Document:

Exhibit 10.3

 

DISCOVERY PARTNERS INTERNATIONAL,
INC.

STOCK
ISSUANCE AGREEMENT

UNDER THE

2000 STOCK
INCENTIVE PLAN

 

Pursuant to the terms of the Stock Issuance Grant Notice
(the “Grant Notice”),
this Stock Issuance Agreement (the “Agreement”) (collectively, the “Award”), the par
value of which is in consideration of your services, Discovery Partners
International, Inc. (the “Company”)
has awarded you this Award in the form of a stock issuance (a “Stock Issuance Award”)
under its 2000 Stock Incentive Plan (the “Plan”) or as a right to receive shares of
Common Stock to be issued in the future (a “Share Right”) in the form of a deferred
stock issuance (a “Deferred
Stock Issuance Award”), as indicated in the Grant Notice for the
number of shares of the Company’s common stock (the “Common Stock”) as
indicated in the Grant Notice.  Defined
terms not explicitly defined in this Agreement but defined in the Plan shall
have the same definitions as in the Plan.

 

The
details of your Award are as follows:

 

1.                                      VESTING.  Subject to the limitations contained herein, the
shares of Common Stock subject to your Award or, in the case of a Deferred
Stock Issuance Award, the shares subject to your Share Right(s), will vest as
provided in the Grant Notice, provided that vesting will cease upon the
cessation of your Service.  Upon the vesting of a Share Right, you will
be entitled to receive, within 30 days of the date on which such Share Right
vests, a number of shares of Common Stock equal to the number of shares covered
by such Share Right. All of the Company’s outstanding repurchase rights under
the Award shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights and all of the Share Rights under the Award
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent (i) those repurchase rights are to be assigned to, and
Company’s obligations with respect to Share Rights are assumed by, the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed in this Agreement.

 

2.                                      DIVIDEND EQUIVALENTS. 
An amount (a “Dividend Equivalent”)
will be credited in respect of each Share Right. Each such Dividend Equivalent
will be converted into additional shares covered by your Share Right by
dividing (1) the aggregate amount or value of the dividends paid with respect
to that number of shares of Company Stock equal to the number of shares covered
by your Share Right(s) then credited by (2) the Fair Market Value per share of
Common Stock on the payment date for such dividend.  The additional shares credited by reason of
such Dividend Equivalents will be subject to all the terms and conditions of
the underlying Deferred Stock Issuance Award to which they relate.

 

3.                                       DISTRIBUTION OF SHARES OF
COMMON STOCK.  Notwithstanding
Section 1 above, if your Award is a Deferred Stock Issuance Award, then the
Company shall deliver to you a number of shares of the Common Stock equal to
the number of shares, including any shares received upon conversion of Dividend
Equivalents, covered by your Share Right(s) at such time 

 

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or times as elected in your Grant Notice, but only to
the extent that your Award was vested as of the cessation of your Service; provided, however, that if the cessation
of your Service is due to your death or your permanent and total disability,
then you (or, in the event of your death, a third party whom you designate pursuant
to Section 7 of this Agreement) shall be entitled to receive such distribution
of Common Stock as soon as administratively practicable after the date of such
termination, but only to the extent that your Award was vested as of such date.

 

4.                                      NUMBER OF SHARES.  The number of shares subject to your Award
may be adjusted from time to time for capitalization adjustments as described
in the Plan.

 

5.                                      SECURITIES LAW COMPLIANCE.  You will not be issued any shares of Common
Stock under your Award unless the shares are either (a) then registered under
the Securities Act of 1933 (the “Securities Act”) or (b) the Company has
determined that such issuance would be exempt from the registration
requirements of the Securities Act.  Your
Award must also comply with other applicable laws and regulations governing the
Award, and you will not receive any shares of Common Stock pursuant to your
Award if the Company determines that such receipt would not be in material
compliance with such laws and regulations.

