Document:

Exhibit
10.1

 

EMPLOYMENT
AGREEMENT OF LESLIE JOHNSTON BROWNE

 

This
employment agreement (the “Agreement”) is made and entered into as of the 14th
day of July, 2004, by and between Pharmacopeia Drug Discovery, Inc.,
(hereinafter the “Company”), and Leslie Johnston Browne, Ph.D. (hereinafter
“Dr. Browne”).

 

RECITALS

 

WHEREAS,
the Company desires to employ Dr. Browne to render services in the capacity of
President and Chief Executive Officer of Pharmacopeia Drug Discovery, Inc.
(“President and Chief Executive Officer”) on the terms set forth in this
Agreement;

 

WHEREAS,
Dr. Browne desires to render services during the term of this Agreement in the
capacity of President and Chief Executive Officer on the terms set forth in
this Agreement;

 

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

 

1.                                       Employment.

 

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

 

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

 

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

 

2.                                       Term.

 

a.                                       The employment of Dr. Browne as President and
Chief Executive Officer under this Agreement is for an initial term of one year
beginning on

 

 

Dr. Browne’s first date of
employment by the Company, August 9, 2004 (the “Start Date”).

 

b.                                      Unless earlier terminated under the
provisions of this Agreement, this Agreement will renew automatically for
successive one year periods at the conclusion of the initial term and any
succeeding renewal terms (collectively, the “Term”), unless either party
notifies the other in writing, at least one year in advance, of its intention
not to renew the Agreement at the expiration of the initial or renewal term.

 

3.                                       Compensation.

 

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

 

b.                                      Dr. Browne shall be entitled to a signing
bonus of $100,000.  One half of this
bonus ($50,000), less normally applicable payroll deductions, shall be paid as
soon as practicable after the Start Date. 
The remainder ($50,000), less normally applicable payroll deductions,
shall be paid six months after the Start Date.

 

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

 

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

 

e.                                       Dr. Browne shall be granted on the Start Date
three hundred thousand (300,000) options to purchase Company stock, priced at
the fair market value on the date of the grant.  The vesting schedule for these options shall be as
follows:  25% of these options shall be
vested after one year (from the date of the grant) and 1/48 of the options
shall vest on the first of each month thereafter.  These options are intended to be incentive stock options as
defined under section 422 of the Internal Revenue Code of 1986 and any
regulations promulgated thereunder. 
However, to the extent the option

 

 

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

 

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

 

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

 

(1)                                  Pay Dr. Browne all compensation and benefits
accrued, but unpaid, up to the date of his termination.  Dr. Browne’s Incentive Bonus for the
calendar year in which his employment is terminated shall be paid on a
pro rata basis, based on the actual percentage of target bonuses determined
by the Company’s Board of Directors for the year in which the termination
occurs.

 

(2)                                  Continue to pay Dr. Browne each month, for a
period of twenty-four (24) months, an amount equal to one twelfth of his annual
Base Salary in effect as of the date of termination.  The Company will maintain Dr. Browne’s group medical coverage
during the period he is receiving payments under this Section 4(a)(2).

 

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

 

(4)                                  If the termination occurs in the first year
of the Term, twenty-five percent (25%) of the initial option grant will
immediately vest on the termination date.

 

b.                                      Termination by Dr. Browne for Good Reason.  In
the event Dr. Browne terminates this Agreement with at least ninety (90)
days’ written notice and for “Good Reason,” as defined below, during the Term,
he shall be entitled to receive the benefits provided in Section 4(a)
above.  For purposes of this
Section 4(b), “Good Reason” shall be provided by the occurrence of any of
the following events:  i) Dr. Browne’s
removal as President and Chief Executive Officer of the Company or any other material
adverse change by the Company in Dr. Browne’s duties, authority or
responsibilities as President and Chief Executive Officer of the Company; ii) a reduction

 

 

of more than twenty percent
(20%) of Dr. Browne’s base salary, unless made with Dr. Browne’s express
written consent; iii) a material reduction in the kind or level of employee
benefits such that Dr. Browne’s overall benefits package is significantly
reduced, unless made with Dr. Browne’s express written consent; iv) if as a
result of a relocation of the Company to a facility more than fifty (50) miles
from the Company’s current location, Dr. Browne is required to relocate his
residence, unless made with Dr. Browne’s express written consent; v) a
material breach of this Agreement by the Company that has not been cured within
thirty (30) days after written notice thereof by Dr. Browne to the Company; or vi) a change of control (as defined in
Section 4(c)) of the Company that materially changes Dr. Browne’s duties,
title or responsibility.

