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Exhibit 10.2  

 
 

TAX SHARING AND INDEMNIFICATION AGREEMENT    
    

        This Tax Sharing and Indemnification Agreement (this "Agreement") is entered into as of the Distribution Date by and between Pharmacopeia, Inc., a Delaware
corporation ("Pharmacopeia"), on behalf of itself and each Pharmacopeia Affiliate, and Pharmacopeia Drug Discovery, Inc., a Delaware corporation ("PDD"), and their respective successors. 

RECITALS  

        WHEREAS, Pharmacopeia is the common parent of an affiliated group of corporations within the meaning of Section 1504(a) of the Code, which currently files
consolidated income Tax Returns; 

        WHEREAS,
PDD is a first-tier subsidiary of Pharmacopeia; 

        WHEREAS,
PDD conducts the drug discovery business which integrates proprietary small molecule combinatorial and medicinal chemistry, high-throughput screening,
in-vitro pharmacology, computational methods and informatics to discover and optimize lead compounds, as more fully described in its Form 10 filed with the Securities and Exchange
Commission on December 22, 2003, and the amendment thereto filed on February 17, 2004 (the "Drug Discovery Business"); 

        WHEREAS,
Pharmacopeia holds certain assets used in the Drug Discovery Business; 

        WHEREAS,
Pharmacopeia has agreed to transfer and assign, or cause to be transferred and assigned, to PDD substantially all the remaining assets and properties of the Drug Discovery
Business not already held by PDD (the "Contribution"); 

        WHEREAS,
Pharmacopeia, its subsidiary Accelrys, Inc., and other Pharmacopeia Affiliates are engaged in the development and commercialization of molecular modeling and simulation
software for the life sciences and materials research markets, cheminformatics and decision support systems, and bioinformatics tools including gene sequence analysis (the "Software Business"); 

        WHEREAS,
the Board of Directors of Pharmacopeia has determined that it would be advisable and in the best interests of Pharmacopeia and its shareholders for Pharmacopeia to distribute on
a pro-rata basis to the holders of record of Pharmacopeia common stock, par value $0.0001 per share (the "Pharmacopeia Common Stock"), without any consideration being paid by such holders,
all of the outstanding shares of PDD common stock, par value $0.01 per share (the "PDD Common Stock") owned directly by Pharmacopeia (the "Distribution"); 

        WHEREAS,
Pharmacopeia and PDD intend that the Contribution and the Distribution qualify as free of Federal Tax to Pharmacopeia and its stockholders under Sections 355 and 368(a)(1)(D) of
the Code; 

        WHEREAS,
the parties hereto are entering into this agreement: to ensure the tax-free status of the Contribution and Distribution; to provide certain indemnities; and to
provide for various administrative matters relating to Taxes, including (1) the preparation and filing of Tax Returns along with the payment of Taxes shown as due and payable thereon,
(2) the retention and maintenance of relevant records necessary to prepare and file appropriate Tax Returns, as well as the provision for appropriate access to those records by the parties to
this Agreement, (3) the conduct of audits, examinations, and proceedings by appropriate governmental entities which could result in a redetermination of Taxes, and (4) the cooperation of
all parties with one another in order to fulfil their duties and responsibilities under this Agreement and under the Code and other applicable law; and 

        WHEREAS,
the parties desire to set forth their respective responsibilities for Taxes, including any Taxes that could be incurred in connection with the Distribution. 

 

AGREEMENT  

        NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth below, the parties agree as follows: 

ARTICLE
I

DEFINITIONS 

        Unless
otherwise defined in this Agreement, capitalized terms shall have the meanings ascribed thereto in the Distribution Agreement. As used in this Agreement, the following terms shall
have the following meanings: 

        1.1.  "Adjustment" means any proposed or final change in the taxable income or Tax Liability of a taxpayer. 

        1.2.  "Affiliate" means, when used with respect to a specified Person, another Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by or is under common control with such Person. 

        1.3.  "Associates" has the meaning ascribed to such term in the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder. 

        1.4.  "Code" means the Internal Revenue Code of 1986, as amended. 

        1.5.  "Combined State Tax" means, with respect to each United States state or local taxing jurisdiction, any income, franchise
or similar tax payable to such state or local taxing jurisdiction in which any PDD Affiliate files Returns with a Pharmacopeia Affiliate, on a consolidated, combined or unitary basis for purposes of
such Tax. 

        1.6.  "Combined State Tax Return" means any Return with respect to any Combined State Taxes that includes any
Pre-Distribution Tax Period. 

        1.7.  "Distribution" has the meaning set forth in the recitals. 

        1.8.  "Distribution Agreement" means the Master Separation and Distribution Agreement between Pharmacopeia Inc. and PDD
dated                        . 

        1.9.  "Distribution Date" has the meaning set forth in the Distribution Agreement. 

        1.10. "Federal Tax" means any Tax imposed under the Code, including any interest, penalty or other additions to Tax imposed
under Subtitle F of the Code. 

        1.11. "Federal Tax Return" means any Return with respect to any Federal Taxes that includes any Pre-Distribution
Tax Period. 

        1.12. "Final Determination" means the final resolution of any Tax matter. A final Determination shall result from the first
to occur of: 

        (a)   the
expiration of 30 days after the IRS's acceptance of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of
Overassessment on Form 870 or 870-AD (or any successor comparable form) (the "Waiver"), except as to reserved matters specified
therein, or the expiration of 30 days after acceptance by any other Taxing Authority of a comparable agreement or form under the laws of any other jurisdiction, including state, local, and
foreign jurisdictions; unless, within such period, the taxpayer gives notice to the other party to this Agreement of the taxpayer's intention to attempt to recover all or part of any amount paid
pursuant to the Waiver by the filing of a timely claim for refund; 

        (b)   a
decision, judgment, decree, or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become
final; 

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        (c)   the
execution of a closing agreement under Code section 7121, or the acceptance by the IRS of an offer in compromise under Code section 7122, or comparable
agreements under the laws of any other jurisdiction, including state, local, and foreign jurisdictions; except as to reserved matters specified therein; 

        (d)   the
expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund that was disallowed in whole or part by the IRS or any
other Taxing Authority; 

        (e)   the
expiration of the applicable statute of limitations; or 

        (f)    an
agreement by the parties hereto that a Final Determination has been made. 

        1.13. "Indemnified Liability" is defined at Section 7.2. 

        1.14. "Indemnified Parties" is defined at Section 7.2. 

        1.15. "Indemnifying Parties" is defined at Section 7.2. 

        1.16. "IRS" means the U.S. Internal Revenue Service. 

        1.17. "IRS Interest Rate" means the rate of interest imposed from time to time on underpayments of income tax pursuant to
Code section 6621(a)(2). 

        1.18. "Opinion Documents" means (i) the Spin-Off Opinion, (ii) the representation letters issued by
Pharmacopeia and PDD to Dechert LLP in connection with the Spin-Off Opinion and (iii) all other documents provided by Pharmacopeia and PDD to Dechert LLP and on which Dechert LLP
relied in issuing the Spin-Off Opinion 

        1.19. "PDD Affiliate" means PDD and any Affiliate of PDD after the Distribution Date. 

        1.20. "PDD Change in Control Tax" means any Tax imposed by reason of section 355(e) of the Code or any comparable
provision of state or local law as a result of one or more persons acquiring, directly or indirectly, stock representing a 50% or greater interest in PDD. 

        1.21. "PDD Separate Return" means any state or local Tax Return of PDD, other than any Combined State Tax Return, that
includes any Pre-Distribution Tax Period. 

        1.22. "Pharmacopeia Affiliate" means Pharmacopeia and any Affiliate of Pharmacopeia (other than PDD) before, on or after the
Distribution Date, as applicable. 

        1.23. "Pharmacopeia Consolidated Group" means the group of companies filing a consolidated Federal Tax Return or Combined
State Tax Return, as the case may be, that includes Pharmacopeia. 

        1.24. "Pharmacopeia Consolidated Return" means any consolidated Federal Tax Return or Combined State Tax Return of the
Pharmacopeia Consolidated Group that includes any Pre-Distribution Tax Period. 

        1.25. "Person" means any natural person, corporation, business trust, joint venture, association, company, partnership, or
government, or any agency or political subdivision thereof. 

        1.26. "Post-Distribution Tax Period" means (i) any tax period ending after the Distribution Date, and
(ii) with respect to a tax period that begins on or before the Distribution Date and ends after the Distribution Date, such portion of the tax period that begins on the day after the
Distribution Date. 

        1.27. "Pre-Distribution Tax Period" means (i) any tax period beginning and ending before or on the
Distribution Date, and (ii) with respect to a tax period that begins on or before and ends after the Distribution Date, such portion of the tax period that begins before the Distribution Date
and ends at the close of the Distribution Date. 

        1.28. "Proceeding" is defined at section 8.2(a). 

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        1.29. "Return" means any return, declaration, report, claim for refund, or information or return or statement relating to
Taxes, including any schedule or attachment thereto, and including any amendment thereof. 

        1.30. "Separation Tax" means any Tax (other than any PDD Change in Control Tax) imposed on any Pharmacopeia Affiliate or PDD
Affiliate in connection with the Contribution and Distribution that would not have occurred had the Contribution and Distribution not occurred. 

        1.31. "Spin-Off Opinion" means the opinion received from Dechert LLP to the effect that the Distribution will
qualify as free of Federal Tax to Pharmacopeia and its stockholders under sections 355 and 368(a)(1)(D) of the Code. 

        1.32. "Spin-Off Period" means the period commencing on the Distribution Date and ending on the seventh
anniversary of the close of the taxable year of Pharmacopeia in which the Distribution occurs. 

        1.33. "Subsidiary" means with respect to Pharmacopeia or PDD, any Person of which Pharmacopeia or PDD, respectively, controls
or owns, directly or indirectly, more than 50% of the stock or other equity interest entitled to vote on the election of members to the board of directors or similar governing body. 

        1.34. "Tax Asset" means any Tax Item that may have the effect of producing a Tax Benefit. 

        1.35. "Tax Benefit" means a reduction in the Tax Liability of a taxpayer (whether a Pharmacopeia Affiliate or a PDD
Affiliate) for any taxable period. Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been realized or received from a Tax Item in a taxable period only if and to
the extent that the Tax Liability of the taxpayer for such period, after taking into account the effect of the Tax Item on the Tax Liability of such taxpayer in all prior periods, is less than it
would have been if such Tax Liability were determined without regard to such Tax Item. 

        1.36. "Taxes" means all federal, state, local and foreign gross or net income, gross receipts, withholding, payroll,
franchise, transfer, sales, use, value added, estimated or other taxes of any kind whatsoever or similar charges and assessments, including all interest, penalties and additions imposed with respect
to such amounts which any Pharmacopeia Affiliate or any PDD Affiliate is required to pay, collect or withhold, together with any interest and any penalties, additions or additional amounts imposed
with respect thereto, and "Tax" means any of the Taxes. 

        1.37. "Taxing Authority" means the IRS or any other governmental authority or any subdivision, agency, commission or
authority thereof or any quasi-governmental or private body having jurisdiction pursuant to applicable law over the assessment, determination, collection or imposition of any Tax. 

        1.38. "Tax Item" means any item of income, gain, loss, deduction, credit, recapture of credit, or any other item (including
basis) which may have the effect of increasing or decreasing Taxes paid or payable. 

        1.39. "Tax Liability" means the net amount of Taxes due and paid or payable for any taxable period, determined after applying
all tax credits and all applicable carrybacks or carryovers for net operating losses, net capital losses, unused general business tax credits, or any other Tax Items arising from a prior or subsequent
taxable period, and all other relevant adjustments. 

        1.40. "Tax Returns" means all reports, estimates, declarations of estimated tax, information statements and returns relating
to, or required to be filed in connection with any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. 

