Document:

Exhibit
10.2

SEVERANCE
AGREEMENT FOR MARIA L. WEBB

This SEVERANCE AGREEMENT (the “Agreement”) is
made and entered into as of the 10th day of May, 2007, by and between PHARMACOPEIA, INC., a Delaware corporation
(hereinafter, the “Company”), and Maria L.
Webb, Ph.D., an individual (hereinafter, “Employee”).

RECITALS

WHEREAS,
the Company desires to provide certain benefits and payments to Employee in the
event of the termination of her employment with the Company; and

WHEREAS,
Employee desires to accept such benefits and payments on the terms and subject
to the conditions 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.   TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL
and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s
employment, the Company shall have no liability to Employee for compensation or
benefits except as specified in this Section 1 or as required by the Company’s
benefits policy.

(a) 
Termination by the Company for Cause.  Employee’s employment may be terminated by
the Company for Cause at any time upon delivery of written notice to
Employee.  Upon such a termination, the
Company shall have no obligation to Employee other than the payment of all
accrued, but unpaid, base salary (“Base Salary”) and any unpaid expenses or
expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means
the occurrence of any one or more of the following events or conditions:

(i)  any gross
failure on the part of Employee (other than by reason of disability as provided
in Section 1(e) below) to faithfully and professionally carry out Employee’s
duties or to comply with any other material provision of this Agreement, which
failure continues for thirty (30) days after written notice detailing such
failure is delivered by the Company; provided, that the Company 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 notice has been given on a prior occasion; (ii)  Employee’s dishonesty (which shall include
without limitation any misuse or misappropriation of the Company’s assets), or
other willful misconduct (including without limitation any conduct on the part
of Employee intended to or likely to injure the business of the Company);

(ii)  Employee’s
conviction of any felony or of any other crime involving moral turpitude,
whether or not relating to Employee’s employment;

(iii) 
Employee’s insobriety or use of drugs, chemicals or controlled
substances either (A) in the course of performing Employee’s duties and responsibilities
under this Agreement, or (B) otherwise affecting the ability of Employee to
perform the same;

(iv)  Employee’s
failure to comply with a lawful written direction of the Company; or

(v)  any wanton
or willful dereliction of duties by Employee.

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(b) 
Involuntary Termination by the Company without Cause.  The Company may involuntarily terminate
Employee’s employment under this Agreement at any time without Cause upon
delivery of written notice to Employee. 
Subject to the provisions of Section 1(g) hereof (concerning termination
in connection with a Change of Control (as defined in  Section 1(g)), if Employee’s employment is terminated
involuntarily by the Company without Cause pursuant to this Section 1(b), the
Company shall:

(i)  pay
Employee all compensation and benefits accrued, but unpaid, up to the effective
date of termination;

(ii)  pay
Employee in a lump sum six (6) month’s Base Salary in effect as of the
effective date of termination;

(iii)  pay
Employee in a lump sum within thirty (30) days after termination; a pro rata
portion of Employee’s target incentive bonus (“Target Incentive Bonus”) for the
calendar year in which Employee’s employment is terminated as provided in this
Section 1(b), such portion to be based on the number of full months for which
Employee was employed during the year of termination;

(iv)  maintain
Employee’s group medical coverage until the earlier of (a) the end of a period
of six (6) months following the effective date of such termination, or (b)
until such time as comparable medical coverage is obtained by the Employee; and

(v)  allow all
vested options or other incentive securities to be exercised pursuant to the
terms of the option agreement or other agreements under which such options or
other incentive securities were granted.

(c) 
Termination by Employee for Good Reason.  Employee may terminate her employment under
this Agreement for Good Reason upon the provision of advance written notice to
the Company specifying in reasonable detail the events or conditions upon which
Employee is basing such termination.  The
Company will be given the opportunity, but shall have no obligation, to “cure”
such events or conditions within thirty (30) days after the provision by
Employee of such notice.  Subject to the
provisions of Section 1(g) hereof (concerning termination in connection with a
Change of Control), if the Company elects in a written notice to Employee not
to cure such events or conditions or otherwise fails to so cure such events or
conditions within such thirty (30) day period, Employee may terminate her
employment with the Company for Good Reason pursuant to this Section 1(c) and
in the event of such termination, the Company shall:

(i)  pay
Employee all compensation and benefits accrued, but unpaid, up to the effective
date of termination;

(ii)  pay
Employee in a lump sum six (6) month’s Base Salary in effect as of the
effective date of termination;

(iii)  pay
Employee within thirty (30) days after termination a pro rata portion of
Employee’s Target Incentive Bonus for the calendar year in which Employee’s
employment is terminated as provided in this Section 1(c), such portion to be
based on the number of full months for which Employee was employed during the
year of termination;

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(iv)  maintain
Employee’s group medical coverage until the earlier of (a) the end of a period
of six (6) months following the effective date of such termination, or (b)
until such time as comparable medical coverage is obtained by the Employee; and

(v)  allow all
vested options or other incentive securities to be exercised pursuant to the
terms of the option agreement or other agreements under which such options or
other incentive securities were granted.

For purposes of this Agreement, Good Reason means any
one or more of the following events or conditions:

(A)  the
Company’s material breach of any of the terms of this Agreement;

(B)  the
Company’s requiring Employee, without her consent, to relocate from her
residence or to commute more than fifty (50) miles from the offices of the
Company at which she was principally employed on the date of this Agreement;

(C)  a
diminution in Employee’s Vice President title, or material diminution in the
duties or responsibilities or conditions of her employment from those in effect
on the date hereof; or

(D)  a reduction
by more than twenty percent (20%) in Employee’s annual Base Salary as in effect
on the date of this Agreement or as the same may be increased from time to time
after such date and prior to the delivery of such notice (other than such a
reduction applicable generally to substantially all employees of the Company).

(d) 
Termination by Employee without Good Reason (Voluntary Resignation).  Employee may voluntarily resign her position
and terminate her employment under this Agreement without Good Reason at any
time.  Upon such a termination, the
Company shall have no obligation to pay compensation and provide benefits to
Employee other than the payment of all accrued and unpaid Base Salary and any
other unpaid expenses or expense reimbursements prior to the effective date of
such termination.

(e) 
Disability. 
If Employee becomes disabled for more than one hundred eighty (180) days
in any twelve (12) month period, the Company shall have the right to terminate
Employee’s employment without further liability upon written notice to
Employee.  Without limiting the
generality of the foregoing, Employee shall be deemed disabled for purposes of
this Agreement either (i) if Employee 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, Employee cannot
perform Employee’s duties.  In the event
the Company shall terminate Employee due to disability, as described above,
Employee shall be entitled to receive only those benefits provided under the
Company’s Long Term Disability Plan, and Employee’s stock options and other
incentive compensation grants will be treated under the applicable Disability
section of the 2004 Stock Incentive Plan (the “2004 Plan”) or any other stock
option or incentive compensation plan of the Company under which they were
granted.

