Exhibit 10.5

 

TRACON PHARMACEUTICALS, INC.

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

For

 

CHARLES P. THEUER

This Amended and Restated Employment Agreement (the “Agreement”) is made and
entered into effective as of May 8, 2015 (the “Effective Date”), by and between
TRACON Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and
Charles P. Theuer (the “Executive”).  The Company and Executive are hereinafter
collectively referred to as the “Parties”, and individually referred to as a
“Party”.  From and following the Effective Date, this Agreement shall replace
and supersede that certain Amended and Restated Employment Agreement between
Executive and Company entered into as of May 7, 2014, as amended on or about
September 17, 2014 (together, the “Prior Agreement”).

Recitals

Whereas, Executive and the Company are currently parties to the Prior Agreement
that is superseded and replaced in its entirety by this Agreement; and

Whereas, the Company desires to continue to employ Executive to provide personal
services to the Company in that capacity, and wishes to provide Executive with
certain compensation and benefits in return for his services, and Executive
wishes to be so employed and to receive such benefits; and

Whereas, the Company and Executive wish to enter into this Agreement to define
their mutual rights and duties with respect to Executive’s compensation and
benefits;

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

Agreement

Employment by the Company.

Position.  Executive shall serve as the Company’s President and Chief Executive
Officer.  During the term of Executive’s employment with the Company, Executive
will devote Executive’s best efforts and substantially all of Executive’s
business time and attention to the business of the Company, except for approved
vacation periods and reasonable periods of illness or other incapacities
permitted by the Company’s general employment policies. 

Duties and Location.  Executive shall report to the Company’s Board of Directors
(the “Board”), and shall have such duties and responsibilities as are customary
for the positions of President and Chief Executive Officer.  Executive’s primary
office location shall be the

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Company’s San Diego, California office.  The Company reserves the right to
reasonably require Executive to perform Executive’s duties at places other than
Executive’s primary office location from time to time, and to require reasonable
business travel.

Policies and Procedures.  The employment relationship between the Parties shall
be governed by the general employment policies and practices of the Company,
except that when the terms of this Agreement differ from or are in conflict with
the Company’s general employment policies or practices, this Agreement shall
control.

Board Seat.  The Company shall use its best efforts to cause Executive to be
elected as a member of its Board throughout his employment as Chief Executive
Officer of the Company (“CEO Term”), and shall include him in the management
slate for election as a director at every stockholders’ meeting during the CEO
Term at which his term as a director would otherwise expire.  Executive agrees
to accept election, and to serve during the CEO Term, as a director of the
Company, without any compensation therefore other than as specified in this
Agreement.

Compensation.

Salary.  Executive shall receive a base salary at the rate of Four Hundred
Seventy Thousand Dollars ($470,000) per year (the “Base Salary”), retroactive to
January 1, 2015, subject to standard payroll deductions and withholdings and
payable in accordance with the Company’s regular payroll schedule. 

Bonus.    Executive will be eligible for an annual discretionary bonus of up to
fifty-percent (50%) of Executive’s Base Salary (the “Annual Bonus”).  Whether
Executive receives an Annual Bonus for any given year, and the amount of any
such Annual Bonus, will be determined by the Board (or the Compensation
Committee thereof) in its sole discretion based upon the Company’s and
Executive’s achievement of objectives and milestones to be determined on an
annual basis by the Board (or the Compensation Committee thereof).  Executive
must remain an active employee through the end of any given calendar year in
order to earn an Annual Bonus for that year and any such bonus will be paid
prior to March 15 of the year following the year in which Executive’s right to
such amount became vested.  Executive will not be eligible for, and will not
earn, any Annual Bonus (including a prorated bonus) if Executive’s employment
terminates for any reason before the end of the calendar year.  

Standard Company Benefits. Executive shall be entitled to participate in all
employee benefit programs for which Executive is eligible under the terms and
conditions of the benefit plans that may be in effect from time to time and
provided by the Company to its employees.  The Company reserves the right to
cancel or change the benefit plans or programs it offers to its employees at any
time.  

Vacation.  Executive shall be entitled to accrue vacation at the rate of four
(4) weeks per year, in accordance with the terms of the Company’s vacation
policy and practices (including but not limited to maximum vacation accrual
caps). 

Expenses.  The Company will reimburse Executive for reasonable travel,
entertainment or other expenses incurred by Executive in furtherance or in
connection with the performance of

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Executive’s duties hereunder, in accordance with the Company’s expense
reimbursement policy as in effect from time to time.