        1.41. "Unqualified Tax Opinion" means an unqualified "will" opinion of tax counsel to the effect that a transaction does not
disqualify the Distribution from qualifying for tax-free treatment for Pharmacopeia or its shareholders under Code section 355 (including Code section 355(e))and any other
applicable sections of the Code, assuming that the Distribution would have qualified for tax treatment 

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if
such transaction did not occur, which opinion is in form and substance reasonably satisfactory to Pharmacopeia. An Unqualified Tax Opinion may rely upon, and may assume the accuracy of, any
representations given in any Opinion Document, and any customary representations contained in an officer's certificate delivered by an officer of Pharmacopeia or PDD to such counsel. 

ARTICLE
II

PREPARATION AND FILING OF TAX RETURNS. 

        2.1.  Designation of Agent. With regard to each Pharmacopeia Consolidated Return, each PDD Affiliate hereby irrevocably
authorizes and designates Pharmacopeia as its agent, coordinator, and administrator, for the purpose of taking any and all actions (including the execution of waivers of applicable statutes of
limitation) necessary or incidental to the filing of any such Tax Return or other Tax proceedings, and for the purpose of making payments to, or collecting refunds from, any Taxing Authority, provided
that PDD may continue to participate in any such Tax proceedings as provided herein. 

        2.2.  Pharmacopeia Consolidated Returns. Pharmacopeia will prepare all Pharmacopeia Consolidated Returns. Pharmacopeia shall
have the exclusive right to (a) file, prosecute, compromise, or settle any claim for refund, and (b) determine whether any refunds to which the Pharmacopeia Consolidated Group may be
entitled shall be received by way of refund or credit against the Tax liability of the Pharmacopeia Consolidated Group. 

        2.3.  Taxable Period Ends on Distribution Date. Unless prohibited by applicable law, any taxable period of PDD that is
included in a Pharmacopeia Consolidated Return that includes the Distribution Date shall end on the Distribution Date. 

        2.4.  Allocation. Unless Pharmacopeia and PDD agree otherwise, the taxable year of PDD shall be treated for all Tax purposes
as ending on the Distribution Date, and no alternative method of allocating Tax Items of PDD to the period including the Distribution shall be used. 

        2.5.  PDD Separate Returns. PDD shall be solely responsible for the preparation and filing of all PDD Separate Returns. PDD
shall be responsible for paying to the applicable Tax Authorities all Taxes shown as due from any PDD Affiliate on the PDD Separate Returns. 

        2.6.  Post-Distribution Conduct of PDD. On or after the Distribution Date, PDD will not, nor will it permit any
PDD Affiliate to, make or change any accounting method, change its taxable year, amend any Return or take any Tax position on any Return, take any other action, omit to take any action, or enter into
any transaction that may reasonably be expected to result in or does result in any increased Tax liability or reduction of any Tax Asset of the Pharmacopeia Consolidated Group or any Pharmacopeia
Affiliate. 

ARTICLE
III

TAX SHARING 

        3.1.  Taxes Generally. Except as provided in Section 3.2 and Section 3.3 of this Agreement, Pharmacopeia shall
pay or cause to be paid and shall indemnify and hold each PDD Affiliate harmless against all Tax Liabilities that arise under each Pharmacopeia Consolidated Return. PDD shall pay or cause to be paid
and shall indemnify and hold each Pharmacopeia Affiliate harmless against all Tax Liabilities that arise under each PDD Separate Return. 

        3.2.  Adjustments. If any Tax Return is examined by a Taxing Authority and an Adjustment results from such examination,
liability for Taxes arising from such Adjustment shall be borne by the responsible party as determined under Section 3.1, provided, however, that if the Adjustment which results in additional
Tax Liability to one party also results in a Tax Benefit to the other party, the party receiving such Tax Benefit, to the extent it is equal to or less than the other party's additional Tax Liability,
shall pay such Tax Benefit to the other party within 30 days after such Tax Benefit is realized. 

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Promptly
after receiving notice from the party having the Adjustment which results in additional Tax Liability, the other party shall make a claim for any Tax Benefit resulting from such Adjustment,
on an amended Tax Return or in a formal or informal claim filed with the IRS, unless the amount of such Tax Benefit is immaterial or unless otherwise agreed by the parties. If an Adjustment could be
governed by both this Section 3.2 and Articles VII or VIII, those Articles will take precedence over this Section 3.2. 

        3.3.  Separation Taxes. Notwithstanding anything in this Agreement to the contrary, PDD shall indemnify and hold harmless each
Pharmacopeia Affiliate against liability for (i) any PDD Change in Control Tax and (ii) any Separation Tax for which PDD or its Affiliates has an obligation to indemnify Pharmacopeia
under any other provision of this Agreement. Pharmacopeia shall indemnify and hold harmless each PDD Affiliate against liability for all other Separation Taxes. 

ARTICLE
IV

COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS 

        4.1.  Tax Return Information. 

        (a)   PDD
shall, and shall cause each appropriate PDD Affiliate to, provide Pharmacopeia with all information and other assistance reasonably requested by Pharmacopeia to
enable the Pharmacopeia Affiliates to prepare and file Pharmacopeia Consolidated Returns required to be filed by them pursuant to this Agreement. 

        (b)   Pharmacopeia
shall, and shall cause each appropriate Pharmacopeia Affiliate to, provide PDD with all information and other assistance reasonably requested by PDD to
enable the PDD Affiliates to prepare and file PDD Separate Returns required to be filed by them pursuant to this Agreement. 

        4.2.  Audits and Adjustments. 

        (a)   Whenever
a Pharmacopeia Affiliate or PDD Affiliate receives in writing from the IRS or any other Taxing Authority notice of an Adjustment that may give rise to a payment
from the other party under this Agreement or otherwise affect the other party's Taxes, Pharmacopeia or PDD, as the case may be, shall give written notice of the Adjustment to the other party in
accordance with the terms of Article VIII. The audit shall be controlled and settled pursuant to the terms of that article. 

        (b)   PDD
agrees reasonably to cooperate with Pharmacopeia in the negotiation, settlement, or litigation of any liability for Taxes of any Pharmacopeia Affiliate. 

        (c)   Pharmacopeia
agrees reasonably to cooperate, and to cause each Pharmacopeia Affiliate to cooperate, with PDD in the negotiation, settlement, or litigation of any
liability for Taxes of any PDD Affiliate. 

        (d)   Pharmacopeia
will reasonably promptly notify PDD in writing of any Adjustment involving a change in the tax basis of any asset of any PDD Affiliate, specifying the
nature of the change so that such PDD Affiliate will be able to reflect the revised basis of its tax books and records for periods beginning on or after the Distribution Date. 

        4.3.  PDD Carrybacks. Whenever permitted to do so by applicable law, and unless agreed otherwise by Pharmacopeia, PDD shall
elect to relinquish any carryback period which would include any Pre-Distribution Tax Period. 

For
purposes of this Article IV, the term "party" shall refer to any Pharmacopeia Affiliate and any PDD Affiliate, as the case may be. 

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ARTICLE
V

RETENTION OF RECORDS 

        5.1.  Retention of Records. Pharmacopeia and PDD agree to retain the appropriate records which may affect the determination of
the liability for Taxes of any PDD Affiliate or Pharmacopeia Affiliate, respectively, until such time as there has been a Final Determination with respect to such liability for Taxes. A party may
satisfy its obligations under the preceding sentence by allowing the other party to duplicate records at such second party's request and expense. 

        5.2.  Statute of Limitations. Pharmacopeia and PDD will notify each other in writing of any waivers or extensions of the
applicable statute of limitations that may affect the period for which any materials, records, or documents must be retained. 

ARTICLE
VI

COVENANTS 

        6.1.  Pharmacopeia Covenants. Pharmacopeia covenants to PDD that: 

        (a)   No
Pharmacopeia Affiliate will take any action or fail to take any action, which action or failure to act would cause the Contribution and the Distribution to fail to
qualify under Sections 351(a), 355(a), and 368(a)(1)(D) of the Code or any corresponding provision of state or local law. Without limiting the foregoing, Pharmacopeia covenants to PDD that: 

          (i)  During
the six-month period following the Distribution Date, no Pharmacopeia Affiliate will liquidate, merge, or consolidate with any person or enter into
any substantial negotiations, agreements, or arrangements with respect to any such transaction. 

         (ii)  During
the six-month period following the Distribution Date, no Pharmacopeia Affiliate will sell, exchange, distribute, or otherwise dispose of assets to
any person or enter into any substantial negotiations, agreements, or arrangements with respect to any such transaction, except in the ordinary course of business. 

        (iii)  Following
the Distribution, Accelrys and its subsidiaries will, for a minimum of two years, continue the active conduct of the Software Business. 

        (iv)  No
Pharmacopeia Affiliate will take any action inconsistent with the information and representations in the Opinion Documents. 

         (v)  No
Pharmacopeia Affiliate will repurchase stock of Pharmacopeia in a manner contrary to the requirements of Revenue Procedure 96-30 or in a manner contrary
to the representations made in the Opinion Documents. 

        (vi)  No
Pharmacopeia Affiliate will permit its agents to take any of the actions described in items (i) through (v) above on its behalf. 

        (b)   No
Pharmacopeia Affiliate will take or omit to take (or permit its agents to take or omit to take) any action that results in any Separation Tax being imposed on any PDD
Affiliate in excess of the amount that would be imposed on such PDD Affiliate, based upon: 

          (i)  any
specific agreements between a Pharmacopeia Affiliate and a PDD Affiliate as to the manner in which the Contribution and Distribution and any other relevant
transactions are to be treated for tax purposes, and 

         (ii)  to
the extent not contrary to the agreements described in Section 6.1(b)(i), the form of the Contribution and Distribution and any other relevant transactions as
set forth in agreements between the relevant Pharmacopeia Affiliates and PDD Affiliates. 

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        (c)   Within
the two-year period following the distribution, no Pharmacopeia Affiliate will take any action (including stock issuances, whether pursuant to the
exercise of options or similar interests or otherwise, option grants, capital contributions, or redemptions) or omit to take any action (or permit its agents to take or omit to take any action) which
is reasonably likely to, either alone or in combination with actions or omissions by any Pharmacopeia Affiliate or any other party, result in the imposition of any Separation Tax. 

        6.2.  PDD Covenants. PDD covenants to Pharmacopeia that: 

        (a)   No
PDD Affiliate will take any action or fail to take any action, which action or failure to act would cause the Contribution and the Distribution to fail to qualify
under Sections 351(a), 355(a), and 368(a)(1)(D) of the Code or any corresponding provision of state or local law. Without limiting the foregoing, PDD covenants to Pharmacopeia that: 

          (i)  During
the six-month period following the Distribution Date, PDD will not liquidate, merge, or consolidate with any person, or enter into any substantial
negotiations, agreements, or arrangements with respect to any such transaction. 

         (ii)  During
the six-month period following the Distribution Date, no PDD Affiliate will sell, exchange, distribute, or otherwise dispose of assets to any person,
or enter into any substantial negotiations, agreements, or arrangements with respect to any such transaction, except in the ordinary course of business. 

        (iii)  Following
the Distribution, PDD will, for a minimum of two years, continue the active conduct of the Drug Discovery Business. 

        (iv)  No
PDD Affiliate will take any action inconsistent with the information and representations in the Opinion Documents. 

         (v)  No
PDD Affiliate will repurchase stock of PDD in a manner contrary to the requirements of Revenue Procedure 96-30 or in a manner contrary to the
representations made in the Opinion Documents. 

        (vi)  No
PDD Affiliate will permit its agents to take any of the actions described in items (i) through (v) above on its behalf. 

        (b)   No
PDD Affiliate will take or omit to take (or permit its agents to take or omit to take) any action that results in any Separation Tax being imposed on any Pharmacopeia
Affiliate in excess of the amount that would be imposed on such Pharmacopeia Affiliate, based upon: 

          (i)  any
specific agreements between a Pharmacopeia Affiliate and a PDD Affiliate as to the manner in which the Contribution and Distribution and any other relevant
transactions are to be treated for tax purposes, and 

         (ii)  to
the extent not contrary to the agreements described in Section 6.1(b)(i), the form of the Contribution and Distribution and any other relevant transactions as
set forth in agreements between the relevant Pharmacopeia Affiliates and PDD Affiliates. 

