Document:

Exhibit 10.1

LKQ
Corporation

Long Term Incentive Plan

1.             Purpose.
The purpose of the LKQ Corporation Long Term Incentive Plan (the “Plan”)
is to advance the interests of LKQ Corporation (the “Company”) by providing for
long-term performance awards for officers and other key persons of the Company
or one or more of its subsidiaries so as to attract and retain such persons,
make their compensation competitive with other opportunities, and cause them to
strive to increase the Company’s cumulative returns to its stockholders.

2.             Administration.
The Plan shall be administered (the “Administrator”) by the Compensation
Committee of the Board of Directors of the Company. The Board of Directors of
the Company (the “Board”) may hereafter in its discretion designate the Board
or a committee thereof to administer the Plan, in which event such other
administrator shall be deemed the “Administrator” hereunder.

3.             Participants;
Performance Periods; Portion of Awards.

(a)  Participants in the Plan shall be selected by
the Administrator.

(b)  For purposes hereof, each “Performance Period”
during the term of the Plan shall begin on January 1 and shall terminate
on December 31 of the third calendar year ending thereafter. The first
Performance Period pursuant to the Plan shall begin on January 1, 2006 and
end on December 31, 2008.

(c)  If a person becomes a participant in the Plan
during any Performance Period, the participant’s award for such Performance
Period shall be prorated to reflect such participant’s actual number of full months
of participation; provided, however, such proration shall not be applicable to
participants designated by the Administrator on the date of adoption of the
Plan by the Compensation Committee of the Board with respect to the first
Performance Period.

4.             Performance
Awards.

(a)  Subject to Section 4(d) below, each
participant in the Plan shall be entitled to a performance award equal to the
product of such participant’s annual base salary (as of the last day of the
applicable Performance Period) multiplied by such participant’s  “Award Percentage” (as defined in Section 4(b) below).

(b)  The Administrator shall assign for each
Participant (1) a range of base salary percentages (the “EPS Component”)
to a range of EPS Growth percentages; (2) a range of base salary
percentages (the “Revenue Component”) to a range of Revenue Growth percentages;
and (3) a range of base salary percentages (the “ROE Component”) to a
range of ROE Growth points. For purposes of the Plan, the number and
percentages assigned to a particular participant pursuant to the immediately
preceding sentence shall be collectively referred to as the “Award Components.”
A sample Award Component Matrix is attached hereto as Exhibit 1. Each
participant’s “Award Percentage” shall mean the sum of (1) the EPS
Component that corresponds to the Company’s EPS Growth, (2) the Revenue
Component that corresponds to the Company’s Revenue Growth, and (3) the
ROE Component that corresponds to the Company’s ROE Growth. For purposes of the
Plan:

(i)            “EPS Growth” shall mean the
percentage growth of the Company’s diluted net income per share, as disclosed
by the Company on its audited financial statements, from the “Base Year” (as
defined below) to the “Final Year” (as defined below).

(ii)           “Revenue Growth” shall mean the
percentage growth of the Company’s revenue, as disclosed by the Company on its
audited financial statements, from the Base Year to the Final Year.

(iii)           “ROE Growth” shall mean the amount
(expressed in basis points) by which the Company’s return on equity (total net
income for such year divided by the average total stockholders’ equity for the
four quarters of such year) for the Final Year exceeds the Company’s return on
equity for the Base Year.

(iv)           “Base Year” shall mean the year ended
December 31 in the year immediately preceding the applicable Performance
Period.

(v)           “Final Year” shall mean the year
ended on the last day of such Performance Period.

(c)  In the event of any change in corporate
capitalization of the Company, such as a stock split, stock dividend or other
distribution of stock, a proportionate adjustment shall be made to the
calculation of the awards granted hereunder.

