of section 409A of the Code. 
You shall be deemed to consent to any changes to the Option that the
Board determines are necessary or advisable to comply with the provisions of
section 409A of the Code.  Adjustments
made to the Option shall, to the extent determined necessary or advisable in
the sole discretion of the Committee, be made so as to avoid application of
section 409A of the Code.


 


REGULATORY APPROVALS AND LISTINGS


 


Notwithstanding anything
contained in this Award Notice to the contrary, Pharmacopeia shall have no
obligation to issue or deliver certificates of Common Stock evidencing the
shares purchased pursuant to the Option resulting in the payment of Common
Stock prior to (i) the obtaining of any approval from any governmental agency
which Pharmacopeia 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 such shares under any state or federal
law or ruling of any governmental body which Pharmacopeia shall, in its sole
discretion, determine to be necessary or advisable.


ADMINISTRATION


 


The Committee shall have total and exclusive
responsibility to control, operate, manage and administer the Option, in
accordance with its terms.  The Committee
shall have all the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Option. Without limiting the
generality of the preceding sentence, the Committee shall have the exclusive
right to: (a) interpret the terms of the Option; (b) construe any ambiguous
provision of this Award Notice; (c) correct any default; (d) supply any
omission; (e) reconcile any inconsistency; (f) issue administrative guidelines
as an aid to administer the Option and make changes in such guidelines as it
from time to time deems proper; (g) make regulations administering the Option
and make changes in such regulations as it from time to time deems proper; (h)
to the extent permitted under this Award Notice, grant waivers of terms,
conditions, restrictions, and limitations, (i) accelerate the vesting,
exercise, or payment of the Option when such action or actions would be in the
best interest of Pharmacopeia; (j) subject to section 409A


 


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of the Code, grant
options in replacement of the Option previously granted by Pharmacopeia; (k)
determine the terms and provisions of any agreements entered into hereunder;
(l) take any and all other action it deems necessary or advisable for the
proper operation or administration of the Option; and (m) make all other
determinations it deems necessary or advisable for the administration of the
Option, including factual determinations. Notwithstanding anything herein to
the contrary and except as expressly provided by the adjustment provisions of
this Award Notice, the Option shall not be directly or indirectly repriced, replaced
or regranted through cancellation without stockholder approval, including, but
not limited to, an exchange of the Option with an exercise price less than Fair
Market Value for cash, restricted stock, stock options or other stock awards.


The Committee shall have
full discretionary authority in all matters related to the discharge of its
responsibilities and the exercise of its authority with respect to the Option
including, without limitation, its construction of the terms of this Award
Notice.  It is the intent of the Board
that the decisions of the Committee and its actions with respect to the Option
shall be final, binding and conclusive upon all persons having or claiming to
have any right or interest in or under the Option.


GOVERNING LAW


 


This Award Notice 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.


NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS


 


You shall not have any
rights as a stockholder of Pharmacopeia as a result of receiving the Option
until the date of issuance of a stock certificate in your name.  To the extent you acquire a right to receive
payments from Pharmacopeia with respect to Option, such rights shall be no
greater than the rights of an unsecured creditor of Pharmacopeia and you shall
not have any rights in or against any specific assets of Pharmacopeia. 


SECTION 16 OF THE EXCHANGE ACT


 


In order to avoid any Exchange Act violations, the Committee may, from
time to time, impose additional restrictions upon the Option, including but not
limited to, restrictions regarding tax withholdings and restrictions regarding
your ability to exercise the Option under Pharmacopeia’s broker-assisted stock
option exercise program.


 


NO GUARANTEE OF TAX CONSEQUENCES


 


No person connected with this Award Notice in any
capacity, including, but not limited to, Pharmacopeia 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 the Option or any amounts paid to or for the
benefit of you, or that such tax treatment will apply to or be available to you
on account of receiving the Option.


 


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GOVERNING TERMS


 


The terms of this Award
Notice, and any sale, purchase or exercise of any shares subject to the Option
granted by this Award Notice, shall be governed by the terms of the
Pharmacopeia, Inc. Insider Trading Policy (the “Policy”) previously provided or
enclosed with this Award Notice, and incorporated by reference herein.  By executing this Award Notice, you
acknowledge having received and carefully read the Policy, and you agree to be
bound by the terms of the Policy, as interpreted and amended from time to time
by Pharmacopeia.


Nothing in this Award Notice shall confer on you the
right to continue in the employment or service of Pharmacopeia or interfere in
any way with the right of Pharmacopeia to terminate your employment or service
at any time.


 


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You should sign and
return a copy of this Award Notice to the Human Resources Administrator of
Pharmacopeia.


Very truly yours,


	
  PHARMACOPEIA, INC.

   

   

  
	
   

  
	
  Leslie J. Browne

  
	
  President and Chief Executive Officer

  



 


I hereby accept the Option described in this Award Notice, and I
agree to be bound by the terms of  this
Award Notice.  I agree that all the
decisions and determinations of the Committee shall be final and binding.


 


 


 


	
  Grantee:

  	
   

  
	
   

  
	
  Date:

  	
   

  
			



 


 


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APPENDIX
A


DEFINITIONS


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


1.               “Affiliate” means any entity other than
the Subsidiaries in which Pharmacopeia has a substantial direct or indirect equity
interest, as determined by the Board.


2.               “Board” means the Board of Directors of
Pharmacopeia.


3.               “Cause” means “Cause” as defined in the
Severance Agreement between you and the Company dated [DATE].


4.               “Change In Control” means “Change in
Control” as defined in the Pharmacopeia, Inc. 2004 Stock Incentive Plan as in
effect from time to time.


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


6.               “Committee” means the Compensation
Committee of the Board.


7.               “Company” means Pharmacopeia and its
Subsidiaries and Affiliates.


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


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


10.         “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.


11.         “Good Reason” means “Good Reason” as
defined in the Severance Agreement between you and the Company dated [DATE].


 


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12.         “Immediate Family Member” means you and
your spouse, children or grandchildren, whether natural, step- or adopted
children or grandchildren.


13.         “Pharmacopeia” means Pharmacopeia, Inc.,
a Delaware corporation, formerly known as Pharmacopeia Drug Discovery, Inc.


14.         “Retirement” means a termination for
other than Cause after attaining at least age 55 and completing at least five
years of service with Pharmacopeia.


15.         “Subsidiary” means any corporation (other
than Pharmacopeia) in an unbroken chain of corporations beginning with
Pharmacopeia (or any subsequent parent of Pharmacopeia) 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.


 


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