**Exhibit10.3**

[DATE]

[NAME OF GRANTEE]

[ADDRESS]

 

Re:          Non-QualifiedStock Option Award Notice

 

Dear [NAME OF GRANTEE]:

 

The Board of Directorsof  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”), ofPharmacopeia at a price of $[INSERT PRICE] (“Exercise Price”) per share,effective [INSERT DATE] (the “Grant Date”).

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

VESTING AND EXERCISE PERIOD

 

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

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

An additional1/48th of the shares subject to the Option shall be vested and exercisable onthe same day of the month (or the last day of the month if there is no suchdate) as the Grant Date in each of the next 36 months thereafter;

Shares that becomeexercisable will remain available for purchase until the tenth anniversary ofthe Grant Date (the “Expiration Date”).

EFFECTS OF TERMINATION ON VESTING AND EXERCISE

 

Retirement

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

 

 

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

Death or Disability

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

Termination for Cause

If your employment withPharmacopeia is terminated prior to the Expiration Date for Cause,****the entire unexercised portion of the Option shallterminate on such date.****

Good Reason or withoutCause

If you terminate youremployment with Pharmacopeia prior to the Expiration Date for Good Reason,****or if your employment is terminated by Pharmacopeia withoutCause prior to the Expiration Date,****vesting in theOption will cease immediately.  TheOption, 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 OtherReasons

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

CHANGE IN CONTROL

 

Notwithstanding anythingin this Award Notice to the contrary, but subject to the immediately followingparagraph, upon a Change In Control, any unvested portion of the thenoutstanding Option shall immediately vest, unless the Option is assumed by asuccessor corporation upon the Change In Control and the Option is substitutedwith an option for common stock of the successor corporation that hasequivalent value as the Option and has terms and conditions no less favorablethan the Option.  All such substitutedoption awards shall vest in full if your

 

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employment withPharmacopeia is terminated for any reason other than Cause or your voluntarytermination without Good Reason within eighteen (18) months of the Change InControl.  

Notwithstanding anythingin this Award Notice to the contrary (including the immediately precedingparagraph), in the event your employment with Pharmacopeia is terminated byPharmacopeia involuntarily without Cause or you terminate your employment withPharmacopeia for Good Reason, in either case at any time during the periodcommencing two (2) months before and ending twelve (12) months after theoccurrence of a Change In Control, any unvested portion of the Option shallimmediately vest on the date of such termination of your employment, theexpiration 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 effectto this section of this Award Notice.  

EXERCISING THE OPTION

 

Upon exercise of anyportion of the Option and before delivery of the shares of Common Stock, fullpayment for shares of Common Stock purchased upon the exercise shall be paidwithin three days of the date of exercise and shall be made in cash, or, withthe consent of the Committee, (a) in whole or in part in shares of Common Stockthat have been held by you for at least six months and have an aggregate FairMarket Value equal to the aggregate Exercise Price, or (b) in cash receivedfrom a broker-dealer whom you have authorized to sell all or a portion of theCommon Stock covered by the Option.

The Option shall beexercised by you by giving written notice of exercise to Pharmacopeia atPharmacopeia’s office in Cranbury, New Jersey, Attention: CorporateController.  Such notice of exercise mustinclude a statement of the number of shares underlying the Option exercise anda statement of preference as to the manner in which payment to Pharmacopeiashall be made, as described above.  Suchnotice shall be deemed to have been given when hand delivered, telecopied ormailed, first class postage prepaid, and shall be irrevocable once given.

As promptly as is reasonablypracticable after the exercise of the Option and the satisfaction of anyapplicable taxes, as determined by Pharmacopeia, a certificate for the sharesof Common Stock issuable on the exercise of the Option shall be delivered toyou 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 bywill or the laws of descent and distribution or be exercised other than by youor, in the case of your death, by your personal representative, heir orlegatee.  

The Committee may permit you to transfer the Optionto: (i) your Immediate Family Members; (ii) a trust or trusts for the exclusivebenefit of such Immediate Family Members; or (iii) a family partnership orfamily limited partnership in which each partner is, at the time of transferand all times subsequent thereto, either an Immediate Family Member or a trustfor the exclusive benefit of one or more Immediate Family Members.