(f) 
Death. 
In the event of the death of Employee, this Agreement shall
automatically terminate and any obligation to continue to pay compensation and
benefits shall cease as of the date of death, except for the payment of all
accrued, but unpaid, Base

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Salary and any other unpaid expenses or expense reimbursement prior to
the date of death.  In the event of
Employee’s death, Employee’s stock options and other incentive compensation
grants shall be treated under the applicable Death section of the 2004 Plan or
any other stock option or incentive compensation plan of the Company under
which they were granted.

(g)  Change
in Control Termination.

(i) 
Benefits.  In
the event Employee’s employment under this Agreement is terminated by the
Company involuntarily without Cause or Employee terminates her employment with
the Company for Good Reason as defined in Section 1(c), 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, the Company shall:

(A) pay Employee all compensation and benefits
accrued, but unpaid, up to the effective date of termination;

(B) pay Employee a lump sum amount equal to nine (9)
month’s Base Salary in effect as of the effective date of termination;

(C) pay Employee a lump sum amount equal to seventy-five
percent (75%) of the Employee’s Target Incentive Bonus;

(D) maintain Employee’s group medical coverage until
the earlier of (a) the end of a period of nine (9) months following the
effective date of termination or (b) such time as comparable medical coverage
is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding,
Employee shall not be entitled to any of the benefits set forth in this Section
1(g)(i) if Employee either resigns and terminates such employment voluntarily
(other than for Good Reason, as described above) or is terminated by the
Company for Cause.

For purposes of Section 1(g) hereof, the term the “Company” shall
include any Acquiring Company (as defined below), and all obligations of the
Company under such Section shall be assumed by any Acquiring Company.

(ii) 
Stock Options. 
In the event Employee’s employment under this Agreement is terminated by
the Company involuntarily without Cause or Employee terminates her employment
with the Company 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:

(A) notwithstanding anything to the contrary contained
in the 2004 Plan or any other stock option or incentive compensation plan of
the Company, any unvested stock options or other incentive securities which
were granted to Employee during the term of this Agreement under the 2004 Plan
or any such other stock option or incentive compensation plan shall immediately
vest on the date of such  termination
of Employee’s employment, the expiration date of the exercise period for such
options or other securities shall be the earlier of (1) one (1) year following
the date of termination or (2) the expiration of the term of the option, and
the Company shall take all actions necessary or advisable to give effect to
this Section 1(g)(ii)(A); and

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(B) all vested options or other incentive securities
held by Employee which were issued pursuant to the 2004 Plan or any such other
plan shall be exercisable pursuant to the terms of the stock option agreement
or other agreement(s) under which the options or other incentive securities
were granted, and the Company shall take all actions necessary or advisable to
give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding,
Employee shall not be entitled to any of the benefits set forth in this Section
1(g)(ii) if Employee either resigns and terminates such employment voluntarily
(other than for Good Reason, as described above) or is terminated by the
Company for Cause.

(iii)  Definition
of “Change in Control.” 
The definition of “Change in Control” set forth in the 2004 Plan is
incorporated, and made a part hereof, by reference.

(iv) 
Definition of “Acquiring Company.”  For purposes of Section
1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or
surviving corporation, or the company issuing cash or securities (or its
ultimate parent company), in a merger, sale, asset purchase, or assignment of
all or substantially all of the Company’s assets, consolidation or share
exchange involving the Company, or the successor corporation to the Company
(whether in any such transaction or otherwise).

2.  GENERAL RELEASE.  Notwithstanding anything in
this Agreement to the contrary, no payments shall be made or benefits provided
by the Company under Section 1 prior to the execution by Employee at the time
of termination of a general release in favor of the Company and its affiliates,
and its and their respective officers, employees and directors.  A form of general release is attached hereto
as Exhibit A.

3.  TAXES. 
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.  Notwithstanding anything herein to the
contrary, if any payments due under this Agreement would subject the Employee
to any tax imposed under Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”) if such payments were made at the
time otherwise provided herein, then the payments that cause such taxation
shall be payable in a single lump sum on the first day which is at least six
(6) months after the date of the Employee’s ”separation of service”
as set forth in Code Section 409A and the regulations issued thereunder.

4.  NON-COMPETITION;
NON-SOLICITATION.

(a)  Restrictions.  Employee shall not, during the course of
Employee’s employment with the Company or for a period of twelve (12) months
thereafter, directly or indirectly:

(i) be employed by, engaged in or participate in the
ownership, management, operation or control of, or act in any advisory or other
capacity (including as an individual, principal, agent employee, consultant or
otherwise) 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 any of the foregoing,
Employee may make solely passive investments in any Competing Entity the common
stock of which is “publicly held” and of which Employee shall not own or
control, directly or indirectly, in the aggregate securities which constitute
5% or more of the voting power of such Competing Entity;

(ii) solicit or divert any business or any customer or
known prospective customer from the Company or assist any person or entity in
doing so or attempting to do so;

 5
 

(iii) cause or seek to cause any person or entity to
refrain from dealing or doing business with the Company or assist any person or
entity in doing so; or

(iv) solicit for employment, or advise or recommend to
any other person or entity that he, she or it 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.

(b)  Effect on the Company’s Obligations.  The Company’s obligation to make payments and
provide the other benefits pursuant to Section 1 above shall terminate in the
event that, and at such time as, Employee is in breach of Employee’s
obligations set forth in Section 4(a) above.

(c) 
Definitions. 
For purposes of this Section 4:

(i) “Competing Entity” means any entity which is
presently or hereafter principally engaged in any business of the type or
character engaged in or proposed to be engaged in by the Company from time to
time during Employee’s term of employment under this Agreement, including
without limitation, any business engaged in the discovery and development of
human therapeutic products for any of the same targets and for indications as
products the Company had in development or was marketing at any time during
Employee’s term of employment under this Agreement.

(ii) “Territory” means North America, Europe and
Japan.

Notwithstanding anything in the above to the contrary, Employee may
engage in the activities set forth in Section 4(a) hereof with the prior
written consent of the Company, which consent shall not be unreasonably
withheld.  Further, in determining
whether a specific activity by Employee for a Competing Entity shall be
permitted, the Company will consider, among other things, the nature and scope
of (A) the duties to be performed by Employee and (B) the business
activities of the Competing Entity at the time of Employee’s proposed
engagement by such entity.

(d)  Acknowledgement.  Employee 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).  Employee acknowledges and
agrees that, in the event that Employee breaches any of the covenants set forth
in this Section, the Company shall be irreparably harmed and shall 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 4 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.

5.  ARBITRATION.  Any and all disputes between the parties
(except actions to enforce the provisions of Section 4 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, may 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 (hereinafter, “Rules”).  The initiation and conduct of any arbitration

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hereunder shall be in
accordance with the Rules and, unless expressly required by law, each side
shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted
in Princeton, New Jersey or at such other location as mutually agreed by the
parties.  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 any United States District Court in the State of New
Jersey.  The parties consent to the
jurisdiction of (and the laying of venue in) any such court.

6.  NOTICES.  For the purposes of this Agreement,
notices, demands and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or (unless otherwise specified) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed as follows:

	
  

  	
  (a)

  	
  If to the Company, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Pharmacopeia,
  Inc.