Equity. 

Prior Awards.  Any stock, stock options, or other equity awards that Executive
has already been granted by the Company shall continue to be governed in all
respects by the terms of the applicable grant agreements, grant notices, and
plan documents, except as otherwise provided in this agreement. 

Stock Options.  On March 26, 2015, the Company granted Executive 147,213 stock
options with an exercise price of $14.34 per share, which was the fair market
value per share on the date of grant.  The options will be incentive stock
options to the maximum extent permitted by applicable tax laws.  Except as
otherwise provided in this Agreement, the options will vest in equal monthly
installments over four years following the date of grant subject to the
Executive’s continued employment with the Company on the date of each
installment, and will be on other terms and conditions set forth in the stock
option award agreement evidencing the grant, which the Executive must execute as
a condition of grant, and the Company’s 2015 Equity Incentive Plan.

Additional Awards.  The Board (or the Compensation Committee thereof) may grant
additional stock, stock options, or other equity awards to Executive in its sole
discretion.

Termination of Employment; Severance.

At-Will Employment.  Executive’s employment relationship is at-will.  Either
Executive or the Company may terminate the employment relationship at any time,
with or without Cause or advance notice.  

Termination Without Cause; Resignation for Good Reason.  In the event
Executive’s employment with the Company is terminated by the Company without
Cause (other than due to Executive’s death or Disability), or Executive resigns
for Good Reason, and provided that Executive satisfies the Release Requirement
in Section 8 below and remains in compliance with Executive’s continuing
obligations to the Company, the Company shall provide Executive the following
“Termination Benefits”:  

The Company shall pay Executive the equivalent of twelve (12) months of
Executive’s base salary in effect as of the date of Executive’s employment
termination, subject to standard payroll deductions and withholdings (the
“Termination Severance”).  Subject to Section 9 below, the Termination Severance
will be paid to Executive in substantially equal installments on the Company’s
normal payroll periods during the twelve (12) month period following Executive’s
termination date, provided, that, any payments scheduled to be paid before the
Effective Date of the Release and Waiver (as defined in Section 8 below), will
be delayed and paid without interest no sooner than the first payroll period
following the Effective Date, and all other payments of the Termination
Severance shall be made on the scheduled payment dates.     

Provided that Executive timely elects continued coverage under COBRA, the
Company shall pay Executive’s COBRA premiums to continue Executive’s coverage
(including coverage for eligible dependents, if applicable) (“COBRA Premiums”)
through the

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period (the “COBRA Premium Period”) starting on the Executive’s termination date
and ending on the earliest to occur of: (a) twelve (12) months following
Executive’s employment termination date; (b) the date Executive becomes eligible
for group health insurance coverage through a new employer; or (c) the date
Executive ceases to be eligible for COBRA continuation coverage for any reason,
including plan termination. In the event Executive becomes covered under another
employer's group health plan or otherwise ceases to be eligible for COBRA during
the COBRA Premium Period, Executive must immediately notify the Company of such
event.  Notwithstanding the foregoing, if the Company determines, in its sole
discretion, that it cannot pay the COBRA Premiums without potentially incurring
financial costs or penalties under applicable law (including, without
limitation, Section 2716 of the Public Health Service Act), the Company instead
shall pay Executive, on the first day of each calendar month following the
termination date, a fully taxable cash payment equal to the applicable COBRA
premiums for that month (including premiums for Executive and Executive’s
eligible dependents who have elected and remain enrolled in such COBRA
coverage), subject to applicable tax withholdings (such amount, the “Special
Cash Payment”), for the remainder of the COBRA Premium Period.  Executive may,
but is not obligated to, use such Special Cash Payments toward the cost of COBRA
premiums.

In addition to the Termination Severance and COBRA Premiums, Executive’s
outstanding equity awards that are subject to vesting solely upon the passage of
time and Executive’s continued employment with the Company shall be accelerated
such that 100% of such outstanding equity awards shall be deemed immediately
vested and exercisable as of Executive’s employment termination date.  

