8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 23, 2008

CYPRESS BIOSCIENCE, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other
jurisdiction of
incorporation) 0-12943
(Commission File Number) 22-2389839
(IRS Employer
Identification
Number)

4350 Executive Drive, Suite 325, San Diego, CA
(Address of principal executive offices) 92121
(Zip Code)

(858) 452-2323
Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01. Entry into a Material Definitive Agreement.
	Item 2.02. Results of Operations and Financial Condition.
	Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 99.1

Item 1.01. Entry into a Material Definitive Agreement.

     On February 23, 2008, Cypress Bioscience, Inc., a Delaware corporation (“Cypress”), entered into a merger agreement with Proprius, Inc. (doing business in California as “Proprius Pharmaceuticals, Inc.”), a privately-held Delaware corporation (“Proprius”), whereby a wholly-owned merger subsidiary of Cypress will merge with and into Proprius with Proprius continuing as the surviving corporation and a wholly-owned subsidiary of Cypress. A copy of the merger agreement will be filed with a subsequent Form 8-K that will be timely filed by Cypress following completion of the merger.

     Under the terms of the merger agreement, Cypress will acquire all of the outstanding equity interests in Proprius for consideration totaling $37.5 million in cash at closing, plus additional payments up to an aggregate of $37.5 million in the event certain milestones set forth in the merger agreement are achieved. The milestone payments are payable, at the sole discretion of Cypress, in cash, or up to 50% in shares of Cypress common stock, or a combination of both. Cypress will only issue shares of its common stock in full or partial payment of any milestone payment to accredited investors, within the meaning of Rule 501 of Regulation D, and the aggregate number of such shares issued to all accredited investors will not exceed 19.9% of the issued and outstanding shares of Cypress common stock on the date of the merger agreement. If Cypress does issue shares of its common stock in full or partial payment of any milestone payment, the shares will be valued using a trailing 10-trading day average closing price over a period ending shortly before the relevant milestone payment to the Proprius stockholders is due. Cypress has also agreed to file a registration statement with the Securities and Exchange Commission registering those shares for resale prior to their issuance.

     Subject to the terms of the merger agreement, the milestone payments are payable as follows:

• $20,000,000 upon the dosing of the first subject in any human phase III clinical trial involving PRO-406 that could be used, or in the case of a Phase II/II clinical trial that is used, as one of the pivotal trials required for filing a NDA. In the event that Cypress determines, in its sole discretion, to engage in a transaction (other than a change of control transaction) pursuant to which a substantial portion of the intellectual property rights owned by Cypress immediately after the effective time and necessary for the production, development and sale of PRO-406 are sold or licensed to or acquired by a third party prior to achievement of the $20,000,000 milestone for PRO-406, in lieu of the $20,000,000 milestone payment, the Proprius stockholders will receive 50% of the proceeds from such disposition after subtraction of Cypress’ development costs related to PRO-406, but the amount Proprius stockholders will receive cannot exceed $20,000,000; and

• $17,500,000 upon the earlier of Cypress’ Board of Directors formally approving the initiation of a Phase III clinical trial for PRO-515 or the dosing of the first subject in a Phase III clinical trial involving PRO-515 or certain other product candidates.

     At the closing of the merger, 10% of the aggregate merger consideration payable at closing will be contributed to an escrow fund which will be available for 15 months to indemnify Cypress and related indemnitees for certain matters, including breaches of representations and warranties and covenants included in the merger agreement. Cypress may only make claims against the escrow fund for breaches of representations and warranties which result in aggregate damages in excess of $250,000, after which it can recover the full amount of such damages, including the $250,000, up to the full amount of the escrow fund. Once the escrow fund has been exhausted or released, Cypress has the right to withhold and deduct amounts for certain indemnification claims related to Proprius’ capitalization, intellectual property and tax representations and warranties from milestone payments otherwise payable by Cypress.

     Both Cypress and Proprius have agreed to customary representations and warranties, covenants and termination rights in the merger agreement, and both have the right to terminate the merger agreement after March 31, 2008, if the other party has not satisfied its conditions to closing on or before that date.

     The merger has been approved by the Boards of Directors of both Cypress and Proprius. No vote of Cypress stockholders is required in connection with the merger. Each stockholder of Proprius must approve the merger. As an inducement to Cypress to enter into the merger agreement, certain Proprius stockholders have entered into a voting agreement with Cypress, representing approximately 91.7% of outstanding Proprius stockholders, pursuant to which each such stockholder has, among other things, agreed to vote the shares of Proprius capital stock owned by such stockholder in favor of the merger and against competing acquisition proposals, in each case subject to and on the conditions set forth in the voting agreement.

     In connection with the merger, on February 23, 2008, Cypress entered into an employment agreement with Michael J. Walsh which will become effective upon the closing of the merger, pursuant to which Mr. Walsh swill become Cypress’ Executive Vice President and Chief Commercial Officer. Mr. Walsh, age 48, founded Proprius Pharmaceuticals, Inc. in 2005 and has been its President and CEO since that time. Prior to establishing Proprius, Mr.  Walsh was a founder and Executive Chairman at Prometheus Laboratories, Inc. from 1995 to 2005. Prior to founding Prometheus Laboratories, Inc., Mr. Walsh was with Quidel Corporation in various senior executive roles, including Director of Worldwide Marketing and Business Development, and Director of European Operations. Prior to Quidel he was Manager of Therapeutic Operations at La Jolla Pharmaceutical Company. Mr. Walsh serves on the Board of Directors of Kanisa Pharmaceuticals, Inc., and as Chairman of the Board of Oculir, Inc. Mr. Walsh has a Bachelor of Science degree from the University of Notre Dame and an M.B.A. from Pepperdine University.

     Pursuant to his employment agreement with Cypress, Mr. Walsh shall receive an annual base salary of $300,000 and shall be eligible for an annual bonus of up to 35% of his annual base salary per year. In addition, pursuant to the employment agreement, on the closing date of the merger, Cypress shall grant to Mr. Walsh an option to purchase 400,000 shares of Cypress’ common stock at an exercise price equal to the closing price of such stock on the business day immediately preceding the effective date of the grant. Mr. Walsh’s employment agreement additionally provides that upon a termination of Mr. Walsh’s employment without cause or if Mr. Walsh terminates his employment with good reason, or in certain circumstances if Mr. Walsh is terminated following a change in control of Cypress, Mr. Walsh shall be entitled to the benefits outlined in the employment agreement, including a continuation of his base salary for a six-month severance period and payment of COBRA premiums for a twelve month period following termination. Mr. Walsh will also be eligible for participation in Cypress’ Severance Benefit Plan dated May 21, 2004 (the “Plan”), and in the event of a qualifying termination of his employment for which he is eligible for benefits under the Plan, Mr. Walsh will receive the benefit which is greater under either his employment agreement or the Plan as to each category of benefits to which he is entitled. A copy of Mr. Walsh’s employment agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

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     The other three employees of Proprius will also be offered employment with Cypress following closing of the merger. In addition, Mr. Walsh has entered into a noncompetition agreement with Cypress dated February 23, 2008, which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.

     In addition, in connection with the merger, all four employees of Proprius, including Mr. Walsh, have entered into retention agreements with Cypress dated February 23, 3008. Pursuant to the retention agreements, 25% of the aggregate consideration each employee is otherwise entitled to receive upon closing of the merger will be subject to vesting restrictions until the second anniversary of the date of the retention agreements. The consideration subject to the retention agreements will be forfeited by the Proprius employees if their employment with Cypress is terminated for cause or the employees resign without good reason, and the consideration will be subject to early release from the vesting restrictions in the retention agreements if the employees are terminated without cause or resign for good reason, or in the event of a change of control of Cypress. A copy of the form of retention agreements is attached hereto as Exhibit 10.4 and is incorporated herein by reference.

     Cypress anticipates that the merger will close in March 2008.

     The required historical financial statements for Proprius and related pro forma information will be filed with a subsequent Form 8-K that will be timely filed by Cypress following completion of the merger. A copy of the press release announcing the execution of the merger agreement is attached hereto as Exhibit 99.1.

Forward-Looking Statements

     This report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements in this report regarding the proposed acquisition of Proprius and Cypress’ business that are not historical facts may be considered “forward-looking statements,” including statements regarding closing the merger with Proprius, timing for doing so and each party’s ability to satisfy its closing conditions, the milestones that must be attained for milestone consideration to become payable and whether any of those will actually occur, the mix of cash and stock that Cypress will choose to use to pay any milestone consideration, Cypress’ ability to satisfy any indemnification claims it may have out of the escrow or as a set-off to the milestone payments and any payments to be made pursuant to employment or retention agreements with Proprius employees. Forward-looking statements are based on management’s current preliminary expectations and are subject to risks and uncertainties, which may cause Cypress’ results to differ materially and adversely from the statements contained herein. Some of the potential risks and uncertainties that could cause actual results to differ from the results predicted are detailed in Cypress’ annual report on Form 10-K, quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Cypress undertakes no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

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Item 2.02. Results of Operations and Financial Condition.

     On February 25, 2008, Cypress issued a press release announcing the amount of cash held by the company as of the year ended December 31, 2007. The text of this press release is attached hereto as Exhibit 99.1.

     In accordance with general instructions B.6 of Form 8-K, the information in Item 2.02 of this report, including Exhibit 99.1, is furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.

     On February 23, 2008, Cypress entered into an employment agreement and a retention agreement with Mr. Walsh, and Mr. Walsh also became eligible for participation in Cypress’ Plan. Reference is made to the descriptions of such arrangements and the relevant documents incorporated therein by reference in Item 1.01 to this Form 8-K.