 

6.                                      MARKET-STAND OFF AGREEMENT.  You agree that the Company (or a
representative of the underwriters) may, in connection with any underwritten
registration of the offering of any securities of the Company under the
Securities Act, require that you not sell, dispose of, transfer, make any short
sale of, grant any option for the purchase of, or enter into any hedging or
similar transaction with the same economic effect as a sale with respect to,
any shares of Common Stock or other securities of the Company held by you under
the Award, for a period of time specified by the underwriter(s) (not to exceed
one hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the Securities Act.  You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto.  In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to your Common Stock until the end of such
period.  The underwriters of the Company’s
stock are intended third party beneficiaries of this Section 6 and shall have
the right, power and authority to enforce the provisions hereof as though they
were a party hereto.

 

7.                                      LIMITATIONS ON
TRANSFER.  Your Award is not transferable, except by
will or by the laws of descent and distribution.  Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to receive any distribution of shares of Common Stock pursuant to
Section 3 of this Agreement.  If your Award is a Stock Issuance Award, then in
addition to any other limitation on transfer created by applicable securities
laws, you agree not to assign, hypothecate, donate, encumber or otherwise dispose
of any interest in any of the shares of Common Stock held by you under the
Award while such shares are subject to the Reacquisition Right (as defined in
Section 8 below).  After the
shares have been released from the Reacquisition Right, you are free to assign,
hypothecate, donate, encumber or otherwise

 

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dispose
of any interest in such shares provided that any such actions are in compliance
with the provisions herein and applicable securities laws.

 

8.                                      RIGHT OF
REACQUISITION.

 

(a)                                  With respect to a Stock
Issuance Award, the Company shall have a Reacquisition Right (as defined below)
as to the shares of Common Stock you acquire pursuant to your Award that have
not as yet vested in accordance with the vesting schedule set forth in Section
1 above (the “Unvested Shares”) on
the following terms and conditions:

 

(i)                                    The Company shall, simultaneously with
cessation of your Service, automatically reacquire for no consideration
(monetary or otherwise) all of the Unvested Shares (the “Reacquisition Right”),
unless the Company agrees to waive its Reacquisition
Right as to some or all of the Unvested Shares. 
Any waiver of the Company’s Reacquisition Right shall be exercised by
the Company pursuant to written notice to the Escrow Agent (with a copy to you
or your representative) delivered simultaneous with the Company’s written
notice to the Escrow Agent of your cessation of Service and, upon receipt of
any such waiver, the Escrow Agent may then release to you the number of
Unvested Shares not being reacquired by the Company.  If the Company does not waive its
Reacquisition Right as to all of the Unvested Shares, then upon receipt of the
Company’s written notice of your cessation of Service, the Escrow Agent
automatically shall transfer to the Company the number of shares of Common
Stock the Company is reacquiring.

 

(ii)                                The Unvested Shares shall be held in escrow
pursuant to the terms of the Joint Escrow Instructions attached hereto as
Attachment IV.

 

(iii)                            You agree to (A) execute three (3) copies of
the Assignment Separate From Certificate (with date and number of shares of
Common Stock left blank) substantially in the form attached hereto as
Attachment III, and (B) execute the Joint Escrow Instructions attached hereto
as Attachment IV, and to deliver executed copies of each to the Company on the
Grant Date indicated on your Grant Notice (or such other date as requested by
the Company), along with the certificate or certificates evidencing the shares
of Common Stock subject to this Award, all of which are for use by the Escrow
Agent pursuant to the terms of the Joint Escrow Instructions.

 

(iv)                               The Company’s right to reacquire the shares
of Common Stock subject to your Award (and other property and securities
received in connection therewith) pursuant to this Section 8 shall lapse at the
rate at which the shares of Common Stock vest pursuant to the vesting schedule
set forth in the Grant Notice.

 

(v)                                   Subject to the provisions of your Award
(including, but not limited to, subparagraph 8(a)(vi) herein) and the Plan,
during the term of your Award you shall exercise all rights and privileges of a
stockholder of the Company with respect to the shares of Common Stock deposited
in escrow.  Subject to the provisions of
subparagraph 8(a)(vi) herein, you shall be deemed to be the holder of the
Unvested Shares for purposes of receiving any dividends which may be paid with
respect to such shares and for purposes of exercising any voting rights 

 

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relating
to such shares even if some or all of such shares have not yet vested and been
released from the Company’s Reacquisition Right.