Termination Upon Death.  In the event Executive’s employment with the Company is
terminated due to Executive’s death, and provided that Executive’s estate
satisfies the Release Requirement in Section 8 below, the Company shall provide
Executive’s estate with the following “Death Benefits”:

The Company shall pay Executive’s estate the equivalent of twelve (12) months of
Executive’s base salary in effect as of the date of Executive’s death, subject
to standard payroll deductions and withholdings (the “Death
Severance”).  Subject to Section 9 below, the Death  Severance will be paid to
Executive’s estate in substantially equal installments on the Company’s normal
payroll periods during the twelve (12) month period following Executive’s death,
provided, that, any payments scheduled to be paid before the Effective Date of
the Release and Waiver (as defined in Section 8 below), will be delayed and paid
without interest no sooner than the first payroll period following the Effective
Date, and all other payments of the Death Severance shall be made on the
scheduled payment dates.

In addition to the Death Severance, Executive’s outstanding equity awards that
are subject to vesting solely upon the passage of time and Executive’s continued
employment with the Company shall accelerate vesting in accordance with their
applicable schedules as if Executive had remained in employment for an
additional six (6) months as of his employment termination date.

Termination Upon Disability.    In the event Executive’s employment with the
Company is terminated due to Executive’s Disability, and provided that Executive
satisfies the Release Requirement in Section 8 below and remains in compliance
with Executive’s continuing

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obligations to the Company, Executive’s outstanding equity awards that are
subject to vesting solely upon the passage of time and Executive’s continued
employment with the Company shall accelerate vesting in accordance with their
applicable schedules as if Executive had remained in employment for an
additional six (6) months as of his employment termination date (the “Disability
Benefits”).

Termination for Cause; Resignation Without Good Reason.  In the event that the
Executive terminates his employment for any reason other than Good Reason or in
the event that Company terminates Executive for Cause no further payments shall
be due under this Agreement, except that the Executive shall be entitled to any
amounts earned, accrued or owing but not yet paid under Section 2 above, any
benefits accrued or earned under the Company’s benefit plans and programs or to
which Executive is otherwise entitled under applicable law, and any outstanding
equity awards vested as of the termination date, which awards must be exercised
within 90 days of the termination date or the expiration of such equity award,
whichever occurs first.

Release Requirement.  To be eligible for the Termination Benefits, Death
Benefits or Disability Benefits pursuant to Section 7 above, Executive (or his
estate, if applicable) must satisfy the following release requirement (the
“Release Requirement”): return to the Company a signed and dated general release
of all known and unknown claims in a termination agreement acceptable to the
Company (the “Release and Waiver”) within the applicable deadline set forth
therein, but in no event later than forty-five (45) days following Executive’s
employment termination date, and permit the Release and Waiver to become
effective and irrevocable in accordance with its terms (such latest permitted
effective date of the Release and Waiver is the “Effective Date” of the Release
and Waiver).  No Termination Benefits, Death Benefits or Disability Benefits
will be provided prior to the Effective Date of the Release and Waiver. 

Section 409A.   It is intended that all of the severance benefits and other
payments payable under this Agreement satisfy, to the greatest extent possible,
the exemptions from the application of Code Section 409A provided under Treasury
Regulations 1.409A‑1(b)(4) and 1.409A‑1(b)(5), and this Agreement will be
construed to the greatest extent possible as consistent with those provisions,
and to the extent not so exempt, this Agreement (and any definitions hereunder)
will be construed in a manner that complies with Section 409A.  For purposes of
Code Section 409A (including, without limitation, for purposes of Treasury
Regulation Section 1.409A‑2(b)(2)(iii)), Executive’s right to receive any
installment payments under this Agreement (whether severance payments,
reimbursements or otherwise) shall be treated as a right to receive a series of
separate payments and, accordingly, each installment payment hereunder shall at
all times be considered a separate and distinct payment.  Notwithstanding any
provision to the contrary in this Agreement, if Executive is deemed by the
Company at the time of Executive’s Separation from Service (as defined under
Treasury Regulation Section 1.409A-1(h)) to be a “specified employee” for
purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon
Separation from Service set forth herein and/or under any other agreement with
the Company are deemed to be “deferred compensation”, then, solely to the extent
necessary to avoid adverse personal tax consequences under Section 409A such
payments shall not be provided to Executive prior to the earliest of (i) the
expiration of the six-month period measured from the date of Executive’s
Separation from Service with the Company, (ii) the date of Executive’s death or
(iii) such earlier date as permitted under Section 409A without the imposition
of adverse taxation.  Upon the first

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business day following the expiration of such applicable delay period, all
payments deferred pursuant to this Section 9 shall be paid in a lump sum to
Executive, and any remaining payments due shall be paid as otherwise provided
herein or in the applicable agreement. No interest shall be due on any amounts
so deferred.

