Document:

Exhibit
10.21

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT OF LESLIE JOHNSTON BROWNE

 

THIS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made and
entered into as of the 5th day of March, 2008, by and between Pharmacopeia, Inc.
(hereinafter the “Company”) and Leslie Johnston Browne, Ph.D.
(hereinafter “Dr. Browne”).

 

RECITALS

 

WHEREAS,
Dr. Browne is presently employed by the Company in the capacity of
President and Chief Executive Officer of the Company (“President and Chief
Executive Officer”), pursuant to the Employment Agreement between Dr. Browne
and the Company, dated July 14, 2004 (the “Existing Employment
Agreement”);

 

WHEREAS,
the Existing Employment Agreement was amended and restated on February 27,
2006, and further amended pursuant to a letter agreement between Dr. Browne
and the Company, dated August 3, 2006; and

 

WHEREAS,
the Company and Dr. Browne wish to amend and restate the Existing
Employment Agreement to comply with section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”) and the final regulations issued
thereunder, and to make other appropriate changes.

 

NOW,
THEREFORE, in consideration of their mutual promises and intending to be
legally bound, the parties agree as follows:

 

1.             Employment.

 

a.             The Company agrees to employ Dr. Browne
as President and Chief Executive Officer upon the terms and conditions set
forth in this Agreement.

 

b.             Dr. Browne’s duties, powers and
responsibilities as President and Chief Executive Officer shall be those which
are customary for such position, as may be determined from time to time by the
Board of Directors of the Company (the “Board”).  Dr. Browne agrees to perform and
discharge such duties well and faithfully and to be subject to the supervision
and direction of the Board.

 

c.             The position of President and Chief Executive
Officer is a full-time position.  Dr. Browne
agrees to devote his full time effort, attention, and energies to this
position.  Dr. Browne will not
render any professional services or engage in any activity which might be
competitive with, adverse to the best interest of, or create the appearance of
a conflict of interest with the Company. 
Prior to serving on any other board of directors, Dr. Browne shall
obtain the written permission of the Board, which shall not be unreasonably
withheld.  Dr. Browne agrees to
abide by the policies, and rules and regulations of the Company as they
may be amended from time to time.

 

 

2.             Term.

 

a.             The initial term of Dr. Browne’s
employment as President and Chief Executive Officer under this Agreement began
on Dr. Browne’s first date of employment by the Company, August 9,
2004 (the “Start Date”) and continued until the one-year anniversary
thereof.

 

b.             Unless earlier terminated under the
provisions of this Agreement, this Agreement will renew automatically for
successive one year periods at the conclusion of the initial term and any
succeeding renewal terms (collectively, the “Term”), unless either party
notifies the other in writing, at least one year in advance, of its intention
not to renew the Agreement at the expiration of the initial or renewal
term.   Notwithstanding the foregoing,
if  a “Change of Control” (as defined
below) of the Company occurs, the term of the Agreement will be automatically
extended to the end of the thirty (30)-day period beginning one (1) year
after the closing of the Change of Control, and the Term shall automatically
end at the end of such thirty (30)-day period.

 

3.             Compensation.

 

a.             For his services under this Agreement as
President and Chief Executive Officer, Dr. Browne will be paid by the
Company an initial base salary of Three Hundred Fifty Thousand Dollars
($350,000) per year (“Base Salary”). 
The Base Salary will be paid in equal installments, less normally
applicable payroll deductions, in accordance with the Company’s regular payroll
schedule.  Dr. Browne’s compensation
will be reviewed on or before February 28 of each year to determine
whether his compensation level shall be adjusted in a manner commensurate with
his performance in the prior year of service.

 

b.             Beginning January 1, 2005 and throughout
the Term, Dr. Browne shall participate in the Company’s Bonus Program for
Senior Management, which shall provide an annual bonus target of fifty percent
(50%) of Dr. Browne’s Base Salary, as determined in accordance with the
Company’s existing compensation policy. 
Such amounts payable to Dr. Browne under the bonus program shall be
referred to herein as the “Incentive Bonus.”  Incentive Bonuses will be paid on the March 1
following the completion of each calendar year, provided Dr. Browne is
employed or is receiving severance payments on that date, or upon the
expiration of the Term (as described in Section 4(g)).

 

c.             From time to time, Dr. Browne may be
granted the option to purchase Company stock under the terms of the Company’s
Stock Option Plan, or similar employee stock option plans in effect from time
to time.  Such stock option grants shall
be subject to the terms of the applicable stock option plan(s) then in
effect.