 

(vi)                               If, from time to time, there is any dividend
or any capitalization adjustment as described in Article Four of the Plan, then
in such event any and all new, substituted or additional securities (or other
property or cash, as applicable) to which you are entitled by reason of your
ownership of the Unvested Shares shall be immediately subject to the
Reacquisition Right with the same force and effect as the Unvested Shares
subject to this Reacquisition Right immediately before such event.

 

(vii)                           If at any time during the term of the
Reacquisition Right an event as described in Article Four, Section II, of the
Plan occurs, the Company may assign its Reacquisition Right to any successor of
the Company, and any successor of the Company may assume this Award or
substitute a similar stock award.  If any
surviving corporation or acquiring corporation refuses to assume this Award or
substitute a similar stock award in connection with such event, the Reacquisition
Right shall terminate immediately prior to such event.

 

9.                                      RESTRICTIVE LEGENDS.  The
shares of Common Stock issued under your Award shall be endorsed with
appropriate legends determined by the Company which may include, but shall not
be limited to, the following:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A REACQUISITION RIGHT AND OTHER RESTRICTIONS AND CONDITIONS SET
FORTH IN AN AWARD AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR
SUCH HOLDER’S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY.  ANY
TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH AWARD IS VOID
WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY.”

 

10.                               AWARD NOT A SERVICE
CONTRACT.  Your Award is not an employment
or service contract, and nothing in your Award shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or a Parent or Subsidiary, or on the part of the Company or a Parent or
Subsidiary to continue your employment. 
In addition, nothing in your Award shall obligate the Company or a
Parent or Subsidiary, their respective stockholders, boards of directors or
Employees to continue any relationship that you might have as a member of the
Board or consultant for the Company or a Parent or Subsidiary.

 

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11.                               UNSECURED OBLIGATION.  If your Award is a Deferred Stock Issuance
Award, then your Award is unfunded, and as a holder of a vested Share Right
subject to your Award, you shall be considered an unsecured creditor of the
Company with respect to the Company’s obligation, if any, to issue shares of
Common Stock pursuant to Section 3 of this Agreement.

 

12.                               WITHHOLDING OBLIGATIONS.

 

(a)                                  At the time your Award
is made, at the time that some or all of the shares subject to your Award
become vested, or at any time thereafter as such shares may be issued pursuant
to a Deferred Stock Issuance Award or as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Company or a Parent
or Subsidiary, if any, which arise in connection with your Award.

 

(b)                                  Unless the tax
withholding obligations of the Company and/or any Parent or Subsidiary are
satisfied, the Company shall have no obligation to either issue a certificate
for the shares of Common Stock subject to your Award or approve the release of
such shares of Common Stock from the escrow, as applicable.

 

(c)                                  You may elect to
satisfy the Company’s minimum statutory income tax withholding based upon
minimum statutory withholding rates for United States federal and state tax
purposes that are applicable to such supplemental taxable income by electing to have the Corporation withhold or reduce,
from the shares of Common Stock otherwise issuable to you pursuant to your
Award, a portion of those shares with an aggregate Fair Market Value equal to
the percentage of such statutory income tax withholding (not to exceed one
hundred percent (100%)) as designated by you; provided
that no shares of Common Stock may be withheld or reduced with a
Fair Market Value that exceeds the minimum statutory withholding amount
described above (or such lower amount as may be necessary to avoid variable
award accounting).

 

13.                               FEDERAL TAX CONSEQUENCES.  The acquisition and vesting of the
shares of Common Stock subject to a Stock Issuance Award may have adverse tax
consequences to you that may be avoided or mitigated by filing an election
under Section 83(b) of the Internal Revenue Code, as amended (the “Code”).  Such election must be filed within thirty
(30) days after the date of your Award. 
You acknowledge that the Company has directed you to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of
any municipality, state or foreign country in which you may reside, and the tax
consequences of your death.  YOU FURTHER
ACKNOWLEDGE THAT IT IS YOUR OWN RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE
A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF YOU REQUEST THE COMPANY TO
MAKE THE FILING ON YOUR BEHALF.