        (c)   Within
the two-year period following the distribution, no PDD Affiliate will take any action (including stock issuances, whether pursuant to the exercise of
options or similar interests or otherwise, option grants, capital contributions, or redemptions) or omit to take any action (or permit its agents to take or omit to take any action) which is
reasonably likely to, either alone or in combination with actions or omissions by any PDD Affiliate or any other party, result in the imposition of any Separation Tax. 

        6.3.  Exceptions. Any Pharmacopeia Affiliate or PDD Affiliate may take actions inconsistent with the covenants contained in
Section 6.1, if Pharmacopeia or PDD, as the case may be obtains an 

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Unqualified
Tax Opinion, it being understood that each party hereto agrees to cooperate with the party seeking such opinion and use its reasonable best efforts to assist the party seeking such opinion
in its attempting to obtain, as expeditiously as possible, any opinion described in this Section 6.3. 

ARTICLE
VII

INDEMNITY OBLIGATIONS 

        7.1.  PDD Indemnity. Each PDD Affiliate (collectively, jointly and severally, the "PDD Indemnifying
Parties") will jointly and severally indemnify each Pharmacopeia Affiliate (each a "Pharmacopeia Indemnified Party") against and
hold them harmless from: 

        (a)   Any
state and local Tax of any PDD Affiliate, excluding any Combined State Tax and excluding (for purposes of this Section 7.1(a)) any Separation Tax; 

        (b)   any
Separation Taxes resulting from a breach by a PDD Indemnifying Party of (i) any representation or covenant in an Opinion Document (as such representation is
modified, qualified or elaborated in any subsequent Opinion Document), (ii) any representation, covenant or other agreement set forth in this Agreement, or (iii) any agreements or
covenants between a Pharmacopeia Affiliate and a PDD Affiliate pertaining to Tax matters; 

        (c)   any
PDD Change in Control Tax; 

        (d)   any
Tax liability arising from an Adjustment for which PDD is responsible under Section 3.2; 

        (e)   any
Tax imposed on a Pharmacopeia Affiliate as a result of PDD's failure to cooperate with Pharmacopeia under Article VIII; and 

        (f)    any
Tax increase to Pharmacopeia resulting from PDD's adoption of a position inconsistent with the allocation set out in Section 2.4. 

        7.2.  Pharmacopeia Indemnity. Each Pharmacopeia Affiliate (collectively, jointly and severally, the
"Pharmacopeia Indemnifying Parties" and, together with PDD Indemnifying Parties, the "Indemnifying
Parties") will jointly and severally indemnify each PDD Affiliate (each a "PDD Indemnified Party" and, together with the
Pharmacopeia Indemnified Parties, the "Indemnified Parties") against and hold them harmless from: 

        (a)   Any
Pharmacopeia Consolidated Group Taxes, excluding (for purposes of this Section 7.2) any Separation Taxes; 

        (b)   Any
separate state or local Tax and any foreign Tax of any Pharmacopeia Affiliate; 

        (c)   Any
liability or damage arising from the breach by any Pharmacopeia Affiliate of (i) any representation or covenant in an Opinion Document (as such representation
is modified, qualified or elaborated in any subsequent Opinion Document), (ii) any representation, covenant or other agreement set forth in this Agreement, or (iii) any agreements or
covenants between a Pharmacopeia Affiliate and a PDD Affiliate pertaining to Tax matters; 

        (d)   any
Separation Taxes (other than such Taxes for which PDD is required to indemnify Pharmacopeia under Section 7.1); 

        (e)   Any
Tax liability arising from an Adjustment for which Pharmacopeia is responsible under Section 3.2; and 

        (f)    Any
Tax imposed on a PDD Affiliate (other than a Separation Tax) as a result of Pharmacopeia's failure to cooperate with PDD under Article VIII (each of the items
described in Section 7.1 or 7.2, an "Indemnified Liability"). 

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        7.3.  Amount of Indemnity. The amount of Tax included in an Indemnified Liability that is incurred by any Indemnified Party
shall in the case of a Tax based or determined with reference to income shall for any year be the difference between (x) the actual Tax incurred by the Indemnified Party for such year and
(y) the amount of Tax that the Indemnified Party would have paid in such year absent the Tax Items (or adjustments thereto) in that year or any prior year giving rise to the Indemnified
Liability. For the avoidance of doubt, if an adjustment to any Tax Item would have resulted in additional Tax paid but for the availability of net operating losses or tax credits, the Indemnifying
Party shall indemnify the Indemnified Party when, as, and to the extent that such loss or credit carryforward would otherwise have been available to reduce any Tax. All amounts payable under this
Agreement shall be treated as adjustments to the amount of the Contribution, provided that if any taxing jurisdiction determines that the amounts received by an Indemnified Party nevertheless are
taxable, then the Indemnifying Party shall make additional payments to the Indemnified Party so that the Indemnified Party is made whole on an after-tax basis. For this purpose, the amount
of Taxes imposed on the payments shall be determined based on the taxing jurisdiction's highest marginal Tax rate applicable to taxable income of corporations such as the Indemnified Party on income
of the character subject to tax and indemnified against under this Article VII for the taxable period in which the Distribution occurs (net of any federal Tax Benefit from state and local
Taxes). 

ARTICLE
VIII

PROCEDURAL ASPECTS OF INDEMNITY 

        8.1.  General.

        (a)   If
either any Indemnified Party or any Indemnifying Party receives any written notice of deficiency, claim or adjustment or any other written communication from any
Taxing Authority that may result in an Indemnified Liability, the party receiving such notice or communication shall promptly give written notice thereof to the other party, provided that any delay by
an Indemnified Party in so notifying an Indemnifying Party shall not relieve the Indemnifying Party of any liability hereunder, except to the extent (i) such delay restricts the ability of the
Indemnifying Party to contest the resulting Indemnified Liability administratively or in the courts in accordance with section 8.2 and (ii) the Indemnifying Party is materially and
adversely prejudiced by the delay. 

        (b)   The
parties hereto undertake and agree that from and after such time as they obtain knowledge that any representative of a Taxing Authority has begun to investigate or
inquire into the Distribution (whether or not such investigation or inquiry is a formal or informal investigation or inquiry), the party obtaining such knowledge shall (i) notify the other
party thereof, provided that any delay by an Indemnified Party in so notifying an Indemnifying Party shall not relieve the Indemnifying Party of any liability hereunder (except to the extent
(A) such delay restricts the ability of the Indemnifying Party to contest the resulting Indemnified Liability administratively or in the courts in accordance with section 8.2 and
(B) the Indemnifying Party is materially and adversely prejudiced by such delay), (ii) consult with the other party from time to time as to the conduct of such investigation or inquiry,
(iii) provide the other party with copies of all correspondence with such Taxing Authority or any representative thereof pertaining to such investigation or inquiry, and (iv) arrange for
a representative of the other party to be present at all meetings with such Taxing Authority or any representative thereof pertaining to such investigation or inquiry. 

        8.2.  Contests. 

        (a)   Provided
that (i) an Indemnifying Party shall furnish the Indemnified Party with evidence reasonably satisfactory to the Indemnified Party of its ability to pay
the full amount of the Indemnified Liability and (ii) such Indemnifying Party acknowledges in writing that the asserted liability is an Indemnified Liability, such Indemnifying Party shall
assume and direct the defense or settlement of any tax examination, administrative appeal, hearing, arbitration, suit or other 

10

 

proceeding
(each a "Proceeding") commenced, filed or otherwise initiated or convened to investigate or resolve the existence and extent of such
liability. 

        (b)   If
the Indemnified Liability is grouped with other unrelated asserted liabilities or issues in the Proceeding, the parties shall use their respective best efforts to
cause the Indemnified Liability to be the subject of a separate proceeding. If such severance is not possible, the Indemnifying Party shall assume and direct and be responsible only for the matters
relating to the Indemnified Liability. The Indemnified Party may settle, partially settle, or otherwise resolve any controversy involving the Indemnified Party's return to which the particular
Adjustment relates, so long as the Indemnified Party does not settle, partially settle, or otherwise resolve the controversy in a manner inconsistent with the Indemnifying Party's position, without
prior written consent, which may not be unreasonably withheld, from the Indemnifying Party. 

        (c)   Notwithstanding
the foregoing, if at any time during a Proceeding controlled by an Indemnifying Party pursuant to Section 8.2(a) such Indemnifying Party fails to
provide evidence reasonably satisfactory to the Indemnified Party of its ability to pay the full amount of the Indemnified Liability or the Indemnified Party reasonably determines, after due
investigation, that such Indemnifying Party could not pay the full amount of the Indemnified Liability, then the Indemnified Party may assume control of the Proceedings upon 7 days written
notice. 

        (d)   In
addition to amounts referred to in Section 7.1 or Section 7.2, an Indemnifying Party shall pay all out-of-pocket expenses and
other costs related to the Indemnified Liability, including but not limited to fees for attorneys, accountants, expert witnesses or other consultants retained by such Indemnifying Party and/or the
Indemnified Party. To the extent that any such expenses and other costs have been or are paid by an Indemnified Party, the Indemnifying Party shall promptly reimburse the Indemnified Party therefor. 

        (e)   An
Indemnifying Party shall not pay (unless otherwise required by a proper notice of levy and after prompt notification to the Indemnified Party of receipt of notice and
demand for payment), settle, compromise or concede any portion of the Indemnified Liability without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. An Indemnifying Party shall, on a timely basis, keep the Indemnified Party informed of all developments in the Proceeding and
provide the Indemnified Party with copies of all pleadings, briefs, orders, and other written papers. 

        (f)    Any
Proceeding which is not controlled or which is no longer controlled by an Indemnifying Party pursuant to this Section 8.2 shall be controlled and directed
exclusively by the Indemnified Party, and any related out-of-pocket expenses and other costs incurred by the Indemnified Party, including but not limited to fees for attorneys,
accountants, expert witness or other consultants, shall be reimbursed by such Indemnifying Party. An Indemnified Party will not be required to pursue the claim in federal district court, the Court of
Federal Claims or any state or foreign court if as a prerequisite to such court's jurisdiction, the Indemnified Party is required to pay the asserted liability unless the funds necessary to invoke
such jurisdiction are provided by such Indemnifying Party. 

        8.3.  Time and Manner of Payment. An Indemnifying Party shall pay to the Indemnified Party the amount of the Indemnified
Liability and any expenses or other costs indemnified against (less any amount paid directly by an Indemnifying Party to the Taxing Authority) no less than seven (7) days prior to the date
payment of the Indemnified Liability is to be made to the Taxing Authority. Such payment shall be paid by wire transfer of immediately available funds to an account designated by the Indemnified Party
by written notice to an Indemnifying Party prior to the due date of such payment. If an Indemnifying Party delays making payment beyond the due date hereunder, such party shall pay interest on the
amount unpaid at the IRS Interest Rate for each day and the actual number of days for which any amount due hereunder is unpaid. 

11

 

        8.4.  Refunds. In connection with this Agreement, if an Indemnified Party receives a refund in respect of amounts paid by an
Indemnifying Party to any Taxing Authority on its behalf, or should any such amounts that would otherwise be refundable to the Indemnifying Party be applied by the Taxing Authority to obligations of
the Indemnified Party unrelated to an Indemnified Liability, then such Indemnified Party shall, promptly following receipt (or notification of credit), remit such refund and any related interest to
such Indemnifying Party. 

        8.5.  Cooperation. The parties shall cooperate with one another in a timely manner in any administrative or judicial
proceeding involving any matter that may result in an Indemnified Liability. 

        8.6.  Affiliates. Pharmacopeia agrees and acknowledges that Pharmacopeia shall be responsible for the performance of the
obligations of each Pharmacopeia Affiliate under this Agreement. PDD agrees and acknowledges that PDD shall be responsible for the performance of the obligations of each PDD Affiliate under this
Agreement. 

