Exhibit
10.1


 





 


 


November 3, 2005


 


 


Stephen C. Costalas, Esq.


 


Re:                               Amendment to
Severance Agreement dated December 2, 2004 between Pharmacopeia Drug Discovery,
Inc. (“Pharmacopeia”) and Stephen C. Costalas (the “Agreement”)


 


Dear Mr. Costalas:


 


Reference is made to the Agreement.  In consideration of your continued employment
by Pharmacopeia, Pharmacopeia and you hereby agree to amend and restate Section
3 (Taxes) of the Agreement in its entirety as follows:


 


“3.  TAXES.  (a)  General.  Employee will be responsible for the payment
of any tax liability incurred as a result of this Agreement.  The Company
may withhold tax on any payments or benefits provided to Employee as required
by law or regulation.


 


                                                (b)  Certain Excise Tax Provisions.  Notwithstanding anything herein to the
contrary:


 


                                                (i)                                     In the event
that (1) any payments or benefits received or to be received by Employee in
connection with Employee’s employment with the Company (or termination
thereof), whether under this Agreement or otherwise (the “Total Payments”),
would subject Employee to the excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986 (the “Code”), as amended (the “Excise Tax”), and
(2) the amount of  total “parachute
payment” as defined in Section 280G(b) of the Code to be paid to the Employee
is equal to or greater than 110 percent of 2.99 times the Employee’s “base
amount” as defined in Section 280G(b)(3) of the Code (the “Safe Harbor Amount”),
then the Company shall pay Employee in cash an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Employee 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 shall be equal to the Total Payments.  Such payments shall be made by the Company to
Employee 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.


 


                                                (ii)                                  In the event
that (1) the Total Payments would subject Employee to the Excise Tax, and
(2) the amount of the total “parachute payment” as


 





















 


defined in Section 280G(b) of the Code to be paid to the Employee is
less than 110% of the Safe Harbor Amount, then, only to the extent necessary to
eliminate the imposition of the Excise Tax, such payments and benefits shall be
reduced, in the order and of the type mutually agreed to by the Employee and
the Company.


 


                                                (iii)                               All
determinations required to be made, 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 the Company’s regular auditors (the “Accounting Firm”).  The Accounting Firm shall provide detailed
supporting calculations both to the Company and to Employee within 10 days
after a request for such determinations are made by Employee or the
Company.  Any such determination by the
Accounting Firm shall be binding upon the Company and Employee.  For purposes of making any determination
hereunder, Employee shall be deemed to pay Federal, state and local income
taxes at the highest marginal rates applicable to Employee as of the date of
the determination.”


 


If you are in agreement with the terms of
this letter agreement please sign below and return one copy to my attention.


 


Very truly yours,


 


	
  /s/ Leslie J. Browne

  



 


Leslie J. Browne, Ph.D.


President and Chief Executive Officer


 


 


ACKNOWLEDGED, AGREED AND


ACCEPTED THIS 3RD DAY OF


NOVEMBER, 2005


 


 


 


	
  /s/ Stephen C. Costalas

  



Stephen C. Costalas


Executive Vice President and


General Counsel