(d)  Notwithstanding any other provisions of the
Plan to the contrary, the following provisions shall be applicable to participation
in the Plan by any individual whose total compensation for any year exceeds the
amount specified by Section 162(m) of the Internal Revenue Code of
1986, as amended, if any portion of such participant’s compensation would
otherwise be non-deductible by the Company pursuant to that Section:

 

(i)  Each such
participant’s performance award for any Performance Period shall be based
solely on the achievement of the goals applicable pursuant to Section 4 (b) above.

(ii)  With respect
to each such participant, no bonus shall be payable hereunder except upon
written certification by the Administrator that the applicable performance
goals have been satisfied to a particular extent.

(iii)  The specific
performance goals to be attained for the year shall be determined by a
committee consisting of at least two members of the Board each of whom shall
qualify as an ”outside director” (within the meaning of Section 162(m) of
the Code).

(iv)  The specific
performance goals shall be established by such committee no later than 90
days after the beginning of the Performance Period to which they relate.

5.             Cash
and Deferred Awards.

(a) Performance
awards for each Performance Period shall be payable as follows:

(i)  An amount equal
to 50% of the performance award (the “Cash Award”) shall be paid in cash as
soon as practicable after the end of the Performance Period (but in no event
later than March 15 of the year following the end of the Performance
Period); and

(ii)  An amount
equal to 50% of the performance award (the “Deferred Award”), including
interest thereon as set forth in Section 6 hereof, shall be paid in cash
as soon as practicable after the date of vesting (but in no event later than March 15
of the year following the date of vesting), determined pursuant to Section 7
hereof.

(b)  Subject to Section 4(c) above, the
maximum amount of a performance award that may be awarded pursuant to Section 4(b) hereof
to a participant with respect to any Performance Period pursuant to this Plan
shall be limited to $3,000,000. The Deferred Award portion of each performance
award shall accrue interest as contemplated by Section 6 hereof.

6.             Interest
on Deferred Award. An amount equal to the Deferred Award granted to
each participant pursuant hereto shall be credited to a bookkeeping account
maintained by the Company in the name of each participant (a “Deferred Account”)
as of the last day of each Performance Period with respect to which a Deferred
Award is payable. The portions of a participant’s Deferred Award shall accrue
interest from the first day after the end of the applicable Performance Period
until the date such portion has vested, at a rate per annum equal to the Prime
Rate (as published in The Wall Street
Journal) adjusted quarterly on the first day of each January, April,
July and October.

7.             Vesting.

(a)  A participant whose employment with the
Company or one of its subsidiaries is terminated during any Performance Period
shall not be entitled to the payment of a performance award under the Plan for
such Performance Period.

(b)  A participant’s right to receive a Cash Award
for any Performance Period shall vest on the close of business on the last day
of such Performance Period.

(c)  A participant’s right to receive a Deferred
Award or any portion thereof for any Performance Period shall vest with respect
to one-third of the Deferred Award on each one year anniversary of the end of
the Performance Period to which the Deferred Award relates, over a total of
three years; provided that if the participant is not an employee of the Company
or one of its subsidiaries on any such date, then such award or any portion
thereof shall not vest, except as hereinafter provided. If the participant is
not an employee of the Company or one or more of its subsidiaries on any such
date as a result of the participant’s normal retirement at the age of 65, death
or total disability, the participant or his beneficiary designated pursuant to Section 10
hereof shall be entitled to payment of the entire Deferred Award as soon as
practicable after such attainment of normal retirement age, death or total
disability. An individual shall be deemed to have suffered a “total disability,”
pursuant to §409A(a)(2)(C) of the Code, if the individual is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or metal impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than
twelve (12) months, or is, by reason of any medically determinable physical or
mental impairment which can be expected to last for a continuous period of not
less than twelve (12) months, receiving income replacement benefits for a
period not less than three (3) months under an accident and health plan
covering employees of the Company.

