Document:

exv10w5

 

Exhibit 10.5

Amended and Restated Employment Agreement

April 21, 2005

Thomas G. David

Dear Tom:

This Amended and Restated Employment Agreement (this “Agreement”), on its Effective Date (as
defined below), amends, restates and supercedes your prior Letter of Employment dated March 9,
2000, as amended December 2, 2002, between Avalon Pharmaceuticals, Inc., formerly Therapeutic
Genomics, Inc. (the “Company”), and you (the “Prior Letter Agreement”). This Agreement shall be
effective and shall supercede the Prior Letter Agreement concurrently with the effective date of
the first registration statement filed by the Company to register shares of its common stock for
sale to the public through one or more underwriters (the “Effective Date”). Notwithstanding the
foregoing, this Agreement shall not become effective, shall be deemed null and void and shall not
supercede the Prior Letter Agreement if (i) the Effective Date does not occur prior to January 1,
2006 or (ii) your employment is terminated by the Company or by you for any reason prior to the
Effective Date. If this Agreement does not become effective, the Prior Letter Agreement shall
remain in full force and effect in accordance with its terms. The terms of your employment are as
follows:

	 	 	 
	Job Title:

	 	General Counsel and Director of Operations
	 
	 	 
	Reporting to:

	 	Kenneth C. Carter
	 
	 	 
	Initial Starting Salary:

	 	$135,000.00 per annum
	 
	 	 
	Starting Date:

	 	Sometime before March 27, 2000
	 
	 	 
	Starting Bonus:

	 	You will be paid a one time starting bonus of
$30,000 within thirty (30) days after your
start date.
	 
	 	 
	Equity:

	 	Subject to the approval of the Compensation
Committee of the Company’s Board of Directors,
the Company will grant you options for 70,000
shares of Avalon Pharmaceuticals, Inc. Common
Stock under the Company’s Stock Option Plan.
The Compensation Committee shall take action
(to approve or disapprove the aforementioned
grant) on or before April 15, 2000; any failure
to take action by April 15, 2000 shall be
treated by the parties as approval by the
Compensation

 

 

	 	 	 
	

	 	Committee. David shall be
responsible to prepare all necessary
documentation required by law in order for the
Compensation Committee to accomplish this act
on a timely basis. These incentive stock
options will vest quarterly over a five (5)
year period at the same per share price as the
Company shall make available to other senior
managers. The purchase price is expected to be
published by addenda to this agreement no later
than April 15, 2000. These shares are separate
from any Founder’s shares that you have
received or shall receive from the Company.
	 
	 	 
	

	 	Review and Bonus: You will be eligible for an
annual bonus that targets 35% of your base
salary and shall be based on goals set by the
CEO and the Board of Directors. You will also
be eligible for additional awards and bonuses
as deemed appropriate by the Board of
Directors.
	 
	 	 
	

	 	On or about December 31, 2000, that portion of
compensation associated with each completed
goal shall be awarded. Compensation associated
with goals that are completed after December
31, 2000 shall be awarded at the time of
completion. Upon completion of Goal 3 in
Exhibit A of this offer letter, your annual
salary will be increased by 20% over your
current salary at that time.
	 
	 	 
	Benefits:

	 	The Company provides a comprehensive benefits
program, which includes standard medical and
dental benefits, long and short term disability
coverage, a 401(K) plan, and a flexible
benefits plan. These programs will be provided
in accordance with the terms and conditions set
forth in each plan, and are subject to change
at the Company’s discretion.
	 
	 	 
	Vacation:

	 	Upon completion of the Company’s vacation
policy, you will be awarded vacation days
according to your position and length of
employment with the Company.
	 
	 	 
	Conflict:

	 	You hereby acknowledge that you are not a party
to any agreement that in any way prohibits or
imposes any restrictions on your employment
with the Company, and your acceptance hereof
will not breach any agreements to which you are
a party.
	 