 

c.                                       Termination Without Cause in Connection with
Change of Control.  In the event that Dr. Browne’s employment as
President and Chief Executive Officer is terminated involuntarily by the Board
without Cause in connection with a “change of control” (as defined below) of
the Company: i) Dr. Browne shall be entitled to receive the benefits
provided in Section 4(a) above; ii) all stock options granted to Dr.
Browne that are then unvested shall immediately vest; and iii) Dr. Browne shall
receive pro rata Incentive Bonuses for the period during which he is receiving
payments under Section 4(a)(2), equal to the average Incentive Bonus he
received in each of the three years immediately prior to the termination or, if
less than three years’ of bonus history is available, his target bonus for the
year in which the termination occurs.

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

 

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

 

g.                                      Non-renewal.  Following the expiration of
the Term by reason of timely notice of non-renewal by the Company in accordance
with Section 2(b), Dr. Browne shall be entitled to receive the benefits
set forth in Section 4(a) above, except that the severance described in
Section 4(a)(2) shall be for a period of twelve (12) months following the
expiration of the Term.  Upon the
expiration of the Term by reason of timely notice of non-renewal by Dr. Browne,
Dr. Browne will remain eligible to receive a pro rata Incentive bonus for the
year in which the Term expires.  In the
event the Term expires by reason of timely notice of non-renewal, the
twenty-four (24) month time period set forth in Section 12 of this
Agreement shall be reduced to twelve (12) months following the expiration of
the Term.

 

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

 

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

 

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

 

All
determinations required to be made under this Section 4(j), including
whether any of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax, shall be made by a nationally recognized accounting
firm

 

 

(the
“Accounting Firm”) mutually acceptable to the parties.  The Accounting Firm shall provide detailed
supporting calculations both to the Company and to Dr. Browne within 10 days
after a request for such determinations are made by Dr. Browne or the
Company.  Any such determination by the
Accounting Firm shall be binding upon the Company and Dr. Browne.  For purposes of determining the amount of
the Gross-Up Payment, Dr. Browne shall be deemed to pay Federal, state and
local income taxes at the highest marginal rates applicable to Dr. Browne as of
the date of the determination.

 

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

 

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

 

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

 

8.                                       Relocation and Temporary Housing.  The
Company will pay for the reasonable, properly documented costs of relocating
Dr. Browne’s household goods to the Princeton, New Jersey area from San
Francisco, California, in accordance with Company policy.  The Company will also provide Dr. Browne
with a payment of $4,000 per month for nine months, to be used for temporary
housing in the Princeton, New Jersey area. 
It is anticipated that Dr. Browne will obtain permanent housing in the
Princeton, New Jersey area prior to one year after the Start Date.

 

In addition, the Company
will pay for up to nine (9) trips between the Princeton, NJ area and San
Francisco, CA for Dr. and/or Mrs. Browne, in connection with house-hunting or
the sale or rental of their San Francisco residence.

 

The Company will also
reimburse closing costs associated with the purchase of a residence in the
Princeton, New Jersey area along with associated reasonable and customary
expenses.  To the extent that the
relocation cost and closing cost reimbursements are taxable to Dr. Browne, the
Company will gross-up the payment such that the net amount received by Dr.
Browne equals the amount of the reimbursable expenses.

 

Upon the signing of a
contract to purchase, lease or rent a residence in Princeton, New Jersey, the
Company will pay Dr. Browne a relocation bonus of one hundred thousand dollars
($100,000), which Dr. Browne agrees to return to the Company in the event the
closing on such residence is not consummated. 
In the event Dr. Browne

 

 

sells his California
residence within twelve (12) months of the Start Date, he will receive an
additional payment of fifty thousand dollars ($50,000) upon verification of the
closing of that sale.

 

Should
Dr. Browne voluntarily terminate his employment with the Company prior to one
(1) year from the date of this Agreement, Dr. Browne will repay to the Company
one half of all monies paid to him or on his behalf in association with his
relocation and temporary housing, not to exceed the net amount received by him
after taxes.  The Company may collect
any such mandatory repayments, in full or in part, by deducting them from
amounts otherwise due Dr. Browne from the Company, and Dr. Browne hereby
authorizes such deduction.

 

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

 

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

 

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

 

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

 

a.                                       Be employed by, engaged in or participate in
the ownership, management, operation or control of, or act in any advisory or
other capacity for, any Competing Entity which conducts its business within the
Territory (as the terms Competing Entity and Territory are hereinafter
defined); provided, however, that notwithstanding the foregoing,
Dr. Browne may make solely passive investments in any Competing Entity the
common stock of which is “publicly held” and of which Dr. Browne shall not own
or control, directly or indirectly, in the aggregate securities which constitute
5% or more of the voting rights or equity ownership thereof.