8.             Change
of Control. In the event of a Change of Control of the Company, (i) each
Performance Period which has not yet ended shall end as of the calendar quarter
coincident with or next following the date of such Change of Control, (ii) each
unpaid Cash Award from such Performance Periods and each unpaid Deferred Award
from such Performance Periods and from prior Performance Periods shall vest as
of the close of the business on the last day of each such Performance Period
(as determined in accordance with clause (i)), (iii) the Administrator
shall cause the performance awards payable to participants to be promptly
calculated, and (iv) the Company shall pay such performance awards to
participants as promptly as practicable following the Administrator’s determination,

 

notwithstanding
any Plan provision to the contrary. In calculating the performance awards
payable to participants in connection with a Change in Control, the
Administrator shall (a) decrease the Award Components on a pro rata basis
to account for the decreased length of the applicable Performance Period, and (b) discount
the performance awards to account for the time value of money as required by Section 162(m) of
the Code. For purposes of Section 8, Change of Control shall have the same
meaning as defined in IRS Prop. Reg. Sec. 1.409A-3(g)(5). Notwithstanding
the foregoing, Change of Control shall have the same meaning as defined in the
Company’s 1998 Equity Incentive Plan, as amended from time to time, solely with
respect to Cash Awards.

9.             Participants’
Interest. A participant’s benefits hereunder shall at all times be
reflected on the Company’s books as a general unsecured and unfunded obligation
of the Company and the Plan shall not give any person any right or security
interest in any asset of the Company nor shall it imply any trust or
segregation of assets by the Company.

10.           Designation
of Beneficiaries. A participant from time to time may name in
writing any person or persons (who may be named concurrently, contingently or
successively) to whom his or her benefits are to be paid if he or she dies
before complete payment of such benefits. Each such beneficiary designation
will revoke all prior designations by the participant with respect to the Plan,
shall not require the consent of any previously named beneficiary, shall be in
a form prescribed by the Administrator, and will be effective only when filed
with the Administrator during the participant’s lifetime. If the participant
fails to designate a beneficiary before his or her death, as provided above, or
if the beneficiary designated by the participant dies before the date of the
participant’s death or before complete payment of the participant’s benefits,
the Company, in its discretion, may pay the remaining unpaid portion of the
participant’s benefits to either (i) one or more of the participant’s
relatives by blood, adoption or marriage and in such proportion as the Company
determines; or (ii) the legal representative or representatives of the
estate of the last to die of the participant and his or her designated
beneficiary.

11.           Facility
of Payment. If a participant or his or her beneficiary is entitled
to payments under the Plan and in the Company’s opinion such person becomes in
any way incapacitated so as to be unable to manage his or her financial
affairs, the Company may make payments to the participant’s or such beneficiary’s
legal representative, or to a relative or friend of the participant or
beneficiary for such person’s benefit, or the Company may make payments for the
benefit of the participant or beneficiary in any manner that it considers
advisable. Any payment made in accordance with the preceding sentence shall be
a full and complete discharge of any liability for such payment hereunder.

12.           Non-Alienation
of Benefits. All rights and benefits under the Plan are personal to
the participant and neither the Plan nor any right or interest of a participant
or any person arising under the Plan is subject to voluntary or involuntary
alienation, sale, transfer, or assignment without the Company’s consent.

13.           Withholding
for Taxes. Notwithstanding any other provisions of this Plan, the
Company may withhold from any payment made by it under the Plan such amount or
amounts as may be required for purposes of complying with the tax withholding
or other provisions of the Internal Revenue Code or the Social Security Act or
any state’s income tax act or for purposes of paying any estate, inheritance or
other tax attributable to any amounts payable hereunder.

14.           No
Employment Rights. The Plan is not a contract of employment and
participation in the Plan will not cause any participant to have any rights to
continue as an employee of the Company (or any affiliated entity), or any right
or claim to any benefit under the Plan, unless the right or claim has
specifically vested under the Plan.