 

d.             Dr. Browne was granted on the Start Date
three hundred thousand (300,000) options to purchase Company stock, priced at
the fair market value on the date of the grant. 
The vesting schedule for these options shall be as follows: 25% of these
options shall be vested after one year (from the date of the grant) and 1/48 of
the options shall vest on the first of each month thereafter.  These options are intended to be incentive
stock options as defined under section 422 of the Code and any regulations
promulgated thereunder.  However, to the
extent the 

 

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option grant fails to satisfy any requirement of section 422(d) of
the Code, the affected options shall be treated as non-qualified stock options.

 

4.             Termination; Resignation; Permanent
Disability; Death.   Dr. Browne’s employment as President
and Chief Executive Officer may be terminated at any time by action of the
Board for any reason.  In the event of
termination of his employment, the Company shall have no liability to Dr. Browne
as President and Chief Executive Officer for compensation or benefits except as
specified in this Section 4 or as required by the Company’s benefits
policy.

 

a.             Involuntary Termination Without Cause.  If Dr. Browne’s
employment as President and Chief Executive Officer is terminated involuntarily
by the Board, without “Cause” (as defined below), during the Term, the Company
shall:

 

(1)           Pay Dr. Browne all compensation and benefits accrued, but unpaid,
up to the date of his termination.  Dr. Browne’s
Incentive Bonus for the calendar year in which his employment is terminated
shall be paid on a pro rata basis, based on Dr. Browne’s target bonus  determined by the Board for the year in which the
termination occurs.  The pro rata
Incentive Bonus shall be paid in a lump sum within thirty (30) days after the
date of his termination of employment.

 

(2)           Pay Dr. Browne in a lump sum two (2) times an amount equal to
his annual Base Salary in effect as of the date of termination, within thirty
(30) days after the date of his termination of employment.  The Company will maintain Dr. Browne’s
group medical coverage under the Company’s insured health plan for a period of
twenty-four (24) months after such termination.

 

(3)           Allow all vested options to be exercisable pursuant to the terms of the
stock option agreement(s) under which the options were granted.

 

b.             Termination by Dr. Browne for Good
Reason.  In the event Dr. Browne terminates this
Agreement for “Good Reason” (as defined below) during the Term, he shall be
entitled to receive the benefits provided in Section 4(a) above.  For purposes of this Section 4(b), “Good
Reason” shall mean the occurrence of any of the following events, without Dr. Browne’s
express written consent: i) a material diminution by the Company of Dr. Browne’s
duties, authority or responsibilities, including without limitation, any
removal of Dr. Browne as President and Chief Executive Officer of the
Company, except in connection with promotion to a higher position; ii) any
material diminution in Dr. Browne’s base compensation, which, for purposes
of this Agreement, means a reduction of more than twenty percent (20%) of Dr. Browne’s
Base Salary then in effect; iii) any material change in the geographic location
at which Dr. Browne must perform services under this Agreement, which, for
purposes of this Agreement, means relocation of the Company’s headquarters to a
facility more than fifty (50) miles from the Company’s current location, which
requires Dr. Browne to relocate his residence; or iv) any action or
inaction that constitutes a material breach of this Agreement by the
Company.  Dr. Browne shall not have
Good Reason for termination unless Dr. Browne gives written notice of the
event that constitutes Good Reason to the Company within ninety (90) days of
the initial occurrence of such event, the Company fails to cure the event
within thirty (30) days after the date on which Dr. Browne gives written
notice thereof, and Dr. Browne terminates employment 

 

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within thirty (30) days after the end of the cure period.  In addition to the foregoing, if a Change of
Control of the Company occurs that materially changes Dr. Browne’s duties,
title or responsibilities, Dr. Browne may elect to terminate employment
during the thirty (30)-day period beginning one (1) year after the closing
of the Change of Control, and such termination shall be considered termination
for Good Reason.

 

c.             Termination Without Cause in Connection with
Change of Control.  In the event that Dr. Browne’s
employment as President and Chief Executive Officer is terminated involuntarily
by the Board without Cause in connection with a Change of Control of the
Company: i) Dr. Browne shall be entitled to receive the benefits
provided in Section 4(a) above; ii) all stock options granted to Dr. Browne
that are then unvested shall immediately vest; and iii) Dr. Browne shall
receive a lump sum payment equal to two times the average Incentive Bonus he
received in each of the three years immediately prior to the termination or, if
less than three years’ of bonus history is available, his target bonus for the
year in which the termination occurs. The Incentive Bonus payment shall be paid
in a lump sum within thirty (30) days after the date of his termination of
employment.