Item 9.01. Financial Statements and Exhibits.

     (d) Exhibits.

Exhibit
Number		Description of Exhibit
	10.1	Employment Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and Michael J. Walsh
	10.2	Severance Benefit Plan dated May 21, 2004, incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2004 filed with the Securities and Exchange Commission on August 9, 2004
	10.3	Non-competition Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and Michael J. Walsh
	10.4	Form of Retention Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and certain key employees of Proprius, Inc.
	99.1	Press Release issued by Cypress on February 25, 2008

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Cypress Bioscience, Inc.
Dated: February 24, 2008	By:	/s/ Sabrina Martucci Johnson
		Sabrina Martucci Johnson
		EVP, COO and CFO

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EXHIBIT INDEX

Exhibit
Number		Description of Exhibit
	10.1	Employment Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and Michael J. Walsh
	10.2	Severance Benefit Plan dated May 21, 2004, incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2004 filed with the Securities and Exchange Commission on August 9, 2004
	10.3	Non-competition Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and Michael J. Walsh
	10.4	Form of Retention Agreement, dated February 23, 2008, by and between Cypress Bioscience, Inc. and certain key employees of Proprius, Inc.
	99.1	Press Release issued by Cypress on February 25, 2008

EX-10.1

Exhibit 10.1

Employment Agreement

By And Between

Cypress Bioscience, Inc.

And

Michael J. Walsh

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”) is made and entered into effective as of February 23, 2008 (the “Effective Date”), by and between Cypress Bioscience, Inc., a Delaware corporation (the “Company”), and Michael J. Walsh (the “Executive”). The Company and the Executive are hereinafter collectively referred to as the “Parties,” and individually referred to as a “Party.”

Recitals

     A. The Company desires assurance of the association and services of the Executive in order to retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to engage the Executive’s services on the terms and conditions set forth in this Agreement.

     B. The Executive desires to be in the employ of the Company, and is willing to accept such employment on the terms and conditions set forth in this Agreement.

Agreement

     In consideration of the foregoing Recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:

1. Employment.

     1.1 Term. The Company hereby employs the Executive, and the Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement, until the termination of the Executive’s employment in accordance with Section 5 or Section 6 below, as applicable (the “Term”). The Executive shall be employed at will, meaning that either the Company or the Executive may terminate this agreement and Executive’s employment at anytime, for any reason or no reason, with or without cause, without liability to the other save for wages earned through the effective date of termination and severance compensation and benefits provided in Sections 5 or 6, as applicable.

     1.2 Title. The Executive shall have the title of Executive Vice President and Chief Commercial Officer (“CCO”) of the Company and shall serve in such other capacity or capacities as the Board of Directors of the Company (the “Board”) may from time to time prescribe with Executive’s consent.

     1.3 Duties. The Executive shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Company and which are normally associated with the position of CCO, consistent with the bylaws of the Company and as required by the Board.

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     1.4 Policies and Practices. The employment relationship between the Parties shall be governed by the policies and practices established from time to time by the Company and the Board.

     1.5 Location. Unless the Parties otherwise agree in writing, during the term of this Agreement, the Executive shall perform the services Executive is required to perform pursuant to this Agreement at the Company’s offices, located in San Diego, or, with the consent of the Company and Executive, at any other place at which the Company maintains an office; provided, however, that the Company may from time to time require the Executive to travel temporarily to other locations in connection with the Company’s business.

2. Loyal And Conscientious Performance; Noncompetition.

     2.1 Loyalty. During the Executive’s employment by the Company, the Executive shall devote Executive’s full business energies, interest, abilities and productive time to the proper and efficient performance of Executive’s duties under this Agreement. Notwithstanding the foregoing, Executive may engage in personal, investment, civic, and charitable activities to the extent they do not unreasonably interfere with Executive’s performance of his duties under this Agreement or violate paragraphs 2.2 or 2.3 of this Agreement.

     2.2 Covenant not to Compete. Except with the prior written consent of the Board, the Executive will not, during the Term of this Agreement, engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services which are in the same field of use or which otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates. For purposes of this Agreement, “Affiliate” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity. Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of a capital stock of any corporation with one or more classes of its capital stock listed on a national or foreign securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.

     2.3 Agreement not to Participate in Company’s Competitors. During the Term, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates. Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national or foreign securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.

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3. Compensation Of The Executive.

     3.1 Base Salary. The Company shall pay the Executive a base salary of three hundred thousand dollars ($300,000) per year, less payroll deductions and all required withholdings payable in regular periodic payments in accordance with Company policy (the “Base Salary”). Such Base Salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year. Executive’s Base Salary shall not be reduced below three hundred thousand dollars ($300,000) per year other than as the result of a company-wide compensation reduction or in connection with similar decreases for the management team of the Company, provided the reduction of Executive’s Base Salary is of similar proportion.

     3.2 Annual Discretionary Bonus. In addition to the Executive’s Base Salary, the Executive will be eligible to receive a discretionary annual bonus of up to thirty-five percent (35%) of Executive’s then-current base salary amount. The bonus amount the Executive will actually receive, if any, shall be determined in the sole and absolute discretion of the Board by evaluating the Executive’s and the Company’s performance against milestones and targets established by the Board in its sole and absolute discretion. Any bonus amount may be paid in either cash or stock, or in any combination thereof, in the Board’s sole and absolute discretion. The good faith determinations of the Board (or its Compensation Committee) with respect to the amount or payment of any bonus shall be final and binding. Any annual discretionary bonus that is earned shall be paid no later than the fifteenth day of the third month following the end of the Company’s fiscal year for which such bonus was earned, and thus will be payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations.

     3.3 Changes to Compensation. The Executive’s compensation may be changed from time to time by mutual agreement of the Executive and the Company.

     3.4 Employment Taxes. All of the Executive’s compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company.

     3.5 Benefits. The Executive shall, in accordance with Company policy and the terms of the applicable plan documents, be eligible to participate in benefits under any executive benefit plan or arrangement that may be in effect from time to time and is made generally available to the Company’s executive or key management employees, including but not limited to paid vacation and medical insurance, provided that, the Executive shall receive four (4) weeks paid vacation per year. This Section 3.5 does not give the Executive the right to participate in or receive any individualized benefits that may be offered to specific executives such as, for example, severance packages. Any action by the Company (including the elimination of health care or dental benefit plans or any life insurance or disability benefits without providing substitutes thereof or the reduction of the Executive’s benefits thereunder) that would materially and substantially diminish the aggregate value of Executive’s benefits under such arrangements, as a whole as they exist as such time, other than as the result of a company-wide benefits reduction or change or in connection with similar decreases or changes for similarly situated employees of the Company, shall constitute a material breach of this Agreement.

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4. Stock Options.

     4.1 Initial Option Grant. On the Closing Date of the Merger, the Executive shall be granted an option to purchase four hundred thousand (400,000) shares of the Company’s common stock, at an exercise price equal to the closing price of such stock on the business day immediately preceding the effective date of the grant (the “Initial Option”). The Initial Option shall be subject to vesting, according to the schedule specified below.

     4.2 Service-based Vesting. Seventy-five percent (75%), i.e., three hundred thousand (300,000) of the shares subject to the Initial Option (such portion of the Initial Option referred to hereafter as the “Service-based Vesting Option”) shall vest according to the following schedule, subject to the Executive’s provision of continuous service to the Company through the applicable vesting date(s): (i) twenty-five percent (25%) of the shares subject to the Service-based Vesting Option shall vest on the first anniversary of the Executive’s date of hire, and, (ii) thereafter, the remaining seventy-five percent (75%) of the Service-based Vesting option shares shall vest in equal monthly installments on the final calendar day of each month over the next three (3) years.

     4.3 Performance-based Vesting. Twenty-five percent (25%), i.e., one hundred thousand (100,000) shares subject to the Initial Option shall vest on the date upon which the Company shall have realized ten million dollars ($10,000,000) in cumulative cash revenues derived from any of the products acquired by the Company in connection with the Agreement and Plan of Merger between the Company and Propel, subject to the Executive’s provision of continuous service to the Company through such vesting date.

5. Termination Not in Connection With a Change of Control.

     5.1 Termination. If the Executive’s employment is terminated (either by the Company, by the Executive, or due to the Executive’s death or Complete Disability), then the Company shall pay to Executive or Executive’s heirs the Executive’s Base Salary, any bonus awarded under Section 3.2 not previously paid, and any accrued and unused vacation benefits, each as earned through the date of termination at the rate then in effect, less standard deductions and withholdings, and the Company shall thereafter have no further obligations to the Executive and/or the Executive’s heirs under this Agreement, except as expressly provided in this Section 5 or Section 6 below.

     5.2 Benefits Upon Termination Without Cause or for Good Reason Prior to a Change of Control. Other than a termination due to Executive’s death or Complete Disability, in the event the Executive’s employment with the Company is terminated by the Company without Cause (as defined below) or the Executive terminates his employment for Good Reason (as defined below), in each case prior to a Change of Control (as defined below), subject to Executive’s delivery to the Company of an effective Release and Waiver in the form attached hereto as Exhibit A within the applicable time period set forth therein, but in no event later than forty-five (45) days following termination of Executive’s employment, and permitting such Release and Waiver to become fully effective in accordance with its terms, (the date Executive’s Release becomes fully effective, the “Release Effective Date”), the Company shall provide the Executive with the following benefits hereunder:

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          (a) Severance pay in the form of a lump sum payment equal to six months of the Executive’s base salary then in effect. For such purposes, the Executive’s base salary shall be calculated based on the rate in effect prior to any material reduction in base salary that would give the Executive the right to resign for Good Reason, as defined below. Such severance payment shall be subject to standard deductions and withholdings and paid in accordance with the Company’s regular payroll policies and practices in the first payroll period following the Release Effective Date; and

          (b) Assuming the Executive timely and accurately elects to continue health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall provide the Executive with such continued health insurance benefits for Executive and his eligible dependents without cost to the Executive until the earliest of (i) twelve (12) months following the termination of the Executive’s employment, (ii) the expiration of the Executive’s continuation coverage under COBRA and any applicable state COBRA-like statute that provides mandated continuation coverage or (iii) the date the Executive becomes eligible for substantially equivalent health insurance benefits of a subsequent employer. The Executive agrees to immediately notify the Company of such eligibility. Such health insurance coverage may be provided at the Company’s option either by payment directly to the Company’s health insurance carrier, or through the Company’s own employee health insurance plan if the Company is self-insured.