10.Definitions.    

10.1Cause.    For purposes of this Agreement, “Cause” for termination will mean:
(i) conviction of the Executive of any felony or any crime involving moral
turpitude; (ii) Executive’s failure or refusal to follow reasonable and lawful
instructions of the Board or reasonable and lawful policies, standards and
regulations of the Company; (iii) Executive’s failure or refusal to faithfully
and diligently perform the usual, customary duties of his employment with the
Company; (iv) unprofessional, unethical, immoral or fraudulent conduct by
Executive; (v) conduct by Executive that materially discredits the Company or is
materially detrimental to the reputation, character and standing of the Company
or (vi) Executive’s material breach of any written agreement with the Company
(including but not limited to this Agreement or his Confidentiality Agreement
(as defined in Section 11.1 below)).  An event described in (ii) - (vi) above
shall not be treated as “Cause” until after Executive has been given written
notice of such event, failure or conduct and Executive fails to cure such event,
failure, conduct or breach, if curable, within fifteen (15) days from such
written notice. 

10.2Disability.  For purposes of this Agreement, “Disability” shall mean
Executive’s inability for medical reasons to perform the essential duties of
Executive’s position for either ninety (90) consecutive calendar days or one
hundred twenty (120) business days in a twelve month period by reason of any
medically determined physical or mental impairment as determined by a medical
doctor selected by written agreement of the Company and Executive upon the
request of either party by notice to the other.

10.3Good Reason.  For purposes of this Agreement, Executive shall have “Good
Reason” for resignation from employment with the Company if any of the following
actions are taken by the Company without Executive’s prior written consent:

(a)  any material breach of this Agreement by the Company;

(b)  a material reduction in Executive’s base salary, which the parties agree is
a reduction of at least 10% of Executive’s base salary (unless pursuant to a
salary reduction program applicable generally to the Company’s similarly
situated employees);

(c) a material reduction in Executive’s duties (including responsibilities
and/or authorities), provided, however, that a change in job position (including
a change in title) shall not be deemed a “material reduction” in and of itself
unless Executive’s new duties are materially reduced from the prior duties; or

(d) relocation of Executive’s principal place of employment to a place that
increases Executive’s one-way commute by more than thirty-five (35) miles as
compared to Executive’s then-current principal place of employment immediately
prior to such relocation;

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provided, however that, such termination by the Executive shall only be deemed
for Good Reason pursuant to the foregoing definition if (i) the Company is given
written notice from the Executive within thirty (60) days following the first
occurrence of the condition that he considers to constitute Good Reason
describing the condition and the Company fails to satisfactorily remedy such
condition within thirty (30) days following such written notice, and (ii) the
Executive terminates employment within thirty (60) days following the end of the
period within which the Company was entitled to remedy the condition
constituting Good Reason but failed to do.

11.Proprietary Information Obligations.

11.1Confidential Information Agreement.  As a condition of continued employment,
Executive acknowledges and reaffirms his obligations to the Company under the
Employee Proprietary Information and Inventions Agreement he executed on or
about September 17, 2014 (the “Confidentiality Agreement”).

11.2Third-Party Agreements and Information.  Executive represents and warrants
that Executive’s employment by the Company does not conflict with any prior
employment or consulting agreement or other agreement with any third party, and
that Executive will perform Executive’s duties to the Company without violating
any such agreement.  Executive represents and warrants that Executive does not
possess confidential information arising out of prior employment, consulting, or
other third party relationships, that would be used in connection with
Executive’s employment by the Company, except as expressly authorized by that
third party.  During Executive’s employment by the Company, Executive will use
in the performance of Executive’s duties only information which is generally
known and used by persons with training and experience comparable to Executive’s
own, common knowledge in the industry, otherwise legally in the public domain,
or obtained or developed by the Company or by Executive in the course of
Executive’s work for the Company. 

12.Outside Activities During Employment.

12.1Non-Company Business.  Except with the prior written consent of the Board,
Executive will not during the term of Executive’s employment with the Company
undertake or engage in any other employment, occupation or business enterprise,
other than ones in which Executive is a passive investor.  Executive may engage
in civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of Executive’s duties hereunder. 