15.           Administrator
or Company Determinations Final. Each determination provided for in
the Plan shall be made by the Administrator or the Company, as the case may be,
under such procedures as may from time to time be prescribed by the
Administrator or the Company. Any such determination shall be conclusive. The
Administrator, in its sole and absolute discretion, may reduce, but not
increase, the amount of any award otherwise payable to a participant, based on
any subjective or objective factors that the Administrator determines to be
appropriate. Notwithstanding any other provisions of the Plan to the contrary,
neither the Company nor the Administrator is empowered to make any
determinations hereunder that cause the Plan to fail to comply with the
requirements of Section 162(m) of the Code.

16.           Amendment
or Termination. The Administrator may in its sole discretion
terminate or amend the Plan from time to time. No such termination or amendment
shall alter a participant’s right to receive a vested award under the Plan.

17.           Successors.
Unless otherwise agreed to, the Plan is binding on and will inure to
the benefit of any successor to the Company, whether by way of merger,
consolidation, purchase or otherwise

18.           Controlling
Law. The Plan shall be constructed in accordance with the internal
laws of the State of Illinois, and shall be operated and administered in
accordance with §409A of the Code, to the extent applicable.

19.           Date
of Adoption. The Plan has been adopted by the Compensation Committee
of the Board as of January 27, 2006, subject to stockholder approval, and
by the stockholders of the Company as of May 8, 2006.

 

Exhibit 1

Award
Component Matrix

Participant:

Performance Period:

 

	
  EPS

  GROWTH (%)

  	
   

  	
  EPS

  COMPONENT (%)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  REVENUE

  GROWTH (%)

  	
   

  	
  REVENUE

  COMPONENT (%)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ROE GROWTH

  (basis points)

  	
   

  	
  ROE

  COMPONENT (%)Exhibit 4.1

 

THIS WARRANT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND NEITHER
THIS WARRANT NOR ANY WARRANT SHARES (AS DEFINED BELOW) MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.

 

 

WARRANT

TO PURCHASE COMMON STOCK

OF

PHARMACOPEIA DRUG DISCOVERY, INC.

 

 

No.
W-  

 

THIS
CERTIFIES THAT, for value received, «NAME» or its permitted transferees or
permitted assigns (the “Holder”), from and after the Issuance Date (as defined
below), and subject to the terms and conditions herein set forth, is entitled
to purchase from Pharmacopeia Drug Discovery, Inc., a Delaware corporation (the
“Company”), at any time before 5:00 p.m. New York City time on the earlier to
occur of (i) March 24, 2011 and (ii) the effective date of a termination under
the Product Development Agreement (as defined below) by the Company, in the
case of Sections 12.2.1 or 12.2.4(c) of the Product Development Agreement, or
by GSK (as defined in the Product Development Agreement), in the case of
Section 12.2.5 of the Product Development Agreement (the “Termination Date”), «WordNumberOfWarrantShares»
(«NumberOfWarrantShares») shares (as adjusted from time to time pursuant to
Section 2 hereof, the “Warrant Shares”) of the Company’s common stock, $0.01
par value per share (the “Common Stock”), at a price per share equal to the
Warrant Price (as defined below) upon exercise of this Warrant pursuant to
Section 5 hereof.  The number of Warrant
Shares is subject to adjustment under Section 2.

 

1.             Definitions.  As used in this Warrant, the
following terms have the definitions ascribed to them below:

 

(a)            “Issuance Date” means March 24, 2006.

 

(b)            “Person” means any individual, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, governmental authority or
other entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.

 

(c)           “Product Development Agreement” means that
certain Product Development and Commercialization Agreement dated as of March 24,
2006 between the Company and the initial Holder of this Warrant.

 

(d)           “Warrant Price” means 125% of the Company’s
average closing price for a 30 day period ending one day prior to the effective
date of the Product Development Agreement, which is $5.67, subject to
adjustment under Section 2.

 

 

2.             Adjustments and Notices.  The
Warrant Price and/or the Warrant Shares shall be subject to adjustment from
time to time in accordance with this Section 2. 
The Warrant Price and/or the Warrant Shares shall be adjusted to reflect
all of the following events that occur on or after the Issuance Date.