 

For purposes of this
Agreement, a “Change of Control” means that any of the following events
has occurred:

 

(1)           Any person (as such term is used in section 13(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”)), other than the
Company, any employee benefit plan of the Company or any entity organized,
appointed or established by the Company for or pursuant to the terms of any
such plan, together with all “affiliates” and “associates” (as such terms are
defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner
or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the
Exchange Act), directly or indirectly (the “Control Group”), of more
than 50% of the outstanding equity securities of the Company, or otherwise
becomes entitled, directly or indirectly, to vote more than 50% of the voting
power entitled to be cast at elections for directors (“Voting Power”) of
the Company;

 

(2)           A consolidation or merger (in one transaction or a series of related
transactions) of the Company pursuant to which the holders of the Company’s
equity securities immediately prior to such transaction or series of related
transactions would not be the holders, directly or indirectly, immediately
after such transaction or series of related transactions of more than 50% of
the Voting Power of the entity surviving such transaction or series of related
transactions; or

 

(3)           The sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Company.

 

d.             Termination for Cause. 
If  Dr. Browne’s employment
is terminated as President and Chief Executive Officer for “Cause” (as defined
below) during the Term, the Company shall pay Dr. Browne all accrued, but
unpaid, compensation and benefits which are then due and owing as of the date
of his termination.  He shall not be
entitled to receive a pro rata Incentive Bonus for the calendar year in which
the termination occurs, or any of the amounts specified in Section 4(a) above.  The Company shall have the right to setoff
any amounts due to 

 

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Dr. Browne by any amounts owed by Dr. Browne to the Company
at the time Dr. Browne’s employment terminates and he hereby authorizes
the Company to make this setoff.

 

Dr. Browne’s
employment may be terminated for “Cause” at any time upon delivery of written
notice to Dr. Browne.  For purposes
of this Agreement, “Cause” means the occurrence of any of the following
events: i) any gross failure on the part of Dr. Browne (other than by
reason of disability as provided in Section 4(f)) to faithfully and
professionally carry out his duties or to comply with any other material
provision of this Agreement, which failure continues after written notice
thereof by the Board, provided that the Board 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
such notice has been given on a prior occasion; ii) Dr. Browne’s material
dishonesty (which shall include without limitation any misuse or
misappropriation of the Company’s assets), or other willful misconduct which is
intended to injure or which injures or is likely to injure the business of
the Company; iii) Dr. Browne’s conviction for any felony or for any
other crime involving moral turpitude, whether or not relating to his
employment; iv) Dr. Browne’s insobriety or use of drugs, chemicals or
controlled substances either (A) in the course of performing his duties
and responsibilities under this Agreement, or (B) otherwise affecting the
ability of Dr. Browne to perform the same; v) Dr. Browne’s
failure to comply with a lawful, written direction of the Board, which is
consistent with Dr. Browne’s duties and responsibilities as President and
Chief Executive Officer with the Company; or vi) any wanton and willful
dereliction of duties by Dr. Browne. 
The existence of any of the foregoing events or conditions shall be
determined by the Board in the exercise of its reasonable judgment.

 

e.             Voluntary Resignation.  In
the event that Dr. Browne shall voluntarily resign as President and Chief
Executive Officer:

 

(1)           Dr. Browne shall provide the Company’s Board of Directors with
ninety (90) days’ advance written notice of his intention to resign
voluntarily.

 

(2)           Following the effective date of his resignation, the Company shall be
relieved of all other obligations to pay compensation to Dr. Browne,
except that the Company shall immediately pay Dr. Browne all accrued, but
unpaid, Base Salary and any other unpaid expenses or expense reimbursement.

 

f.              Disability.  If Dr. Browne becomes
disabled for more than one hundred eighty (180) days in any twelve (12) month
period, the Company shall have the right to terminate his employment, subject
to the requirements of applicable law, without further liability upon written
notice to Dr. Browne.  Dr. Browne
shall be deemed disabled for purposes of this Agreement either i) if he 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 a physician
satisfactory to the Company and Dr. Browne determines that due to
accident, mental or physical illness, or any other reason, he cannot perform
his duties as President and Chief Executive Officer.  In the event the Company shall terminate Dr. Browne
due to disability, as described above, Dr. Browne shall be entitled to
receive the benefits set forth in Section 4(a) above, reduced by the
amount of any disability plan or insurance benefit paid to him.

 

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g.             Non-Renewal.  Following the expiration of
the Term by reason of timely notice of non-renewal by the Company in accordance
with Section 2(b), Dr. Browne shall be entitled to receive the
benefits set forth in Section 4(a) above, except that the severance
described in Section 4(a)(2) shall be for a period of twelve (12)
months following the expiration of the Term. 
Upon the expiration of the Term by reason of timely notice of
non-renewal by Dr. Browne, Dr. Browne will remain eligible to receive
a pro rata Incentive Bonus for the year in which the Term expires.  In the event the Term expires by reason of
timely notice of non-renewal, the twenty-four (24) month time period set forth
in Section 11 of this Agreement shall be reduced to twelve (12) months
following the expiration of the Term. 
The provisions of this Section 4(g) shall not apply upon an
automatic expiration of the Term after a Change of Control as described in the
last sentence of Section 2(b).