 

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All transfers shall bemade for no consideration.  Once youtransfer the Option, any subsequent transfer of the Option shall,notwithstanding the immediately preceding paragraph to the contrary, bepermitted provided, however, such subsequent transfer complies with all of theterms and conditions of this Award Notice.

In order for a transfer to be effective, theCommittee’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 transferto be effective, you must agree in writing prior to the transfer on a formprovided by Pharmacopeia to pay any and all payroll and withholding taxes dueupon exercise of the transferred Option. In addition, prior to the exercise ofa transferred Option by a transferee, arrangements must be made by you withPharmacopeia for the payment of all payroll and withholding taxes.

Upon transfer, the Optionwill continue to be governed by and subject to the terms and conditions of thisAward Notice. A transferee of the Option is entitled to the same rights as youwere, as if no transfer had taken place. Accordingly, the rights of thetransferee are subject to the terms and conditions of the original grant toyou, including provisions relating to expiration date, exercisability, exerciseprice and forfeiture.

Pharmacopeia shall beunder no obligation to provide a transferee with any notice regarding thetransferred Option held by the transferee upon forfeiture or any othercircumstance.

ADJUSTMENTS

 

If there is any change inthe number of outstanding shares of Common Stock through the declaration ofstock dividends, stock splits or the like, the shares subject to the Option andthe Exercise Price of the Option shall be automatically adjusted by theCommittee. If there is any change in the number of outstanding shares of CommonStock through any change in the capital account of Pharmacopeia, or through amerger, consolidation, separation (including a spin off or other distributionof stock or property), reorganization (whether or not such reorganization comeswithin the meaning of such term in Section 368(a) of the Code) or partial orcomplete liquidation, the Committee shall make appropriate adjustments and/ormodifications to the Option.  In theevent of any other change in the capital structure or in the Common Stock ofPharmacopeia, the Committee shall also make such appropriate adjustments and/ormodifications 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 totime (including, but not limited to, amounts owed to you as wages or othercompensation, fringe benefits, or vacation pay), to the extent of the amountsyou owe Pharmacopeia.  Whether or notPharmacopeia elects to make any set-off in whole or in part, if Pharmacopeiadoes not recover by means of set-off the full amount you owe Pharmacopeia, youshall immediately pay the unpaid balance to Pharmacopeia.

Pharmacopeia shall be entitled to deduct from anypayment, regardless of the form of such payment, the amount of all applicableincome and employment taxes required by law to be withheld with respect to suchpayment or may require you to pay to it such tax prior to and as a

 

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condition of the makingof such payment. In accordance with any applicable administrative guidelines itestablishes, the Committee may allow you to pay the minimum amount of taxesrequired by law to be withheld from the Option by withholding from any paymentof Common Stock due as a result of exercising the Option, or the Committee mayallow you to pay the tax withholding amount by delivering to Pharmacopeiashares of Common Stock having a Fair Market Value equal to the required taxwithholding amount, as determined by the Committee.

AMENDMENT

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

SECTION 409A

 

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

 

REGULATORY APPROVALS AND LISTINGS

 

Notwithstanding anythingcontained in this Award Notice to the contrary, Pharmacopeia shall have noobligation to issue or deliver certificates of Common Stock evidencing theshares purchased pursuant to the Option resulting in the payment of CommonStock prior to (i) the obtaining of any approval from any governmental agencywhich Pharmacopeia shall, in its sole discretion, determine to be necessary oradvisable, (ii) the admission of such shares to listing on the stock exchangeon which the Common Stock may be listed, and (iii) the completion of anyregistration or other qualification of such shares under any state or federallaw or ruling of any governmental body which Pharmacopeia shall, in its solediscretion, determine to be necessary or advisable.