     5.3 Benefits Under Severance Benefit Plan. Executive will be added as an officer eligible for benefits pursuant to Appendix A of the Company’s Severance Benefit Plan dated May 21, 2004 (the “Plan”). In the event that Executive is entitled to benefits under Section 5 or 6 of this Agreement and is also eligible for benefits under the Plan, as to each category of benefits to which Executive is entitled under this Agreement or the Plan, Executive shall receive the benefit which is greater, but shall not receive benefits under this Agreement and the Plan as to the same category of benefits.

     5.4 Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

     5.4.1 Good Reason. “Good Reason” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent; provided however, that any resignation by the Executive due to any of the following conditions shall only be deemed for Good Reason if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within ninety (90) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy, if remediable, such condition(s) within thirty (30) days following receipt of the written notice (the “Cure Period”) of such condition(s) from the Executive; and (iii) Executive actually resigns his employment within the first fifteen (15) days after expiration of the Cure Period.

          (a) a material reduction in the Executive’s duties or responsibilities as they are formally developed and confirmed in writing following the Effective Date of this Agreement and following the full integration of Propel into the Company (or if following a Change of Control, as they existed immediately prior to the Change of Control, and for the avoidance of

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doubt, a Change of Control for purposes of this provision shall not include any Change of Control created by or resulting from the Agreement and Plan of Merger between Cypress Bioscience, Inc. and Propel);

          (b) the relocation of the Company’s executive offices or principal business location to a point more than sixty (60) miles from the San Diego County, California area, which relocation requires an increase in the Executive’s one-way driving distance by more than thirty-five (35) miles;

          (c) a material reduction by the Company of the Executive’s Base Salary as initially set forth herein or as the same may be increased from time to time other than as the result of a company-wide compensation reduction or in connection with similar decreases for the management team of the Company, provided the reduction of Executive’s Base Salary is of similar proportion; or

          (d) any action by the Company (including the elimination of health care or dental benefit plans or any life insurance or disability benefits without providing substitutes thereof or the reduction of the Executive’s benefits thereunder) that would materially and substantially diminish the aggregate value of Executive’s fringe benefits under such arrangements, as a whole, as they exist at such time, other than as the result of a company-wide benefits reduction or change or in connection with similar decreases or changes for similarly situated employees of the Company, where such reduction of Executive’s fringe benefits constitutes a material reduction in Executive’s base compensation so that Executive’s resignation due to such condition effectively constitutes an involuntary separation of service for purposes of Section 409A of the Internal Revenue Code.

          5.4.2 Cause. “Cause” for the Company to terminate the Executive’s employment hereunder shall mean the Board’s reasonable determination that the following conditions exist; provided, however, that any termination by the Company due to any of the following conditions shall only be deemed for Cause if: (i) the Board gives Executive written notice of the intent to terminate for Cause within thirty (30) days following the first occurrence of the condition(s) that the Board believes constitute Cause, which notice shall describe such condition(s); (ii) with respect to Section 5.4.2 (e), Executive fails to remedy, if remediable, such condition(s) within five (5) days following receipt of the written notice (the “Cure Period”); and (iii) the Board terminates employment within thirty (30) days following the end of the Cure Period, if applicable:

          (a) the Executive’s continued and willful refusal or failure to follow lawful and reasonable directions of the Board or the individuals to whom the Executive reports;

          (b) the Executive’s conviction of, or nolo contendere plea or guilty plea to, or confession of guilt to, a felony;

          (c) the Executive’s material breach of Sections 2.2, 2.3 or 9 of this Agreement or the Executive’s Proprietary Information and Inventions Agreement with the Company;

          (d) the Executive’s commission of any fraud against the Company, its Affiliates, employees, agents or customers or use or appropriation for his personal use or benefit

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of any funds or properties of the Company not authorized by the Board to be so used or appropriated (other than any inadvertent use that is not material in amount or significance); or

          (e) the material non-performance by the Executive of his duties to the Company and such non-performance continues for a period of more than five (5) days after notice thereof has been provided to the Executive by the Board.

          5.4.3 Complete Disability. “Complete Disability” shall mean the inability of the Executive to perform the Executive’s duties under this Agreement because the Executive has become permanently disabled within the meaning of any policy of disability income insurance covering employees of the Company then in force. In the event the Company has no policy of disability income insurance covering employees of the Company in force when the Executive becomes disabled, the term Complete Disability shall mean the inability of the Executive to perform the Executive’s duties under this Agreement by reason of any incapacity, physical or mental, which the Board, based upon medical advice or an opinion provided by a licensed physician acceptable to the Board, determines to have incapacitated the Executive from satisfactorily performing the Executive’s usual services for the Company for a period of at least ninety (90) days during any 12-month period (whether or not consecutive). Based upon such medical advice or opinion, the determination of the Board shall be final and binding, and the date such determination is made shall be the date of such Complete Disability for purposes of this Agreement.

          5.4.4 Other Definitions. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in that certain Agreement and Plan of Merger dated February 23, 2008, by and among the Company, Propel Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company, Proprius, Inc. a Delaware corporation and Michael J. Walsh, as the Stockholders’ Representative.

6. Termination Following A Change of Control.

     6.1 Benefits. Other than a termination due to Executive’s death or Complete Disability, in the event the Executive’s employment with the Company is terminated without Cause or the Executive terminates his employment for Good Reason, in each case one month prior to or within twelve (12) months following the effective date of a Change of Control, subject to Executive’s delivery to the Company of an effective Release and Waiver in the form attached hereto as Exhibit A within the applicable time period set forth therein, but in no event later than forty-five (45) days following termination of Executive’s employment, and Executive permitting the Release and Waiver to become fully effective in accordance with its terms, the Company shall provide the Executive with the following benefits hereunder:

          (a) Severance pay in the form of a lump sum payment equal to six months of the Executive’s base salary then in effect. For purposes of calculating the amount to be paid pursuant this Section 6.1(a), the Company shall use the greater of (i) the Executive’s base salary in effect on the date of termination, (ii) the Executive’s base salary immediately prior to the Change of Control, or (iii) the base salary in effect prior to any material reduction in base salary that would give the Executive the right to resign for Good Reason, as provided below. Such severance payment shall be subject to standard deductions and withholdings and paid in

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accordance with the Company’s regular payroll policies and practices in the first payroll period following the Release Effective Date;

          (b) The vesting of all unvested Company equity awards granted to Executive shall accelerate immediately such that all equity awards will be fully vested, if applicable, as of the date of, and to the extent applicable, fully exercisable for a period of twelve (12) months following the date of Executive’s termination; provided, however, that in no event shall any equity award be exercisable pursuant to the foregoing provision following the expiration of its maximum ten (10) year term; and

          (c) Assuming the Executive timely and accurately elects to continue health insurance benefits under COBRA, the Company shall provide the Executive with such continued health insurance benefits for Executive and his eligible dependents without cost to the Executive until the earliest of (i) twelve (12) months following the termination of the Executive’s employment, (ii) the expiration of the Executive’s continuation coverage under COBRA and any applicable state COBRA-like statute that provides mandated continuation coverage or (iii) the date the Executive becomes eligible for health insurance benefits of a subsequent employer. The Executive agrees to immediately notify the Company of such eligibility. Such health insurance coverage may be provided at the Company’s option either by payment directly to the Company’s health insurance carrier, or through the Company’s own employee health insurance plan if the Company is self-insured.

     6.2 Change of Control. For purposes of this Agreement, “Change of Control” means: (i) a sale or other disposition of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity and in which the stockholders of the Company immediately prior to such consolidation or merger own less than fifty percent (50%) of the surviving entity’s voting power immediately after the transaction; or (iii) a reverse merger in which the Company is the surviving entity but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, and in which the stockholders of the Company immediately prior to such reverse merger own securities representing less than fifty percent (50%) of the Company’s voting power immediately after the transaction.

     6.3 Parachute Payment. If any payment or benefit the Executive would receive pursuant to a Change of Control or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the full Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary pursuant to the preceding sentence, reduction shall occur in the following order unless Executive elects in writing a different order (provided, however, that such election shall be

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subject to Company approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Executive’s stock awards unless the Executive elects in writing a different order for cancellation.

     The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, then the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

     The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar days after the date on which the Executive’s right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by Executive or the Company. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Executive and the Company with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Executive and the Company, except as set forth below.