 

h.             Death.  In the event of the death of Dr. Browne,
this Agreement shall automatically terminate and any obligation to continue to
pay compensation and benefits shall cease as of the date of his death.

 

i.              No Mitigation.  Dr. Browne
has no duty to mitigate any payment obligations of the Company under this Section 4.

 

j.              Certain Additional Payments.  If
any of the benefits or payments under this Agreement, or under any other
agreement with or plan of the Company (in the aggregate, the “Total Payments”),
will be subject to the tax (the “Excise Tax”) imposed by Section 4999
of the Code, the Company shall pay Dr. Browne in cash an additional amount
(the “Gross-Up Payment”) such that the net amount retained by Dr. Browne
after deduction of any Excise Tax upon the Total Payments and any federal,
state and local income tax and Excise Tax upon the Gross-Up Payment provided
for by this Section 4(j) shall be equal to the Total Payments.  Such payments shall be made by the Company to
Dr. Browne within thirty (30) days following a determination that any of
the Total Payments will be subject to the Excise Tax, but in no event later
than the date on which the related taxes are remitted to the taxing authority.

 

All
determinations required to be made under this Section 4(j), including
whether any of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax, shall be made by a nationally recognized accounting
firm (the “Accounting Firm”) mutually acceptable to the parties.  The Accounting Firm shall provide detailed
supporting calculations both to the Company and to Dr. Browne within 10
days after a request for such determinations are made by Dr. Browne or the
Company.  Any such determination by the
Accounting Firm shall be binding upon the Company and Dr. Browne.  For purposes of determining the amount of the
Gross-Up Payment, Dr. Browne shall be deemed to pay Federal, state and
local income taxes at the highest marginal rates applicable to Dr. Browne
as of the date of the determination.

 

k.             Section 409A.  This
Agreement is intended to meet the requirements of the short-term deferral
exemption under section 409A of the Code. 
However, if required by section 409A and if Dr. Browne is a “specified
employee” of a publicly traded corporation under section 409A of the Code,
payment of any amount under this Agreement shall be delayed for a period of six
(6) months after separation from service, as required by section 409A of
the Code.  The accumulated postponed
amount shall be paid in a lump sum payment within ten (10) days 

 

6

 

after the end of the six (6)-month period.  If Dr. Browne dies during the
postponement period prior to payment of the postponed amount, the amounts
withheld on account of section 409A shall be paid to the personal
representative of Dr. Browne’s estate within sixty (60) days after the
date of Dr. Browne’s death.  The
determination of “specified employees” shall be made by the Compensation
Committee of the Board of Directors of the Company in accordance with section
409A of the Code and the regulations issued thereunder.

 

5.             Board Membership.  As
President and Chief Executive Officer, Dr. Browne shall at all times be
nominated by the Board to serve on the Company’s Board of Directors, subject to
election by the stockholders.

 

6.             Vacation and Holiday.  Dr. Browne
shall be entitled to four weeks’ vacation each year and to those holidays
observed by the Company.  As an essential
employee of the Company, Dr. Browne shall schedule his vacation and
holiday observances so as not to unreasonably interfere with the performance of
his duties as President and Chief Executive Officer.

 

7.             Health Insurance; Life Insurance; Other
Fringe Benefits. Dr. Browne
shall be entitled to the benefit of such group medical, accident and long-term
disability insurance as the Company shall make available from time to time to
its executive employees.

 

8.             Professional Expenses.  Dr. Browne
will be reimbursed in accordance with the Company’s policy and procedure for
the reasonable costs of properly documented professional and business related
travel expenses required in the course of his employment.  The Company
will also pay for appropriate professional dues and memberships, which must be
approved in advance by the Board.

 

9.             Legal Fees.  Dr. Browne shall be
entitled to reimbursement by the Company for any legal fees he may incur in
connection with the negotiation and execution of this Agreement, in an amount
not to exceed $10,000.

 

10.           Confidential Information. 
Except as reasonably necessary to perform his duties as President and
Chief Executive Officer, Dr. Browne agrees not to reveal to any other
person or entity or use for his own benefit any confidential information of or
about Company or its operations, both during and after his employment under
this Agreement, including without limitation marketing plans, financial
information, key personnel, employees’ salaries and benefits, customer lists,
pricing and cost structures, operation methods and any other information not
available to the public, without the Company’s prior written consent.