 

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

 

 

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

 

d.                                      solicit for employment, or advise or
recommend to any other person that they employ or solicit for employment or
retention as an employee or consultant, any person who is an employee of, or
exclusive consultant to, the Company.

 

The
Company’s obligation to make payments pursuant to Section 4 above shall
terminate in the event that, and at such time as, Dr. Browne is in breach of
his obligation not to compete as set forth in this Section 12.  For purposes of this Section, the term
“Competing Entity” shall mean any entity which is in possession of drugs
substantially similar to those of the Company that are in pre-clinical
development or clinical trials, or which is presently or hereafter engaged in
the business of providing to third parties chemistry products or services for
pre-clinical drug discovery or chemical development which i) include the
outlicensing of small molecule libraries, the undertaking of drug candidate
screening, and/or related drug optimization activities; or  ii) utilize combinatorial chemistry or
high-throughput screening technologies in offering pre-clinical drug discovery
services.  The term “Territory” shall
mean North America, Europe and Japan. 
Notwithstanding anything in the above to the contrary, Dr. Browne may
engage in the activities set forth in Section 12(a) hereof with the prior
written consent of the Company, which consent shall not be unreasonably
withheld.  In determining whether a
specific activity by Dr. Browne for a Competing Entity shall be permitted, the
Company will consider, among other things, the nature and scope of i) the
duties to be performed by Dr. Browne, and ii) the business activities of
the Competing Entity at the time of Dr. Browne’s proposed engagement by such
entity.

 

Dr.
Browne acknowledges and agrees that the covenants set forth in this
Section are reasonable and necessary in all respects for the protection of
the Company’s legitimate business interests (including without limitation the
Company’s confidential, proprietary information and trade secrets and client
good-will, which represents a significant portion of the Company’s net worth
and in which the Company has a property interest).  Dr. Browne acknowledges and agrees that, in the event that he
breaches any of the covenants set forth in this Section, the Company may be
irreparably harmed and may not have an adequate remedy at law; and, therefore,
in the event of such a breach, the Company shall be entitled to injunctive
relief, in addition to (and not exclusive of) any other remedies (including
monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this
Section 12 is deemed invalid or unenforceable for any reason, it is the
Parties’ intention that such covenants be equitably reformed or modified to the
extent necessary (and only to such extent to) render it valid and enforceable
in all respects.  In the event that the
time period and geographic scope referenced above is deemed unreasonable,
overbroad, or otherwise invalid, it is the Parties’ intention that the
enforcing court shall reduce or modify the time period and/or geographic scope
to the extent necessary (and only to such extent necessary) to render such
covenants reasonable, valid, and enforceable in all respects.

 

 

13.                                 Arbitration.  Any and all disputes between
the parties (except actions to enforce the provisions of Section 12 of
this Agreement), arising under or relating to this Agreement or any other
dispute arising between the parties, including claims arising under any
employment discrimination laws, shall be adjudicated and resolved exclusively
through binding arbitration before the American Arbitration Association
pursuant to the American Arbitration Association’s then-in-effect National
Rules for the Resolution of Employment Disputes (hereafter “Rules”).  The initiation and conduct of any
arbitration hereunder shall be in accordance with the Rules and each side shall
bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted
in Princeton, New Jersey, and any arbitration award shall be final and binding
on the Parties.  The arbitrator shall
have no authority to depart from, modify, or add to the written terms of this
Agreement.  The arbitration provisions
of this Section shall be interpreted according to, and governed by, the
Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action
pursuant to such Act to enforce any rights hereunder shall be brought
exclusively in the United States District Court for the District of  New Jersey. 
The parties consent to the jurisdiction of (and the laying of venue in)
such court.  

 

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

 

15.                                 Severability.  In
the event that any section, paragraph or term of this Agreement shall be
determined to be invalid or unenforceable by any competent authority or
tribunal for any reason, the remainder of this Agreement shall be unaffected
thereby and shall remain in full force and effect, and any such section,
paragraph, or term shall be deemed modified to the extent to make it
enforceable.

 

16.                                 Successors and Assigns. 
This Agreement shall bind and inure to the benefit of the successors and
assigns of the Company, and the heirs, executors or personal representatives of
Dr. Browne.  This Agreement may not be
assigned by Dr. Browne.  This Agreement
may be assigned to any successor in interest to the Company and Dr. Browne
hereby consents to such assignment.

 

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

 

18.                                 Lawful Employment in United States.  This
Agreement is contingent upon Dr. Browne’s ability to be lawfully employed in
the United States

 

 

indefinitely, without
employer sponsorship.  Customary
documentation establishing work eligibility will be required in accordance with
applicable law.

 

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

 

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

 

Dated
this 14th day of July, 2004.