 

14.                               NOTICES.  Any notices provided for in your Award or the
Plan shall be given in writing and shall be deemed effectively given upon
receipt or, in the case of notices delivered by 

 

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the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the last address you
provided to the Company.

 

15.                               HEADINGS.  The
headings of the Sections in this Agreement are inserted for convenience only
and shall not be deemed to constitute a part of this Agreement or to affect the
meaning of this Agreement.

 

16.                               AMENDMENT. 
Nothing in this
Agreement shall restrict the Company’s ability to exercise its discretionary
authority pursuant to the Plan; provided,
however, that no such action may, without your consent, adversely
affect your rights under your Award and this Agreement.

 

17.                               MISCELLANEOUS.

 

(a)                                  The rights and obligations of the Company
under your Award shall be transferable to any one or more persons or entities,
and all covenants and agreements hereunder shall inure to the benefit of, and
be enforceable by the Company’s successors and assigns. Your rights and
obligations under your Award may only be assigned with the prior written
consent of the Company.

 

(b)                                  You agree upon request to execute any further
documents or instruments necessary or desirable in the sole determination of
the Company to carry out the purposes or intent of your Award.

 

(c)                                  You acknowledge and agree that you have
reviewed your Award in its entirety, have had an opportunity to obtain the
advice of counsel prior to executing and accepting your Award and fully
understand all provisions of your Award.

 

18.                               GOVERNING PLAN DOCUMENT.  Your Award is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your Award, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the
Plan.  In the event of any conflict
between the provisions of your Award and those of the Plan, the provisions of
the Plan shall control.

 

19.                                 CHOICE OF LAW.  The
interpretation, performance and enforcement of this Agreement shall be governed
by the law of the state of California without
regard to such state’s conflicts of laws rules.

 

20.                               RESOLUTION OF DISPUTES.  To
ensure rapid and economical resolution of any disputes that may arise under the
Plan and this Agreement with respect to your Award, you and the Company agree
that any and all disputes, claims, or controversies of any nature whatsoever
arising from or regarding the interpretation, performance, enforcement or
breach of the Plan and this Agreement with respect to your Award shall be
resolved, to the fullest extent allowed by law, by confidential, final and
binding arbitration conducted by Judicial Arbitration and Mediation Services,
Inc. (“JAMS”)
in San Diego County, California, under the then-existing JAMS rules, using a
single arbitrator.  The arbitration shall
be completed within six (6) months from the date the demand for arbitration is
filed with JAMS, provided that the arbitrator may 

 

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extend
such date for good reason as determined in his sole discretion.  The arbitrator shall: (a) have the authority
to compel adequate discovery for the resolution of the dispute and to award
such relief as would otherwise be permitted by law; and (b) issue a written
arbitration decision including the arbitrator’s essential findings and
conclusions and a statement of the award. 
Nothing in this Agreement is intended to prevent either you or the
Company from obtaining injunctive relief in court to prevent irreparable harm
pending the conclusion of any such arbitration. 
The arbitrator, and not a court, shall be authorized to determine
whether the provisions of this Section 20 apply to a dispute, controversy or
claim sought to be resolved in accordance with these arbitration
procedures.  Notwithstanding the
foregoing, neither party shall be permitted to initiate a demand for
arbitration until it has participated in a non-binding mediation conducted by
JAMS, after providing notice to the other party.  Both parties shall participate in such a
mediation within forty-five (45) days of delivery of such notice.  If the parties cannot mutually agree upon a
mediator within ten (10) days of such notice, then a mediator shall be
designated by JAMS.

 

 

	
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7Exhibit 10.4

 

CHANGE-IN-CONTROL AGREEMENT

FOR CERTAIN EXECUTIVES

OF
DISCOVERY PARTNERS INTERNATIONAL, INC.