  
	
   

  	
   

  	
  3000 Eastpark
  Blvd.

  
	
   

  	
   

  	
  Cranbury, NJ
  08512

  
	
   

  	
   

  	
  Attn.: General
  Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  If to Employee, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Maria L. Webb, Ph.D.

  

 

or to such other address
as a party hereto shall designate to the other party by like notice, provided
that notice of a change of address shall be effective only upon receipt
thereof.

7.  WAIVER.  The waiver by the Company or Employee of any
breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by Employee or the Company, as applicable of
any provision of this Agreement.

8.  SEVERABILITY.  The parties have carefully reviewed the
provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of
differing interpretations of law and changes of circumstances, the parties
agree that 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.  Moreover, if any of the provisions of this
Agreement is determined by a court of competent jurisdiction to be excessively
broad as to duration, activity, geographic application or subject, it shall be
construed by limiting or reducing it to the extent legally permitted so as to
be enforceable to the extent compatible with then applicable law.

9.  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
Employee.  This Agreement may not be
assigned by Employee.  This Agreement may
be assigned to any successor in interest to the Company (including by way of
merger, consolidation or reorganization, or by way of any assignment of all or
substantially all of the Company’s assets, business or properties), and
Employee hereby consents to such assignment.

10.  ENTIRE
AGREEMENT; AMENDMENTS. 
This Agreement and the applicable bylaws and policies of the Company,
constitute the entire Agreement between the parties hereto and there are no
other understandings, agreements or representations, expressed or implied.  This Agreement supersedes

 7
 

any and all prior or
contemporaneous agreements, oral or written, concerning Employee’s employment
and compensation.  This Agreement may be
amended only in writing signed by Employee and the Chief Executive Officer or
the General Counsel of the Company.

11.  COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

12.  GOVERNING
LAW; FORUM SELECTION. 
This Agreement shall be governed by and construed in accordance with the
laws (other than conflicts of laws principles) of the State of New Jersey
applicable to contracts executed in and to be performed entirely within such
State.  The parties consent to
jurisdiction and laying of venue in the state and federal courts of New Jersey
for purposes of resolving disputes under this Agreement

IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the date first
set forth above.

	
   

  	
  PHARMACOPEIA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Leslie J. Browne

  	
   

  
	
   

  	
   

  	
  Leslie J. Browne, Ph.D.

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Maria L.
  Webb

  	
   

  
	
   

  	
   

  	
  Maria L. Webb,
  Ph.D.

  

 

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EXHIBIT A

General
Release

IN CONSIDERATION
OF the terms and conditions contained in the Severance Agreement, dated as of
the 10th day of May, 2007, (the “Severance Agreement”) by and between Maria L.
Webb, Ph.D. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
Employee on behalf of herself and her heirs, executors, administrators, and
assigns, releases and discharges the Company and its subsidiaries, divisions,
affiliates and parents, and their respective past, current and future officers,
directors, employees, agents, and/or owners, and their respective successors,
and assigns and any other person or entity claimed to be jointly or severally
liable with the Company or any of the aforementioned persons or entities
(collectively the “Released Parties”) from any and all manner of actions and causes
of action, suits, debts, dues, accounts, bonds, covenants, contracts,
agreements, judgments, charges, claims, and demands whatsoever (“Claims”) which
Employee and her heirs, executors, administrators, and assigns have, had, or
may hereafter have, against the Released Parties or any of them arising out of
or by reason of any cause, matter, or thing whatsoever from the beginning of
the world to the date hereof.  This
General Release of Claims includes, without limitation, any and all matters
relating to Employee’s employment by the Company and the cessation thereof, and
any and all matters arising under any federal, state, or local statute, rule,
or regulation, or principle of contract law or common law, including but not
limited to, the Family and Medical Leave Act of 1993, as  amended,
29 U.S.C. §§ 2601 et  seq., Title VII of the Civil Rights Act of
1964, as  amended, 42 U.S.C. §§ 2000 et  seq., the
Age Discrimination in Employment Act of 1967, as  amended, 29
U.S.C. §§ 621 et  seq. (the “ADEA”), the Americans with
Disabilities Act of 1990, as  amended, 42 U.S.C. §§ 12101 et
seq., the Worker Adjustment and Retraining Notification Act of 1988, as
amended, 29 U.S.C. §§2101 et  seq., Employee Retirement
Income Security Act of 1974, as  amended, 29 U.S.C. §§ 1001 et
seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A.
10:15-1, et seq., the New Jersey Conscientious Executive Protection Act,
N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a,
et seq., and any other equivalent or similar federal, state, or local statute;
provided, however, that Employee does not release or discharge the Released
Parties from (i) any of the Company’s obligations to her under the Severance
Agreement, and (ii) any vested benefits to which he may be entitled under any
employee benefit plan or program subject to ERISA.  It is understood that nothing in this General
Release is to be construed as an admission on behalf of the Released Parties of
any wrongdoing with respect to Employee, any such wrongdoing being expressly
denied.

Employee
represents and warrants that he fully understands the terms of this General
Release, that he is hereby advised to consult with legal counsel before
signing, and that he knowingly and voluntarily, of her own free will, without
any duress, being fully informed, and after due deliberation, accepts its terms
and signs below as her own free act. Except as otherwise provided herein,
Employee understands that as a result of executing this General Release, he
will not have the right to assert that the Company or any other of the Released
Parties unlawfully terminated her employment or violated any of her rights in
connection with her employment or otherwise.

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Employee further
represents and warrants that he has not filed, and will not initiate, or cause
to be initiated on her behalf any complaint, charge, claim, or proceeding
against any of the Released Parties before any federal, state, or local agency,
court, or other body relating to any claims barred or released in this General
Release thereof, and will not voluntarily participate in such a
proceeding.  However, nothing in this
general release shall preclude or prevent Employee from filing a claim, which
challenges the validity of this general release solely with respect to Employee’s
waiver of any Losses arising under the ADEA. Employee shall not accept any
relief obtained on her behalf by any government agency, private party, class,
or otherwise with respect to any claims covered by this General Release.

Employee may take
twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General
Release, Employee will have seven (7) days after such execution in which he may
revoke such execution. In the event of revocation, Employee must present
written notice of such revocation to the Company’s Chief Executive
Officer.  If seven (7) days pass without
receipt of such notice of revocation, this General Release shall become binding
and effective on the eighth (8th) day after the execution hereof (the
“Effective Date”).

INTENDING TO BE LEGALLY
BOUND, I hereby set my hand below:

	
  

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  
				

 

NOTARIZATION

State of                                                                                                  )

County of                                                                                              )                               ss.

On this             
day of                             
in the year            before
me, the undersigned, personally appeared                                                                     ;
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument, and
acknowledged to me that she executed the same in her capacity as an individual,
and that by her signature on the instrument he executed such instrument, and
that such individual made such appearance before the undersigned.

	
  

  	
   

  	
   

  
	
   

  	
  Notary Public

  

 

 10Exhibit
10.3

This EMPLOYMENT AGREEMENT (this “Agreement”) is made as of March 1,
2007 (the “Effective Date”), by and between SCIENTIFIC GAMES CORPORATION, a
Delaware corporation (the “Company” or “SGC”), and Stephen L. Gibbs (“Executive”).