	 	 
	Employment Requirements

And Period:

	 	If you accept this position, you will be an
employee at will, meaning you are not obligated
to remain employed at the Company for any
specific period of time. Likewise, the

 

 

	 	 	 
	

	 	Company
is not obligated to employ you for any specific
period. However, if you accept this position
you will be bound by the terms and conditions
of this agreement and the Avalon
Pharmaceuticals, Inc. Confidentiality,
Assignment of Inventions and Non-Competition
Agreement incorporated herein by this reference
and attached as Exhibit B.
	 
	 	 
	Termination:

	 	Upon termination for any reason, the Company
shall pay you within two weeks of such
termination, your current base salary earned
through the termination date, plus accrued
vacation, if any, and other benefits or
payments, if any, to which you are entitled as
provided in accordance with the terms and
conditions of such benefit plan. In the event
you are terminated by the company without
“Cause” (as herein defined), or if you
terminate your employment with the Company for
“Good Reason” (as hereinafter defined), the
Company shall immediately vest one half (1/2)
of any shares granted to you under the
Company’s Stock Option Plan that has not vested
as of the date of your termination, continue to
pay you your bi-weekly rate in effect at the
time of termination for a period of one year
(“Severance”); provide you with outplacement
services; provide and pay the Company’s portion
of your health insurance and life insurance for
a period of one year following such
termination; and, at the discretion of the
Compensation Committee as may be approved by
the Board, pay you a bonus payable in bi-weekly
installments commencing in the month following
the end of the calendar year of the year of
your termination, based upon the bonus it might
have paid to you, if any, at the conclusion of
the calendar year of your termination, prorated
to the date of your termination, and adjusted
to reflect whether goals set by the CEO and the
Board of Directors were satisfied. You shall
not be required to mitigate damages by seeking
employment elsewhere. If you are terminated
with Cause, the Company shall pay you only your
current base salary earned through the
termination date, plus accrued vacation, if
any, to which you are entitled as provided in
accordance with the terms and conditions of
such benefit plan.
	 
	 	 
	

	 	“Cause” shall include (i) your conviction of a
felony, either in connection with the
performance of your obligations to the Company
or otherwise, which adversely affects your
ability to perform such obligations or
materially adversely affects the business
activities, reputation, goodwill or image of
the Company, (ii) your willful disloyalty,
deliberate dishonesty,

 

 

	 	 	 
	

	 	breach of fiduciary duty
to the company (iii) your breach of the terms
of this Agreement, or your failure or refusal
to use your best efforts to carry out any
material tasks that do not violate any other
term of this agreement, provided such tasks are
assigned to you by the Company in accordance
with the terms hereof, which breach or failure
continues for a period of more than thirty (30)
days after your receipt of written notice
thereof from the Company, (iv) the commission
by you of any act of fraud, embezzlement or
deliberate disregard of a rule or policy of the
Company known to you or contained in a policy
and procedure manual provided to you which
results in material loss, damage or injury to
the Company, or (v) the material breach by you
of any of the material provisions of the
Confidentiality Assignment of Inventions and
Non-Competition Agreement.
	 
	 	 
	

	 	Termination of your employment by you shall
constitute termination for “Good Reason” if
such termination occurs (a) within eighteen
months of a “Change in Control” (as hereinafter
defined), (b) within three months of a material
diminution in your responsibilities as General
Counsel and Director of Operations (provided
that such diminution is not in connection with
the termination of your employment for Cause),
(c) within three months of no longer reporting
to Kenneth C. Carter; (d) within three months
of your principal work location changing to be
more than 50 miles from your current residence;
or (e) in the event you should die while an
employee of the Company. The Company shall
notify you, within 10 days of receipt of your
notice of intent to terminate your employment
for Good Reason, if the Company disagrees with
your intent to terminate pursuant to this
paragraph.
	 