        8.7.  Application to Present and Future Subsidiaries. This Agreement is being entered into by Pharmacopeia and PDD on behalf
of themselves and each Pharmacopeia Affiliate and each PDD Affiliate, respectively. This Agreement shall constitute a direct obligation of each such affiliate and shall be deemed to have been
readopted and affirmed on behalf of any corporation or other entity which becomes a Pharmacopeia Affiliate or a PDD Affiliate in the future. 

ARTICLE
IX

DISPUTE RESOLUTION 

        9.1.  Disputes. 

        (a)   Resolution
of any and all disputes arising from or in connection with this Agreement, whether based on contract, tort, statute, or otherwise, including, but not limited
to, disputes in connection with claims by third parties (collectively, "Disputes") shall be subject to the provisions of this Section 9.1;
provided, however, that nothing contained herein shall preclude either party from seeking or obtaining (i) injunctive relief or (ii) equitable or other judicial relief to enforce the
provisions hereof or to preserve the status quo pending resolution of Disputes hereunder. 

        (b)   Either
party may give the other party written notice of any Dispute not resolved in the normal course of business. The parties shall attempt in good faith to resolve any
Dispute promptly by negotiation between executives of the parties who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility
for administration of this Agreement. Within 30 days after delivery of the notice, the foregoing executives of both parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary for a period not to exceed 15 days, to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be
honored. If the parties do not resolve the Dispute within such 45 day period (the "Initial Mediation Period"), the parties shall attempt in good
faith to resolve the Dispute by negotiation between (a) in the case of Pharmacopeia, the Chief Financial Officer, and (b) in the case of PDD, the Chief Financial Officer (collectively,
the "Designated Officers"). Such officers shall meet at a mutually acceptable time and place (but in any event no later than 15 days following
the expiration of the Initial Mediation Period) and thereafter as often as they reasonably deem necessary for a period not to exceed 15 days, to attempt to resolve the Dispute. 

        (c)   If
the Dispute has not been resolved by negotiation within 75 days of the first party's notice, or if the parties failed to meet within 30 days of the
first party's notice, or if the Designated Officers failed to meet within 60 days of the first party's notice, either party may commence any litigation or other procedure allowed by law. 

12

 

ARTICLE
X

GENERAL 

        10.1. Term of the Agreement. This Agreement shall become effective as of the Distribution Date, and except as expressly
provided herein, shall continue in full force and effect indefinitely. 

        10.2. Elections under Code section 1552. Nothing in this Agreement is intended to change or otherwise affect any
election made by or on behalf of the Pharmacopeia Consolidated Group with respect to the calculation of earnings and profits under Code section 1552. 

        10.3. Injunctions. The parties acknowledge that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or were otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be
entitled at law or in equity. 

        10.4. Assignment. Neither of the parties may assign or delegate any of its rights or duties under this Agreement without the
prior written consent of the other party, which consent will not be unreasonably withheld. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. 

        10.5. Further Assurances. Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge and deliver
such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby. Subject to the provisions hereof, each of the parties shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders, and decrees, and promptly provide the other parties with all such information as they may reasonably request in order to be able
to comply with the provisions of this sentence. 

        10.6. Waivers. No failure or delay on the part of the parties in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further
exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 

        10.7. Change of Law. If, due to any change in applicable law or regulations or their interpretation by any court of law or
other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement or any transaction contemplated thereby shall become impracticable or
impossible, the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision. 

        10.8. Confidentiality. Subject to any contrary requirement of law and the rights of each party to enforce its rights
hereunder in any legal action, each party agrees that it shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any information which it or any of
its employees or agents may require pursuant to, or in the course of performing its obligations under, any provision of this Agreement. 

        10.9. Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. 

13

 

        10.10. Counterparts. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the
parties hereto, and each such executed counterpart shall be, and shall be deemed to be, an original instrument. 

        10.11. Notices. All notices, requests, claims and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by delivery by hand, by reputable overnight courier service, by facsimile transmission, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the addresses (or at such other address for a party as shall be specified in a notice given in accordance with this
Section 10.11) listed below: 

	Pharmacopeia at:	 	Pharmacopeia, Inc.

9685 Scranton Road

San Diego, CA

Attn: Chief Financial Officer

Phone: (858) 799-5000

Fax no.: (858) 799-5100
	

PDD at:	
 	

Pharmacopeia Drug Discovery, Inc.

3000 East Park Boulevard

Cranbury, NJ 08512

Attn: Chief Financial Officer

Phone: (609) 452-3600

Fax no.: (609) 452-3672

or
to such other address as any party may, from time to time, designate in a written notice delivered in a like manner. Notice given by hand shall be deemed delivered when received by the recipient.
Notice given by mail as set out above shall be deemed delivered three (3) business days after the date the same is mailed. Notice given by reputable overnight courier shall be deemed delivered
on the next following business day after the same is sent. Notice given by facsimile transmission shall be deemed delivered on the day of transmission provided telephone confirmation of receipt is
obtained promptly after completion of transmission. 

        10.12. Pre-Distribution Earnings and Profits. Pharmacopeia and PDD agree to allocate pre-Distribution
earnings and profits in accordance with Treasury Regulation section 1.312-10. 

        10.13. Costs and Expenses. Unless specifically provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder. 

        10.14. Cancellation of Prior Tax Allocation or Tax Sharing Agreements. Except as otherwise expressly provided herein, on or
prior to the effective date, Pharmacopeia shall cause to be canceled all agreements (other than this Agreement) providing for the allocation or sharing of Taxes to which any PDD Affiliate would
otherwise be bound following the Distribution. 

        10.15. Interest on Late Payments. If a party delays making any payment beyond the due date hereunder, such party shall pay
interest on the amount unpaid at the IRS Interest Rate for each day and the actual number of days for which any amount due hereunder is unpaid. 

        10.16. General. This Agreement, including the attachments, shall constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and shall supersede all prior agreements and undertakings, both written and oral, between the parties with respect to the subject matter hereof and thereof.
This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the parties or (b) by a waiver in accordance with Section 10.6.
This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective present and future Subsidiaries, and nothing herein, express or implied, is 

14

 

intended
to or shall confer upon any third parties any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 

        10.17. Governing Law and Severability. This Agreement shall be governed by, and construed in accordance with, the laws of the
State of Delaware, including the provisions of such laws relating to conflict of laws. If any term or other provision of this agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby
are consummated as originally contemplated to the greatest extent possible. 

15

 

        IN
WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed by their respective officers, each of whom is duly authorized, all as of the Distribution Date. 

	 	 	PHARMACOPEIA, INC.
	

 	
 	

By:	

 
	 	 	 	
 Name:

Title:
	

 	
 	

PHARMACOPEIA DRUG DISCOVERY, INC.
	

 	
 	

By:	

 
	 	 	 	
 Name:

Title:

16

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Exhibit 10.3  

 
 

EMPLOYEE MATTERS AGREEMENT
  
  
  dated as of
  
  
             , 2004
  
  
  between
  
  
  PHARMACOPEIA, INC.
  

 
  and
  
  
  PHARMACOPEIA DRUG DISCOVERY, INC.    

  

 
 

TABLE OF CONTENTS    
    

	 
	 	Page

	ARTICLE I DEFINITIONS	 	1
	

ARTICLE II EMPLOYEES AND ALLOCATIONS OF LIABILITIES	
 	

3
	 	2.1 Identification and Employment.	 	3
	 	2.2 Spinco Assumption of Liabilities.	 	3
	

ARTICLE III SAVINGS PLANS	
 	

3
	 	3.1 Transition Period	 	3
	 	3.2 Establishment of and Transfer to the Spinco Savings Plan.	 	4
	

ARTICLE IV WELFARE PLANS	
 	

5
	 	4.1 Continuation in Supplier Welfare Plans	 	5
	 	4.2 Establishment of Welfare Plans.	 	7
	 	4.3 Vacation and Sick Pay Liabilities.	 	7
	 	4.4 Medical Spending/Dependent Care Accounts.	 	7
	 	4.5 Severance.	 	7
	 	4.6 Workers' Compensation and Unemployment Compensation.	 	7
	 	4.7 HIPAA Business Associate Provisions.	 	8
	

ARTICLE V EXECUTIVE COMPENSATION PROGRAMS	
 	

10
	 	5.1 Supplier Non-Qualified Plan.	 	10
	 	5.2 Bonus Plans.	 	10
	

ARTICLE VI STOCK INCENTIVE PLANS	
 	

10
	 	6.1 Stock Option Awards.	 	10
	 	6.2 Employee Stock Purchase Plan.	 	11
	

ARTICLE VII FOREIGN PLANS	
 	

12
	 	7.1 Foreign Retirement Plans.	 	12
	 	7.2 Foreign Welfare Plans.	 	12
	

ARTICLE VIII ACCOUNTING	
 	

12
	 	8.1 Payment of and Accounting Treatment for Expenses.	 	12
	 	8.2 Accounting Adjustments.	 	12
	 	 	 

i

 

	

ARTICLE IX AUDITS; INFORMATION SHARING	
 	

13
	 	9.1 Audits.	 	13
	 	9.2 Sharing of Participant Information.	 	13
	

ARTICLE X GENERAL	
 	

13
	 	10.1 Notices.	 	13
	 	10.2 Amendment and Waiver.	 	14
	 	10.3 Entire Agreement.	 	14
	 	10.4 Parties in Interest.	 	14
	 	10.5 No Third-Party Beneficiaries; No Termination of Employment.	 	14
	 	10.6 Right to Amend or Terminate Any Plans.	 	14
	 	10.7 Effect if Distribution Does Not Occur.	 	15
	 	10.8 Relationship of Parties.	 	15
	 	10.9 Affiliates.	 	15
	 	10.10 Further Assurances and Consents	 	15
	 	10.11 Severability.	 	15
	 	10.12 Governing Law.	 	15
	 	10.13 Counterparts.	 	15
	 	10.14 Disputes.	 	15
	 	10.15 Assignment.	 	16
	 	10.16 Interpretation.	 	16
	 	10.17 Headings.	 	16

ii

 
 

EMPLOYEE MATTERS AGREEMENT    
    

        THIS IS AN EMPLOYEE MATTERS AGREEMENT, dated as
of                        , 2004 (the
"Agreement"), by and between Pharmacopeia, Inc., a Delaware corporation (together with its successors and permitted assigns,
"Supplier"), and Pharmacopeia Drug Discovery, Inc., a Delaware corporation (together with its successors and permitted assigns,
"Spinco") (collectively, the "Parties" or individually, a
"Party"). 

Background

        WHEREAS, the Board of Directors of Supplier has authorized a distribution of Spinco's common stock to all holders of outstanding stock of
the Supplier (the "Distribution"). 

        WHEREAS, in connection with the Distribution, Supplier and Spinco will enter into a number of agreements that will govern certain matters
relating to the Distribution and the relationship of Supplier and Spinco and their respective subsidiaries and affiliates following the Distribution. 

        WHEREAS, this Agreement sets forth the arrangements between the Parties relating to certain employee benefit and compensation matters. 

        NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth in this Agreement, and intending
to be legally bound hereby, the parties hereto hereby agree as follows: 

 
 

ARTICLE I
  DEFINITIONS    
    

        The following words and phrases used in this Agreement shall have the meanings set forth below unless a different meaning is plainly required by the context. 

        1.1   "Active Spinco Employee" means: 

        (a)   Any
Employee who is performing services for Spinco on the Distribution Date, including any such Employee who is not actively performing such service as a result of sick
leave, workers' compensation leave, short-term disability or other authorized leave of absence; and 

        (b)   Any
Employee of Supplier who is designated by Supplier and Spinco as an Employee to whom Spinco offers employment beginning on or before the Distribution Date and who
has accepted such offer. 

        1.2   "ASO Contract" means an administrative services only contract or other contract with a
third-party administrator or service provider that pertains to any Supplier Welfare Plan or Spinco Welfare Plan. 

        1.3   "Beneficiary" means the individual(s) designated by an Employee, former Employee, by operation of
law or otherwise, as the party entitled to compensation, benefits, insurance coverage or any other goods or services under any Plan. 

        1.4   "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1986 

        1.5   "Code" means the Internal Revenue Code of 1986, as amended. 