 

(a)           Subdivision, Stock Dividends or Combinations.  In
case the Company shall at any time subdivide the outstanding shares of the
Common Stock (through a stock split or otherwise), the Warrant Price in effect
immediately prior to such subdivision shall be proportionately decreased, and
the number of Warrant Shares for which this Warrant may be exercised
immediately prior to such subdivision shall be proportionately increased.  In case the Company shall at any time combine
the outstanding shares of the Common Stock (through a reverse stock split or
otherwise), the Warrant Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Warrant Shares for which
this Warrant may be exercised immediately prior to such combination shall be
proportionately decreased.  In each of
the foregoing cases, the adjustment shall be effective automatically upon, and
simultaneously with, the effectiveness of the subdivision or combination giving
rise to the adjustment.  If the Company
at any time pays a dividend, or makes any other distribution, to holders of
Common Stock payable in shares of Common Stock, or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in shares of Common Stock, then the number of
Warrant Shares in effect immediately prior to such action shall be
proportionately increased so that the Holder hereof may receive upon exercise
of the Warrant the aggregate number of shares of Common Stock which he or it
would have owned immediately following such action if the Warrant had been
exercised immediately prior to such action. 
The adjustment shall become effective immediately as of the date the
Company shall take a record of the holders of its Common Stock for the purpose
of receiving such dividend or distribution (or if no such record is taken, as
of the effectiveness of such dividend or distribution).

 

(b)           Reclassification, Exchange, Substitution,
In-Kind Distribution.  Upon any capital reorganization, reclassification,
exchange, substitution or other event (other than an event described in Section
2(a) above) that results in a change of the number and/or class of the
securities issuable upon exercise or conversion of this Warrant or upon the
payment of a dividend in securities or property other than shares of the Common
Stock, the Holder shall be entitled to receive, upon exercise of this Warrant,
the number and kind of securities and property that Holder would have received
if this Warrant had been exercised immediately before the record date for such
reclassification, exchange, substitution, or other event or immediately prior
to the record date for such dividend.  The
adjustment shall become effective immediately as of the date the Company shall
take a record of the holders of its Common Stock for the purpose of receiving
such dividend or distribution (or if no such record is taken, as of the
effectiveness of such dividend or distribution), and the Company or its
successor shall promptly issue to Holder a new warrant for such new securities
or other property.  The new warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise or conversion of the new warrant.  The provisions of this Section 2(b) shall
similarly apply to successive reclassifications, exchanges, substitutions, or
other events and successive dividends.

 

(c)           Reorganization, Merger, etc. In case of any merger or consolidation of
the Company into or with another corporation where the Company is not the
surviving corporation, or a merger or consolidation which results in the termination
of the Company’s registration under the Exchange Act, or sale, transfer or
lease (but not including a transfer or lease by pledge or mortgage 

 

2

 

to
a bona fide lender as collateral in connection with the incurrence of
indebtedness by the Company) of all or substantially all of the assets of the
Company, the Company, or such successor or purchasing corporation, as the case
may be, shall, as a condition to closing any such reorganization, merger or
sale, duly execute and deliver to the Holder hereof a new warrant so that the
Holder shall have the right to receive, at a total purchase price not to exceed
that payable upon the exercise or conversion of this Warrant, and in lieu of
the Warrant Shares theretofore issuable upon exercise or conversion of this
Warrant, the kind and amount of any class or classes of shares of stock or
other ownership interests of the Company or other corporation or entity, other
securities, money and property that would have been receivable upon such
reorganization, consolidation, merger or sale by the Holder with respect to the
Warrant Shares if this Warrant had been exercised immediately before the
consummation of such transaction.  Such
new warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2.  The provisions of this subparagraph (c) shall
similarly apply to successive transactions of the type described in this
subparagraph (c).