     If, notwithstanding any reduction described in this Section 6.3, the IRS determines that the Executive is liable for the Excise Tax as a result of the receipt of the payment of benefits as described above, then the Executive shall be obligated to pay back to the Company, within thirty (30) days after a final IRS determination or in the event that the Executive challenges the final IRS determination, a final judicial determination, a portion of the payment equal to the “Repayment Amount.” The Repayment Amount with respect to the payment of benefits shall be the smallest such amount, if any, as shall be required to be paid to the Company so that the Executive’s net after-tax proceeds with respect to any payment of benefits (after taking into account the payment of the Excise Tax and all other applicable taxes imposed on such payment) shall be maximized. The Repayment Amount with respect to the payment of benefits shall be zero if a Repayment Amount of more than zero would not result in the Executive’s net after-tax proceeds with respect to the payment of such benefits being maximized. If the Excise Tax is not eliminated pursuant to this paragraph, the Executive shall pay the Excise Tax.

     Notwithstanding any other provision of this Section 6.3, if (i) there is a reduction in the payment of benefits as described in this section, (ii) the IRS later determines that the Executive is liable for the Excise Tax, the payment of which would result in the maximization of the Executive’s net after-tax proceeds (calculated as if the Executive’s benefits had not previously been reduced), and (iii) the Executive pays the Excise Tax, then the Company shall pay to the Executive those benefits which were reduced pursuant to this section contemporaneously or as

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soon as administratively possible after the Executive pays the Excise Tax so that the Executive’s net after-tax proceeds with respect to the payment of benefits is maximized.

7. Exclusive Benefits.

     The Executive acknowledges and agrees that, except as expressly provided herein and except for benefits due to the Executive (or the Executive’s dependants) under the terms of the Executive’s benefit plans, he is not entitled to receive any additional compensation from the Company, including but not limited to salary, bonus payments, or severance payments.

8. Application of Internal Revenue Code Section 409A.

     Benefits payable under this Agreement are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations and are intended to be payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations or under another exemption from Section 409A of the Code.

9. Confidential And Proprietary Information; Nonsolicitation.

     9.1 As a condition of employment the Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as Exhibit B.

     9.2 While employed by the Company and for one (1) year thereafter, the Executive agrees that in order to protect the Company’s Proprietary Information (as defined in the Executive’s Proprietary Information and Inventions Agreement) from unauthorized use, that the Executive will not without the consent of the Company, either directly or through others, solicit or attempt to solicit, engage or hire (a) any employee, consultant or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or business entity; or (b) the business of any customer, supplier, service provider, vendor or distributor of the Company which, at the time of termination or one (1) year immediately prior thereto, was doing business with the Company or listed on Company’s customer, supplier, service provider, vendor or distributor list.

10. Assignment of Inventions.

     The Executive hereby assigns to the Company any and all right, title, and interest in any invention which he has developed during the period which the Executive has acted as a consultant to the Company or has been employed by the Company which (i) relates to the Company’s business or anticipated research or development, (ii) resulted from any work performed for the Company by the Executive, or (iii) was developed by Executive using the Company’s facilities or resources.

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11. Assignment And Binding Effect.

     This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive’s heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of the Executive’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Executive. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.

12. Choice Of Law.

     This Agreement is made in San Diego, California. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of California (without giving effect to principles of conflicts of law).

13. Integration.

     This Agreement, including Exhibits A and B contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of the Executive’s employment and the termination of the Executive’s employment, and supersedes all prior and contemporaneous oral and written employment agreements or arrangements between the Parties and between the Executive and Propel. To the extent this Agreement conflicts with the Proprietary Information and Inventions Agreement attached as Exhibit B hereto, the Proprietary Information and Inventions Agreement controls.

14. Amendment.

     This Agreement cannot be amended or modified except by a written agreement signed by the Executive and the Chairman of the Board (if not the Executive) or other representative specifically authorized by the Board to execute any such amendment or modification to this Agreement on behalf of the Company.

15. Survival of Certain Provisions.

     Sections 3.4, 5, 6 through 13, 15 through 19, 21 and 24 shall survive the termination of this Agreement.

16. Waiver.

     No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.

17. Severability.

     The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this

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Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term or provision. Any such invalid or unenforceable term or provision shall be revised to the minimum extent necessary to make any such term or provision valid or enforceable in accordance with the Parties’ intentions with respect to such term or provision.

18. Interpretation; Construction.

     The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with, and has consulted with, the Executive’s own independent counsel and tax advisors with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

19. Representations And Warranties.

     The Executive represents and warrants that the Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executive’s execution and performance of this Agreement will not violate or breach any other agreements between the Executive and any other person or entity.

20. Counterparts; Facsimile.

     This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument. Facsimile signatures shall be treated the same as original signatures.

21. Arbitration.

     To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to Executive’s employment, or the termination of that employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Diego, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. Both the Executive and the Company shall be entitled to all rights and remedies that either the Executive or the Company would be entitled to pursue in a court of law. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such

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arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute involving confidential, proprietary or trade secret information, or intellectual property rights or the non-solicitation provision hereunder, by Court action instead of arbitration.

22. Trade Secrets Of Others.

     It is the understanding of both the Company and the Executive that the Executive shall not divulge to the Company and/or its subsidiaries any confidential information or trade secrets belonging to others, including the Executive’s former employers. Consistent with the foregoing, the Executive shall not provide to the Company and/or its Affiliates, any documents or copies of documents containing such information.

23. Advertising Waiver.

     During the Term, the Executive agrees to permit the Company and/or its Affiliates, and persons or other organizations authorized by the Company and/or its Affiliates, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company and/or its Affiliates, or the machinery and equipment used in the provision thereof, in which the Executive’s name and/or pictures of the Executive taken in the course of the Executive’s provision of services to the Company and/or its Affiliates, appear. The Executive hereby waives and releases any claim or right the Executive may otherwise have arising out of such use, publication or distribution.

24. Specific Enforcement.

     If necessary and where appropriate, the Company shall have the right to enforce the provisions of Sections 2.2, 2.3, 9, 10 and 22 of this Agreement by injunction, specific performance or other equitable relief without bond and without prejudice to any other rights and remedies the Company may have for a breach of such Sections of this Agreement.

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     In Witness Whereof, the Parties have executed this Agreement as of the date first above written.

Cypress Bioscience, Inc.
By:	/s/ Sabrina Martucci Johnson
	Sabrina Martucci Johnson
	Executive Vice President, Chief Operating Officer and Chief Financial Officer
Dated:		February 23, 2008

Executive:
/s/ Michael J. Walsh
Michael J. Walsh
Dated:	February 23, 2008

[Signature Page to Employment Agreement]

EX-10.3

Exhibit 10.3

NON-COMPETITION AGREEMENT

     This Non-Competition Agreement (the “Agreement”) is made and entered into as of this 23^rd day of February, 2008 (the “Agreement Date”), by and between Cypress Bioscience, Inc., a Delaware corporation (“Parent”), Proprius, Inc. (doing business in California as “Proprius Pharmaceuticals, Inc.”), a Delaware corporation (the “Company”), and Michael J. Walsh (“Employee”).

Recitals

     A. Employee is a key employee and stockholder and/or optionholder of the Company. Parent and the Company have entered into an Agreement and Plan of Merger (the “Merger Agreement”) of even date herewith, providing for the acquisition by Parent of the Company pursuant to a merger of Propel Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”) with and into the Company (the “Merger”) with the Company surviving the Merger as a wholly owned subsidiary of the Parent. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Merger Agreement. As part of the Merger, Employee will dispose of all of Employee’s Company Common Stock and Company Series A Stock, in exchange for such Employee’s portion of the Merger Consideration determined pursuant to the Merger Agreement. Immediately following the Merger, the business of the Company will be conducted by Parent. Employee will receive substantial benefits as a result of the Merger and the exchange of his Company Common Stock and Company Series A Stock and, in consideration thereof, Employee has agreed not to compete in the manner and to the extent herein set forth. Employee is entering into this Agreement as an inducement to Parent and Merger Sub to consummate the Merger, with all of the attendant financial benefits to Employee as an employee and stockholder of the Company.

     B. Parent has requested, as a condition precedent to executing the Merger Agreement and consummating the transactions contemplated by the Merger Agreement, that Employee execute and deliver this Agreement, and Employee desires to enter into this Agreement.

     C. Parent and the Company each are engaged in the research and development of products, therapies, and services to diagnose and treat rheumatological conditions or diseases and autoimmune disorders, including but not limited to fibromyalgia syndrome, and each has conducted and are conducting their respective businesses on a worldwide basis.

     D. The Company and Employee are executing an Employment Agreement of even date herewith (the “Employment Agreement”) in connection with Employee’s employment by the Parent following the Merger. Pursuant to the Employment Agreement, Employee will become a key employee of the Parent, meaning that Employee will obtain extensive and valuable knowledge and trade secret and other confidential information concerning the business of the Parent.

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Agreement

     Now, Therefore, in consideration of the mutual covenants herein contemplated and intending to be legally bound hereby, and in order to induce the Parent to consummate the transactions contemplated by the Merger Agreement, the parties hereto agree as follows:

     1. Acknowledgements by Employee. Employee acknowledges that by virtue of Employee’s position with the Company Employee has developed considerable expertise in the business operations of the Company and has had extensive access to trade secrets and other Confidential Information of the Company. Employee further acknowledges that as a result of Employee’s continuing post-merger employment by the Parent, he will develop extensive knowledge of the Parent’s business operations including trade secret and other Confidential Information. Employee recognizes that Parent would be irreparably damaged, and its substantial investment in the Company materially impaired, if Employee were to enter into an activity competing with the business of the Company (or any subsidiary, Affiliate, successor or acquiror of the Company) in violation of the terms of this Agreement or if Employee were to disclose or make unauthorized use of any Confidential Information concerning the business of the Company or the Parent (or any subsidiary, successor or acquiror of the Company). Accordingly, Employee expressly acknowledges that he is voluntarily entering into this Agreement and that the terms and conditions of this Agreement are fair and reasonable to Employee in all respects.