	 	 
	

	 	A “Change in Control” shall be deemed to have
occurred if either: (i) any “person”
(including, without limitation, any individual,
sole proprietorship, partnership, trust,
corporation, association, joint venture, or
other entity, whether or not incorporated), or
“group” of persons (as such terms are used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”)), becomes, after the date hereof, the
“beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or
indirectly, of securities of the Company
representing fifty percent (50%) or more of the
combined voting power of the Company’s then
outstanding securities; (ii) during any two (2)
year period, individuals who constitute the
Board of Directors at the beginning of such

 

 

	 	 	 
	

	 	period, together with any new directors elected
or appointed during the period whose election
or appointment resulted from a vacancy on the
Board of Directors caused by the retirement,
death, or disability of a director and whose
election or appointment was approved by a vote
of at least a majority of the directors then
still in office who were directors at the
beginning of the period, cease for any reason
to constitute a majority of the Board of
Directors; (iii) the Company sells, assigns,
conveys, transfers, leases or otherwise
disposes of all or substantially all of its
assets to any person; (iv) the Company
consolidates with, or merges with or into
another entity, or any entity consolidates
with, or merges with or into, the Company (a
“Merger”), in which the owners of outstanding
voting stock of the Company immediately prior
to such Merger do not represent at least a
majority of the voting power in the surviving
entity after the Merger; or (v) the
stockholders of the Company approve a plan of
liquidation or dissolution.
	 
	 	 
	

	 	Upon termination without Cause, the Company
will continue coverage of you under directors
and officers liability coverage, if any, for a
period of 24 months.
	 
	 	 
	Arbitration:

	 	Any controversy or claim arising out of or
relating to this Agreement only (and
specifically excluding the Confidentiality
Agreement), or a breach thereof, shall be
settled by arbitration, held within thirty (30)
days of a request by either party hereto, in
accordance with the Commercial Rules of the
American Arbitration Association in effect at
the time such arbitration is instituted. The
arbitration shall be conducted by a single
arbitrator appointed by the American
Arbitration Association as soon as practicable
following the commencing of such arbitration,
provided that, at the request of the Company or
David, the arbitration will be conducted by a
panel of three arbitrators, similarly
appointed. Unless the parties to the
arbitration shall otherwise agree to a
different place of arbitration, the place of
arbitration shall be Montgomery County,
Maryland. The arbitration award shall be final
and binding upon the parties thereto and may be
entered in any court having jurisdiction. The
cost of the arbitration, excluding costs of
counsel retained by either of the parties, (i)
shall be shared equally by the parties hereto
so long as the arbitration is conducted by a
single arbitrator, or (ii) if the Company or
David elect to have the arbitration conducted
by a panel of three arbitrators, the one making
the election will bear

 

 

	 	 	 
	

	 	the cost of the
additional arbitrators.
	 
	 	 
	Other Provisions:

	 	Employment will be contingent upon your signing
the Avalon Pharmaceuticals, Inc.
Confidentiality, Assignment of Inventions and
Non-Competition Agreement.

I look forward to having you as part of the team and believe you will play in important role in the
growth of the Company.

	 	 	 	 	 
	

	 	Sincerely,	 	 
	 
	 	 	 	 
	 	 	ON BEHALF OF AVALON PHARMACEUTICALS, INC.:
	 
	 	/s/ Kenneth C. Carter, Ph.D.	 	April 21, 2005
	

	 	 
	 	 
	

	 	Kenneth C. Carter, Ph.D.
	 	Date
	

	 	CEO and President	 	 
	 
	 	 	 	 
	

	 	ACCEPTED:	 	 
	 
	 	/s/ Thomas G. David	 	April 21, 2005
	

	 	 
	 	 
	

	 	Thomas G. David
	 	Date

 

 

Exhibit A

Goals for Tom David

Definitions

     “Affiliated Company” and “Affiliated Companies” means one or both of two companies that are to
be funded by Oxford Biosciences, Inc. (which companies have tentatively been named “Psychiatric
Genomics” and “Cardio Genomics”).

     “Grant Funds” means additional grant, subsidy or other non-equity funds, excluding SBIR
grants, paid on or before September 6, 2001.