        1.6   "Distribution Agreement" means the Master Separation and Distribution Agreement between Supplier
and Spinco of even date herewith. 

        1.7   "Distribution Date" means the date upon which Supplier completes the distribution of Spinco's
Common Stock. 

        1.8   "Employee" means any individual who performs services pursuant to a common-law
employer-employee relationship. 

        1.9   "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 

 

        1.10 "Foreign Plan", when immediately preceded by "Supplier," means a Plan maintained by Supplier or
when immediately preceded by "Spinco," a Plan maintained by Spinco, in either case for the benefit of Employees who perform services and/or are compensated under a payroll that is administered outside
the United States, its territories and possessions, and the District of Columbia. 

        1.11 "Former Spinco Employee" means an Employee whose employment with Spinco terminated for any
reason (including retirement or long-term disability) before the Distribution Date and who, as of the Distribution Date, is not employed by Supplier or an affiliate of Supplier; provided,
however, that any Employee who terminated employment at any time prior to the Distribution Date and subsequently became employed by Supplier after such termination (and did not return to employment
with Spinco), shall not be a Former Spinco Employee for any purpose hereunder. 

        1.12 "Governmental Authority" means any federal, state or local court, government, department,
commission, board, bureau, agency, official or other regulatory, administrative or governmental authority, including, without limitation, the United States Department of Labor
("DOL"), and the Internal Revenue Service ("IRS"). 

        1.13 "Group Insurance Policy" means a group insurance policy issued under any Supplier Welfare Plan
or any Spinco Welfare Plan, as applicable. 

        1.14 "HIPAA" means the Health Insurance Portability and Accountability Act of
1996, as amended ("HIPAA"), 

        1.15 "HMO" means a health maintenance organization that provides benefits under the Supplier Welfare
Plans or the Spinco Welfare Plans. 

        1.16 "HMO Agreements" means contracts, letter agreements, practices and understandings with HMOs that
provide medical services under the Supplier Welfare Plans or Spinco Welfare Plans. 

        1.17 "Key Recipient" means the holders of Supplier Options set forth on Schedule I, attached
hereto and made a part hereof. 

        1.18 "Liabilities" means any and all losses, claims, charges, compensation, benefits, debts, demands,
actions, costs and expenses (including, without limitation, administrative and related costs and expenses of any Plan, program or arrangement), of any nature whatsoever, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising. 

        1.19 "Person" means an individual, a general or limited partnership, a corporation, a trust, a joint
venture, an unincorporated organization, a limited liability entity or any other entity. 

        1.20 "Plan" means any plan, policy, program, payroll practice or other arrangement, whether written
or unwritten, providing benefits to Employees or former Employees of Supplier or Spinco. 

        1.21 "Spinco Common Stock" means the shares of common stock, par value $0.01 per share, of Spinco. 

        1.22 "Spinco Welfare Plans" means the welfare benefit plans, programs, and policies that are
sponsored by Spinco for all periods after the Distribution Date. 

        1.23 "Subsidiary" means, with respect to any specified Person, any corporation or other legal entity
of which such Person or any of its Subsidiaries owns or controls, directly or indirectly, more than 50% of the stock or other equity interest entitled to vote on the election of members to the board
of directors or similar governing body. 

        1.24 "Supplier Common Stock" means the shares of common stock, par value $0.0001 per share, of
Supplier. 

2

 

        1.25 "Supplier Non-Qualified Plan" means the Pharmacopeia, Inc.
Non-Qualified Defined Compensation Plan. 

        1.26 "Supplier Savings Plans" means the Employees Tax-Deferred Savings Plan of
Pharmacopeia, Inc. 

        1.27 "Supplier Stock Incentive Plans" means, collectively, the Pharmacopeia, Inc. 1994
Incentive Stock Plan, the Pharmacopeia, Inc. 2000 Stock Option Plan and the Pharmacopeia, Inc. 1994 Director Option Plan. 

        1.28 "Supplier Welfare Plans", means the welfare benefit plans, programs, and policies listed that
are sponsored by Supplier. 

        1.29 "Transition End Date" means December 31, 2004, or such other date as the parties mutually
agree in writing. The Transition End Date may be different for different plans, programs or arrangements if the Parties so provide in writing. 

        1.30 "Transition Period" means the period beginning on the Distribution Date and ending on the
Transition End Date. The Transition Period may be different for different plans, programs or arrangements if the Parties so provide in writing. 

 
 

ARTICLE II
  EMPLOYEES AND ALLOCATIONS OF LIABILITIES    
    

        2.1   Identification and Employment. Effective as of the Distribution Date, Supplier and Spinco shall jointly compile a list by
name, social security number, job title and assigned location of all Active Spinco Employees. Effective as of the Distribution Date, Spinco shall employ all such identified Active Spinco Employees.
Effective as of the Distribution Date, Supplier and Spinco shall jointly compile a list by name and social security number of all Former Spinco Employees who are identifiable at such time. An
individual who would be classified as a Former Spinco Employee shall be treated as such for all purposes of this Agreement notwithstanding that such individual is not on the list provided for in the
preceding sentence. 

        2.2   Spinco Assumption of Liabilities. Except as specifically provided otherwise in this Agreement, Spinco shall, on behalf of
itself and its Subsidiaries, assume (i) all Liabilities related to Active Spinco Employees and Former Spinco Employees incurred in connection with their employment by Spinco or Supplier prior
to the Distribution Date; (ii) all Liabilities related to Active Spinco Employees and Former Spinco Employees arising on or after the Distribution Date relating to employment with any affiliate
of Spinco; and (iii) all other Liabilities related to, arising out of, or resulting from obligations, liabilities and responsibilities assumed or retained by Spinco under this Agreement or a
Plan sponsored or maintained by Spinco. 

 
 

ARTICLE III
  SAVINGS PLANS    
    

        3.1   Transition Period

        (a)   Spinco
will take all such actions as are necessary to adopt the Supplier Savings Plan, effective as of the Distribution Date, as another participating "Employer," within
the meaning of the Supplier Savings Plan; such adoption shall be limited by this Agreement and shall solely relate to the Spinco Employees and any new employees of Spinco who become eligible to
participate in the Supplier Savings Plan. Supplier hereby consents to the adoption of the Plan by Spinco and agrees to take all such actions as are reasonably necessary to facilitate the adoption of
the Plan by Spinco. Supplier and Spinco agree to cooperate and share the costs on a pro rata basis (determined by number of participants in the Savings Plan who are Active or Former Spinco or 

3

 

Supplier
Employees) of (i) communicating with the trustee, recordkeepers and all other providers with respect to the Supplier Savings Plan, and (ii) communicating with Supplier Savings
Plan participants, including providing any summary of material modifications necessary under ERISA. 

        (b)   Spinco
and Supplier acknowledge and understand that the Supplier Savings Plan will be a "multiple employer plan" within the meaning of section 413(c) of the Code
for the period that both Spinco and Supplier participate in the Plan simultaneously. 

        (c)   Spinco
hereby agrees to: (i) to withhold all elective deferrals, and make any required matching contributions as described in the Supplier Savings Plan, and
deliver them to the trustee of the Supplier Savings Plan; (ii) in its discretion, make any other contributions (such as qualified non-elective or qualified matching contributions)
as described in the Supplier Savings Plan, and deliver them to the Trustee of the Plan; (iii) provide Spinco Employees who are participants
in the Supplier Savings Plan (or become participants) with access to their accounts and opportunity to make investment fund elections in accordance with the terms of the Plan; and (iv) account
for all hours of service earned under the Supplier Savings Plan, hirings, terminations and attainment of eligibility under the Supplier Savings Plan, and communicate such events as necessary with the
recordkeeper or trustee of the Supplier Savings Plan. 

        (d)   Supplier,
as the primary employer under the Supplier Savings Plan, hereby agrees to retain sole responsibility for (i) amending the Supplier Savings Plan for
purposes of maintaining tax-qualification under the Code and compliance with the provisions of ERISA; (ii) communicating with the recordkeeper, trustee, custodian and other similar
service providers for the Supplier Savings Plan (except as set forth above); and (iii) (A) correcting any qualification failures or plan document failures (as described in the IRS
Employee Plans Compliance Resolution System), and (B) correcting any fiduciary violations with the DOL (including corrections under the Voluntary Fiduciary Compliance Program). Supplier shall
share a pro rata portion (relating to the period after adoption by Supplier with respect to Supplier's employees and former employees who participate or participated in the Supplier Savings Plan due
to their employment with Supplier) of the costs and expenses associated with each of the foregoing provisions, except paragraph (iii). The costs of paragraph (iii) shall be borne by the
party at fault (and shared based upon fault if both parties are at fault). 

        (e)   Effective
as of the Distribution Date, Supplier shall amend the Supplier Savings Plan to provide that (i) any matching contributions to be made on or after the
Distribution Date with respect to Active Spinco Employees shall be made in Spinco Common Stock, and (ii) any matching contributions to be made on or after the Distribution Date with respect to
any Supplier employees shall be made in Supplier Common Stock; provided, however, that Supplier and Spinco shall be permitted to exercise their discretion to permit the investment of matching
contributions in any other investment fund available under the Supplier Savings Plan excluding the common stock fund of the other Party. 

        (f)    As
of the Distribution Date, any matching contributions or other amounts credited to Spinco Employees' accounts under the Supplier Savings Plan that are invested in
Supplier Common Stock, shall receive a distribution of Spinco Common Stock in accordance with the Distribution Agreement. After the Distribution Date, such amounts shall be invested in accordance with
the terms of the Plan, as amended by either Party. 

        3.2   Establishment of and Transfer to the Spinco Savings Plan.

        (a)   Spinco
shall only be an employer participating in the Plan with respect to the Spinco Employees for the period beginning on the Distribution Date and ending on the
Transition End Date. Effective as of the Transition End Date, Spinco shall establish a separate savings plan for the benefit of Spinco Employees ("Spinco Savings
Plan"). 

4

 

        (b)   Effective
as of the Transition End Date, Spinco shall adopt the Spinco Savings Plan, which shall provide benefits with respect to Active Spinco Employees, their
Beneficiaries and their respective alternate payees immediately after the Transition End Date. For purposes of eligibility and vesting, all service recognized under the Supplier Savings Plan (for
periods immediately before the Transition End Date) shall, as of immediately after the Distribution Date, be recognized and taken into account under the Spinco Savings Plan. 

        (c)   Effective
as of the Transition End Date, Spinco shall establish or cause to be established with respect to the Spinco Savings Plan, a trust, which shall be exempt from
taxation under Code section 501(a). 

        (d)   As
soon as practicable after the Transition End Date, but no later than 30 days after the Transition End Date, Supplier shall cause the accounts (if any) of the
Active Spinco Employees and Former Spinco Employees, their Beneficiaries and their respective alternate payees, if any, under the Supplier Savings Plan that are held by its related trust to be
transferred to the Spinco Savings Plan and its related trust, and Spinco shall cause such transferred accounts to be accepted by such plan and trust, in accordance with Section 414(l) of the
Code to the extent applicable. The transfer of such accounts shall be made: (A) in kind, to the extent the assets consist of investments in the Spinco Common Stock Fund and (B) otherwise
in cash, interests in mutual funds, securities, or other property or in a combination thereof, as the Parties may agree, but, to the extent practicable, shall be invested initially in comparable
investment options in the Spinco Savings Plan as such accounts were invested immediately before the date of transfer. Any outstanding loan balances under any Supplier Savings Plans to Active Spinco
Employees and Former Spinco Employees shall also be transferred with the underlying accounts. After the transfer, (i) Active and Former Spinco Employees will be able to sell the Supplier Common
Stock held in their account under the Spinco Savings Plan, and (ii) Active and Former Supplier Employees will be able to sell the Spinco Common Stock held in their account under the Supplier
Savings Plan. 

        (e)   Spinco
shall apply to the IRS for favorable determination letters with respect to the tax-qualified status of the Spinco Savings Plan as soon as practicable
after the Transition End Date, and Spinco, consistent with the terms of this Agreement, shall make such amendments to such Savings Plans as may be required by the IRS in order for Spinco to receive
favorable determination letters with respect to these Plans. 

