h

    EXHIBIT
      10.5

     

    

      VELCERA
        PHARMACEUTICAL, INC.

       

    

    RESTRICTED
      STOCK AGREEMENT

     

    This
      Restricted Stock Agreement (this
      “Agreement”)
      made
      effective as of June 1, 2006, is by and between Velcera Pharmaceuticals, Inc.,
      a
      Delaware corporation having a place of business at 201 Corporate Drive,
      Langhorne, Pennsylvania 19047-8007 (the “Company”),
      and
      David M. Petrick, (“Employee”).

     

     

    INTRODUCTION

     

    A.  In
      July
      2004, the Company issued Employee options to purchase an aggregate of 80,000
      shares of the Company’s common stock at an exercise price of $0.70 per share
      (the “Options”)
      pursuant to the Company’s 2003 Stock Option Plan (the “Stock
      Option Plan”).

    


    B.  Due
      to
      the tax implications of Section 409A of the Internal Revenue Code, the Company
      and Employee have agreed (i) to reprice the Options at $3.50 per share, which
      is
      the fair market value of the common stock per share as determined by the
      Company’s Board of Directors on the date of the repricing, pursuant to an
      Amendment to Stock Option Agreements dated of even date herewith by and between
      the Company and Employee, and (ii) that the Company will issue Employee 60,000
      shares of restricted common stock, subject to the terms and conditions set
      forth
      herein, under the Stock Option Plan.


     

    AGREEMENT

     

    Now,
      Therefore,
      it is
      agreed as follows:

     

    1.  Grant
      of Stock.
      Subject
      to the terms and provisions of this Agreement and the Stock Option Plan, the
      Company hereby grants to Employee 60,000 shares of Company common stock (such
      shares are referred to hereinafter as the “Shares”).
      Upon
      the execution of this Agreement, the Shares shall be registered on the books
      of
      the Company, and the Company shall issue a stock certificate evidencing such
      Shares (the “Stock
      Certificate”)
      in the
      name of Employee. Employee shall immediately thereafter deposit with the
      Company, together with a stock power endorsed in blank by Employee, the Stock
      Certificate to be held by the Company until such time as the restrictions set
      forth herein and under the Stock Option Plan have lapsed pursuant to paragraph
      4
      of this Agreement. The Stock Certificate shall bear a legend in substantially
      the following form:

     

    The
      transferability of this certificate and the shares of Common Stock represented
      by it are subject to the terms and conditions (including conditions of
      forfeiture) contained in the 2003 Stock Incentive Plan of Velcera
      Pharmaceuticals, Inc. (the “Company”), and an agreement entered into between the
      registered owner and the Company. A copy of the Plan and the agreement is on
      file in the office of the secretary of the Company.

    


    2.  Rights
      of Employee.
      Upon
      the execution of this Agreement and issuance of the Shares, Employee shall
      become a stockholder with respect to the Shares and shall have all of the rights
      of a stockholder with respect to all such Shares, including the right to vote
      such shares and to receive all dividends and other distributions paid with
      respect to such Shares; provided,
      however,
      that
      such Shares shall be subject to the restrictions set forth in paragraph
3
      of this
      Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.  Restrictions.
      Employee agrees that, in addition to the restrictions set forth in Section
      8.3
      of the Stock Option Plan, at all times prior to the vesting of the Shares as
      contemplated by paragraph 4
      hereof:

     

    (a)  Employee
      shall not sell, transfer, pledge, hypothecate or otherwise encumber the Shares;
      and

     

    (b)  If
      Employee’s employment with the Company is terminated for any reason whatsoever,
      or Employee violates the terms of any confidentiality agreement,
      non-solicitation covenant or covenant not to compete, however delineated, then,
      subject to paragraph 4
      hereof,
      Employee shall, for no consideration, forfeit and transfer to the Company all
      Shares that remain subject to the restrictions set forth in this paragraph
      3.

     

    4.  Lapse
      of Restrictions.
      The
      restrictions set forth in paragraph 3
      of this
      Agreement shall lapse upon the occurrence of any of the following: (i) the
      acquisition by any person, entity or group, within the meaning of Section 13(d)
      or 14(d) of the Securities Exchange Act of 1934, of beneficial ownership of
      more
      than fifty percent (50%) of the outstanding shares of the Company’s common
      stock; (ii) a merger, reorganization or consolidation whereby the stockholders
      of the Company immediately prior to such merger, reorganization or consolidation
      do not, immediately after such merger, reorganization or consolidation,
      collectively own more than fifty percent (50%) of the voting stock of the
      surviving entity; (iii) the liquidation or dissolution of the Company or the
      sale of all or substantially all of the assets of the Company, or (iv) one
      hundred eighty (180) days following the date upon which the Company’s common
      stock is tradable on a national securities exchange, the National Association
      of
      Securities Dealers, Inc. Automated Quotation System or the Over The Counter
      Bulletin Board.  

     

    Upon
      request of Employee at any time after the date that the restrictions set forth
      in paragraph 3
      of this
      Agreement have lapsed with respect to any Shares and such Shares have become
      vested, free and clear of all restrictions, except
      as
      provided in Section 10 of the Stock Option Plan, the Company shall remove any
      restrictive notations placed on the books of the Company and the Stock
      Certificate in connection with such restrictions.