     “Grant Proposal” means an SBIR or other grant proposal.

     “Management Decision” means any decision, action or inaction by the Company’s Board of
Directors or its management, exclusive of Tom David.

     “MEDCO License Agreement” means a License Agreement effective December 20, 1999, between the
Company and the Maryland Economic Development Corporation.

     “Moving Date” means the first full business day after the Company vacates its present quarters
at the Shady Grove Life Sciences Center.

     “Research Agreement” means a binding agreement with a pharmaceutical company that the
Company’s management, at time of agreement, anticipates will generate in excess of $10 Million in
research funds milestone payments and other funds to the Company within three (3) years of the
agreement.

	1.  	Obtain payment of Grant Funds for the Company and/or both Affiliated Companies, in any
combination. Total potential award weight: 7.5%, to be awarded in increments of 1.5% for
every $40,000.00 in Grant Funds up to a total amount of $200,000.00.
	 
	2.  	Coordinate and supervise a Grant Proposal. Total potential award weight: 7.5% to be awarded
in two (2) increments of 3.75%, the first due upon submission of one or more competitive
proposals, and the second upon award of a grant to the Company on or before September 6, 2001.
	 
	3.  	Participate in the negotiation and approval process leading to execution of a Research
Agreement. Total potential award weight: 10%, due upon execution of a binding agreement.

 

 

	4.  	Effect a cost-effective and efficient relocation of the Company from its present quarters at
the Shady Grove Life Sciences Center in Montgomery County, Maryland, to new quarters. Total
potential award weight: 30%. Partial credit shall be awarded for having functioning e-mail,
telephone and computer systems in operation on or before close of the seventh calendar day
after the moving date; and partial credit shall also be awarded for taking actions that
prevent the imposition of any obligation on the Company’s part to pay royalties under an
extended MEDCO License Agreement.
	 
	5.  	Manage the Company’s relations with the Affiliated Companies to maximize the economies of
scale and enhance the ability of all three companies to meet their goals. Total potential
award weight: 20%. Partial award will be credited upon David’s making available to all three
companies for joint purchase or use of common services and facilities (including, without
limitation, medical insurance, computer services, communications lines, shared databases and
software).
	 
	6.  	On or before September 6, 2000, establish and operate systems in the following areas:
purchasing, inventory, receiving, investment and cash management, payroll, accounting,
budgeting and human resources. Total award weight: 25%.

     Provided, however, that if any Management Decision adversely impacts David’s fulfillment, in
whole or in part, of any of the foregoing goals, the weight assigned to the affected goal(s) will
be reduced to zero and the weights of the remaining goal(s) will be increased proportionally,
unless no goal is remaining, in which case the goals will be deemed to have been fulfilled.exv10w6

 

Exhibit 10.6

Amended and Restated Employment Agreement

April 21, 2005

Gary Lessing

Dear Gary:

This Amended and Restated Employment Agreement (this “Agreement”), on its Effective Date (as
defined below), amends, restates and supercedes your prior Letter of Employment dated September 28,
2001 between Avalon Pharmaceuticals, Inc. (the “Company”) and you (the “Prior Letter Agreement”).
This Agreement shall be effective and shall supercede the Prior Letter Agreement concurrently with
the effective date of the first registration statement filed by the Company to register shares of
its common stock for sale to the public through one or more underwriters (the “Effective Date”).
Notwithstanding the foregoing, this Agreement shall not become effective, shall be deemed null and
void and shall not supercede the Prior Letter Agreement if (i) the Effective Date does not occur
prior to January 1, 2006 or (ii) your employment is terminated by the Company or by you for any
reason prior to the Effective Date. If this Agreement does not become effective, the Prior Letter
Agreement shall remain in full force and effect in accordance with its terms. The terms of your
employment are as follows:

	 	 	 
	Job Title:

	 	Chief Financial Officer (CFO)
	 
	 	 
	Reporting to:

	 	Kenneth C. Carter, Ph.D., President and CEO
	 
	 	 
	Starting Date:

	 	September 28, 2001
	 
	 	 
	Initial Starting Salary:

	 	$205,000 per annum, subject to adjustment
from time to time at the Company’s
discretion.
	 