        (f)    After
the Transition End Date, all beneficiary designations made by Active Spinco Employees or their respective alternate payees with respect to the Supplier Savings
Plan shall be transferred to and
be in full force and effect under the Spinco Savings Plans until such beneficiary designations are replaced or revoked by the individual who made such beneficiary designation. 

        3.3   Governmental Filings. Supplier and Spinco shall cooperate to make any and all filings required with respect to the
Supplier Savings Plans and the Spinco Savings Plans under the Code or ERISA or in connection with any of the transactions described in this Article III. 

 
 

ARTICLE IV
  WELFARE PLANS    
    

        4.1   Continuation in Supplier Welfare Plans

        (a)   Spinco
will take all such actions as are necessary to adopt the Supplier Welfare Plans, effective as of the Distribution Date; such adoption shall be limited by this
Agreement and shall solely relate to the Spinco Employees and any new employees of Spinco who become eligible to participate in the Supplier Welfare Plan. Supplier hereby consents to the adoption of
the Plan by Spinco and agrees to take all such actions as are reasonably necessary to facilitate the adoption of the Welfare Plans by Spinco. Supplier and Spinco agree to cooperate and share the costs
on a pro 

5

 

rata
basis (determined by number of participants in the relevant Welfare Plan who are Active or Former Spinco or Supplier Employees) of (i) communicating with the insurance companies, HMOs and
all other providers or third-party administrators with respect to the benefits provided under the Welfare Plans, and (ii) communicating with Welfare Plan participants, including providing any
summary of material modifications necessary under ERISA. Spinco and Supplier acknowledge and understand that the Supplier Welfare Plans will be "multiple employer welfare arrangements" within the
meaning of Section 3 (40) ERISA. 

        (b)   Supplier,
as the primary employer under the Welfare Plan, hereby agrees to retain sole responsibility for (i) amending the Plan for purposes of maintaining
compliance with the provisions of ERISA and (ii) correcting any fiduciary violations with the DOL. Supplier and Spinco shall share a pro rata portion (determined by number of participants in
the relevant Welfare Plan who are Active or Former Spinco or Supplier Employees) of the costs and expenses associated with each of the foregoing provisions (relating to the period after adoption by
Supplier with respect to Supplier's employees and former employees who participate or participated in the Plans due to their employment with Supplier), except paragraph (ii). The costs of
paragraph (ii) shall be borne by Supplier. 

        (c)   Spinco
hereby agrees to (i) withhold all employee contributions and make all employer contributions as required by any applicable Supplier Welfare Plan, and pay
such contributions as directed by the Supplier and (ii) notify the Supplier regarding any changes of status or termination of employment by any Spinco Employees, Spinco Former Employees or
Beneficiaries who are participants in the Welfare Plans, within the meaning of section 125 of the Code and the regulations thereunder. 

        (d)   Vendor Contracts. 

        (i)    Before
the Distribution Date, Supplier shall take such steps as are necessary under each ASO Contract, Group Insurance Policy and HMO Agreement in existence as of the
date of this Agreement to permit Spinco to participate in the terms and conditions of such ASO Contract, Group Insurance Policy or HMO Agreement beginning immediately after the Distribution Date. 

        (ii)   Supplier
shall determine, and shall promptly notify Spinco of, the manner in which Spinco's participation in the terms and conditions of ASO Contracts, Group Insurance
Policies and HMO Agreements, as set forth above is to be effectuated. Spinco hereby authorizes Supplier to act on its behalf to extend to Spinco the terms and conditions of the ASO Contracts, Group
Insurance Policies and HMO Agreements during the Transition Period. Spinco shall fully cooperate with Supplier in such efforts. 

        (iii)    Supplier
and Spinco shall use their reasonable best efforts to cause each of the insurance companies, HMOs, paid provider organizations and third-party
administrators providing services and benefits under the Supplier Welfare Plans and the Spinco Welfare Plans to maintain the premium and/or administrative rates, based on the aggregate number of
participants in both the Supplier Welfare Plans, during the Transition Period, and the Spinco Welfare Plans. 

        (iv)  For
the Transition Period, Spinco shall be responsible, subject to the direction and control of Supplier, for the management of the existing contractual and other
arrangements pertaining to the administration of the Spinco Welfare Plans. Immediately after the Distribution Date, Spinco shall be responsible for the management and control of the ASO contracts,
Group Insurance Policies and HMO Agreements and other vendor contracts and relationships to the extent such contracts, policies and agreements apply to the Spinco Welfare Plans. Notwithstanding the
foregoing, nothing contained in this Section 4.1(d)(iv) shall permit 

6

 

Spinco
to direct any insurance carrier, third-party vendor or claims administrator with respect to any contractual arrangement, policy or agreement under any Supplier Welfare Plan. 

        (e)   For
the period before the Distribution Date and for the Transition Period, Supplier shall be responsible for administering compliance with the continuation coverage
requirements for "group health plans" under Title X of COBRA, and the portability requirements under HIPAA, with respect to Active Spinco Employees, Former Spinco Employees and their Beneficiaries and
shall be responsible for furnishing all necessary employee change notices with respect to these persons in accordance with applicable Supplier policies and procedures. Following the time periods
described in the preceding sentence, Spinco shall be solely responsible for administering compliance with and satisfying any outstanding COBRA or HIPAA obligation with respect to Active Spinco
Employees, Former Spinco Employees and their Beneficiaries. 

        (f)    If
Spinco recovers any amounts through subrogation or reimbursement for claims paid by Supplier to Active Spinco Employees, Former Spinco Employees or their
Beneficiaries, Spinco shall pay such amounts to Supplier. 

        4.2   Establishment of Welfare Plans. Effective as of the Transition End Date, Spinco shall take all actions necessary or
appropriate to establish the Spinco Welfare Plans to provide Active Spinco Employees (and Former Spinco Employees, if applicable) those benefits it determines in its sole discretion. Spinco shall
provide coverage to Active Spinco Employees (and Former Spinco Employees, if applicable) under such Spinco Welfare Plans without the need to undergo a physical examination or otherwise provide
evidence of insurability, will not impose pre-existing condition exclusions and will recognize and maintain all irrevocable assignments and elections made by Active Spinco Employees (and
Former Spinco Employees, if applicable) in connection with any life insurance coverage under the Supplier Welfare Plans. 

        4.3   Vacation and Sick Pay Liabilities. Effective as of the Distribution Date, Spinco shall assume all Liabilities for
vacation, sick leave and other paid time off in respect of all Active Spinco Employees (and Former Spinco Employees, if applicable) as of the Distribution Date. 

        4.4   Medical Spending/Dependent Care Accounts. As soon as practicable after the Transition End Date, Supplier shall reimburse
Spinco for the aggregate contributions to such accounts withheld by Supplier from Active Spinco Employees (and Former Spinco Employees, if applicable) prior to the Distribution Date to the extent that
Supplier did not exhaust such contributions by providing benefits to Active Spinco Employees (and Former Spinco Employees, if applicable) prior to the Distribution Date, or if benefits paid by
Supplier to Active Spinco Employees (and Former Spinco Employees, if applicable) prior to the Distribution Date exceeds the contributions withheld by Supplier from Active Spinco Employees (and Former
Spinco Employees, if applicable), Spinco shall reimburse Supplier for such difference. 

        4.5   Severance. The Parties agree that, with respect to Active Spinco Employees who, in connection with the Distribution,
cease to be employees of Supplier and become Employees of Spinco, such cessation shall not be deemed a severance of employment for purposes of any Plan that provides for the payment of severance,
salary continuation or similar benefits. The Parties shall take all such action, including, but not limited to, amending any Plan to give effect to the provisions of this Section. 

        4.6   Workers' Compensation and Unemployment Compensation. Effective as of the Distribution Date, Spinco shall assume all
Liabilities for Active Spinco Employees and Former Spinco Employees related to any and all workers' compensation and unemployment compensation matters under any law of any state, territory, or
possession of the United States or the District of Columbia and Spinco shall be fully responsible for the administration of all such claims. If Spinco is unable to assume any of such Liabilities or
the administration of any such claim because of the operation of applicable state law or for any other reason, Spinco shall reimburse Supplier for all such Liabilities. 

7

 

        4.7   HIPAA Business Associate Provisions. 

        (a)   Definitions. For purposes of this Section 4.7, the following words and phrases shall have the meanings set forth
below. 

        (i)    "Designated Record Set" shall have the meaning set out in its definition at 45 C.F.R. §164.501, as such
provision is currently drafted and as subsequently amended. 

        (ii)   "Record" means any item, collection, or grouping of information that includes Protected Health Information and is
maintained, collected, used, or disseminated by or for Spinco. 

        (iii)    "Individually Identifiable Health Information" shall have the meaning set out in its definition at 45
C.F.R. §164.501, as such provision is currently drafted and as subsequently amended. 

        (iv)  "Privacy Standards" shall mean the Standards for Privacy of Individually Identifiable Health Information promulgated
under HIPAA. 

        (v)   "Protected Health Information" or ("PHI") shall have the meaning set out
in its definition at 45 C.F.R. §164.501, as such provision is currently drafted and as subsequently amended. 

        (b)   Use and Disclosure of PHI. Supplier may use and disclose PHI received from Spinco or created or received by Supplier on
behalf of Spinco solely as permitted or required by this Agreement or as otherwise required by law. Supplier shall not use and disclose PHI received from Spinco or created or
received by Supplier on behalf of Spinco in any manner that would constitute a violation of the Privacy Standards if used in such manner by Spinco. 

        (c)   Safeguards. Supplier agrees that it will use commercially reasonable efforts to safeguard PHI and to prevent use or
disclosure of PHI other than as provided for under this Section 4.7. 

        (d)   Reporting of Disclosures of PHI. Supplier shall report to Spinco any use or disclosure of PHI in violation of this
Section 4.7 of which it becomes aware. 

        (e)   Agreements with Third Parties. Supplier shall obtain agreement with any agent or subcontractor that will have access to
PHI that is received from, or created or received by Supplier on behalf of Spinco, to be bound by the same restrictions, terms, and conditions that apply to Supplier pursuant to this
Section 4.7 with respect to such PHI. 

        (f)    Access to Information. Within twenty-five (25) days of receipt of a request by Spinco for access to
PHI in a Designated Record Set concerning an individual whose PHI is held by Supplier under this Agreement, Supplier will provide such access to an individual in accordance with 45 C.F.R.
§ 164.524. 

        (g)   Availability of PHI for Amendment. Within fifty (50) days of receipt of a request from Spinco for the amendment of
an individual's PHI contained in a Designated Record Set, Supplier agrees to make any amendment to PHI in a Designated Record Set that Spinco directs or agrees to pursuant to 45 C.F.R.
§164.526. 

        (h)   Accounting of Disclosures. Within fifty (50) days of receipt of a notice from Spinco to Supplier stating that
Spinco has received a request for an accounting of disclosures of PHI regarding an individual, Supplier shall make available to Spinco such information as is in Supplier's possession and is required
for Spinco to make the accounting under 45 C.F.R. §164.528. Supplier agrees to document such disclosures of PHI and information related to such disclosures as would be required for Spinco
to respond to a request by an individual for an accounting of disclosures of PHI in accordance with 45 C.F.R. § 164.528. 

8

 

        (i)    Availability of Books and Records. Supplier agrees to make its internal policies, procedures, practices, books, records
and agreements relating to the use and disclosure of PHI received from, or created or received by Supplier on behalf of, Spinco available to the Secretary of the Department of
Health and Human Services ("Secretary") for purposes of determining Spinco's compliance with the Privacy Standards, subject to attorney-client and other
applicable legal privileges. 