 

11.           Non-Competition.  Dr. Browne
shall not, during the course of his employment with the Company or for a period
of twenty-four (24) months thereafter, directly or indirectly:

 

a.             Be employed by, engaged in or participate in
the ownership, management, operation or control of, or act in any advisory or
other capacity 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 the foregoing, Dr. Browne
may make solely passive investments in any Competing Entity the common stock of
which is “publicly held” and of which Dr. Browne shall not own or control,
directly or indirectly, in the 

 

7

 

aggregate securities which constitute 5% or more of the voting rights
or equity ownership thereof;

 

b.             Solicit or divert any business or any
customer from the Company or assist any person, firm or corporation in doing so
or attempting to do so;

 

c.             Cause or seek to cause any person, firm or
corporation to refrain from dealing or doing business with the Company or
assist any person, firm or corporation in doing so; or

 

d.             Solicit for employment, or advise or
recommend to any other person that they 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.

 

The
Company’s obligation to make payments pursuant to Section 4 above shall
terminate in the event that, and at such time as, Dr. Browne is in breach
of his obligation not to compete as set forth in this Section 11.  For purposes of this Section, the term “Competing
Entity” shall mean any entity which is in possession of drugs substantially
similar to those of the Company that are in pre-clinical development or
clinical trials, or which is presently or hereafter engaged in the business of
providing to third parties chemistry products or services for pre-clinical drug
discovery or chemical development which i) include the out-licensing of small
molecule libraries, the undertaking of drug candidate screening, and/or related
drug optimization activities; or 
ii) utilize combinatorial chemistry or high-throughput screening
technologies in offering pre-clinical drug discovery services.  The term “Territory” shall mean North
America, Europe and Japan. 
Notwithstanding anything in the above to the contrary, Dr. Browne
may engage in the activities set forth in Section 11(a) hereof with
the prior written consent of the Company, which consent shall not be
unreasonably withheld.  In determining
whether a specific activity by Dr. Browne for a Competing Entity shall be
permitted, the Company will consider, among other things, the nature and scope
of i) the duties to be performed by Dr. Browne, and ii) the
business activities of the Competing Entity at the time of Dr. Browne’s
proposed engagement by such entity.

 

Dr. Browne
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).  Dr. Browne
acknowledges and agrees that, in the event that he breaches any of the
covenants set forth in this Section, the Company may be irreparably harmed and
may 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 11 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 

 

8

 

to the extent necessary (and only to such
extent necessary) to render such covenants reasonable, valid, and enforceable
in all respects.

 

12.           Arbitration.  Any and all disputes between
the parties (except actions to enforce the provisions of Section 11 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, shall 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 (hereafter “Rules”).  The initiation and conduct of any arbitration
hereunder shall be in accordance with the Rules and each side shall bear
its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted
in Princeton, New Jersey, and 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 the
United States District Court for the District of  New Jersey. 
The parties consent to the jurisdiction of (and the laying of venue in)
such court.

 

13.           Waiver.  The waiver by either party of
any breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by the other party of any provision of the
Agreement.

 

14.           Severability.  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, and any such section,
paragraph, or term shall be deemed modified to the extent to make it enforceable.

 

15.           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 Dr. Browne.  This Agreement may not be assigned by Dr. Browne.  This Agreement may be assigned to any
successor in interest to the Company and Dr. Browne hereby consents to
such assignment.

 

16.           Warranties and Representations.  Dr. Browne
hereby warrants and represents to the Company that he is not a party to any
other agreement or understanding with any other person or entity (including
without limitation any agreements containing restrictive covenants governing
post-employment competition, solicitation, the disclosure of confidential
information, and intellectual property rights, and the like) that would,
directly or indirectly, prevent him in any way from lawfully entering into this
Agreement, performing any of the duties required hereunder (or that might be
assigned to him in the future hereunder), or fully complying with and honoring
each and every term, covenant, and promise contained in this Agreement.

 

17.           Lawful Employment in United States.  This
Agreement is contingent upon Dr. Browne’s ability to be lawfully employed
in the United States indefinitely, without employer 

 

9

 

sponsorship.  Customary
documentation establishing work eligibility will be required in accordance with
applicable law.

 

18.           Entire Agreement; Amendments.  This
Agreement, including the recitals (which are a part hereof), together with the
applicable bylaws and policies of the Company, constitutes the entire Agreement
between the parties hereto and there are no other understandings, agreements or
representations, expressed or implied. 
This Agreement may amended only in writing signed by both parties.

 

19.           Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey.

 

20.           General Release.  Notwithstanding anything in this Agreement to the contrary, no payments
shall be made or benefits provided by the Company under Section 4 above
prior to the execution by Dr. Browne 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.