W
I T N E S S E T H

WHEREAS, Executive has been employed
pursuant to a letter agreement with the Company (the “Original Agreement”); and

WHEREAS, the Company and Executive desire that this
Agreement replace and supersede the Original Agreement;

NOW, THEREFORE, in consideration of the premises and
the mutual benefits to be derived herefrom and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

1.             Termination
of Existing Employment Agreements. 
As of the Effective Date, all existing employment agreements between the
parties, whether oral or written, including the Original Agreement, are hereby
terminated and superseded.

2.             Employment;
Term. The Company hereby agrees to employ Executive, and Executive
hereby accepts employment with the Company, in accordance with and subject to
the terms and conditions set forth herein. The term of employment of Executive
under this Agreement (the “Term”) shall be the period commencing on the
Effective Date and ending on February 28, 2009, as may be extended in
accordance with this Section and subject to earlier termination in accordance
with Section 5. The Term shall be extended automatically without further
action by either party by one additional year (added to the end of the Term),
and then on each succeeding annual anniversary thereafter, unless either party
shall have given written notice to the other party at least ninety (90) days
prior to the date upon which such extension would otherwise have become effective
electing not to further extend the Term, in which case Executive’s employment
shall terminate on the date upon which such extension would otherwise have
become effective, unless earlier terminated in accordance with Section 5.
It is also intended that Executive’s previous term of employment with the
Company shall be included when calculating Executive’s tenure at the Company
for all purposes.

3.             Offices and
Duties.  During the
Term, the Executive will serve as Vice President and Chief Accounting Officer
of the Company, and as an officer or director of any subsidiary or affiliate of
the Company if elected to any such position by the shareholders or by the Board
of Directors of the Company or any subsidiary or affiliate, as the case may be.
In such capacities, the Executive shall perform such duties and shall have such
responsibilities as are normally associated with such positions and as
otherwise may be assigned to the Executive from time to time by the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer or upon the
authority of the Board of Directors of the Company. Subject to Section 5(e),
Executive’s functions, duties and responsibilities are subject to reasonable
changes as the Company may in good faith determine. The Executive hereby agrees
to accept such employment and to serve the Company to the best of the Executive’s
ability in such capacities, devoting substantially all of the Executive’s
business time to such employment.

4.
            Compensation;
Benefits

(a)           Base Salary. 
During the Term the Company shall pay Executive a base salary (the “Base Salary”)
at the initial rate of two hundred and twenty-five thousand dollars ($225,000)
per annum, payable in accordance with the Company’s regular payroll policies
and subject to all withholdings

that
are legally required or are agreed to by Executive. In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute the “Base Salary” for purposes of this Agreement.

(b)           Incentive Compensation.  Executive shall
have the opportunity annually to earn incentive compensation in amounts
determined by the Compensation Committee of the Board of Directors of SGC (the “Compensation
Committee”) in accordance with the applicable incentive compensation plan of
the Company as in effect from time to time (“Incentive Compensation”). Under
such plan, Executive shall have the opportunity to earn up to 35% of Base
Salary as Incentive Compensation (“Target Bonus”).

(c)           Eligibility for Annual Equity Awards.  Executive shall be eligible
to receive an annual grant of stock options or other equity awards, in the sole
discretion of the Compensation Committee, in accordance with the applicable
plans and programs for senior executives of the Company and subject to the
Company’s right to at any time amend or terminate any such plan or program, so
long as any such change does not adversely affect any accrued or vested
interest under any such plan or program.

(d)           Expense
Reimbursement.     The Company shall reimburse
Executive for all reasonable and necessary travel, business entertainment and
other business expenses incurred by Executive in connection with the
performance of Executive’s duties under this Agreement, on a timely basis upon
submission by Executive of vouchers therefore in accordance with the Company’s
standard procedures.

(e)           Health
and Welfare Benefits.   Executive shall be entitled to participate,
without discrimination or duplication, in any and all medical insurance, group
health, disability, life, accidental death, dismemberment insurance, 401(k) or
other retirement, deferred compensation, profit sharing, stock ownership and
such other plans and programs which are made generally available by the Company
to its other executives in accordance with the terms of such plans and programs
and subject to the Company’s right to at any time amend or terminate any such
plan or program. Executive shall be entitled to paid vacation, holidays, and
any other time off in accordance with the Company’s policies in effect from
time to time.

(f)            Taxes and Internal Revenue
Code 409A.  Payment of all
compensation and benefits to Executive specified in this Section 4 and in
Section 5 of this Agreement shall be subject to all legally required and
customary withholdings. The Company makes no representations regarding the tax
implications of the compensation and benefits to be paid to Executive under
this Agreement, including, without limitation, under Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), and applicable
administrative guidance and regulations. 
Internal Revenue Code Section 409A governs plans and arrangements that
provide “nonqualified deferred compensation” (as defined under the Code) which
may include, among others, nonqualified retirement plans, bonus plans, stock
option plans, employment agreements and severance agreements.  The Company reserves the right to provide
compensation and benefits under any plan or arrangement in amounts, at times
and in a manner that minimizes taxes, interest or penalties as a result of
Section 409A. In addition, in the event any benefits or amounts paid hereunder
are deemed to be subject to Section 409A, including payments under Section
5 of this Agreement, Executive consents to the Company adopting such conforming
amendments as the Company deems necessary, in its reasonable discretion, to
comply with Section 409A (including, but not limited to, delaying payment
until six months following termination of employment).

5.                                       Termination
of Employment.  Executive’s
employment hereunder may be terminated prior to the end of the Term under the
following circumstances:

(a)           Termination
by Executive for Other than Good Reason.  Executive may
terminate his employment hereunder for any reason or no reason upon 60 days’
prior written notice to the Company referring to this Section 5(a);
provided, however, that a termination of Executive’s employment for “Good
Reason” (as defined below) shall not constitute a termination by Executive for
other than Good Reason pursuant to this Section 5(a). In the event the
Executive terminates his employment for other than

Good Reason, the Executive shall be entitled only to
the following compensation and benefits (collectively, the “Standard Termination Payments”):

(i)            Any accrued but unpaid Base Salary (as determined
pursuant to Section 4(a)) for services rendered to the date of termination
paid to Executive in accordance with regular payroll policies;

(ii)           All vested nonforfeitable amounts owing or accrued at the
date of termination under benefit plans, programs, and arrangements set forth
or referred to in Section 4 hereof in which Executive theretofore
participated will be paid under the terms and conditions of such plans,
programs, and arrangements (and agreements and documents thereunder);

(iii)          Except as provided in Section 6.6, all stock options
and other equity awards will be governed by the terms of the plans and programs
under which the options or other awards were granted; and

(iv)          Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed in accordance with
Section 4(d).

(b)           Termination
by Reason of Death. 
If Executive dies during the Term of this Agreement, the Company shall
pay to the last beneficiary designated by the Executive by written notice to
the Company or, failing such designation, to Executive’s estate, the following amounts:

(i)            The
Standard Termination Payments (as defined in Section 5(a)); and

(ii)           A
lump sum payment equal to Executive’s annual Base Salary, payable within 30
days of termination.