     2. Restricted Period. This Agreement shall expire on the earlier of (the “Termination Date”): the second anniversary of the effective date of the termination of Employee’s employment with the Parent or the date on which Parent ceases to engage in all respects in all aspects of the Restricted Business. The period of time that elapses from the consummation of the Merger (the “Effective Date”) until the Termination Date shall be referred to herein as the “Restricted Period.”

     3. Non-Competition. During the Restricted Period and within the Restricted Territory, Employee shall not, directly or indirectly, without the prior written consent of Parent, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or consultant of any Entity engaged in any activity that relates to the research, development, promotion, marketing, licensing or distribution of products, therapies, or services which are related to the diagnosis and/or treatment of rheumatological conditions or diseases and autoimmune disorders, including, but not limited to fibromyalgia syndrome (the “Restricted Business”). Notwithstanding the above, Employee shall not be deemed to be in contravention of the foregoing if Employee participates as a passive investor holding up to 1% of the equity securities of an Entity engaged in the Restricted Business, which securities are publicly traded.

     4. Non-Interference. Employee further agrees that during the Restricted Period, Employee will not, without the prior written consent of Parent, (i) interfere with the business of the Company or Parent, by soliciting, attempting to solicit, induce or attempt to induce any employee or consultant of the Company or Parent to terminate his/her employment as such in order to become an employee, consultant or independent contractor to or for any competitor of the Company or Parent or to or for any Entity with which Employee is associated in any way;

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(provided that, in the absence of a violation of this Section 4, this restriction shall not be construed as a prohibition against hiring); or (ii) induce or attempt to induce any customers, suppliers, distributors, resellers, or independent contractors of the Company or Parent to terminate their relationships with, or to take any action that would be disadvantageous to the business of, the Company or Parent.

     5. Confidential Information. Employee agrees that he or she shall hold all Confidential Information in strict confidence and shall not at any time (whether during or after the Restricted Period): (a) reveal, report, publish, disclose or transfer any Confidential Information to any Person (other than the Parent or the Company), except in the performance of Employee’s obligations under the Employment Agreement; (b) use any Confidential Information for any purpose, except in the performance of his obligations under the Employment Agreement; or (c) use any Confidential Information for the benefit of any Person other than the Parent or the Company.

     6. Representations and Warranties. Employee represents and warrants, to and for the benefit of the Indemnitees, that: (a) Employee has full power and capacity to execute and deliver, and to perform all of Employee’s obligations under, this Agreement; and (b) neither the execution and delivery of this Agreement nor the performance of this Agreement will result directly or indirectly in a violation or breach of (i) any agreement or obligation by which Employee or any of Employee’s Affiliates or subsidiaries is or may be bound, or (ii) any law, rule or regulation. Employee’s representations and warranties shall survive the expiration of the Restricted Period for an unlimited period of time.

     7. Independence of Obligations. The covenants of Employee set forth in this Agreement shall be construed as independent of any other agreement or arrangement between Employee, on the one hand, and the Company or Parent or any of their Affiliates or subsidiaries, on the other hand, and the existence of any claim or cause of action by Employee against the Company or Parent or any of their Affiliates or subsidiaries shall not constitute a defense to the enforcement of such covenants against Employee.

     8. Remedies. Employee expressly acknowledges that damages alone will not be an adequate remedy for any breach by Employee of any of the covenants set forth in this Agreement and that Parent and the Company, in addition to any other remedies which they may have, shall be entitled, as a matter of right, to injunctive relief, including, without limitation, specific performance, in any court of competent jurisdiction with respect to any actual or threatened breach by Employee of any of said covenants. The rights and remedies of Parent and the other Indemnitees under this Agreement are not exclusive of or limited by any other rights or remedies which they may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of Parent and the other Indemnitees under this Agreement, and the obligations and liabilities of Employee under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities under the law of unfair competition, under laws relating to misappropriation of trade secrets, under other laws and common law requirements and under all applicable rules and regulations. Employee’s obligations under this Agreement are absolute and nothing in this Agreement shall limit any of Employee’s obligations, or the rights or remedies of Parent or any of the other Indemnitees, under the Merger Agreement; and nothing in the Merger

3.

     Agreement shall limit any of Employee’s obligations, or any of the rights or remedies of Parent or any of the other Indemnitees, under this Agreement. No breach on the part of Parent or any other party of any covenant or obligation contained in the Merger Agreement or any other agreement or by virtue of any failure to perform or other breach of any obligation of Parent, any other Indemnitee or any other Person shall limit or otherwise affect any right or remedy of Parent or any of the other Indeminitees under this Agreement.

     9. Severability.

          (a) If any provision of this Agreement shall be held by a court of competent jurisdiction to be excessively broad as to duration, activity or subject, it shall be deemed to extend only over the maximum duration, activity and subject as to which such provision shall be valid and enforceable under applicable law. In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law.

     10. Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address and facsimile telephone number set forth beneath the name of such party below (or to such other address and facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto):

          If to Parent:       Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: Denise Wheeler, Vice President of Legal Affairs
Fax: (858) 452-1222

          If to Employee: the address and facsimile telephone number set forth below Employee’s name on the signature page hereto

     11. Waiver.

          (a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

          (b) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of

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such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

          (c) The expiration of the Restricted Period shall not operate to relieve the Employee of any obligation or liability arising from any prior breach by Employee of any provision of this Agreement.

     12. Assignment. This Agreement shall be assignable by any or all of Parent, Merger Sub or the Company to any of its or their assignees or successors who continue with any aspect of the Restricted Business and each of such assignees or successors is hereby expressly authorized to enforce this Agreement. This Agreement is not assignable or delegable by Employee.

     13. Amendment. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of all of the parties hereto.

     14. Entire Agreement. This Agreement and the other agreements referred to herein set forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof.

     15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Parent, Merger Sub and the Company and their respective assignees and successors, and Employee and Employee’s heirs and personal representatives.

     16. Further Assurances. Employee shall (at Parent’s sole expense) execute and/or cause to be delivered to Parent (and each Indemnitee, if applicable) such instruments and other documents, and shall (at Parent’s sole expense) take such other actions, as Parent and such Indemnitee may reasonably request at any time (whether during or after the Restricted Period) for the purpose of carrying out or evidencing any of the provisions of this Agreement.

     17. Governing Law; Venue.

          (a) This Agreement shall be construed in accordance, and governed in all respects by, the internal laws of the State of California (without giving effect to principles of conflicts of laws).

          (b) Any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement may be brought or otherwise commenced in any state or federal court located in the County of San Diego, California. Each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the County of San Diego, California (and each appellate court located in the State of California) in connection with any such legal proceeding; (ii) agrees that service of any process, summons, notice or document by U.S. mail addressed to him at the address set forth on the signature page of this Agreement shall constitute effective service of such process, summons, notice or document for purposes of any such legal proceeding; (iii)

5.

agrees that each state and federal court located in the County of San Diego, California shall be deemed to be a convenient forum; and (iv) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the County of San Diego, California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court.

          (c) Nothing in this Section 17 shall be deemed to limit or otherwise affect any right other than one concerning or relating to this Agreement.

     18. Headings. The headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

     19. Construction.

          (a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

          (b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

          (c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

          (d) Except as otherwise indicated, all references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement.

     20. Attorneys’ Fees. If any action or proceeding relating to this Agreement or the enforcement of any provision of this Agreement is brought against any party hereto, the prevailing party shall be entitled to recover reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled).

     21. Defined Terms. For purposes of this Agreement:

          (a) “Confidential Information” means any non-public information (whether or not in written form and whether or not expressly designated as confidential) relating directly or indirectly to the Parent, the Company or any of the Parent’s other subsidiaries or relating directly or indirectly to the business, operations, financial affairs, performance, assets, technology, processes, products, contracts, customers, licensees, sublicensees, suppliers, personnel, consultants or plans of the Parent, the Company, or any of the Parent’s other subsidiaries (including any such information consisting of or otherwise relating to trade secrets,

6.

know-how, technology, inventions, prototypes, designs, drawings, sketches, processes, license or sublicense arrangements, formulae, proposals, research and development activities, customer lists or preferences, pricing lists, referral sources, marketing or sales techniques or plans, operations manuals, service manuals, financial information, projections, lists of consultants, lists of suppliers, or lists of distributors); provided, however, that “Confidential Information” shall not be deemed to include information of the Company that was already publicly known and in the public domain prior to the time of its initial disclosure to the Employee, nor any information that becomes publicly known other than through a disclosure by Employee in violation of this Agreement.

          (b) “Indemnitees” shall include: (1) the Parent; (2) the Company; (3) each Person who is or becomes an Affiliate of the Parent or the Company; and (4) the successors and assigns of each of the persons referred to in clauses (1), (2) and (3) of this sentence.

          (c) “Restricted Territory” means any city and county or similar political subdivision of each state of the United States of America (including each of the counties in the State of California, and each state, territory or possession of the United States of America), and all foreign jurisdictions, including but not limited to all foreign cities, states, provinces, counties or other similar political subdivisions, worldwide.

[Signature page follows]

7.

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

Employee
By:	/s/ Michael J. Walsh
	Michael J. Walsh
Address:
Facsimile:
Cypress Bioscience, Inc.
By:	/s/ Sabrina Martucci Johnson
	Sabrina Martucci Johnson
	Executive Vice President, Chief Operating Officer and Chief Financial Officer

[Signature Page to Non-Competition Agreement]

EX-10.4

Exhibit 10.4

RETENTION AGREEMENT

     This RETENTION AGREEMENT (this “Agreement”) is made on and as of February 23, 2008, by and among                      (the “Key Employee”), Proprius, Inc. (doing business in California as Proprius Pharmaceuticals, Inc.), a Delaware corporation (the “Company”), and Cypress Bioscience, Inc., a Delaware corporation (“Parent”).