 

21.           Compliance With Law.  This
Agreement is intended to comply with the requirements of section 409A of the
Code, and specifically, with the short term deferral exemption of section 409A,
and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to
the contrary, distributions may only be made under the Agreement upon an event
and in a manner permitted by section 409A of the Code or an applicable
exemption.  All payments to be made upon
a termination of employment with the Company may only be made upon a “separation
from service” under section 409A.  In no
event may Dr. Browne, directly or indirectly, designate the calendar year
of payment.  For purposes of section 409A
of the Code, each payment made under this Agreement shall be treated as a
separate payment and the right to a series of payments under this Agreement
shall be treated as a right to a series of separate payments.  All reimbursements and in-kind benefits
provided under this Agreement shall be made or provided in accordance with the
requirements of section 409A of the Code, including, where applicable, the requirement
that (a) any reimbursement shall be for expenses incurred during Dr. Browne’s
lifetime (or during a shorter period of time specified in this Agreement), (b) the
amount of expenses eligible for reimbursement, or in-kind benefits provided,
during a calendar year may not affect the expenses eligible for reimbursement,
or in-kind benefits to be provided, in any other calendar year, (c) the
reimbursement of an eligible expense will be made on or before the last day of
the calendar year following the year in which the expense is incurred, and (d) the
right to reimbursement or in-kind benefits is not subject to liquidation or
exchange for another benefit.

 

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

 

PHARMACOPEIA, INC.:

 

 

	
  By:

  	
  /s/ Joseph A. Mollica

  	
   

  	
  /s/ Leslie J. Browne

  
	
  Name:

  	
  Joseph
  A. Mollica, Ph.D.

  	
   

  	
  Leslie
  Johnston Browne, Ph.D.

  
	
  Title:

  	
  Chairman

  	
   

  	
   

  

 

10

 

EXHIBIT A

 

General Release

 

IN CONSIDERATION OF the
terms and conditions contained in the Amended and Restated Employment
Agreement, dated as of the 5th day of March, 2008, (the “Employment Agreement”)
by and between Leslie J. Browne, 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 himself and his 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 his 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 him under the Employment 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 his own free will, without any duress, being
fully informed, and after due deliberation, accepts its terms and signs below
as his 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 his employment or violated any of his rights in connection with his
employment or otherwise.

 

A-1

 

Employee
further represents and warrants that he has not filed, and will not initiate,
or cause to be initiated on his 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 his 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:

  	
   

  	
   

  

 

A-2

 

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 he executed the same in his capacity as an individual,
and that by his signature on the instrument he executed such instrument, and
that such individual made such appearance before the undersigned.

 

 

	
   

  	
   

  
	
   

  	
  Notary
  PublicExhibit 10.23

 

AMENDED AND RESTATED

SEVERANCE AGREEMENT

 

This AMENDED AND RESTATED  SEVERANCE
AGREEMENT (the “Agreement”) is made and entered into as of
the 18th day of December, 2007, by and between PHARMACOPEIA, INC., a Delaware
corporation (hereinafter, the “Company”), and Stephen C. Costalas, Esq.,
an individual (hereinafter, “Employee”).

 

RECITALS

 

WHEREAS, Employee
is presently employed by  the Company the capacity of Executive
Vice President, General Counsel and Secretary of the Company, pursuant to a Letter
Agreement between the Company and Employee, dated November 15, 2004 (the “Letter
Agreement”).

 

WHEREAS, the
Company and Employee previously entered into a Severance Agreement, dated December 2,
2004 (as subsequently amended, the “Existing Severance Agreement”), pursuant to
which Employee is entitled to certain payments and benefits in the event of a
covered termination of Employee’s employment with the Company.

 

WHEREAS,
the Company and Employee wish to amend and restate the Existing Severance
Agreement to comply with section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and to make other appropriate changes.

 

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 (as defined below)  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 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);

 

1

 

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

 

(iv)          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;

 

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

 

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

 

(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 a  termination in connection with a Change in 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 of
Employee’s employment;

 

(ii)           pay Employee, within thirty (30)
days after the effective date of termination of Employee’s employment, a lump
sum amount equal to twelve (12) months of Employee’s base salary in effect as
of the effective date of termination  of Employee’s
employment;

 

(iii)          pay  Employee, within thirty (30) days after the
effective date of termination of Employee’s employment, a lump sum 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(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 twelve (12) months following the effective date of such termination,
or (B) until such time as comparable medical coverage is obtained by
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.