 

(d)           Certificate of Adjustment.  In
each case of an adjustment or readjustment of the Warrant Price or an
adjustment of the kind or number of securities issuable upon exercise of the
Warrant, or both, the Company, at its own expense, shall cause its principal financial
officer to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to the Holder at the address provided in or pursuant to Section 12
hereof not later than 20 days following the event prompting such adjustment or
readjustment.  Such certificate shall set
forth such adjustment or readjustment, showing in reasonable detail the facts
upon which such adjustment or readjustment is based (including a description of
the basis on which the Board of Directors of the Company made any determination
hereunder).  No adjustment of the Warrant
Price shall be required to be made unless it would result in an increase or
decrease of at least one cent ($0.01), but any adjustments not made because of
this sentence shall be carried forward and taken into account in any subsequent
adjustment otherwise required hereunder.

 

(e)           No Impairment.  The
Company shall not, by amendment of its Certificate of Incorporation, by-laws or
other organizational documents, or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed under this Warrant by the Company,
but shall subject to Section 9 at all times in good faith assist in carrying
out all of the provisions of this Section 2 and in taking all such action as
may be necessary or appropriate to protect the Holder’s rights under this
Section 2 against impairment.

 

(f)            Fractional Shares.  No
fractional shares shall be issuable upon exercise or conversion of the Warrant
and the number of shares to be issued shall be rounded down to the nearest
whole share.  If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying the Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full share.

 

3.             No Stockholder Rights.  This
Warrant, by itself, as distinguished from any shares purchased hereunder, shall
not (i) entitle the Holder to any of the rights of a stockholder of the Company
or (ii) impose any liabilities on the Holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company.

 

3

 

4.             Reservation of Stock.  The
Company covenants and agrees that it will reserve at all times from its
authorized and unissued stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of this Warrant.  The Company further covenants and agrees that
this Warrant is, and any Warrants issued in substitution for or replacement of
this Warrant and all Warrant Shares, will upon issuance be duly authorized and
validly issued and, in the case of Warrant Shares, upon issuance will be fully
paid and non-assessable and free from all preemptive rights of any stockholder,
and from all taxes, liens and charges with respect to the issue thereof (other
than transfer taxes) and, if the Common Stock of the Company is then listed on
any national securities exchanges (as defined in the Exchange Act) or quoted on
NASDAQ, shall be duly listed or quoted thereon, as the case may be. In the
event that the number of authorized but unissued shares of such Common Stock
shall not be sufficient to effect the exercise of this entire Warrant into
Warrant Shares, then in addition to such other remedies as shall be available
to the Holder of this Warrant, the Company shall promptly take such corporate
action as may be necessary to increase its authorized but unissued shares of
such Common Stock to such number of shares as shall be sufficient for such
purpose.  The duly authorized issuance of
this Warrant and duly authorized approval of the Product Development Agreement
by the Company shall constitute full authority to the Company’s officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares issuable upon the exercise of
this Warrant.

 

5.             Exercise of Warrant.

 

(a)           This Warrant
may be exercised by the Holder hereof, in whole (but not in part, except in
order to comply with Section 5(c) hereof, in part), at any time from and after
the Issuance Date and prior to the Termination Date, at the election of the
Holder hereof (with the notice of exercise substantially in the form attached
hereto as Attachment 1 duly completed and executed), by the surrender of
this Warrant at the principal office of the Company or Transfer Agent (the
addresses of each of which are set forth in Section 12 hereof) and the payment
to the Company, by certified or bank check, or by wire transfer to an account
designated by the Company of an amount equal to the then applicable Warrant
Price multiplied by the number of Warrant Shares then being purchased.  This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive
the Warrant Shares issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business on
such date.  As promptly as practicable
after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
full Warrant Shares issuable upon exercise.