ADMINISTRATION

 

The Committee shall have total and exclusiveresponsibility to control, operate, manage and administer the Option, inaccordance with its terms.  The Committeeshall have all the authority that may be necessary or helpful to enable it todischarge its responsibilities with respect to the Option. Without limiting thegenerality of the preceding sentence, the Committee shall have the exclusiveright to: (a) interpret the terms of the Option; (b) construe any ambiguousprovision of this Award Notice; (c) correct any default; (d) supply anyomission; (e) reconcile any inconsistency; (f) issue administrative guidelinesas an aid to administer the Option and make changes in such guidelines as itfrom time to time deems proper; (g) make regulations administering the Optionand 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 thebest interest of Pharmacopeia; (j) subject to section 409A

 

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of the Code, grantoptions 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 theproper operation or administration of the Option; and (m) make all otherdeterminations it deems necessary or advisable for the administration of theOption, including factual determinations. Notwithstanding anything herein tothe contrary and except as expressly provided by the adjustment provisions ofthis Award Notice, the Option shall not be directly or indirectly repriced, replacedor regranted through cancellation without stockholder approval, including, butnot limited to, an exchange of the Option with an exercise price less than FairMarket Value for cash, restricted stock, stock options or other stock awards.

The Committee shall havefull discretionary authority in all matters related to the discharge of itsresponsibilities and the exercise of its authority with respect to the Optionincluding, without limitation, its construction of the terms of this AwardNotice.  It is the intent of the Boardthat the decisions of the Committee and its actions with respect to the Optionshall be final, binding and conclusive upon all persons having or claiming tohave any right or interest in or under the Option.

GOVERNING LAW

 

This Award Notice shallbe governed by and construed in accordance with the laws of the State ofDelaware, except as superseded by applicable federal law, without giving effectto its conflicts of law provisions.

NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS

 

You shall not have anyrights as a stockholder of Pharmacopeia as a result of receiving the Optionuntil the date of issuance of a stock certificate in your name.  To the extent you acquire a right to receivepayments from Pharmacopeia with respect to Option, such rights shall be nogreater than the rights of an unsecured creditor of Pharmacopeia and you shallnot 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, fromtime to time, impose additional restrictions upon the Option, including but notlimited to, restrictions regarding tax withholdings and restrictions regardingyour ability to exercise the Option under Pharmacopeia’s broker-assisted stockoption exercise program.

 

NO GUARANTEE OF TAX CONSEQUENCES

 

No person connected with this Award Notice in anycapacity, including, but not limited to, Pharmacopeia and its directors,officers, agents and employees, makes any representation, commitment, orguarantee that any tax treatment, including, but not limited to, federal, stateand local income, estate and gift tax treatment, will be applicable withrespect to the tax treatment of the Option or any amounts paid to or for thebenefit of you, or that such tax treatment will apply to or be available to youon account of receiving the Option.

 

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GOVERNING TERMS

 

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

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

 

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You should sign andreturn a copy of this Award Notice to the Human Resources Administrator ofPharmacopeia.

Very truly yours,
| PHARMACOPEIA, INC.

 

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|-----------------------------------------|
|                                    |
| Leslie J. Browne                        |
| *President and Chief Executive Officer* |

 

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

 

 

 
| Grantee**:** | ** ** |
|--------------|------------|
|         |
| Date:        |       |
|              |            |  |

 

 

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**APPENDIXA**

DEFINITIONS

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

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

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

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

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

5.               “Code” means the Internal Revenue Code of1986, as amended from time to time, including regulations thereunder andsuccessor provisions and regulations thereto.

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

7.               “Company” means Pharmacopeia and itsSubsidiaries and Affiliates.

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

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

10.         “Fair Market Value” means on any givendate:

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

(b) if the Common Stock is not then listed on an exchange, but isquoted on NASDAQ or a similar quotation system, the closing price per share forthe 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 onNASDAQ or a similar quotation system, the value, as determined in good faith bythe Committee and in accordance with applicable provisions of the Code orregulations and rulings thereunder.

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

 

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12.         “Immediate Family Member” means you andyour spouse, children or grandchildren, whether natural, step- or adoptedchildren or grandchildren.

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

14.         “Retirement” means a termination forother than Cause after attaining at least age 55 and completing at least fiveyears of service with Pharmacopeia.

15.         “Subsidiary” means any corporation (otherthan Pharmacopeia) in an unbroken chain of corporations beginning withPharmacopeia (or any subsequent parent of Pharmacopeia) if each of the corporationsother than the last corporation in the unbroken chain owns stock possessing 50percent or more of the total combined voting power of all classes of stock inone of the other corporations in such chain.

 

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