MARCH 2005

 

PERSONAL AND CONFIDENTIAL

 

Michael C. Venuti, PhD

Chief Scientific Officer

Discovery Partners International, Inc.

9640 Towne Centre Drive

San Diego, CA 92121

 

Dear Michael:

 

Discovery Partners
International, Inc.  (the
“Company”) considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel.  In this connection, the Board of Directors of
the Company (the “Board”) recognizes that the possibility of a change in
ownership or control of the Company may result in the departure or distraction
of such personnel to the detriment of the Company and its stockholders.  As you are a skilled and dedicated executive
with important management responsibilities and talents, the Company believes
that its best interests will be served if you are encouraged to remain with the
Company.

 

The Company has determined that
your ability to perform your responsibilities and utilize your talents for the
benefit of the Company, and the Company’s ability to retain you as an employee,
will be significantly enhanced if you are provided with fair and reasonable
protection from the risks of a change in ownership or control of the
Company.  Accordingly, in order to induce
you to remain in the employ of the Company, you and
the Company agree as follows:

 

1.               TERM OF AGREEMENT.

 

(a)          GENERALLY. 
Except as provided in Section 1(b) hereof, (i) this Agreement shall
be effective immediately and shall continue in effect through December 31, 2005
and (ii) commencing on January 1, 2006 and each January 1 thereafter, this
Agreement shall be automatically extended for one additional year unless, not
later than September 30th of the preceding year, either party to
this Agreement gives notice to the other that the Agreement shall not be
extended under this Section 1(a); provided, however, that no such notice by the
Company shall be effective if a Change in Control (as defined herein) shall
have occurred within 18 months before the date of such notice.

 

(b)         UPON A CHANGE IN CONTROL.  If a Change in Control shall have occurred at
any time during the period in which this Agreement is effective, this Agreement
shall continue in effect for 365 days beyond the date on which such Change in
Control occurred (such 365-day period hereinafter referred to as the “Protected
Period”).

 

 

2.               “CHANGE IN CONTROL” DEFINED.  A “Change in Control” shall be deemed to have
occurred if, during the term of this Agreement:

 

(a)          any Person becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 15% or
more of the combined voting power of the Company’s then-outstanding
securities.  “Person” has the same
meaning as in section 13(d) or 14(d) of the Securities Exchange Act.  However, for purposes of this Section 2(a), “Person”
does not

include—

 

(A)                              any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or

 

(B)                                any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company);

 

(b)         during any period of 24 months or less (not including
any period before the effective date of this Agreement), individuals who at the
beginning of such period constitute the Board, and any Approved New Directors,
cease for any reason to constitute at least a majority of the Board.  “Approved New Directors” means new
director(s) whose election by the Board or nomination for election by the
Company’s stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or who were themselves Approved New Directors.  However, the following persons cannot be
Approved New Directors—

 

(A)                              a director nominated by a Person who has entered into an
agreement with the Company to effect a transaction described in Sections 2(a),
(c) or (d) of this Agreement,

 

(B)                                a director nominated by any Person who publicly announced an
intention to take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would constitute a
Change in Control,

 

(C)                                a director nominated by any Person who is the beneficial
owner, directly or indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company’s securities; or

 

(c)          the stockholders of the Company approve
any transaction or series of transactions under which the Company is merged or
consolidated with any other company in a Merger.  A “Merger” means any merger or consolidation
except one—

 

(A)                              which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
66-2/3% of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, and

 

 

(B)                                after which no Person holds 15% or more of the combined
voting power of the then-outstanding securities of the Company (if it is the
surviving parent) or such surviving entity.