 

(b)           In lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value of this Warrant by
surrender of this Warrant at the principal office of the Company or the
Transfer Agent together with notice of such election substantially in the form
attached hereto as Attachment 1 duly completed and executed (a “Net
Exercise”).  The Company shall issue to a
Holder who Net Exercises a number of Warrant Shares computed using the
following formula:

 

	
   

  	
  Y (A - B)

  	
   

  
	
  X =

  	
   

  	
  A

  	
   

  
				

 

Where

 

X =          The number of Warrant Shares to be issued to
the Holder.

 

4

 

Y =          The number of Warrant Shares purchasable
under this Warrant (at the date of such calculation).

 

A =         The fair market
value of one (1) Warrant Share (at the date of such calculation).

 

B =          The Warrant Price (as adjusted to the date of
such calculation).

 

For
purposes of this Section 5, the fair market value of a Warrant Share shall
mean:

 

(i)            If traded on a securities exchange, the
Nasdaq National Market or Nasdaq Capital Market, the fair market value of the
Common Stock shall be deemed to be the closing price of the Common Stock on
such exchange or market on the trading day immediately prior to the date of
exercise by the Holder;

 

(ii)           If traded on the Nasdaq Stock Market (other
than the Nasdaq National Market or Nasdaq Capital Market) or other
over-the-counter system, the fair market value of the Common Stock shall be
deemed to be the closing bid price of the Common Stock on the trading day
immediately prior to the date of exercise; and

 

(iii)          If there is no
public market for the Common Stock, the fair market value shall be the price
per Warrant Share that the Company could obtain from a willing buyer for
Warrant Shares sold by the Company from authorized but unissued Warrant Shares,
as such prices shall be determined in good faith by the Company’s Board of
Directors.

 

(c)           The Holder shall not be entitled to exercise
this Warrant for a number of Warrant Shares in excess of that number of Warrant
Shares which, upon giving effect to such exercise, would cause the aggregate
number of shares of Common Stock beneficially owned by the Holder to exceed
9.9% of the outstanding shares of the Common Stock following such
exercise.  For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the Holder shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which determination of such proviso is
being made, but shall exclude the shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised Warrants beneficially
owned by the Holder and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned
by the Holder subject to a limitation on conversion or exercise analogous to
the limitation contained herein.  Except
as set forth in the preceding sentence, for purposes of this Section 5(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act.  The Holder may waive
the foregoing limitation by written notice to the Company upon not less than 61
days prior written notice (with such waiver taking effect only upon the
expiration of such 61 day notice period). 
For purposes of this Section 5(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-Q or Form 10-K, as the case may be, filed with the SEC on the
date thereof, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding.  Upon
the written request of the Holder, the Company shall within three trading days
confirm in writing or by electronic mail to the Holder the number of shares of
Common Stock then outstanding.

 

5

 

6.             Transfer of Warrant.  This
Warrant may not be transferred or assigned by the Holder hereof, other than to
an Affiliate (as defined in the Product Development Agreement) of the Holder; provided
that in the case of any such transfer, the transferor provides, at the Company’s
request, an opinion of counsel reasonably satisfactory to the Company that such
transfer does not require registration under the Securities Act.

 

7.             Legends.  Upon issuance, the certificate
or certificates evidencing any Warrant Shares shall bear legends as set forth
in the Product Development Agreement.

 

8.             Termination.  This Warrant shall terminate
at 5:00 p.m. New York City time on the Termination Date.

 

9.             Warrant Exchangeable for Different
Denominations.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company or transfer
agent, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Registered Holder at the time of
such surrender.  At the request of the
Holder (pursuant to a transfer of Warrants or otherwise), this Warrant may be
exchanged for one or more Warrants to purchase Common Stock.  The date the Company initially issues this
Warrant shall be deemed to be the date of issuance hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued.  Each warrant representing a portion of the
rights hereunder constitutes a Warrant as defined herein.

 

10.           Ownership of Warrants.  The
Company may treat the person in whose name any Warrant is registered on the
register kept at the principal office of the Company as the owner and Holder
thereof for all purposes, notwithstanding any notice to the contrary, but in
all events recognizing any transfers made in accordance with the terms of this
Warrant.