RECITALS

     A. Concurrently with the execution and delivery of this Agreement, Parent and Company are entering into the Merger Agreement. This Agreement is an inducement to Parent to enter into the Merger Agreement, and it is a condition precedent to Parent’s obligations to effect the Merger thereunder that this Agreement shall have been entered into and be in full force and effect. Capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the meanings assigned to such terms in the Merger Agreement.

     B. The Board of Directors of the Company has adopted the Management Carve-Out Plan, pursuant to which a certain portion of the aggregate proceeds to the stockholders of the Company pursuant to the Merger Agreement may be paid to one or more key employees of the Company as more fully set forth therein. Key Employee has been designated as a participant in the Management Carve-Out Plan, but, as of the date hereof, does not currently have a legally binding right to any compensation thereunder. The aggregate amounts, if any, to which Key Employee would be entitled to receive pursuant to the Management Carve-Out Plan, to the extent Key Employee continues to be designated as a participant in such plan at the time of the Merger, [MICHAEL J. WALSH AGREEMENT ONLY- together with a portion of the aggregate amount of the aggregate Closing Option Payment payable to the holders of Company Options that Key Employee would be entitled to receive upon the Closing of the Merger for cancellation of Key Employee’s unvested Company Options outstanding immediately prior to the Effective Time] are referred to herein as the “Aggregate Bonus Consideration”.

     NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

     1. Definitions. As used in this Agreement, the following terms have the corresponding meanings:

     “Acceleration Event” is defined in Section 3(d).

     “Aggregate Bonus Consideration” is defined in Recital B.

     “Board” means the board of directors of Parent.

     “Business Day” means a day other than a Saturday, Sunday, or other day when banking institutions in Chicago, Illinois are authorized or required by law or executive order to be closed.

     “Cause” for the termination of Key Employee’s employment with Parent shall mean the

Board’s reasonable determination that the following conditions exist; provided, however, that any termination by Parent due to any of the following conditions shall only be deemed for Cause if: (i) the Board gives Key Employee written notice of the intent to terminate for Cause within thirty (30) days following the first occurrence of the condition(s) that the Board believes constitute Cause, which notice shall describe such condition(s); (ii) the Key Employee fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “Cure Period”) of such condition(s) from the Board; and (iii) the Board terminates Key Employee’s employment within thirty-five (35) days after expiration of the Cure Period:

          (a) Key Employee’s continued and willful refusal or failure to follow lawful and reasonable directions of the Board or the individuals to whom Key Employee reports;

          (b) Key Employee’s conviction of, or nolo contendere plea or guilty plea to, or confession of guilt to, a felony;

          (c) Key Employee’s material breach of Sections 2.2, 2.3 or 9 of the Employment Agreement or the Key Employee’s Proprietary Information and Inventions Agreement with Parent; or

          (d) Key Employee’s commission of any fraud against Parent, its Affiliates, employees, agents or customers or use or appropriation for his or her personal use or benefit of any funds or properties of Parent not authorized by the Board to be so used or appropriated (other than any inadvertent use that is not material in amount or significance).

     “Change of Control” means (i) a sale or other disposition of all or substantially all of the assets of Parent; (ii) a merger or consolidation in which Parent is not the surviving entity and in which the stockholders of Parent immediately prior to such consolidation or merger own less than fifty percent (50%) of the surviving entity’s voting power immediately after the transaction; or (iii) a reverse merger in which Parent is the surviving entity but the shares of Parent common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, and in which the stockholders of Parent immediately prior to such reverse merger own securities representing less than fifty percent (50%) of Parent’s voting power immediately after the transaction.

     “Company” means Proprius, Inc. (doing business in California as Proprius Pharmaceuticals, Inc., a Delaware corporation, a Delaware corporation, or another entity as provided in Section 19(a).

     “Company Successor” is defined in Section 19(a).

     “Company Successor Parent” is defined in Section 19(a).

     “Complete Disability” shall mean Key Employee is prevented from performing his or her duties under the Employment Agreement by reason of any physical or mental incapacity that results in Key Employee’s satisfaction of all requirements necessary to receive benefits under Parent’s long-term disability plan due to a total disability. In the event Parent has no long-term disability plan in force when Key Employee becomes disabled, the term Complete Disability shall mean that Key Employee is unable to engage in any substantial gainful activity by reason of

2

any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. Based upon the medical advice or opinion provided by a licensed physician acceptable to the Board, the determination of Complete Disability by the Board shall be final and binding.

     “Employment Agreement” means that certain Employment Agreement of even date herewith by and between Parent and the Key Employee.

     “Escrow Agent” means LaSalle Bank National Association, as escrow agent.

     “Escrow Agreement” means the Special Escrow Agreement by and among Parent, Key Employee and the Escrow Agent, substantially in the form attached hereto as Exhibit A.

     “Forfeiture Event” means the occurrence of either (i) a Separation From Service for Cause, or (ii) a Separation From Service initiated by Key Employee without Good Reason.

     “Good Reason” for Key Employee to terminate Key Employee’s employment with Parent shall mean the occurrence of any of the following events without Key Employee’s consent; provided however, that any resignation by Key Employee due to any of the following conditions shall only be deemed for Good Reason if: (i) Key Employee gives Parent written notice of the intent to terminate for Good Reason within ninety (90) days following the first occurrence of the condition(s) that Key Employee believes constitutes Good Reason, which notice shall describe such condition(s); (ii) Parent fails to remedy, if remediable, such condition(s) within thirty (30) days following receipt of the written notice (the “Cure Period”) of such condition(s) from Key Employee; and (iii) Key Employee actually resigns his or her employment within the first fifteen (15) days after expiration of the Cure Period:

          (a) a material diminution in Key Employee’s duties, authority or responsibilities as they are formally developed and confirmed in writing following the date of this Agreement and following the full integration of the Company into Parent;

          (b) a material diminution in the authority, duties or responsibilities [AGREEMENTS FOR THREE EMPLOYEES OTHER THAN MICHAEL J. WALSH (as they are formally developed and confirmed in writing following the date of this Agreement and following the full integration of the Company into Parent,)] of the supervisor to whom Key Employee is required to report;

          (c) the relocation of Parent’s executive offices or principal business location to a point more than sixty (60) miles from the San Diego County, California area, which relocation requires an increase in Parent’s one-way driving distance by more than thirty-five (35) miles;

          (d) a material reduction by Parent of Key Employee’s Base Salary (as defined in the Employment Agreement) as initially set forth in the Employment Agreement or as the same may be increased from time to time other than as the result of a company-wide compensation reduction or in connection with similar decreases for the management team of Parent, provided the reduction of Key Employee’s Base Salary is of similar proportion; or

3

          (e) any other action or inaction that constitutes a material breach by Parent of its obligations to Key Employee under the Employment Agreement.

     “Merger Agreement” means the Agreement and Plan of Merger dated as of the date hereof, among the Company, Parent, Propel Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent and the Company Stockholders’ Representative, as such agreement may be amended or supplemented from time to time prior to the Effective Time.

     “Parent” means Cypress Bioscience, Inc., a Delaware corporation, or another entity as provided in Section 19.

     “Parent Successor” is defined in Section 19(b).

     “Parent Successor Parent” is defined in Section 19(b).

     “Restriction” is defined in Section 3(a).

     “Retention Amount” means ___percent (___%) of the Aggregate Bonus Consideration payable to Key Employee at the Closing pursuant to the Management Carve-Out Plan, which amount equals $___, as such amount may be adjusted from time to time pursuant to Section 2(c).¹

     “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as it may be amended from time to time, and the Treasury Regulations and other guidance issued thereunder.

     “Separation From Service” (and variations on the form of such term) means any separation from service within the meaning of Section 409A.

     “Unvested Retention Amount” is defined in Section 3(a).

     “Vested Retention Amount” is defined in Section 3(a).

     2. Payment of Retention Amount into Escrow.

          (a) Key Employee hereby agrees that his or her right to receive the Aggregate Bonus Consideration shall be subject to the restrictions imposed by this Agreement and the Escrow Agreement, and agrees that, notwithstanding anything in the Merger Agreement to the

¹ This percentage will vary among the Key Employees, as the Management Carve-Out Plan Closing Payments they will be entitled to receive will vary, and because with respect to Michael Walsh, the Retention Amount will include a portion of his aggregate Closing Option Payment. For Mr. Walsh, the Management Carve-Out Plan Closing Payments he will be entitled to receive will first be used to satisfy the Retention Amount, with a portion of his aggregate Closing Option Payments for unvested Company Options making up the remainder. The total dollar value of the Retention Amount for each Key Employee will equal 25% of the aggregate Closing Consideration, Closing Option Payments and Management Carve-Out Plan Closing Payments to which each Key Employee is entitled. The total dollar amount of the Retention Amount will be based upon the calcuation described in the preceding sentence and will be determined as of the Closing based upon the information included in the Merger Consideration Spreadsheet, and this Agreement will be revised accordingly by Parent with the consent of Key Employee, which consent shall not be unreasonably withheld.

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contrary, in connection with and subject to the Closing (i) the Aggregate Bonus Consideration shall be reduced by an amount equal to the Retention Amount as set forth in Section 2(b) below and (ii) Parent shall pay the Retention Amount to the Escrow Agent for deposit in the Escrow Fund (as such term is defined in the Escrow Agreement). Key Employee acknowledges and agrees that his rights and interests in the Escrow Fund shall be non-transferable and subject to a risk of forfeiture as provided in this Agreement and the Escrow Agreement.