        (j)    Return of PHI upon Termination. Upon termination of the Agreement for any reason, Supplier shall return to Spinco all PHI
received from Spinco or created or received by Supplier on behalf of Spinco and which Supplier still maintains in any form. Prior to doing so, Supplier further agrees to recover any PHI in the
possession of its subcontractors or agents. Supplier shall not retain any copies of such PHI. If it is not feasible to return such PHI as determined by Spinco, Supplier agrees to extend any and all
protections, limitations, and restrictions in this Section 4.7 to Supplier's use and disclosure of any PHI retained after the termination of the Agreement, and to limit any further uses and
disclosures to the purpose or purposes that make the return of PHI infeasible. If it is not feasible for Supplier to obtain from a subcontractor or agent any PHI in the possession of the subcontractor
or agent, Supplier will require the subcontractor and/or agent to agree to extend any and all protections, limitations, and restrictions in this Section 4.7 to the subcontractors' and/or
agents' use and disclosure of any PHI retained after the termination of the Agreement, and to limit any further uses and disclosures to the purposes that make the return of the PHI infeasible. 

        (k)   Termination. Pursuant to 45 C.F.R. §164.504(e)(2)(iii), Spinco may upon ten (10) days notice terminate
the provisions of any agreement that relates to the administration of any Welfare Plan determined to be a health plan under the Privacy Standards if Spinco determines that Supplier has breached a
material term of this Section 4.7. Alternatively, Spinco may (i) provide Supplier with 30 days written notice of the existence of an alleged material breach; and
(ii) afford Supplier an opportunity to cure said alleged material breach to Spinco's satisfaction within the stated time period. Failure to cure the alleged breach is grounds for immediate
termination of the provisions of any agreement that relates to the administration of any Welfare Plan determined to be a health plan under the Privacy Standards; provided, however, that in the event
that Spinco determines that such termination is not feasible, Supplier hereby acknowledges that Spinco shall have the right to report the breach to the Secretary, notwithstanding any other provision
of the Agreement to the contrary. Spinco reserves the right to cure any breach by Supplier of any provision of this Section 4.7; provided, however, that Spinco retains its right to terminate
relevant provision of an agreement as provided under this Section 4.7(k) and its right to seek related remedies, even if Spinco is able to cure the breach. 

        (l)    Spinco's Obligations. Spinco shall notify Supplier of any limitation(s) in its notice of privacy practices, to the extent
that such limitation may affect Supplier's use or disclosure of PHI. Spinco also shall notify Supplier of any changes in, or revocation of, permission by an individual to use or disclose PHI, to the
extent that such changes may affect Supplier's use or disclosure of PHI. Spinco also shall notify Supplier of any restriction to the use or disclosure of PHI that Spinco has agreed to in accordance
with 45 C.F.R. § 164.522, to the extent that such restriction may affect Supplier's use or disclosure of PHI. 

        (m)  Management and Administration. Except as otherwise limited in this Agreement, Supplier may use PHI for the proper
management and administration of the Spinco health plan or to carry out the legal responsibilities of Supplier. Except as otherwise limited in this Agreement, Supplier may disclose PHI for the proper
management and administration of the Spinco health plan, provided that disclosures are required by law, or Supplier obtains reasonable assurances from the person to whom the information is disclosed
that it will remain confidential and used or further disclosed only as required by law or for the purposes for which it was disclosed to the 

9

 

person.
The person also must agree to notify Supplier of any instances of which it is aware in which the confidentiality of the information has been breached. 

        (n)   Amendment. The parties agree to take such action as is necessary to amend this Section 4.7 from time to time as is
necessary for Spinco to comply with the requirements of the Privacy Standards. 

 
 

ARTICLE V
  EXECUTIVE COMPENSATION PROGRAMS    
    

        5.1   Supplier Non-Qualified Plan.

        (a)   All
Active Spinco Employees shall cease to be eligible to participate in the Supplier Non-Qualified Plan as of the Distribution Date. 

        (b)   Effective
as of the Distribution Date, (i) Spinco shall assume all Liabilities in connection with the Supplier Non-Qualified Plan for Active Spinco
Employees (and Former Spinco Employees, if applicable) and Supplier shall have no responsibility with respect to such Liabilities, (ii) to the extent those Liabilities are funded by a rabbi
trust, the assets relating to Active Spinco Employees (and Former Spinco Employees, if applicable), shall be transferred to Spinco or a rabbi trust designated by Spinco as soon as practicable
following the Distribution Date, (iii) Spinco shall establish a non-qualified deferred compensation plan on such terms as it determines in its sole discretion
("Spinco Non-Qualified Plan"), and (iv) as applicable, all service recognized under the Supplier Non-Qualified Plan (for
periods immediately before the Distribution Date) shall, as of immediately after the Distribution Date, be recognized and taken into account under the Spinco Non-Qualified Plan. 

        5.2   Bonus Plans. Spinco shall assume all Liabilities for or related to Active Spinco Employees (and Former Spinco Employees,
if applicable) payable under any bonus plan sponsored or maintained by Spinco or Supplier with respect to the period prior to the Distribution Date; provided, however, that Supplier and Spinco may
jointly make such adjustments to the financial goals, targets, payments and forms of payment as they deem appropriate to reflect the Distribution. As of the Distribution Date, Spinco may establish a
bonus plan covering such of its Active Spinco Employees as it in its sole discretion deems appropriate. 

 
 

ARTICLE VI
  STOCK INCENTIVE PLANS    
    

        6.1   Stock Option Awards.

        (a)   Effective
as of the Distribution Date, Spinco shall establish an equity-based incentive plan for the benefit of Spinco's employees, consultants and directors
("Spinco Stock Incentive Plan"), with such terms as Spinco determines, in its sole discretion. 

        (b)   Except
as provided in Section 6.1(c) for Key Recipients and Section 6.1(d) for Director Recipients, employees and consultants who have received unexercised
options (whether vested or unvested) to purchase Supplier Common Stock ("Supplier Options") under the Supplier Stock Incentive Plans before the
Distribution Date, and who become employees or consultants of Spinco on the Distribution Date, will have each of their unexercised Supplier Options converted into options to purchase Spinco Common
Stock ("Spinco Options") under the Spinco Stock Incentive Plan as of the Distribution Date, subject to the following terms and conditions: 

        (i)    The
terms of the conversion described in this Section will be determined by reference to, and in consideration of, the ratio of the market price of Supplier common stock
and Spinco Common Stock immediately before or after the distribution. The conversion will 

10

 

preserve
the then intrinsic value of the existing Supplier Options. Following the conversion contemplated by this Section, the aggregate market value of the Spinco Common Stock purchasable under the
Spinco Options immediately after the Distribution will be approximately equal to the aggregate market value of the Supplier Common Stock that was purchasable under the Supplier Options immediately
before the distribution, with the aggregate exercise price of the Spinco Options being the same as the Supplier Options (except to the extent the number of shares purchasable is rounded down to the
nearest whole share). 

        (ii)   The
term, vesting and other terms of the Spinco Options will be the same as the terms of the current Supplier Options; notwithstanding any contrary provision of the
Spinco Stock Incentive Plan. 

        (c)   Each
Key Recipient of Supplier Options under the Supplier Stock Incentive Plans before the Distribution Date who becomes an employee or consultant of Spinco on the
Distribution Date, will, have 30% of his or her unexercised vested Supplier Options converted into Spinco Options under the Spinco Stock Incentive Plan as of the Distribution Date. The remaining 70%
of his or her vested, unexercised Supplier Options shall remain under the terms of the Supplier Stock Incentive Plan ("Key Supplier Options"). Unvested
Supplier Options held by Key Recipients (other than the Designated Key Recipient identified on Schedule I) will be converted into Spinco Options in accordance with Section 6.1(b).
Unvested Supplier Options held by the Designated Key Recipient identified on Schedule I will remain under the terms of the Supplier Stock Incentive Plan as unvested Key Supplier Options.
Supplier will administer the applicable Supplier Stock Incentive Plan to provide that the holders of the Key Supplier Options will not be treated as terminating employment or service with Supplier due
to the Distribution, solely for purposes of determining the terms applicable to the Key Supplier Options after the Distribution Date. The term, vesting and other terms of the Spinco Options will be
the same as the terms of the current Supplier Options. The valuation and determination of the number of Spinco Options and Supplier Options will be made in the same manner as described in
Section 6.1(b)(i). 

        (d)   Each
recipient of Supplier Options who is a director of Supplier ("Director Recipient") before the Distribution Date will
have 30% of his or her unexercised Supplier Options converted into Spinco Options under the Spinco Stock Incentive Plan as of the Distribution Date. The remaining 70% of his or her unexercised
Supplier Options shall remain under the terms of the Supplier Stock Incentive Plan ("Director Supplier Options"). Supplier will administer the
applicable Supplier Stock Plan to provide that the holders of the Director Supplier Options who do not remain as directors of Supplier after the Distribution will not be treated as terminating service
from Supplier due to the Distribution, solely for purposes of determining the terms applicable to the Director Supplier Options after the Distribution Date. The term, vesting and other terms of the
Spinco Options will be the same as the terms of the current Supplier Options. The valuation and determination of the number of Spinco Options and Supplier Options will be made in the same manner as
described in Section 6.1(b)(i). 

        (e)   Spinco
shall make such additional awards under the Spinco Stock Incentive Plan to Active Spinco Employees, consultants and directors as it in its sole discretion deems
appropriate. 

        6.2   Employee Stock Purchase Plan.

        (a)   Effective
as of the Distribution Date, Spinco shall establish an employee stock purchase plan (the "Spinco ESPP") that
will provide benefits that are similar to those provided under the Supplier Employee Stock Purchase Plan (the "Supplier ESPP") immediately before the
Distribution Date. 

        (b)   Effective
as of the Distribution Date, Supplier shall amend the Supplier ESPP to provide that any amounts contributed by Active Spinco Employees to the Supplier ESPP
shall be 

11

 

transferred
to Spinco and shall be applied to the purchase of Spinco Common Stock under the Spinco ESPP. The rights to purchase Supplier Common Stock, which have been earned under the Supplier ESPP
shall be converted, in accordance with the procedures described in Section 6.1(b) and applicable law, into rights to purchase Spinco Common Stock under the Spinco ESPP effective as of the
Closing Date. The initial "purchase period" under the Spinco ESPP will end on the same date that such period is scheduled to end under the Supplier ESPP. Additional purchase periods under the Spinco
ESPP will be subject to the terms and conditions determined by Spinco in its sole discretion. 

 
 

ARTICLE VII
  FOREIGN PLANS    
    

        7.1   Foreign Retirement Plans. Supplier and Spinco shall use their reasonable best efforts so that, as soon as practicable
after the Distribution Date, all Supplier Foreign Plans which provide retirement benefits solely to Active Spinco Employees and Former Spinco Employees shall be assumed by Spinco together with all
related assets and liabilities and neither Supplier nor any Supplier Group Plan shall retain any liability with respect to such Foreign Plans. 

        7.2   Foreign Welfare Plans. Supplier and Spinco shall use their reasonable best efforts, effective as of the Distribution
Date, and to the extent allowed under foreign laws, to handle the Foreign Plans which provide welfare benefits in a manner which mirrors the approach outlined in this Agreement for the various
employee benefit plans. 

 
 

ARTICLE VIII
  ACCOUNTING    
    

        8.1   Payment of and Accounting Treatment for Expenses.

        (a)   Except
as specifically provided in this Agreement, all expenses (and the accounting treatment related to such expenses) related to liabilities through the Distribution
Date regarding matters addressed in this Agreement shall be handled and administered in the ordinary course by Supplier and Spinco in accordance with past Supplier accounting and financial practices
and procedures pertaining to such matters. To the extent such expenses are unpaid as of the Distribution Date that pertain to Active Spinco Employees or Former Spinco Employees, Spinco shall be solely
responsible for such payment, without regard to any accounting treatment to be accorded such expense by Supplier or Spinco on their respective books and records. The accounting treatment to be
accorded all such expenses, whether such expenses are paid by Supplier or Spinco, shall be determined by Supplier. 

        (b)   Spinco
shall assume any balance sheet liability for any Liabilities assumed by it under this Agreement as of the Distribution Date or thereafter, with respect to any
Active Spinco Employee or Former Spinco Employees. The determination of any balance sheet liability as of the close of business on the Distribution Date shall be determined by Supplier consistent with
past accounting practices, consistently applied. 