(c)           Termination By Reason of Total
Disability.  Executive and
the Company agree that Executive may not reasonably be expected to be able to
perform his duties and the essential functions of his office in the event of
the Executive’s “Total Disability.” For
purposes of this Agreement, “Total Disability” shall mean Executive’s
(a) becoming eligible to receive benefits under any long-term disability
insurance program or (b) failure to perform the duties and
responsibilities contemplated under this Agreement for a period of more than
180 days during any consecutive 12-month period due to physical or mental
incapacity or impairment. In the event that Executive’s employment is
terminated by reason of Total Disability, the Company shall pay the following
amounts, and make the following other benefits available, to Executive:

(i)            The
Standard Termination Payments (as defined in Section 5(a));

(ii)           An amount equal to the sum
of (A) Executive’s annual Base Salary and (B) Executive’s “Severance Bonus
Amount” (as defined below) payable over a period of twelve (12) months after
termination in accordance with Section 5(f) of this Agreement, provided such
amount shall be reduced by any disability payments provided to Executive as a
result of any disability plan sponsored by the Company or its affiliates
providing benefits to Executive. For purposes of this Agreement, “Severance
Bonus Amount” shall mean  an amount
equal to the highest annual Incentive Compensation paid to Executive in
respect of the two most recent fiscal years of the Company but not more than
the Executive’s Target Bonus for the-then current fiscal year;

(iii)          In lieu of any Incentive
Compensation for the year in which such termination of employment occurs,
payment of an amount equal to (A) the highest annual Incentive
Compensation paid to Executive in respect of the two most recent fiscal years
of the Company but not more than Executive’s Target Bonus for the year of
termination, multiplied by (B) a fraction the numerator of which is the
number of days Executive was employed in the year of termination and the
denominator of which is the total number of days in the year of termination,
payable as and when such Incentive Compensation would otherwise have been
payable under Section 4(b); and

(iv)          If Executive elects to
continue medical coverage under the Company’s group health plan in accordance
with COBRA, the Company shall pay the monthly premiums for such coverage for a
period of twelve (12) months.

(d)           Termination by the Company
for Cause.   The Company may terminate Executive’s
employment hereunder for “Cause” upon written notice to Executive referring to
this Section 5(d). For purposes of this Agreement, the term “Cause” shall
mean (i) gross neglect by the Executive of the Executive’s duties
hereunder; (ii) conviction (including conviction on a nolo contendere plea) of the
Executive of any felony; (iii) conviction (including conviction on a nolo contendere plea) of the
Executive of any non-felony crime or offense involving the property of the
Company or any of its subsidiaries or affiliates or evidencing moral turpitude;
(iv) willful misconduct by the Executive in connection with the
performance of the Executive’s duties hereunder; (v) intentional breach by
the Executive of any material provision of this Agreement; (vi) material
violation of material provision of the Company’s Code of Conduct; or (vii) any
other willful or grossly negligent conduct on the part of the Executive which
would make the Executive’s continued employment by the Company materially
prejudicial to the best interests of the Company.  In the event that
Executive’s employment is terminated by the Company for Cause, the Executive
shall be entitled to receive only the Standard Termination Payments (as defined
in Section 5(a)).

(e)           Termination
by the Company Without Cause or by Executive for Good Reason.  The Company may terminate Executive’s
employment hereunder at any time, without Cause, for any reason or no reason,
and Executive may terminate his
employment hereunder for “Good Reason.” For purposes of this Agreement, “Good
Reason” shall mean that without Executive’s prior written consent, any of the
following shall have occurred:  (i) a material change, adverse to
Executive, in Executive’s positions, titles, offices, or duties as provided in
Section 3, except, in such case, in connection with the termination of
Executive’s employment for Cause, Total Disability or death; (ii) an
assignment of any significant duties to Executive which are inconsistent with
Executive’s positions or offices held under Section 3; (iii) a
decrease in Base Salary or material decrease in Executive’s incentive
compensation opportunities provided under this Agreement; and (iv) any
other failure by the Company to perform any material obligation under, or
breach by the Company of any material provision of, this Agreement; provided,
however, that a termination by Executive for Good Reason under any of clauses
(i) – (iv) of this Section 5(e) shall not be considered effective unless
Executive shall have provided the Company with written notice of the specific
reasons for such termination within thirty (30) days after he has knowledge of
the event or circumstance constituting Good Reason and the Company shall have
failed to cure the event or condition allegedly constituting Good Reason within
thirty (30) days after notice has been given to the Company. In the event that
Executive’s employment is terminated by the Company without Cause or by
Executive for Good Reason, the Company shall pay the following amounts, and
make the following other benefits available, to Executive:

(i)            The Standard Termination Payments
(as defined in Section 5(a));

(ii)           An amount equal to the sum of (A) Executive’s annual Base
Salary and (B) Executive’s Severance Bonus Amount payable over a period of
twelve (12) months after termination in accordance with Section 5(f) of this
Agreement;

(iii)          Except to the extent otherwise provided at the time of
grant under the terms of any equity award made to Executive, all stock options,
deferred stock, restricted stock and other equity-based awards held by
Executive at termination will become fully vested and non-forfeitable, and, in
all other respects, all such options and other awards shall be governed by the
plans and programs and the agreements and other documents pursuant to which the
awards were granted;

(iv)          In lieu of any Incentive Compensation for the year in which
such termination of employment occurs, payment of an amount equal to
(A) the highest annual Incentive Compensation paid to Executive in respect
of the two most recent fiscal years of the Company but not more than the
Executive’s Target Bonus for the year of termination, multiplied by (B) a
fraction the numerator of which is the number of days Executive was employed in
the year of termination and the denominator of

which is the total number of days in the year of termination, payable
as and when such Incentive Compensation would otherwise have been payable under
Section 4(b); and

(v)           If Executive elects to continue medical coverage under the
Company’s group health plan in accordance with COBRA, the Company shall pay the
monthly premiums for such coverage for a period of twelve (12) months.

(f)            Timing of Certain Payments Under
Section 5.  Payments
pursuant to Sections 5(c)(ii) or 5(e)(ii) of this Agreement, if any, shall be
payable in equal installments in accordance with the Company’s standard payroll
practices over a period of twelve (12) months following the date of
termination; provided, however, that if necessary to comply with Section 409A
of the Code, and applicable administrative guidance and regulations, such
payments shall be made as follows:  (1)
no payments shall be made for a six-month period following the date of
termination, (2) an amount equal to the aggregate sum that would have been
otherwise payable during the initial six-month period shall be paid in a lump
sum six months following the date of termination, and (3) during the period beginning
six months following the date of termination through the remainder of the
twelve-month period, payment of the remaining amount due shall be payable in
equal installments in accordance with the Company’s standard payroll practices.
In addition, notwithstanding any other provision with respect to the timing of
payments under this Agreement, if necessary to comply with Section 409A of the
Code, and applicable administrative guidance and regulations, amounts payable
following termination of employment in a lump sum, including pursuant to
Sections 5(c)(iii) and 5(e)(iv) of this Agreement, shall instead be paid six
months following the date of termination.