          (b) Immediately following the Effective Time, subject to and in accordance with the terms and conditions of the Merger Agreement, this Agreement and the Escrow Agreement, Parent shall pay the Retention Amount to the Escrow Agent, and shall have no obligation under the Merger Agreement or the Management Carve-Out Plan or otherwise to pay such portion of the Aggregate Bonus Consideration to Key Employee (or to cause such amount to be so paid).

          (c) The Retention Amount paid to the Escrow Agent pursuant to this Agreement shall be adjusted from time to time for any gains, interest, other income, losses and expenses attributable to such Retention Amount during the period such Retention Amount (or portion thereof) is held in escrow by the Escrow Agent in accordance with the Escrow Agreement.

     3. Forfeiture and Vesting of Retention Amount.

          (a) All rights and interests of Key Employee in and to the Retention Amount shall be subject to forfeiture by Key Employee in the event of any Forfeiture Event, as provided in this Section 3. The risk of forfeiture imposed upon such rights and interests under this Agreement, together with the restrictions on transferability provided for in this Agreement and the Escrow Agreement, are referred to collectively as the “Restriction.” As of the Effective Time, the Restriction shall apply with respect to 100% of the Retention Amount. The Restriction shall lapse with respect to all or a portion of the Retention Amount, if at all, in accordance with this Section 3. The portion of the Retention Amount that is subject to the Restriction is referred to as the “Unvested Retention Amount,” and the portion of the Retention Amount that is no longer subject to the Restriction is referred to as the “Vested Retention Amount.”

          (b) Except as provided in Sections 3(c) and 3(d), Key Employee shall forfeit the entire Unvested Retention Amount, and all rights and interests of Key Employee in the Escrow Fund with respect thereto, immediately upon a Forfeiture Event.

          (c) If no Forfeiture Event or Acceleration Event shall have previously occurred, the Restriction shall lapse with respect to 100% of the Retention Amount on the second anniversary of the Effective Time.

          (d) If no Forfeiture Event or Acceleration Event shall have previously occurred, the Restriction shall lapse with respect to 100% of the Retention Amount upon the first to occur of (i) Key Employee’s death or Complete Disability, (ii) a Separation From Service by Key Employee for Good Reason, (iii) a Separation From Service of Key Employee effected by Company, Parent or any of their Affiliates without Cause, or (iv) a Change of Control (each, an “Acceleration Event”).

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     4. Escrow.

          (a) Parent and Key Employee each agree to enter into the Escrow Agreement at or before the Effective Time.

          (b) On the second anniversary of the Effective Time (or, if that day is not a Business Day, on the first Business Day thereafter), unless the Escrow Agent shall theretofore have received a written notice from Parent pursuant to Section 4(c) or 4(d) of this Agreement, the Escrow Agent shall pay 100% of the Retention Amount to Key Employee, without any further need for instruction from Parent, and Parent shall cease to have any further claims to, or rights or interests in, such portion of the Retention Amount so paid to Key Employee, effective upon such payment.

          (c) Upon any lapse of the Restriction pursuant to Section 3(d) of this Agreement, Parent shall deliver a written notice to the Escrow Agent, with a copy thereof to Key Employee, instructing the Escrow Agent to pay the Retention Amount to Key Employee (or, in the case of Key Employee’s death, to his estate) in accordance with the Escrow Agreement, and Parent shall immediately cease to have any further claims to, or rights or interests in, the Retention Amount.

          (d) Upon any forfeiture by Key Employee with respect to the Unvested Retention Amount as provided in Section 3(b), Parent shall deliver a written notice to the Escrow Agent, with a copy thereof to Key Employee, instructing the Escrow Agent to pay the Unvested Retention Amount to Parent in accordance with the Escrow Agreement, and Key Employee shall immediately cease to have any further claims to, or rights or interests in, the Unvested Retention Amount.

          (e) Neither party shall give any instructions to the Escrow Agent except as expressly provided in Sections 4(b), 4(c) and 4(d) (other than any joint instructions as to which both parties may agree in writing).

          (f) Neither the Retention Amount held in escrow nor any interest or right therein or part thereof shall be liable for the debts, contracts, or engagements of Key Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and without effect, ab initio; provided, however, that this Section 4(f) shall not prohibit any transfer of Key Employee’s rights and interests hereunder by will or the laws of descent and distribution.

     5. Notices. All notices, requests, demands, claims and other communications required or permitted hereunder shall be duly given only if made in writing and personally delivered, mailed by first class, certified or registered mail, postage prepaid, sent by a major national delivery service, or sent by telecopier or facsimile (if confirmation of successful transmission is obtained). Any such communications shall be effective (i) upon receipt, if personally delivered, (ii) on the fifth day following the date of mailing, postage prepaid, if

6

mailed, (iii) on the day of delivery if sent by major national delivery service, or (iv) at the time transmission to the recipient’s telecopier or facsimile machine is completed (as shown by such confirmation of transmission), if sent by telecopier or facsimile. Any such communication shall be addressed to the parties at the following addresses (or at such other address for a party as such party shall specify by like notice):

          (a) if to Parent or the Company:

Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: Denise Wheeler, Vice President of Legal Affairs
Fax: (858) 452-1222

          (b) if to Key Employee, as set forth on Key Employee’s signature page hereto.

     6. Survival of Terms. This Agreement shall apply to and bind Key Employee, Parent and the Company, and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

     7. Tax Matters. Key Employee has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by the Merger Agreement, this Agreement, and the Escrow Agreement and any receipt of funds and/or forfeiture hereunder and thereunder. Key Employee is relying solely on such advisors and not on any statements or representations of Parent, the Company or any of their agents. Key Employee understands that he or she (and not Parent) shall be responsible for his or her own tax liability that may arise as a result of the transactions contemplated by the Merger Agreement, this Agreement, and the Escrow Agreement and any receipt of funds hereunder and thereunder.

     8. Withholding. The Escrow Agent shall be instructed by Parent or the Company to withhold from any distributions of the Retention Amount pursuant to the Escrow Agreement any amounts required to be withheld from such distributions under applicable federal, state, local or foreign law, including without limitation any and all applicable withholding taxes.

     9. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts executed and to be performed entirely within that State.

     10. Amendments. This Agreement may not be amended or modified except by an instrument in writing signed by Parent and Key Employee.

     11. No Right to Continued Employment. Subject to the Employment Agreement, and notwithstanding anything to the contrary, the Company and Key Employee each have an absolute and unrestricted right to terminate Key Employee’s employment with the Company at any time for any reason whatsoever, with or without Cause, and nothing in this Agreement shall entitle Key Employee to any continued employment with the Company, or to any employment with Parent.

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     12. Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of 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 and legal substance of the transactions contemplated by this Agreement 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 a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.

     13. Entire Agreement; No Third-Party Beneficiaries. This Agreement, the Merger Agreement, the Escrow Agreement and the Employment Agreement constitute the entire agreement, and supersede all prior representations, warranties, agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. This Agreement does not confer upon any Person other than the parties any rights or remedies.

     14. Counterparts. This Agreement may be executed in one or more counterparts, all of which constitute a single agreement, and shall become effective when one or more counterparts has been signed by each of the parties and delivered to the other parties.

     15. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and therefore waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

     16. KEY EMPLOYEE REVIEW. KEY EMPLOYEE REPRESENTS THAT HE OR SHE HAS READ THIS AGREEMENT AND HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE PREPARATION OF THIS AGREEMENT AND IS FAMILIAR WITH ITS TERMS AND PROVISIONS.

     17. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to this Agreement shall be settled by final and binding arbitration in accordance with the arbitration procedures and the terms and conditions related thereto set forth in the Employment Agreement.

     18. Section 409A.

          (a) Payment of the Retention Amount is intended to be a short-term deferral within the meaning of Section 409A of the Code, and this Agreement shall be interpreted, construed and administered in a manner that satisfies such intention.

          (b) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge and agree that any payment to be made, or benefit provided, to Key Employee pursuant to this Agreement shall be delayed to the extent necessary for this Agreement and such payment or benefit to comply with Section 409A.

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     19. Successors.

          (a) Successors to the Company. In the event of any merger, consolidation, reorganization, statutory share exchange, conversion of the Company from a corporation to a limited liability company or other legal entity or other transaction affecting the Company, that results in the exchange or conversion of the common stock of the Company (other than the Merger) for or into equity securities of (a) the successor to the Company in such transaction (a “Company Successor”) or (b) any Person of which the Company or such successor is a wholly owned subsidiary after giving effect to such transaction (a “Company Successor Parent”), then (i) all references herein to the Company shall mean and refer to such Company Successor or Company Successor Parent, as applicable and (ii) such Company Successor or Company Successor Parent, as applicable, shall become a party to this Agreement, and be bound hereby, to the same extent as the Company, as if such Person were a signatory hereto (whether or not such Person signs a counterpart of this Agreement or enters into a joinder agreement or similar instrument with respect hereto).

          (b) Successors to Parent. In the event of any merger, consolidation, reorganization, statutory share exchange, conversion of Parent from a corporation to a limited liability company or other legal entity or other transaction affecting Parent, that results in the exchange or conversion of any class of common stock of Parent for or into equity securities of (a) the successor to Parent in such transaction (a “Parent Successor”) or (b) any Person of which Parent or such successor is a wholly owned subsidiary after giving effect to such transaction (a “Parent Successor Parent”), then, if (but only if) such transaction constitutes a Change of Control, all references in this Agreement to Parent shall thereafter mean and refer to such Parent Successor or Parent Successor Parent, as applicable.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, and intending to be legally hound hereby, the parties hereby execute and deliver this Agreement, on and as of the date first set forth above.