 

11.           Warrant Register.  The
Company shall maintain at its principal executive offices books for the
registration and the registration of transfer of the Warrant.  The Company may deem and treat the Holder so
registered as the absolute owner hereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary, other than a notice in
conformity with Section 12 hereof signed by the previous registered Holder
indicating that the warrant has been transferred or assigned pursuant to
Section 6 hereof. The initial registered Holder is [insert name].

 

12.           Notices.  Any notices, consents, waivers
or other communications required or permitted to be given under the terms of
this Warrant must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one trading day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 

If
to the Company, to:

 

Pharmacopeia
Drug Discovery, Inc.

3000
Eastpark Boulevard

Cranbury,
NJ 08512

Attn:
Chief Financial Officer

 

6

 

with
a copy to:

 

Pharmacopeia
Drug Discovery, Inc.

3000
Eastpark Boulevard

Cranbury,
NJ 08512

Attn:
General Counsel

 

If
to the Holder, to:

 

 

or
such other address provided to the Company pursuant to Section 11 hereof

 

If
to the Transfer Agent, to:

 

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY
11219-5498

 

or
at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) trading days prior to the effectiveness of such
change.  Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, and recipient facsimile number or
(C) provided by a nationally recognized overnight delivery service, shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

 

13.           Miscellaneous.  This
Warrant shall be governed by the laws of the State of Delaware. The headings in
this Warrant are for purposes of convenience and reference only, and shall not
be deemed to constitute a part hereof. 
Initially capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Product Development Agreement.  Neither this Warrant nor any term hereof may
be changed or waived orally, but only by an instrument in writing signed by the
Company and the Holder.  Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same aggregate number of
Warrant Shares.  This Warrant may be
amended with, and only with, the written consent of the Company and the
Holder.  Any waiver of any term,
covenant, agreement or condition contained in this Warrant shall not be deemed
a waiver of any other term, covenant, agreement or condition, and any waiver of
any default in any such term, covenant, agreement or condition shall not be
deemed a waiver of any later default thereof or of any default of any other
term, covenant, agreement or condition. 
All representations, warranties and covenants contained herein shall
survive the execution and delivery of this Warrant and the issuance of any
Warrant Shares upon the exercise hereof. 
In the event that any court or any governmental authority or agency
declares all or any part of any Section of this Warrant to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate any other Section
of this Warrant, and in the 

 

7

 

event
that only a portion of any Section is so declared to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate the balance of
such Section.  All provisions of this
Warrant shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, executors, administrators, legal representatives,
successors, and permitted transferees and assigns.  No person other than the holder of this
Warrant and the Company shall have any legal or equitable right, remedy or
claim under or in respect of, this Warrant.

 

14.           Limitation on
Issuance.  Notwithstanding anything
to the contrary in this Agreement, in no event shall the Company issue,
pursuant to this Agreement, a number of shares of Common Stock equal to or in
excess of 20% of the number of shares of Common Stock outstanding at the
Issuance Date, or otherwise be required to take any action that would create
the necessity of a stockholder vote under NASD Rule 4350.

 

8

 

Exhibit A

 

ISSUED: March 24, 2006

 

 

PHARMACOPEIA
DRUG DISCOVERY, INC.

 

 

	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
					

 

 

Attachment 1

 

NOTICE
OF EXERCISE

 

TO:
        PHARMACOPEIA DRUG DISCOVERY, INC.

 

1.             The undersigned hereby:

 

•       elects to purchase    shares
of Common Stock of the Company pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full, or

 

•       elects to exercise its net issuance rights
pursuant to Section 5(b) of the attached Warrant with respect to   
shares of Common Stock.

 

2.         Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Name in which certificate(s) are to be issued)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Address)

  	
   

  

 

 

	
   

  	
   

  
	
   

  	
  (Name of Warrant Holder)

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Date
  signed:

  	
   

  
					

 

2

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