(g)           No Obligation to Mitigate.  The Executive shall have no obligation to mitigate
damages pursuant to this Section 5, but shall be obligated to promptly advise
the Company regarding any compensation earned or any payments that will become
due with respect to services provided to another employer during any period of
continued payments pursuant to this Section 5. The Company’s obligation to make
continued payments to the Executive shall be reduced by any compensation earned
by the Executive during the severance period (without regard to when such
compensation is paid).

(h)           Set-Off.  To the fullest extent permitted by law, any
amounts otherwise due the Executive hereunder (including, without limitation,
any payments pursuant to this Section 5) shall be subject to set-off with
respect to any amounts the Executive otherwise owes the Company or any
subsidiary or affiliate thereof.

(i)            No Other Benefits or Compensation. 
Except as may be provided under this Agreement, under any other written
agreement between Executive and the Company, or under the terms of any plan or
policy applicable to Executive, Executive shall have no right to receive any
other compensation from the Company, or to participate in any other plan,
arrangement or benefit provided by the Company, with respect to any future
period after such termination or resignation.

(j)            Release of
Employment Claims; Compliance with Section 6.  Executive
agrees, as a condition to receipt of any termination payments and benefits
provided for in Section 5 (other than the Standard Termination Payments),
that Executive will execute a general release agreement, in a form reasonably
satisfactory to the Company, releasing any and all claims arising out of
Executive’s employment (other than enforcement of this Agreement).  The
Company’s obligation to make any termination payments and benefits provided for
in Section 5 (other than the Standard Termination Payments) shall
immediately cease if Executive willfully and materially breaches
Section 6.1, 6.2 , 6.3, 6.4, or 6.8.

6.             Noncompetition;
Nonsolicitation; Nondisclosure; etc.

6.1           Noncompetition; Nonsolicitation .

(a)           Executive acknowledges the highly competitive nature of
the Company’s business and that access to the Company’s confidential records
and proprietary information renders Executive

special and unique within
the Company’s industry. In consideration of the amounts that may hereafter be
paid to Executive pursuant to this Agreement (including, without limitation,
Sections 4 and 5), Executive agrees that during the Term (including any
extensions thereof) and during the Covered Time (as defined in Section 6.1(e)),
Executive, alone or with others, will not, directly or indirectly, engage (as
owner, investor, partner, stockholder, employer, employee, consultant, advisor,
director or otherwise) in any Competing Business. For purposes of this Section
6, “Competing Business” shall mean any business: (i) involving design and
production of instant lottery tickets and the management of related marketing
and distribution programs; manufacture, sale, operation or management of
on-line lottery systems (Lotto-type games), video gaming, including fixed odds
betting terminals and video lottery terminals; development and
commercialization of licensed and other proprietary game entertainment for all
lottery product channels; provision of wagering (whether pari-mutuel (pooled)
or otherwise) or venue management services for racetracks and off-track betting
facilities; production of prepaid cellular phone cards; or any other business
in which the Company or its affiliates is then or was within the previous
twelve (12) months engaged or in which the Company, to Executive’s knowledge,
intends to engage during the Term or the Covered Time (as defined below);
(ii) in which the Executive was engaged or involved (whether in an
executive or supervisory capacity or otherwise) on behalf of the Company or
with respect to which the Executive has obtained proprietary or confidential
information; and (iii) which was conducted anywhere in the United States or in
any other geographic area in which such business was conducted or planned to be
conducted by the Company.

(b)           In further
consideration of the amounts that may hereafter be paid to Executive pursuant
to this Agreement (including, without limitation, Sections 3, 4 and 5),
Executive agrees that during the Term (including any extensions thereof) and
during the Covered Time Executive shall not, directly or indirectly, (i)
solicit or attempt to induce any of the employees, agents, consultants or
representatives of the Company to terminate his, her, or its relationship with
the Company; (ii) solicit or attempt to induce any of the employees, agents,
consultants or representatives of the Company to become employees, agents,
consultants or representatives of any other person or entity; (iii) solicit or
attempt to induce any customer, vendor or distributor of the Company to curtail
or cancel any business with the Company; or (iv) hire any person who, to
Executive’s actual knowledge, is, or was within 180 days prior to such hiring,
an employee of the Company.

(c)           During the Term
(including any extensions thereof) and during the Covered Time, Executive
agrees that upon the earlier of Executive’s (i) negotiating with any Competitor
(as defined below) concerning the possible employment of Executive by the
Competitor, (ii) responding to (other than for the purpose of declining) an
offer of employment from a Competitor, or (iii) becoming employed by a
Competitor, (x) Executive will provide copies of Section 6 of this
Agreement to the Competitor, and (y) in the case of any circumstance
described in (iii) above occurring during the Covered Time, and in the case of
any circumstance described in (i) or (ii) above occurring during the Term or
during the Covered Time, Executive will promptly provide notice to the Company
of such circumstances. Executive further agrees that the Company may provide
notice to a Competitor of Executive’s obligations under this Agreement. For
purposes of this Agreement, “Competitor” shall mean any entity (other than the
Company, its subsidiaries or affiliates) that engages, directly or indirectly,
in the United States in any Competing Business.

(d)           Executive
understands that the restrictions in this Section 6.1 may limit Executive’s
ability to earn a livelihood in a business similar to the business of the
Company but nevertheless agrees and acknowledges that the consideration
provided under this Agreement (including, without limitation, Sections 4 and 5)
is sufficient to justify such restrictions. In consideration thereof and in
light of Executive’s education, skills and abilities, Executive agrees that Executive
will not assert in any forum that such restrictions prevent Executive from
earning a living or otherwise should be held void or unenforceable.

(e)           For purposes of this
Section 6.1, “Covered Time” shall mean the period beginning on the date of termination
of Executive’s employment (the “Date of Termination”) and ending twelve (12)
months after the Date of Termination.

6.2           Proprietary Information; Inventions.

(a)           Executive
acknowledges that during the course of Executive’s employment with the Company
Executive necessarily will have (and during any employment by the Company prior
to the Term has had) access to and make use of proprietary information and
confidential records of the Company. Executive covenants that Executive shall
not during the Term or at any time thereafter, directly or indirectly, use for
Executive’s own purpose or for the benefit of any person or entity other than
the Company, nor otherwise disclose to any individual or entity, any such
proprietary information, unless such disclosure has been authorized in writing
by the Company or is otherwise required by law. The term “proprietary
information” means: (i) the software products, programs, applications, and
processes utilized by the Company; (ii) the name and/or address of any customer
or vendor of the Company or any information concerning the transactions or
relations of any customer or vendor of the Company with the Company; (iii) any
information concerning any product, technology, or procedure employed by the
Company but not generally known to its customers or vendors or competitors, or
under development by or being tested by the Company but not at the time offered
generally to customers or vendors; (iv) any information relating to the Company’s
computer software, computer systems, pricing or marketing methods, sales
margins, cost of goods, cost of material, capital structure, operating results,
borrowing arrangements or business plans; (v) any information identified as
confidential or proprietary in any line of business engaged in by the Company;
(vi) any information that, to Executive’s actual knowledge, the Company
ordinarily maintains as confidential or proprietary; (vii) any business plans,
budgets, advertising or marketing plans; (viii) any information contained in
any of the Company’s written or oral policies and procedures or manuals; (ix)
any information belonging to customers, vendors or any other person or entity
which the Company, to Executive’s actual knowledge, has agreed to hold in
confidence; and (x) all written, graphic, electronic data and other material
containing any of the foregoing. Executive acknowledges that information that
is not novel or copyrighted or patented may nonetheless be proprietary
information. The term “proprietary information” shall not include information
generally known or available to the public or generally known or available to
the industry or information that becomes available to Executive on an
unrestricted, non-confidential basis from a source other than the Company or
its directors, officers, employees, or agents (without breach of any obligation
of confidentiality of which Executive has actual knowledge at the time of the
relevant disclosure by Executive).