        8.2   Accounting Adjustments. Before the Distribution Date, Spinco will have established on its books for financial accounting
purposes liabilities and reserves for deferred compensation, welfare and other employee benefit plan obligations that will be retained or assumed by Spinco under this Agreement, and Supplier will have
adjusted the liabilities and reserves on its books for financial accounting purposes to take into account Spinco's assumption or retention of Liabilities under this Agreement. The initial adjustments
as of the Distribution Date will be made on an estimated basis. After the Parties have finally calculated the actual liabilities under this Agreement, each Party shall appropriately adjust its
liabilities and reserves to reflect the amount of the liabilities and reserves that are properly allocable to that Party. 

12

 
 
 

ARTICLE IX
  AUDITS; INFORMATION SHARING    
    

        9.1   Audits.

        (a)   Each
of Supplier and Spinco, and their duly authorized representatives, shall have the right to conduct audits at any time upon reasonable prior notice, at their own
expense, with respect to all information provided to it or to any Plan trustee, recordkeeper or third-party administrator by the other Party. The Party conducting the audit shall have the sole
discretion to determine the procedures
and guidelines for conducting audits and the selection of audit representatives under this Section. The auditing Party shall have the right to make copies of any records at its expense. The Party
being audited shall provide the auditing Party's representatives with reasonable access during normal business hours to its operations, computer systems and paper and electronic files, and provide
workspace to its representatives. After any audit is completed, the Party being audited shall have the right to review a draft of the audit findings and to comment on those findings in writing within
ten business days after receiving such draft. 

        (b)   The
auditing Party's audit rights under this Section shall include the right to audit, or participate in an audit facilitated by the Party being audited, of any
Subsidiaries and affiliates of the Party being audited and of any benefit providers and third parties with whom the Party being audited has a relationship, or agents of such Party, to the extent any
such persons are affected by or addressed in this Agreement. The Party being audited shall, upon written request from the auditing Party, provide an individual (at the auditing Party's expense) to
supervise any audit of any such benefit provider or third-party. The auditing Party shall be responsible for supplying, at its expense, additional personnel sufficient to complete the audit in a
reasonably timely manner. 

        9.2   Sharing of Participant Information. Subject to any limitations expressly provided for herein, Supplier and Spinco shall
share, Supplier shall cause each applicable affiliate of Supplier to share, and Spinco shall cause each applicable affiliate of Spinco to share, with each other and their respective agents and vendors
(without obtaining releases) all participant information necessary for the efficient and accurate administration of each of the Supplier Plans and the Spinco Plans. Supplier and Spinco and their
respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this
Agreement in the custody of the other Party, to the extent necessary for such administration. 

 
 

ARTICLE X
  GENERAL    
    

        10.1 Notices. All notices, requests, claims and other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery by hand, by reputable overnight courier service, by facsimile transmission, or by registered or 

13

 

certified
mail (postage prepaid, return receipt requested) to the respective parties at the addresses listed below: 

	 	 	if to Supplier, to:	 	Pharmacopeia, Inc.

9685 Scranton Road

San Diego, CA

Attn.: Vice President, Human Resources

Fax: (858) 799-5100
	

 	
 	

if to Spinco, to:	
 	

Pharmacopeia Drug Discovery, Inc.

3000 Eastpark Blvd.

Cranbury, NJ 08512

Attn: Executive Vice President, Human Resources

Fax: (609) 452-3671

or
to such other address as any Party may, from time to time, designate in a written notice given in accordance with this Section. Notice given by hand shall be deemed delivered when received by the
recipient. Notice given by mail as set out above shall be deemed delivered five calendar days after the date the same is mailed. Notice given by reputable overnight courier shall be deemed delivered
on the next following business day after the same is sent. Notice given by facsimile transmission shall be deemed delivered on the day of transmission provided telephone confirmation of receipt is
obtained promptly after completion of transmission. 

        10.2 Amendment and Waiver. This Agreement may not be altered or amended, nor may rights hereunder be waived, except by an
instrument in writing executed by the Party or Parties to be charged with such amendment or waiver. No waiver of any term, provision or condition of or failure to exercise or delay in exercising any
rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or
as a waiver of any other term, provision or condition of this Agreement. 

        10.3 Entire Agreement. This Agreement constitutes the entire understanding of the Parties with respect to the subject matter
herein addressed, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter. 

        10.4 Parties in Interest. Neither of the Parties may assign its rights or delegate any of its duties under this Agreement
without the prior written consent of the other Party (which consent shall not be unreasonably withheld or delayed). This Agreement shall be binding upon, and shall inure to the benefit of, the Parties
and their respective successors and permitted assigns. 

        10.5 No Third-Party Beneficiaries; No Termination of Employment. No provision of this Agreement shall be construed to create
any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Active Spinco Employee or Former Spinco Employee under any Supplier Plan or Spinco Plan or otherwise.
Without limiting the generality of the foregoing, neither the Distribution nor the termination of the controlled group status of a affiliate of Spinco shall cause any Employee to be deemed to have
incurred a termination of employment that by itself entitles such individual to the commencement of benefits under any of the Supplier Plans, any of the Spinco Plans, or any individual agreements. 

        10.6 Right to Amend or Terminate Any Plans. Nothing in this Agreement other than those provisions specifically set forth in
this Agreement to the contrary shall preclude Spinco or Supplier, at any time after the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering
in any respect any Spinco plan or Supplier Plan, respectively, any benefit under any Plan or any trust, insurance policy or funding vehicle related to any Spinco Plan or Supplier Plan. 

14

 

        10.7 Effect if Distribution Does Not Occur. If the Distribution does not occur, then all actions and events that are, under
this Agreement, to be taken or occur effective as of the Distribution Date, immediately after the Distribution Date, or otherwise in connection with the Distribution, shall not be taken or occur
except to the extent specifically agreed to in writing by Spinco and Supplier. 

        10.8 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the Parties or any third party as
creating the relationship of principal and agent, or a partnership or joint venture between the Parties, it being understood and agreed that no provision contained in this Agreement, and no act of the
Parties, shall be deemed to create any relationship between the Parties other than the relationship set forth in this Agreement. 

        10.9 Affiliates. Each of Supplier and Spinco shall cause to be performed, and hereby guarantees the performance of, all
actions, agreements and obligations set forth in this Agreement to be performed by affiliates of Supplier or affiliates of Spinco, respectively, where relevant. 

        10.10 Further Assurances and Consents In addition to the actions specifically provided for elsewhere in this Agreement, each
of the Parties will use its reasonable best efforts to (a) execute and deliver such further instruments and documents and take such other actions as any other Party may reasonably request in
order to effectuate the purposes of this Agreement and to carry out the terms of this Agreement and (b) take, or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including,
without limitation, using its reasonable best efforts to obtain any consents and approvals and to make any filings and applications necessary or desirable in order to consummate the transactions
contemplated by this Agreement; provided that no Party shall be obligated to pay any consideration therefor (except for filing fees and other similar charges) to any third-party from whom such
consents, approvals and amendments are requested or to take any action or omit to take any action if the taking of or the omission to take such action would be unreasonably burdensome to the Party. 

        10.11 Severability. The provisions of this Agreement are severable and should any provision of this Agreement be void,
voidable or unenforceable under any applicable law, such provision shall not affect or invalidate any other provision of this Agreement, which shall continue to govern the relative rights and duties
of the Parties as though such void, voidable or unenforceable provision were not part of this Agreement. 

        10.12 Governing Law. Subject to federal law, this Agreement shall be construed in accordance with, and governed by, the laws
of the State of Delaware, without regard to the conflicts of law rules of such state. 

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

        10.14 Disputes.

        (a)   Resolution
of any and all disputes arising from or in connection with this Agreement, whether based on contract, tort, statute or otherwise, including, but not limited
to, disputes in connection with claims by third parties (collectively, "Disputes"), shall be subject to the provisions of this Section 10.14;
provided, however, that nothing contained in this Agreement shall preclude either Party from seeking or obtaining (i) injunctive relief or (ii) equitable or other judicial relief to
enforce the provisions of this Agreement or to preserve the status quo pending resolution of Disputes hereunder. 

        (b)   Either
Party may give the other Party written notice of any Dispute not resolved in the normal course of business. The parties shall attempt in good faith to resolve any
Dispute promptly 

15

 

by
negotiation between executives of the parties who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration
of this Agreement. Within 30 days after delivery of the notice, the foregoing executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary for a period not to exceed 15 business days, to attempt to resolve the Dispute. All reasonable requests for information made by one Party to the other will be honored. If the
parties do not resolve the Dispute within such 45 business day period (the "Initial Negotiation Period"), the Parties shall attempt in good faith to
resolve the Dispute by negotiation between (a) in the case of Supplier, the Chief Financial Officer and (b) in the case of Spinco, the Chief Financial Officer
(collectively, "Designated Officers"). Such officers shall meet at a mutually acceptable time and place (but in any event no later than 15 business days
following the expiration of the Initial Negotiation Period) and thereafter as often as they reasonably deem necessary for a period not to exceed 15 business days, to attempt to resolve the Dispute. 

        (c)   If
the Dispute has not been resolved by negotiation within 75 business days of the first Party's notice, or if the Parties failed to meet within 30 business days of the
first Party's notice, or if the Designated Officers failed to meet within 60 business days of the first Party's notice, either Party may commence any litigation or other procedure allowed by law. 

        10.15 Assignment. Neither of the parties may assign or delegate any of its rights or duties under this Agreement without the
prior written consent of the other party, which consent will not be unreasonably withheld; provided that Supplier may, at any time, assign or delegate its rights or duties hereunder to Accelrys, Inc
without obtaining the consent of Spinco. This Agreement shall be binding upon, and shall inure to the benefit of, the Parties and their respective successors and permitted assigns. Notwithstanding the
foregoing, Spinco may, and hereby gives notice to Supplier that it intends to, pledge its rights and obligations under this Agreement to its lenders as collateral to secure indebtedness outstanding
under its senior secured credit facility and all renewals, refundings, refinancings and replacements thereof. 

        10.16 Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall
be held to include the other genders as the context requires. The word "including" and words of similar import when used in this Agreement means "including, without limitation," unless the context
otherwise requires or unless otherwise specified. 

        10.17 Headings. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. 

*
* * * * 

16

 

        IN
WITNESS WHEREOF, the Parties have executed and delivered this Agreement as f the day and year first above written. 

	

 	
 	
PHARMACOPEIA, INC.
	

 	
 	

By:	

  
 Name:

Title:
	

 	
 	
PHARMACOPEIA DRUG DISCOVERY, INC.
	

 	
 	

By:	

  
 Name:

Title:

17

 
 
 

SCHEDULE I    
    

 
 

Key Recipients
  
  
  John J. Hanlon
  Michael G. Lenahan
  William J.DeLorbe, Ph.D.
  Walter C. Greenblatt
  
  
Designated Key
Recipient
  
  
  John J. Hanlon    

18

QuickLinks

EMPLOYEE MATTERS AGREEMENT dated as of , 2004 between PHARMACOPEIA, INC. and PHARMACOPEIA DRUG DISCOVERY, INC.

TABLE OF CONTENTS

EMPLOYEE MATTERS AGREEMENT

ARTICLE I DEFINITIONS

ARTICLE II EMPLOYEES AND ALLOCATIONS OF LIABILITIES

ARTICLE III SAVINGS PLANS

ARTICLE IV WELFARE PLANS

ARTICLE V EXECUTIVE COMPENSATION PROGRAMS

ARTICLE VI STOCK INCENTIVE PLANS

ARTICLE VII FOREIGN PLANS

ARTICLE VIII ACCOUNTING

ARTICLE IX AUDITS; INFORMATION SHARING

ARTICLE X GENERAL

SCHEDULE I

Key Recipients John J. Hanlon Michael G. Lenahan William J.DeLorbe, Ph.D. Walter C. Greenblatt Designated Key Recipient John J. Hanlon

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