	 	 
	Equity:

	 	Subject to the approval of the Compensation
Committee of the Company’s Board of
Directors, the Company will grant you options
for 375,000 shares of Avalon Pharmaceuticals,
Inc. Common Stock under the Company’s Stock
Option Plan. 100,000 of these options will
vest on March 28, 2002. The remaining 275,000
options will vest on a quarterly basis, over
a 42 month period commencing April 1, 2002.
The terms and conditions for any options will
be those in the Company’s Plan, or, except as
noted herein, as set by the Board of
Directors.

 

 

	 	 	 
	Review and Bonus:

	 	You will be eligible for an annual bonus that
may target 35% of your base salary, and shall
be based on goals set by the CEO and Board of
Directors. You will also be eligible for
additional awards and bonuses as deemed
appropriate by the Board of Directors.
	 
	 	 
	Benefits:

	 	The Company provides a comprehensive benefits
program, which includes standard medical and
dental benefits, long, and short-term
disability coverage, a 401(K) plan, and a
flexible benefits plan. These programs will
be provided in accordance with the terms and
conditions set forth in each plan, and are
subject to change at the Company’s
discretion.
	 
	 	 
	Vacation:

	 	Each employee receives two weeks of vacation
per year. You will receive an additional two
weeks of vacation per year, for a total of
four weeks. In addition, the Company will
close the week between Christmas and the
start of New Year. See the Company’s leave
policies for further details.
	 
	 	 
	Termination:

	 	Upon termination for any reason, the Company
shall pay you within two weeks of such
termination, your current base salary earned
through the termination date, plus accrued
vacation, if any, and other benefits or
payments, if any, to which you are entitled.
In the event that you are terminated by the
Company, without “Cause” (as hereinafter
defined), or if you terminate your employment
with the Company for “Good Reason” (as
hereinafter defined), then the Company shall
continue to pay you your base salary in
effect at the time of termination for a
period of one year following such
termination. The Company shall not be
obligated to continue any such payments to
you under this paragraph in the event that
you materially breach the terms under the
Confidentiality Agreement attached hereto.
Notwithstanding any termination of your
employment, you shall continue to be bound by
the provisions of the Confidentiality
Agreement.
	 
	 	 
	

	 	Should the Company be the subject of a Change
of Control, the Company shall immediately
vest all shares and options granted to you
that had not vested as of the date the Change
of Control takes effect.

2

 

	 	 	 
	

	 	For the purposes of this section, “Cause”
shall include (i) your conviction of a
felony, either in connection with the
performance of your obligations to the
Company or otherwise, which adversely affects
your ability to perform such obligations or
materially adversely affects the business
activities, reputation, goodwill or image of
the Company, (ii) your willful disloyalty,
deliberate dishonesty, breach of fiduciary
duty, (iii) your breach of the terms of this
Agreement, or your failure or refusal to
carry out any material tasks assigned to you
by the Company in accordance with the terms
hereof, which breach or failure continues for
a period of more than thirty (30) days after
your receipt of written notice thereof from
the Company, (iv) the commission by you of
any act of fraud, embezzlement or deliberate
disregard of a rule or policy of the Company
known to you or contained in a policy and
procedure manual provided to you which
results in material loss, damage or injury to
the Company, or (v) the material breach by
you of any of the provisions of the
Confidentiality, Assignment of Inventions and
Non-competition Agreement substantially in
the form of Attachment A to this letter.
	 