 

(i)            Benefits.  Employee may terminate Employee’s
employment under this Agreement for Good Reason (as defined below)  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.  Employee must give such notice within ninety
(90) days after the event that gives rise to Good Reason.  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.  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 his employment with the Company for Good Reason pursuant to this Section 1(c) within
thirty (30) days after the expiration of the “cure” period.  In the event of such termination, the Company
shall:

 

2

 

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

 

(B)           pay Employee, within thirty (30) days after the effective date of
termination of Employee’s employment, a lump sum amount equal to twelve (12)
months of Employee’s base salary in effect as of the effective date of
termination of Employee’s employment;

 

(C)           pay Employee, within thirty (30) days after the
effective date of termination of Employee’s employment, a lump sum 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;

 

(D)          maintain Employee’s group medical coverage until the earlier of (A) the
end of  a period of twelve (12)
months following the effective date of such termination, or (B) until such
time as comparable medical coverage is obtained by Employee; and

 

(E)           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.

 

(ii)           Definition of “Good Reason.” For purposes of this Agreement, “Good
Reason” means any one or more of the following events or conditions without the
consent of Employee:

 

(A)          any action or
inaction that constitutes a material breach by the Company of the terms of this
Agreement or the Letter Agreement;

 

(B)           any material
change in the geographic location at which Employee must perform services for
the Company, which, for purposes of this Agreement, means a requirement that
Employee commute more than fifty (50) miles from the offices of the Company at
which he was principally employed on the date of this Agreement;

 

(C)           any material diminution of the authority, duties or
responsibilities of Employee, including without limitation a material
diminution in Employee’s position as Executive Vice President, General Counsel
and Secretary; or

 

(D)          any material reduction in Employee’s base salary (other than such a
reduction applicable generally to substantially all employees of the Company),
which, for purposes of this Agreement, means a reduction of 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.

 

(d)           Termination By
Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s
position and terminate Employee’s 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 

 

3

 

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 (as amended, 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 Employee’s death,
except for the payment of all accrued, but unpaid, base salary and any other
unpaid expenses or expense reimbursements 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 Employee’s  employment
with the Company for Good Reason (as defined in Section 1(c) above),
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 of Employee’s employment;

 

(B)           pay Employee, within thirty (30) days after the effective date of
termination of Employee’s employment, a
lump sum amount equal to eighteen (18) months of Employee’s base salary
in effect as of the effective date of Employee’s termination of employment;

 

(C)           pay Employee, within thirty (30) days after the effective date of
termination of Employee’s employment, a lump sum amount equal to one hundred
and fifty  percent (150%) of Employee’s target incentive bonus;

 

(D)          maintain
Employee’s group medical coverage until the earlier of  the end of a period of eighteen (18) 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 “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 his employment with the Company for Good Reason, in
either case at any time during the period 

 

4

 

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

 

(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 1unless Employee executes
and does not revoke 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.             CERTAIN EXCISE TAX PROVISIONS.  Notwithstanding anything herein to the
contrary:

 

(a)           Additional Payment.  In the event
that (i) any payments or benefits received or to be received by Employee
in connection with Employee’s employment with the Company (or termination
thereof), whether under this Agreement or otherwise (the “Total Payments”),
would subject Employee to the excise tax imposed under Section 4999 of the
Code (the “Excise Tax”), and (ii) the amount of  total “parachute payment” as defined in Section 280G(b) of
the Code to be paid to the Employee is equal to or greater than 110 percent
(110%) of 2.99 times the Employee’s “base amount” as defined in Section 280G(b)(3) of
the Code (the “Safe  Harbor Amount”), then the Company shall pay
Employee in cash an additional amount (the “Gross-Up Payment”) such that the
net amount retained by Employee after deduction of any Excise Tax upon the
Total Payments and any federal, state and local income tax and Excise Tax upon
the Gross-Up Payment shall be equal to the Total Payments.  Such payments shall be made by the Company to
Employee within thirty (30) days of Employee’s taxable year next following
Employee’s taxable year in which Employee remits the related taxes to the
taxing authorities.

 

5

 

(b)           Reduced Payments.  In the event that (i) the
Total Payments would subject Employee to the Excise Tax, and (ii) the
amount of the total “parachute payment” as defined in Section 280G(b) of
the Code to be paid to Employee is less than 110% of the Safe Harbor Amount,
then, only to the extent necessary to eliminate the imposition of the Excise
Tax, such payments and benefits shall be reduced, in the order and of the type,
mutually agreed to by Employee and the Company.