(b)           Executive agrees
that all process­es, technologies and inventions (collectively, “Inven­tions”),
including new contributions, improvements, ideas and discov­eries, whether
patentable or not, conceived, developed, invented or made by Executive during
the Term (and during any employment by the Company prior to the Term) shall
belong to the Company, provided that such Inventions grew out of the Executive’s
work with the Company or any of its subsidiaries or affiliates, are related in
any manner to the business (commercial or experimental) of the Company or any
of its subsidiaries or affiliates or are conceived or made on the Company’s
time or with the use of the Com­pany’s facilities or materials. Executive shall
further:  (i) promptly disclose such
Inventions to the Company; (ii) assign to the Company, without additional
compensation, all patent and other rights to such Inventions for the United
States and foreign countries; (iii) sign all papers necessary to carry out the
foregoing; and (iv) give testimony in support of the Executive’s inventorship.
If any Invention is described in a patent appli­cation or is disclosed to third
parties, directly or indirectly, by the Executive within two years after the
termination of the Executive’s employment by the Company, it is to be pre­sumed
that the Invention was con­ceived or made during the Term. Executive agrees
that Execu­tive will not assert any rights to any Invention as having been made
or acquired by Executive prior to the date of this Agreement, except for
Inventions, if any, disclosed in Exhibit A to this Agreement.

6.3           Confidentiality and Surrender of Records.  Executive shall not during the Term or at any
time thereafter (irrespective of the circumstances under which Executive’s
employment by the Company terminates), except as required by law, directly or
indirectly publish, make known or in any fashion disclose any confidential
records to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual’s or entity’s
employment or retention by the Company, nor shall Executive retain, and will
deliver promptly to the Company, any of the same following termination of
Executive’s employment hereunder for any reason or upon request by the Company.
For purposes hereof, “confidential records” means those portions of
correspondence, memoranda, files, manuals, books, lists, financial, operating
or marketing records, magnetic tape, or electronic or other media or equipment
of any kind in Executive’s possession or under Executive’s control

or
accessible to Executive which contain any proprietary information. All
confidential records shall be and remain the sole property of the Company
during the Term and thereafter.

6.4           Nondisparagement.  Executive shall not, during the Term and
thereafter, disparage in any material respect the Company, any affiliate of the
Company, any of their respective businesses, any of their respective officers,
directors or employees, or the reputation of any of the foregoing persons or
entities. Notwithstanding the foregoing, nothing in this Agreement shall preclude
Executive from making truthful statements that are required by applicable law,
regulation or legal process.

6.5           No Other Obligations.  Executive represents that Executive is not
precluded or limited in Executive’s ability to undertake or perform the duties
described herein by any contract, agreement or restrictive covenant. Executive
covenants that Executive shall not employ the trade secrets or proprietary
information of any other person in connection with Executive’s employment by
the Company without such person’s authorization.

6.6           Forfeiture of Outstanding
Options. The provisions of Section 5 notwithstanding, if Executive
willfully and materially fails to comply with Section 6.1, 6.2, 6.3, 6.4, or
6.8, all options (whether granted prior to, contemporaneous with, or subsequent
to this Agreement) to purchase common stock granted by the Company and held by
Executive or a transferee of Executive shall be immediately forfeited and
cancelled.

6.7           Enforcement.  Executive acknowledges and agrees that, by virtue
of Executive’s position, services and access to and use of confidential records
and proprietary information, any violation by Executive of any of the
undertakings contained in this Section 6 would cause the Company immediate,
substantial and irreparable injury for which it has no adequate remedy at law.
Accordingly, Executive agrees and consents to the entry of an injunction or
other equitable relief by a court of competent jurisdiction restraining any
violation or threatened violation of any undertaking contained in this Section
6. Executive waives posting of any bond otherwise necessary to secure such
injunction or other equitable relief. Rights and remedies provided for in this
Section 6 are cumulative and shall be in addition to rights and remedies otherwise
available to the parties hereunder or under any other agreement or applicable
law.

6.8           Cooperation with Regard to Litigation.  Executive agrees to cooperate reasonably with
the Company, during the Term and thereafter (including following Executive’s
termination of employment for any reason), by being available to testify on
behalf of the Company in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative. In addition, except to the extent
that Executive has or intends to assert in good faith an interest or position
adverse to or inconsistent with the interest or position of the Company,
Executive agrees to cooperate reasonably with the Company, during the Term and
thereafter (including following Executive’s termination of employment for any
reason), to assist the Company in any such action, suit, or proceeding by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, in
each case, as reasonably requested by the Company. The Company agrees to pay
(or reimburse, if already paid by Executive) all reasonable expenses actually
incurred in connection with Executive’s cooperation and assistance including,
without limitation, reasonable fees and disbursements of counsel, if any,
chosen by Executive if Executive reasonably determines in good faith, on the
advice of counsel, that the Company’s counsel may not ethically represent
Executive in connection with such action, suit or proceeding due to actual or
potential conflicts of interests.

6.9           Survival. 
The provisions of this Section 6 shall survive the termination of the
Term and any termination or expiration of this Agreement.

6.10         Company. 
For purposes of this Section 6, references to the “Company” shall
include the Company and each subsidiary and/or affiliate of the Company.

7.             Code of Conduct.  Executive acknowledges that he has read the
Company’s Code of Conduct and agrees to abide by such Code, as amended or
supplemented from time to time, and other policies applicable to employees and
executives of the Company.

8.             Indemnification.  The
Company shall indemnify Executive to the full extent permitted under the
Company’s Certificate of Incorporation or By-Laws and pursuant to any other agreements
or policies in effect from time to time in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.

9.             Assignability; Binding Effect.  Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution
and as specified below. The Company may assign this Agreement and the Company’s
rights and obligations hereunder, and shall assign this Agreement and such
rights and obligations, to any Successor (as hereinafter defined) which, by
operation of law or otherwise, continues to carry on substantially the business
of the Company (or a business unit of the Company for which Executive provided
services) prior to the event of succession, and the Company shall, as a
condition of the succession, require such Successor to agree in writing to
assume the Company’s obligations and be bound by this Agreement. For purposes
of this Agreement, “Successor” shall mean any person that succeeds to, or has
the practical ability to control, the Company’s business directly or indirectly,
by merger or consolidation, by purchase or ownership of voting securities of
the Company or all or substantially all of its assets or those relating to a
particular business unit of the Company to which Executive provides services,
or otherwise. The Company may also assign this Agreement and the Company’s
rights and obligations hereunder to any affiliate of the Company, provided that
upon any such assignment the Company shall remain liable for the obligations to
Executive hereunder. This Agreement shall be binding upon and inure to the
benefit of Executive, Executive’s heirs, executors, administrators, and
beneficiaries, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.