	 	 
	

	 	Termination of your employment by you shall
constitute termination for Good Reason if
such termination occurs (a) within eighteen
months of a “Change in Control” (as
hereinafter defined), (b) within three months
of a material diminution in your
responsibilities as Chief Financial Officer
(provided that such diminution is not in
connection with the termination of your
employment for Cause), (c) within three
months of your principal work location
changing to be more than 75 miles from your
then current residence, (d) a diminution in
your salary, or (e) failure of the
Compensation Committee of the Board of
Directors to approve the grant of options
described in the equity section herein. That
Company shall notify you, within 10 days of
receipt of your notice of intent to terminate
your employment for Good Reason, if the
Company disagrees with your intent to
terminate under this paragraph.

3

 

	 	 	 
	

	 	A “Change in Control” shall be deemed to have
occurred if either: (i) any “person”
(including, without limitation, any
individual, sole proprietorship, partnership,
trust, corporation, association, joint
venture, or other entity, whether or not
incorporated), or “group” of persons (as such
terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), becomes, after
the date hereof, the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities
of the Company representing fifty percent
(50%) or more of the combined voting power of
the Company’s then outstanding securities;
(ii) during any two (2) year period,
individuals who constitute the Board of
Directors at the beginning of such period,
together with any new directors elected or
appointed during the period whose election or
appointment resulted from a vacancy on the
Board of Directors caused by the retirement,
death, or disability of a director and whose
election or appointment was approved by a
vote of at least a majority of the directors
then still in office who were directors at
the beginning of the period, cease for any
reason to constitute a majority of the Board
of Directors; (iii) the Company sells,
assigns, conveys, transfers, leases or
otherwise disposes of all or substantially
all of its assets to any person; (iv) the
Company consolidates with, or merges with or
into another entity, or any entity
consolidates with, or merges with or into,
the Company (a “Merger”), in which the owners
of outstanding voting stock of the Company
immediately prior to such Merger do not
represent at least a majority of the voting
power in the surviving entity after the
Merger; or (v) the stockholders of the
Company approve a plan of liquidation or
dissolution.
	 
	 	 
	Conflict:

	 	You hereby acknowledge that you are not a
party to any agreement that in any way
prohibits or imposes any restrictions on your
employment with the Company, and your
acceptance hereof will not breach any
agreements to which you are a party.
	 
	 	 
	Moving Assistance:

	 	If you were to move to the Washington DC area
within

4

 

	 	 	 
	

	 	one year of your starting date, the
Company will pay for your moving expenses for
your family and possessions excluding Real
Estate & Settlement Expenses. You may obtain
a minimum of two written bids from reputable
movers and submit the same to the Company, or
use a moving company chosen by the Company.
	 
	 	 
	Real Estate Settlement

Expenses:

	 	The Company will pay for ordinary seller
settlement costs on the sale of your current
residence excluding any buyer assistance
incentives such as points or origination fees
on the purchaser’s behalf. The Company will
pay for ordinary buyer settlement costs on
the purchase of your new residence here,
including not more than two discount points
or origination fees.
	 
	 	 
	Employment Requirements

And Period:

	 	If you accept this position, you will be an
employee at will, meaning you are not
obligated to remain employed at the Company
for any specific period of time. Likewise,
the Company is not obligation to employ you
for any specific period.
	 
	 	 
	Other Provisions:

	 	Employment will be contingent upon your
signing the Avalon Pharmaceuticals, Inc.
Confidentiality, Assignment of Inventions and
Non-Competition Agreement. You also agree to
be bound by all personnel policies that may
be adopted from time to time.

I look forward to having you as part of the team and believe you will play an important role in the
growth of the Company.

Sincerely,

ON BEHALF OF AVALON PHARMACEUTICALS, INC.:

	 	 	 
	/s/ Kenneth C. Carter, Ph.D.

	 	April 21, 2005
	 

	 	 
	Kenneth C. Carter, Ph.D.

	 	Date
	President & CEO
	 	 

5

 

	 	 	 
	ACCEPTED:
	 	 
	/s/
Gary Lessing
	 	April 21, 2005
	 

	 	 
	Gary Lessing

	 	Date

6

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