 

If consummation of a Merger is
subject, at the time of such approval by stockholders, to the consent of any
government or governmental agency or approval of the stockholders of another
entity or other material contingency, no Change in Control shall occur until
such time as such consent and approval has been obtained and any other material
contingency has been satisfied or waived;

 

(d)         the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets; provided,
however, that, if consummation of the transaction referred to in this Section
2(d) is subject, at the time of such approval by stockholders, to the consent
of any government or governmental agency or approval of the stockholders of
another entity or other material contingency, no Change in Control shall occur
until such time as such consent and approval has been obtained and any other
material contingency has been satisfied or waived; or

 

(e)          the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred, provided that the
Board may impose limitations on the effects of a Change in Control or the
payment of amounts or benefits under this Agreement if the Change in Control
has occurred under this Section 2(e) and not under other subsections of this
Section 2.

 

3.               TERMINATION.

 

(a)          TERMINATION BY THE COMPANY FOR CAUSE, BY YOU WITHOUT
GOOD REASON, OR BY REASON OF DEATH OR DISABILITY.  If during the Protected Period your
employment by the Company is terminated by the Company for Cause, by you
without Good Reason, or because of your death or Disability, the Company shall
be relieved of its obligation to make any payments to you other than
(i) its payment of amounts otherwise accrued and owing but not yet paid
and (ii) any amounts payable under then-existing employee benefit programs
at the time such amounts are due.

 

(b)         TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY YOU FOR
GOOD REASON.  If during the Protected
Period your employment by the Company is terminated by the Company without
cause or by you for Good Reason, you shall be entitled to the compensation and
benefits described in this Section 3(b). 
If your employment by the Company is terminated prior to a Change in
Control at the request of a Person engaging in a transaction or series of
transactions that would result in a Change in Control, the Protected Period
shall commence upon the subsequent occurrence of a Change in Control, your
actual termination shall be deemed a termination occurring during the Protected
Period and covered by this Section 3(b), your Date of Termination shall be
deemed to have occurred immediately following the Change in Control, and Notice
of Termination shall be deemed to have been given by the Company immediately
prior to your actual termination.  Your
continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances 

 

 

constituting Good Reason hereunder.  The compensation and benefits provided under
this Section 3(b) are as follows:

 

(i)                                     The
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, no later than
the fifth day following the Date of Termination, and you shall receive all
other amounts to which you are entitled under any compensation or benefit plan
of the Company, at the time such payments are due.

 

(ii)                                  At
the time specified in Section 3(d) hereof, the Company shall pay you, in lieu
of any further salary, bonus or severance payments for periods subsequent to
the Date of Termination, a lump sum amount in cash equal to the sum of:

 

(A)                              (i) your
average bonus for the three prior full calendar years of employment with the
Company (or such lesser number of full calendar years during which you were
employed by the Company), times (ii) the number of days in the calendar
year through the Date of Termination, divided by (iii) 365; and

 

(B)                                the greater of 100 percent of (i) your annual base
salary in effect immediately prior to the Change in Control of the Company or
(ii) your annual base salary in effect at the time Notice of Termination
is given.

 

(iii)                               For
purposes of determining the vesting of any awards made to you under the Company’s
2000 Stock Incentive Plan, as well as any unvested shares of Company Stock you
acquired pursuant to any awards made under that plan, you shall be treated as
if you had completed an additional 12 months of service immediately before the
date on which your employment is terminated.

 

(c)          LIMITATION ON BENEFIT. 
The payment of your benefit under this Agreement shall be subject to the
following rules:

 

(i)                                     In
the event that the benefits that you would receive that are unassociated with
this Agreement (“Unrelated Benefits”) would be sufficient in size and nature to
trigger adverse tax consequences under the golden parachute rules of Code
Sections 280G and 4999 (“Section 280G Threshold”), then you will not receive
any benefits under this Agreement (“Related Benefits”);

 

(ii)                                  In
the event that the sum of your Unrelated Benefits and your Related Benefits
would be less than the Section 280G Threshold, then you will receive the total
amount of your Related Benefits; and

 

(iii)                               In
the event that the sum of your Unrelated Benefits and your Related Benefits
would exceed the Section 280G Threshold, then the amount of your Related
Benefit will be reduced to the minimum extent necessary to avoid reaching that
limit.  For this purpose, your benefit
under Section 3(b)(ii) (“Cash Payment”) shall be
reduced first, so that your benefit under Section 3(b)(iii) (“Stock
Acceleration Benefit”) will be reduced only after your Cash Payment benefit has
been completely eliminated.