 

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

 

4.             SECTION 409A.  This Agreement is intended to meet the
requirements of the short-term deferral exemption under section 409A of the
Code.  However, if required by section
409A and if Employee is a “specified employee” of a publicly traded corporation
under section 409A of the Code, payment of any amount under this Agreement
shall be delayed for a period of six (6) months after separation from
service, as required by section 409A of the Code.  The accumulated postponed amount shall be
paid in a lump sum payment within ten (10) days after the end of the six
(6)-month period.  If Employee dies
during the postponement period prior to payment of the postponed amount, the
amounts withheld on account of section 409A shall be paid to the personal
representative of Employee’s estate within sixty (60) days after the date of
Employee’s death.  The determination of “specified
employees” shall be made by the Compensation Committee of the Board of
Directors of the Company in accordance with section 409A of the Code and the
regulations issued thereunder.

 

5.             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;

 

(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.

 

6

 

(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 5(a) above.

 

(c)           Definitions.  For purposes
of this Section 5:

 

(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 5(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 (i) the duties to be
performed by Employee and (ii) 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 5  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 5, 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 5
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) to render such covenants reasonable, valid
and enforceable in all respects.

 

6.             ARBITRATION.  Any and all
disputes between the parties (except actions to enforce the provisions of Section 5
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
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 5  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

 

7

 

 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.

 

7.             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:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Stephen C. Costalas

  

 

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.

 

8.             WITHHOLDING TAXES.  All payments under this Agreement shall be
made subject to applicable tax withholding, and the Company shall withhold from
any payments under this Agreement all federal, state and local taxes as the
Company is required to withhold pursuant to any law or governmental rule or
regulation.  Except as specifically
provided otherwise in this Agreement, Employee shall bear all expense of, and
be solely responsible for, all federal, state and local taxes due with respect
to any payment received under this Agreement.

 

9.             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.

 

10.          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.

 

11.          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.

 

12.          ENTIRE AGREEMENT; AMENDMENTS.  This Agreement, the Letter 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.

 

8

 

This
Agreement supersedes 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.

 

13.          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.

 

14.          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.

 

15.          COMPLIANCE WITH
LAW.  This Agreement is intended to comply with the
requirements of section 409A of the Code, and specifically, with the short term
deferral exemption of section 409A, and shall in all respects be administered
in accordance with section 409A. 
Notwithstanding anything in the Agreement to the contrary, distributions
may only be made under the Agreement upon an event and in a manner permitted by
section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of
employment under this Agreement may only be made upon a “separation from
service” under section 409A.  In no event
may Employee, directly or indirectly, designate the calendar year of
payment.  For purposes of section 409A of
the Code, each payment made under this Agreement shall be treated as a separate
payment.  All reimbursements and in-kind
benefits provided under this Agreement shall be made or provided in accordance
with the requirements of section 409A of the Code, including, where applicable,
the requirement that (a) any reimbursement shall be for expenses incurred
during Employee’s lifetime (or during a shorter period of time specified in
this Agreement), (b) the amount of expenses eligible for reimbursement, or
in-kind benefits provided, during a calendar year may not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided,

 

9

 

in any other calendar year, (c) the
reimbursement of an eligible expense will be made on or before the last day of
the calendar year following the year in which the expense is incurred, and (d) the
right to reimbursement or in-kind benefits is not subject to liquidation or
exchange for another benefit.

 

	
  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/ Stephen C. Costalas

  
	
   

  	
   

  	
  Stephen C. Costalas

  
					

 

10

 

EXHIBIT A

 

General Release

 

IN
CONSIDERATION OF the terms and conditions contained in the Amended and Restated
Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance
Agreement”) by and between Stephen C. Costalas, Esq. (“Employee”) and
Pharmacopeia, Inc. (the “Company”), and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Employee on behalf
of Employee and his or 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 his
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 Employee under the Severance Agreement, and (ii) any
vested benefits to which Employee 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 Employee fully understands the terms of this General Release, that
Employee is hereby advised to consult with legal counsel before signing, and
that Employee knowingly and voluntarily, of Employee’s own free will, without
any duress, being fully informed, and after due deliberation, accepts its terms
and signs below as Employee’s own free act. 
Except as otherwise provided herein, Employee understands that as a
result of executing this General Release, Employee will not have the right to
assert that the Company or any other of the Released Parties unlawfully
terminated Employee’s employment or violated any of Employee’s rights in
connection with Employee’s employment or otherwise.

 

Employee further represents and
warrants that Employee has not filed, and will not initiate, or cause to be
initiated on Employee’s 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 Employee’s behalf 

 

A-1

 

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
Employee 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, Employee hereby sets Employee’s 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 he executed the same in his capacity as an individual,
and that by his signature on the instrument he executed such instrument, and
that such individual made such appearance before the undersigned.

 

 

	
   

  	
   

  	
   

  	
                                                                                                                     

  
	
   

  	
   

  	
   

  	
  Notary Public

  

 

A-2

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