10.           Complete
Understanding; Amendment; Waiver. 
This Agreement constitutes the complete understanding between the
parties with respect to the employment of Executive and supersedes all other
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof, and no statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein. This Agreement shall not be modified, amended or
terminated except by a written instrument signed by each of the parties. Any
waiver of any term or provision hereof, or of the application of any such term
or provision to any circumstances, shall be in writing signed by the party
charged with giving such waiver. Waiver by either party of any breach hereunder
by the other party shall not operate as a waiver of any other breach, whether
similar to or different from the breach waived. No delay by either party in the
exercise of any rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by either party of any such right or remedy shall
preclude other or further exercise thereof.

11.           Severability.  If any provision of this Agreement
or the application of any such provision to any person or circumstances shall
be determined by any court of competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement, or the
application of such provision to such person or circumstances other than those
to which it is so determined to be invalid or unenforceable, shall not be
affected thereby, and each provision hereof shall be enforced to the fullest
extent permitted by law. If any provision of this Agreement, or any part
thereof, is held to be invalid or unenforceable because of the scope or
duration of or the area covered by such provision, the parties hereto agree
that the court making such determination shall reduce the scope, duration
and/or area of such provision (and shall substitute appropriate provisions for
any such invalid or unenforceable provisions) in order to make such provision
enforceable to the fullest extent permitted by law and/or shall delete specific
words and phrases, and such modified provision shall then be enforceable and
shall be enforced. The parties hereto recognize that if, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants
contained in this Agreement, then that invalid or unenforceable covenant
contained in this Agreement shall be deemed eliminated from these provisions to
the extent necessary to permit the remaining separate covenants to be enforced.
In the event that any court determines that the time period or the area, or
both, are unreasonable and that any of the covenants is to that extent invalid
or unenforceable, the parties hereto agree that such covenants will remain in
full force and effect, first, for the greatest time period, and second, in the
greatest geographical area that would not render them unenforceable.

12.           Survivability.  The provisions of this Agreement
which by their terms call for performance subsequent to termination of
Executive’s employment hereunder, or of this Agreement, shall so survive such
termination, whether or not such provisions expressly state that they shall so
survive.

13.           Governing
Law; Arbitration.

(a)           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed within that State, without regard to
its conflict of laws provisions.

(b)           Arbitration.  The Executive and the Company agree that,
except for claims for Workers’ Compensation, Unemployment Compensation, and any
other claim that is non-arbitrable under applicable law, final and binding
arbitration shall be the exclusive forum for any dispute or controversy between
them, including, without limitation, disputes arising under or in connection
with this Agreement, Executive’s employment, and/or termination of employment,
with the Company; provided, however, that the Company shall be entitled to
commence an action in any court of competent jurisdiction for injunctive relief
in connection with any alleged actual or threatened violation of any provision
of Section 6. Judgment may be entered on the arbitrators’ award in any court
having jurisdiction. For purposes of entering such judgment or seeking
injunctive relief with regard to Section 6, the Company and Executive hereby
consent to the jurisdiction of any or all of the following courts: (i) the
United States District Court for the Southern District of New York; (ii) the
Supreme Court of the State of New York, New York County; or (iii) any other
court having jurisdiction; provided, that damages for any alleged violation of
Section 6, as well as any claim, counterclaim or crossclaim brought by the
Executive or any third-party in response to, or in connection with any court
action commenced by the Company seeking said injunctive relief shall remain
exclusively subject to final and binding arbitration as provided for herein.
The Company and Executive hereby waive, to the fullest extent permitted by
applicable law, any objection which either may now or hereafter have to such
jurisdiction, venue and any defense of inconvenient forum.  Thus, except for the claims carved out above,
this Agreement includes all common-law and statutory claims (whether arising
under federal state or local law), including, but not limited to, any claim for
breach of contract, fraud, fraud in the inducement, unpaid wages, wrongful
termination, and gender, age, national origin, sexual orientation, marital
status, disability, or any other 
protected status.

(c)           Any arbitration
under this Agreement shall be filed exclusively with the American Arbitration
Association in New York, New York before three arbitrators, in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association in effect at the time of submission to
arbitration.  The Company and Executive
hereby agree that a judgment upon an award rendered by the arbitrators may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  The Company shall pay
all costs uniquely attributable to arbitration, including the administrative
fees and costs of the arbitrators.  Each
party shall pay that party’s own costs and attorney fees, if any, unless the
arbitrators rule otherwise.  The
Executive understands that he is giving up no substantive rights, and this
Agreement simply governs forum.  The
arbitrators shall apply the same standards a court would apply to award any
damages, attorney fees or costs.  The
Executive shall not be required to pay any fee or cost that he would not
otherwise be required to pay in a court action, unless so ordered by the
arbitrators.

(d)           BY SIGNING THIS
AGREEMENT, EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT THE RIGHT TO A COURT
TRIAL AND TRIAL BY JURY IS OF VALUE, AND KNOWINGLY AND VOLUNTARILY WAIVE THAT
RIGHT FOR ANY DISPUTE SUBJECT TO THE TERMS OF THIS ARBITRATION PROVISION.

14.           Titles and
Captions.  All paragraph
titles or captions in this Agreement are for convenience only and in no way
define, limit, extend or describe the scope or intent of any provision hereof.

15.           Joint Drafting.  In recognition of the fact that the parties
hereto had an equal opportunity to negotiate the language of, and draft, this
Agreement, the parties acknowledge and agree that there is no single drafter of
this Agreement and therefore, the general rule that ambiguities are to be
construed against

the
drafter is, and shall be, inapplicable. 
If any language in this Agreement is found or claimed to be ambiguous,
each party shall have the same opportunity to present evidence as to the actual
intent of the parties with respect to any such ambiguous language without any
inference or presumption being drawn against any party.

16.           Notices.  All notices and other
communications to be given or to otherwise be made to any party to this
Agreement shall be deemed to be sufficient if contained in a written instrument
delivered in person or duly sent by certified mail or by a recognized national
courier service, postage or charges prepaid, (a) to Scientific Games
Corporation, Attn General Counsel, at 750 Lexington Avenue, 25th Floor, New York, NY 10022, (b) to the
Executive, at the last address shown in the Company’s records, or (c) to such
other replacement address as may be designated in writing by the addressee to
the addressor.

[Remainder
of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the parties hereto has
duly executed this Agreement on February 8, 2007, to be deemed effective as of
the date first above written.

	
   

  	
  SCIENTIFIC GAMES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  DeWayne Laird

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Stephen L. Gibbs

  

 

EXHIBIT A

LIST OF
PRE-EXISTING INVENTIONS OF EXECUTIVE

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