 

 

(d)         TIME OF PAYMENT. 
The cash payments provided for in Section 3(b)(ii) shall be made not
later than the 30th day following the Date of Termination; provided,
however, that if the amount of such payments cannot be finally determined on or
before such day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined.  In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to you, payable on the 15th day after the demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).

 

(e)          NOTICE.  During
the Protected Period, any purported termination of your employment by the
Company or by you shall be communicated by written Notice of Termination to the
other party hereto.

 

(f)            CERTAIN DEFINITIONS. 
Except as otherwise indicated in this Agreement, all definitions in this
Section 3(f) shall be applicable during the Protected Period only.

 

(i)                                     Disability.  “Disability” shall mean your absence from the
full-time performance of your duties with the Company for six consecutive
months as a result of your incapacity due to physical or mental illness or
disability, and within 30 days after written Notice of Termination is
thereafter given you shall not have returned to the full-time performance of
your duties.

 

(ii)                                  Cause.  “Cause” for termination shall be determined
by the Company based on the Board’s reasonable belief that one or more of the
following has occurred: (A) your indictment or conviction of any felony or of
any crime involving dishonesty; (B) your participation in any fraud against the
Company; (C) breach of your duties to the Company, whether arising under this
Agreement or by operation of law, provided that the Company has given advance
written notice to you for at least 30 days and you have not cured such breach
to the satisfaction of the Board within said 30-day period; (D) your
intentional damage to any property of the Company; or (E) conduct by you
or lack of performance which in the good faith and reasonable determination of
the Board demonstrates unfitness to serve.

 

(iii)                               Good
Reason.  “Good Reason” shall mean,
without your express written consent, the occurrence upon or after a Change in
Control of any of the following circumstances unless, in the case of Sections
3(f)(iii)(A), (B), (F) or (G) hereof, such circumstances are fully corrected
prior to the Date of Termination specified in the Notice of Termination given
in respect thereof:

 

(A)                              the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change in
Control or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in effect
immediately prior to such Change in Control;

 

(B)                                your
title is changed to a title that, under customary practice within the
biotechnology industry within the state in which the Company’s principal
offices are located at the date of such reduction, would be considered to be a
lower-level title than your title immediately prior to the Change in Control;

 

 

(C)                                a
reduction by the Company in your annual base salary, any target bonus or
perquisites as in effect immediately prior to the Change in Control or as the
same may be increased from time to time except for overall reductions in
benefits in which you are treated proportionately given your position, length
of service, income and other relevant factors customary within the
biotechnology industry within the state in which the Company’s principal
offices are located at the date of such reduction;

 

(D)                               the
relocation of the principal place of your employment to a location more than 35
miles from the location of such place of employment on the date of this
Agreement; except for required travel on the Company’s business to an extent
substantially consistent with your business travel obligations prior to the
Change in Control;

 

(E)                                 the
failure by the Company to pay to you any portion of your compensation or to pay
to you any portion of an installment of deferred compensation under any
deferred compensation program of the Company within seven days of the date such
compensation is due;

 

(F)                                 the
failure by the Company to continue in effect any material compensation or
benefit plan in which you participated immediately prior to the Change in
Control, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
the Company to continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of
the amounts of benefits provided and the level of your participation relative
to other participants, as existed at the time of the Change in Control; or

 

(G)                                the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof.

 

(iv)                              Notice
of Termination.  “Notice of Termination”
shall mean notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.

 

(v)                                 Date
of Termination.  “Date of Termination”
shall mean (A) if your employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that you shall not have returned to
the full-time performance of your duties during such 30-day period) or (B) if
your employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination for Cause, shall not
be less than 30 days from the date such Notice of Termination is given — provided,
that in its discretion the Company may relieve you of all your employment
responsibilities for all or any part of the interim period — and, in the case
of a termination for Good Reason, shall not be less than 15 nor more than 60
days from the date such Notice of Termination is given).

