**Exhibit10.1**

 

 

 

November 3, 2005

 

 

Stephen C. Costalas, Esq.

 

Re:                               Amendment toSeverance 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 employmentby Pharmacopeia, Pharmacopeia and you hereby agree to amend and restate Section3 (Taxes) of the Agreement in its entirety as follows:

 

“**3.  TAXES.**  (a)  General.  Employee will be responsible for the paymentof any tax liability incurred as a result of this Agreement.  The Companymay withhold tax on any payments or benefits provided to Employee as requiredby law or regulation.

 

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

 

                                                (i)                                     In the eventthat (1) any payments or benefits received or to be received by Employee inconnection with Employee’s employment with the Company (or terminationthereof), whether under this Agreement or otherwise (the “Total Payments”),would subject Employee to the excise tax imposed under Section 4999 of theInternal Revenue Code of 1986 (the “Code”), as amended (the “Excise Tax”), and(2) the amount of  total “parachutepayment” as defined in Section 280G(b) of the Code to be paid to the Employeeis equal to or greater than 110 percent of 2.99 times the Employee’s “baseamount” 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-UpPayment”) such that the net amount retained by Employee after deduction of anyExcise Tax upon the Total Payments and any federal, state and local income taxand Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments.  Such payments shall be made by the Company toEmployee as soon as practical following a determination that any of the TotalPayments will be subject to the Excise Tax, but in no event beyond thirty (30)days from such date.

 

                                                (ii)                                  In the eventthat (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 isless than 110% of the Safe Harbor Amount, then, only to the extent necessary toeliminate the imposition of the Excise Tax, such payments and benefits shall bereduced, in the order and of the type mutually agreed to by the Employee andthe Company.

 

                                                (iii)                               Alldeterminations required to be made, including whether any of the Total Paymentswill be subject to the Excise Tax and the amounts of such Excise Tax, shall bemade by the Company’s regular auditors (the “Accounting Firm”).  The Accounting Firm shall provide detailedsupporting calculations both to the Company and to Employee within 10 daysafter a request for such determinations are made by Employee or theCompany.  Any such determination by theAccounting Firm shall be binding upon the Company and Employee.  For purposes of making any determinationhereunder, Employee shall be deemed to pay Federal, state and local incometaxes at the highest marginal rates applicable to Employee as of the date ofthe determination.”

 

If you are in agreement with the terms ofthis 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

 

----