CYPRESS BIOSCIENCE, INC.
By:	/s/ Sabrina Martucci Johnson
	Name:	Sabrina Martucci Johnson
	Title:	EVP, COO and CFO
PROPRIUS, INC.
By:	/s/ Michael J. Walsh
	Name:	Michael J. Walsh
	Title:	President and CEO
[KEY EMPLOYEE]
Address:
Fax:

CONSENT OF SPOUSE

     I, __________________, spouse of ________________________ have read and approve the foregoing Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares of common stock of the Company, options to purchase shares of common stock of the Company, cash payments in exchange therefor or any portion of the Retention Amount under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.

Dated:	By:
	Name:

[SIGNATURE PAGE TO RETENTION AGREEMENT]

EX-99.1

Exhibit 99.1

Investor Relations Contacts:	Media Contact:
Michael R. Hufford, PhD, VP Corporate Development	David Pitts
Mary Gieson, Investor Relations	Partner
Cypress Bioscience, Inc.	Argot Partners
Tel: (858) 452-2323	Tel: (212) 600-1902
mgieson@cypressbio.com	david@argotpartners.com

CYPRESS BIOSCIENCE TO ACQUIRE PROPRIUS PHARMACEUTICALS

Acquisition Brings Together Proprietary, High-Value Personalized Medicine Laboratory Services and
Therapeutic Product Candidates

Cypress to Build Rheumatologist-Focused Sales Force to Promote Personalized Medicine Services and
Therapeutics — an Established Means of Building Strong Relationships with Specialists; Milnacipran
Promotion Supported by Commercial Partner

SAN DIEGO, CA, February 25, 2008 — Cypress Bioscience, Inc. (NASDAQ:CYPB), and Proprius Pharmaceuticals, Inc., a privately held, San Diego-based specialty pharmaceutical company, today announced that Cypress will acquire Proprius in a transaction that includes an upfront payment of $37.5 million in cash as well as an additional $37.5 million in potential milestone-related payments associated with the development of Proprius’ therapeutic candidates.

The acquisition brings together Cypress’ drug development expertise, commercial resources and lead pharmaceutical candidate, milnacipran, which is currently under U.S. Food & Drug Administration review for the treatment of fibromyalgia, and Proprius’ unique portfolio of proprietary, high-value personalized medicine laboratory services and therapeutic product candidates.

Proprius’ portfolio includes a number of diagnostic, prognostic and predictive technologies designed to provide clinically meaningful, actionable information to enhance physicians’ care of patients with rheumatoid arthritis (RA). The nearest-term commercial opportunities include an early RA prediction technology, which helps to determine the likelihood of developing RA in patients with Undifferentiated Arthritis, and a methotrexate (MTX) polyglutamates monitoring assay, which helps physicians to optimize MTX therapy by providing insights on an individual’s metabolism of MTX, which can vary greatly from patient to patient. The information afforded by these technologies is of particular importance in managing RA, a disease where early, aggressive treatment can minimize joint damage and disability, reducing the high clinical and economic costs associated with disease progression. Proprius’ early clinical-stage therapeutic candidates include a product to treat pain and a product to treat RA.

The proprietary portfolio of personalized medicine laboratory services will be marketed through a sales force that Cypress will build around the anticipated commercial launch of milnacipran. The sales force will focus on rheumatologists and other pain specialists. Forest Laboratories is responsible for reimbursing Cypress for the cost of the milnacipran detailing effort to these physicians.

“We believe that this combination will allow us to bring a unique offering of therapeutics and personalized medicine laboratory services to physicians, one that addresses important unmet medical needs in the treatment of both fibromyalgia and rheumatoid arthritis,” said Jay D. Kranzler, MD, PhD, Chairman and CEO of Cypress Bioscience. “What’s more, we believe that it affords us a unique strategic opportunity, one that will leverage our future sales force while enhancing its access to these specialists. Cypress is positioned to become a robust clinical and commercial organization with a distinct, meaningful and complementary product portfolio.”

“In other fields, like gastroenterology, offering diagnostic services in combination with therapeutic products is a proven means of establishing consultative partnerships with specialists and dramatically increases time with, and value to, physicians,” said Michael Walsh, Founder, President and CEO of Proprius Pharmaceuticals. “Our portfolio of proprietary, high-value clinical laboratory services is unique in rheumatology and, we believe, will become an important component of how rheumatologists manage their patients with rheumatoid arthritis. We are helping the field to take a step closer to the promise of personalized medicine.”

Following the close of the transaction, which is expected in March 2008, employees and operations of Proprius Pharmaceuticals will be integrated into Cypress Bioscience in San Diego, California, including Proprius’ Founder, President and CEO Michael Walsh, who will assume the role of Executive Vice President and Chief Commercial Officer upon closing of the transaction. Mr. Walsh was also the co-founder and former President, CEO, and Executive Chairman of Prometheus Laboratories, Inc.

Financial guidance

Financial information surrounding the acquisition will be disclosed in the Company’s first quarter Form 10-Q, which is scheduled to be filed on or around May 12, 2008. Per the Company’s un-audited financials, Cypress ended 2007 with approximately $182 million in cash — the upfront payment of $37.5 million was deducted from that amount. Oppenheimer & Co. acted as exclusive financial advisor to Cypress in conjunction with this transaction. Jefferies & Company, Inc. acted as exclusive financial advisor to Proprius.

Conference call information

Cypress Bioscience will hold a conference call at 10AM EST on Monday, February 25^th. Dr. Jay Kranzler, CEO and Chairman of the Board of Directors and Sabrina Johnson, Executive Vice President, COO and CFO of Cypress Bioscience, and Michael Walsh, Founder, President and CEO of Proprius Pharmaceuticals, will participate in the call.

Date:	Monday, February 25, 2008
Time:	10AM EST
Conference call numbers:
Toll free:	(866) 261-3330
International:	(703) 639-1224
AudioWebcast:

http://wcc.webeventservices.com/view/wl/r.htm?e=104915&s=1&k=43C942F5FA2E10337FA00D2A1EAD4054&cb=genesys

A replay of the conference call will be available for five days and can be accessed by dialing (888) 266-2081 or (703) 925-2533; Access code: 1206489.

About Cypress
Cypress Bioscience is committed to developing and commercializing pharmaceutical products and personalized medicine laboratory services that allow physicians to serve unmet medical needs. Cypress’ strategy involves evaluating various other potential strategic transactions, including the potential acquisition of products, product candidates, technologies and companies, and other alternatives.

For more information about Cypress, please visit Cypress’ website at www.cypressbio.com.

This press release, as well as Cypress’ SEC filings and website at http://www.cypressbio.com, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements related to the expected benefits of the acquisition to Cypress and Proprius and the expected competitive and commercial advantages of the combined company, the expected medical and commercial advantages and opportunities of Proprius’ technologies, the expected marketing strategy and its benefits for the combined company and the timing for completion of the merger and filing Cypress’ first quarter Form 10-Q, all of which are prospective. Actual results could vary materially from those described as a result of a number of factors, including the risk that Cypress and Proprius may not be able to complete the proposed acquisition, the risk that Proprius’ product candidates that appear promising in early research and clinical trials do not demonstrate safety and/or efficacy in later clinical trials, risks involving FDA approval and the timing of that approval for Cypress’ NDA filing for milnacipran, risks involved with Cypress’ ability to successfully build a sales force and

execute its marketing strategy, risks involved with the development and commercialization of Cypress’ and Proprius’ product candidates, and other risks and uncertainties described in Cypress’ most recent Annual Report on Form 10-K, most recent Quarterly Report on Form 10-Q and any subsequent SEC filings. You are urged to consider statements that include the words “may,” “will,” “would,” “could,” “should,” “believes,” “potential,” “expects,” “plans,” “anticipates,” “intends,” or the negative of those words or other comparable words to be uncertain and forward-looking. The statements in this press release speak only as the date hereof, and Cypress undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

About Proprius Pharmaceuticals, Inc.
Proprius Pharmaceuticals is a specialty pharmaceutical company that develops and markets personalized medicine solutions in rheumatology and autoimmune diseases. This novel combination of proprietary therapeutics and diagnostic services provides a strategic and differentiated approach to commercialization. Proprius is a privately-held and venture-backed organization, with financing provided by Fog City Fund, Atlas Venture, Forward Ventures, CDIB Bioscience, and Windamere Venture Partners, LLC.

About Milnacipran
Milnacipran is a unique dual-reuptake inhibitor, which preferentially blocks the reuptake of norepinephrine with higher potency than serotonin, two neurotransmitters known to play an essential role in regulating pain and mood. It has been approved for a non-pain condition in over 50 countries, with real-world commercial experience outside the U.S. for 10 years. Milnacipran is jointly being developed for fibromyalgia in the United States market by Forest and its licensor, Cypress Bioscience, Inc. Milnacipran was originally developed by and is sold outside of the U.S. by Pierre Fabre Medicament.

About Fibromyalgia
Fibromyalgia is a chronic and debilitating condition characterized by widespread pain and stiffness throughout the body, accompanied by severe fatigue, insomnia and mood symptoms. According to the American College of Rheumatology, fibromyalgia is estimated to affect over six million people in the United States. Fibromyalgia is most often diagnosed in the primary care setting and, in addition, is the second most commonly diagnosed condition in rheumatology clinics in the United States after osteoarthritis. Despite the high prevalence and severity of this syndrome, there are limited treatment options specifically approved for fibromyalgia in the United States or elsewhere, and the addressable patient population is not yet well established.

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