 

 

4.               MITIGATION.  You
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.

 

5.               COSTS OF PROCEEDINGS. 
If any suit or other proceeding is brought for the enforcement or
interpretation of this Agreement, or because of any alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover,
from the other party, reasonable attorneys’ fees and other costs incurred in
that suit or proceeding, in addition to any other relief to which such party
may be entitled.  The Court shall
determine which party is, under all the circumstances, the “successful or
prevailing party,” all in accordance with the principles and provisions of
California Civil Code Section 1717.  The
Company shall pay prejudgment interest on any money judgment obtained by you as
a result of such proceeding, calculated at the prime rate of Wells Fargo Bank
as in effect from time to time from the date that payment should have been made
to you under this Agreement.

 

6.               SUCCESSORS; BINDING AGREEMENT.

 

(a)          SUCCESSOR TO COMPANY TO ASSUME OBLIGATIONS.  The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.  As used in
this Agreement, “Company” shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.

 

(b)         EMPLOYEE’S SUCCESSORS. 
This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.  In the event of your death, all amounts
otherwise payable to you hereunder shall, unless otherwise provided herein, be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.

 

7.               NOTICE.  Notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when (a) personally delivered or
(b) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first page of this Agreement; provided that all notice to the Company shall
be directed to the attention of the Board with a copy to the General Counsel of
the Company (or, if there is no General Counsel, then to the Company’s primary
outside attorney as identified in the Company’s most recent Annual Report), or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.

 

 

8.               MISCELLANEOUS. 
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and
signed by you and such officer as may be designated by the Board.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the time
or at any prior or subsequent time.  The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California without regard to its conflicts
of law principles.  All references to
sections of the Securities Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections.  Any payments provided for hereunder shall be
paid net of any applicable withholding required under federal, state or local
law.  The obligations of the Company
and/or you under this Agreement shall survive the expiration of this Agreement
to the extent necessary to give effect to this Agreement.

 

9.               VALIDITY.  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.

 

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

 

11.         ENTIRE AGREEMENT. 
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and during the term of this
Agreement supersedes the provisions of all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereof
with respect to the subject matter contained herein.  The parties hereto agree that (a) the subject
matter of this Agreement is limited to the parties’ rights and obligations in
the event that you are terminated by the Company during the Protected Period following
a Change of Control or otherwise in connection with a Change of Control as
provided for by Section 3(b), (b) this Agreement does not apply to
any termination by the Company of you that does not occur during the Protected
Period following a Change of Control or that is not otherwise in connection
with a Change of Control and provided for by Section 3(b), and (c) with
respect to any termination by the Company of you that does not occur during the
Protected Period following a Change of Control or that is not otherwise in
connection with a Change of Control and provided for by Section 3(b), the
provisions of any prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, between
the parties will apply to the extent applicable and legally enforceable.  No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set
forth in this Agreement.  Notwithstanding
anything to the contrary in this Agreement, the procedural provisions of this
Agreement shall apply to all benefits payable as a result of a Change in
Control (or other change in control) under any employee benefit plan,
agreement, program, policy or arrangement of the Company, unless ERISA or the
tax qualifications thereof require otherwise.

 

If this letter sets forth our
agreement on the subject matter hereof, kindly sign and return to the Company
the enclosed copy of this letter, which will then constitute our agreement on
this subject.

 

 

	
   

  	
  DISCOVERY
  PARTNERS INTERNATIONAL, 

  INC.

  
	
   

  	
   

  
	
   

  	
      By:

  	
  /s/ Riccardo Pigliucci

  
	
   

  	
   

  	
  Riccardo Pigliucci

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  

 

 

Agreed to this 31st day of March, 2005.

 

 

EMPLOYEE

 

 

	
  /s/ Michael C. Venuti, PhD

  	
   

  
	
   

  	
   

  
	
  Michael C. Venuti, PhD

  	
   

  
	
  Chief Scientific Officer

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