 

 

	
  PHARMACOPEIA
  DRUG

  	
   

  
	
  DISCOVERY,
  INC.:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Joseph
  A. Mollica

  	
   

  	
  /s/ Leslie
  Johnston Browne

  	
   

  
	
  Joseph
  A. Mollica, Ph.D.

  	
  Leslie Johnston Browne,
  Ph.D.

  
	
  Chairman
  of the BoardExhibit 10.1(z)

 

CONSULTING AGREEMENT

 

This Consulting Agreement
(this “Agreement”) is made as of 5 May 2004, by and between SAUER-DANFOSS INC., a Delaware corporation
(the “Company”) and KLAUS H. MURMANN
(the “Consultant”).

 

The Consultant was the
founder of the Company and served for many years as its Chief Executive
Officer.  Although the Consultant is no
longer an active employee of the Company and has retired this date from
Chairman of the Board of Directors to Chairman Emeritus and Director of the Company,
the Consultant has considerable and valuable knowledge and experience relating
to the business of the Company as a result of his prior service to the Company
as an officer and employee and the Company desires to be assured of the
continued availability of the advice, wisdom and management experience of the
Consultant.  The Consultant desires to
aid and assist the Company as a consultant by providing certain limited
advisory services to the Company on a standby basis.

 

NOW,
THEREFORE, in
consideration of the foregoing, of the mutual promises herein set forth, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby unconditionally agree as
follows:

 

1.               The Company does hereby appoint and engage
the Consultant as its consultant and advisor with respect to the matters
specified in Section 2 of this Agreement for the consideration hereinafter
set forth.  The Consultant hereby accepts
his appointment and engagement by the Company as a Consultant and advisor to
the Company with respect to the matters specified in Section 2 of this
Agreement for the consideration hereinafter set forth.

 

2.               During the term of this Agreement specified
in Section 4 hereof (the “Term”), the Consultant shall undertake for and
on behalf of, and to the extent specifically requested by the Company, subject
to the availability of the Consultant and the other limitations set forth
herein, to advise the Company, by telephone or in person at the Consultant’s
sole discretion, with respect to its business and with respect to past matters
or transactions of the Company of which he has actual knowledge.  The Consultant shall not be required to
render any written reports to the Company with regard to the foregoing service,
unless, in his sole discretion, the Consultant deems written reports to be
necessary.  In no event shall the
Consultant be required to engage in the foregoing activity for more than twenty
(20) hours in any calendar month, unless the Consultant, in his sole
discretion, deems that more hours are necessary.  In furnishing such advisory and consulting
services, the Consultant shall not be an employee of the Company but shall act
in the capacity of an independent contractor.

 

3.               In consideration for the agreement of the
Consultant to provide advisory services described in Section 2 of this
Agreement, the Company shall, during the Term, at no expense to the Consultant:

 

(a)          Provide the Consultant with the use of his
current office space, furnishings and its amenities in the Company’s
Neumünster, Germany facilities or with equivalent office space, furnishings and
amenities in the event the Company shall remodel its existing Neumünster,

 

 

Germany
facility resulting in a change of such office space or move its operations from
the current facility to a new location;

 

(b)         Provide the Consultant with secretarial
support for up to 32 hours per week; and

 

(c)          Pay or promptly reimburse the Consultant for
all reasonable expenses paid or incurred by the Consultant in connection with
the performance of his activities, responsibilities and services under this
Agreement, upon presentation of expense statements, vouchers or other evidence
of expense according to the prescribed procedure for processing expenses
incurred by members of the Company’s Board of Directors.

 

4.               The Term shall commence as of the date hereof
and shall terminate as of the date of the Consultant’s death or in the event
that he is incapable of performing his advisory services pursuant to this
Agreement because of physical or mental incapacity for a period of 270
consecutive days in any twelve-month period, provided, however, that the
Consultant may terminate this Agreement at any time upon giving 30 days prior
written notice to the President of the Company.

 

5.               This Agreement shall be binding upon, and
shall enure to the benefit of, the Consultant and the Company and their
respective successors, assigns, heirs and legal representatives, including any
entity with which the Company may merge or consolidate or to which all or
substantially all of its assets may be transferred.

 

6.               This Agreement will be governed by the laws
of the State of Delaware without regard to conflicts of law principles.

 

7.               This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof.

 

8.               This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same Agreement.

 

IN WITNESS
WHEREOF, the parties
have executed and delivered this Agreement as of the date first written above.

 

2

 

	
   

  	
  SAUER-DANFOSS
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth
  D. McCuskey

  	
   

  
	
   

  	
   

  	
  Kenneth D.
  McCuskey

  	
   

  
	
   

  	
   

  	
  Vice President & Chief
  Accounting

  Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name and Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Klaus H. Murmann

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Klaus H. Murmann

  	
   

  

 

3

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