12.2No Adverse Interests.  Executive agrees not to acquire, assume or
participate in, directly or indirectly, any position, investment or interest
known to be adverse or antagonistic to the Company, its business or prospects,
financial or otherwise.

13.Legal Fees.  The Company agrees to reimburse Executive for legal fees he
incurs in connection with the negotiation and review of this Agreement, up to a
maximum of $5,000.  Such reimbursement is subject to Executive’s provision of
documentation of such legal fees no later than June 1, 2015 and such
reimbursement payment shall be made to Executive as soon as practicable
following its receipt of such documentation, but in no event later than December
31, 2015.

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14.Dispute Resolution.    To ensure the rapid and economical resolution of
disputes that may arise in connection with Executive’s employment and services
for the Company, Executive and the Company agree that any and all disputes,
claims, or causes of action, in law or equity, including but not limited to
statutory claims, arising from or relating to the enforcement, breach,
performance, or interpretation of this Agreement, Executive’s employment with
and services for the Company, or the termination of Executive’s employment with
and services for the Company, will be resolved pursuant to the Federal
Arbitration Act, 9 U.S.C. §§1-16, and to the fullest extent permitted by law, by
final, binding and confidential arbitration conducted in San Diego, California
(or such other location as mutually agreed by the parties) by JAMS, Inc.
(“JAMS”) or its successors by a single arbitrator.  Both Executive and the
Company acknowledge that by agreeing to this arbitration procedure, they each
waive the right to resolve any such dispute through a trial by jury or judge or
administrative proceeding.  Any such arbitration proceeding will be governed by
JAMS’ then applicable rules and procedures for employment disputes, which can be
found at http://www.jamsadr.com/rules-clauses/ and which will be provided to
Executive upon request.  In any such proceeding, 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.  Executive and the Company each shall
be entitled to all rights and remedies that either would be entitled to pursue
in a court of law.  Nothing in this Agreement is intended to prevent either the
Company or Executive from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration pursuant to
applicable law.  The Company shall pay all filing fees in excess of those that
would be required if the dispute were decided in a court of law, and shall pay
the arbitrator’s fees and any other fees or costs unique to arbitration.  Any
awards or orders in such arbitrations may be entered and enforced as judgments
in the federal and state courts of any competent jurisdiction.

15.General Provisions.

15.1Notices.  Any notices provided must be in writing and will be deemed
effective upon the earlier of personal delivery (including personal delivery by
fax) or the next day after sending by overnight carrier, to the Company at its
primary office location and to Executive at the address as listed on the Company
payroll.

15.2Severability.  Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction to the extent possible in
keeping with the intent of the parties.

15.3Waiver.  Any waiver of any breach of any provisions of this Agreement must
be in writing to be effective, and it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.

15.4Complete Agreement.  This Agreement, together with the Confidentiality
Agreement, constitutes the entire agreement between Executive and the Company
with regard to

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this subject matter and is the complete, final, and exclusive embodiment of the
Parties’ agreement with regard to this subject matter.  This Agreement is
entered into without reliance on any promise or representation, written or oral,
other than those expressly contained herein, and it supersedes any other such
promises, warranties or representations (including the Prior Agreement).  It
cannot be modified or amended except in a writing signed by a duly authorized
officer of the Company.

15.5Counterparts.  This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.

15.6Headings.  The headings of the paragraphs hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.

15.7Successors and Assigns.  This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of his duties hereunder and he may not assign any of his
rights hereunder without the written consent of the Company, which shall not be
withheld unreasonably.

15.8Tax Withholding and Indemnification.All payments and awards contemplated or
made pursuant to this Agreement will be subject to withholdings of applicable
taxes in compliance with all relevant laws and regulations of all appropriate
government authorities.  Executive acknowledges and agrees that the Company has
neither made any assurances nor any guarantees concerning the tax treatment of
any payments or awards contemplated by or made pursuant to this
Agreement.  Executive has had the opportunity to retain a tax and financial
advisor and fully understands the tax and economic consequences of all payments
and awards made pursuant to the Agreement.

15.9Choice of Law.  All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the laws of the State of
California. 

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In Witness Whereof, the Parties have executed this Agreement on the day and year
first written above.

 

 

 

 

 

TRACON Pharmaceuticals, Inc.

 

 

By:

/s/ Patricia L. Bitar

 

Patricia L. Bitar

 

Chief Financial Officer

 

 

Executive

/s/ Charles P. Theuer

Charles P. Theuer

 

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