     

    5.  Copy
      of Stock Option Plan.
      By the
      execution of this Agreement, Employee acknowledges receipt of a copy of the
      Stock Option Plan, the terms and conditions of which are hereby incorporated
      herein by reference and made a part hereof by reference as if set forth in
      full.

     

    6.  Administration.
      This
      Agreement shall at all times be subject to the terms and conditions of the
      Stock
      Option Plan. The Committee shall have the sole and complete discretion with
      respect to all matters reserved to it by the Stock Option Plan and decisions
      of
      the Committee with respect thereto and to this Agreement shall be final and
      binding upon Employee. In the event of any conflict between the terms and
      conditions of this Agreement and the Stock Option Plan, the provisions of the
      Stock Option Plan shall govern and control.

     

    7.  Continuation
      of Employment.
      This
      Agreement shall not confer upon Employee, and shall not be construed to confer
      upon Employee, any right to continue in the employ of the Company for any period
      of time, and shall not limit the rights of the Company in its sole discretion
      (absent any other agreements to the contrary), to terminate the employment
      of
      Employee at any time, with or without cause, for any reason or no reason, or
      to
      change Employee’s assignment or rate of compensation.

     

    8.  Withholding
      of Tax.
      To the
      extent that the receipt of the Stock or the lapse of any restrictions thereon
      results in income to Employee for federal or state income-tax purposes, Employee
      shall deliver to the Company at the time of such receipt or lapse, as the case
      may be, such amount of money or shares of unrestricted Stock as the Company
      may
      require to meet its withholding obligation under applicable tax laws or
      regulations, and, if Employee fails to do so, the Company is authorized to
      withhold from any cash or Stock remuneration then or thereafter payable to
      Employee any tax required to be withheld by reason of such resulting
      compensation income. The Employee may have shares of Stock withheld to satisfy
      the withholding tax obligation pursuant to an Election under Section 10.8(a)
      of
      the Stock Option Plan.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    9.  Section
      83(b) Election.
      Employee understands that he (and not the Company) shall be responsible for
      his
      own federal, state, local or foreign tax liability and any of his other tax
      consequences that may arise as a result of the transactions contemplated by
      this
      Agreement. Employee shall rely solely on the determinations of his tax advisors
      or his own determinations, and not on any statements or representations by
      the
      Company or any of its agents, with regard to all such tax matters. Employee
      understands that Section 83 of the Internal Revenue Code of 1986, as amended
      (the “Code”),
      taxes
      as ordinary income the difference between the amount paid for the Stock and
      the
      fair market value of the Stock as of the date any restrictions on the Stock
      lapse. In this context, “restriction” includes without limitation the vesting
      restrictions set forth in paragraph 3
      hereof.
      In the event the Company has registered any of its shares under the Securities
      Exchange Act of 1934, “restriction” with respect to officers, directors and 10%
      stockholders also means the period during which such officer, director and
      10%
      stockholders could be subject to suit under Section 16(b) of the Securities
      Exchange Act of 1934 in connection with a sale. Employee understands that
      Employee may elect to be taxed at the time the shares of Stock are received
      rather than when and as the restrictions on the Stock lapse or expire by filing
      an election under Section 83(b) of the Code with the Internal Revenue Service
      within 30 days from the date of the acquisition. In the event Employee files
      an
      election under Section 83(b) of the Code, such election shall contain all
      information required under the applicable treasury regulation(s) and Employee
      shall deliver a copy of such election to the Company contemporaneously with
      filing such election with the Internal Revenue Service. Employee
      acknowledges that it is Employee’s sole responsibility and not the Company’s to
      file timely the election under Section 83(b) of the Code, even if Employee
      requests that the Company or its representatives make this filing on Employee’s
      behalf.

     

    10.  Governing
      Law.
      This
      Agreement, in its interpretation and effect, shall be governed by the laws
      of
      the State of Delaware applicable to contracts executed and to be performed
      therein.

     

    11.  Amendments.
      This
      Agreement may be amended only by a written agreement executed by the Company
      and
      Employee.

     

    12.  Entire
      Agreement.
      This
      Agreement embodies the entire agreement made between the parties hereto with
      respect to matters covered herein and shall not be modified except in accordance
      with paragraph 11
      of this
      Agreement.

     

    13. Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original, but all of which shall constitute but one and the same
      agreement. Signatures hereto may be delivered by facsimile or other means of
      electronic transmission, and signatures so delivered shall be valid and binding
      to the same extent as original signatures.

     

    In
      Witness Whereof,
      the
      parties have executed this Agreement to be effective as of the date first set
      forth above.

     

    
      	VELCERA
              PHARMACEUTICALS, INC.: 	 	 	EMPLOYEE:
	 	 	 	 
	 	 	 	 
	/S/ DENNIS
              STEADMAN	 	 	/S/ DAVID
              M.
              PETRICK
	
              

              DENNIS
                STEADMAN,
                CHIEF
                EXECUTIVE
                OFFICER

            	 	 	
              

              DAVID
                M.
                PETRICK

            


    

     

    
      
        
        

      

      
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